Section 126 of the Indian Contract Act of 1872 defines a contract of guarantee: “a contract to perform the promise, or discharge the liability, of a third person in case of his default.” Section 128 adds: “The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.”
Banks “have the right to recover the default amount from borrower and/or the guarantor,” Business Standard explained to its readers. “Being a guarantor is as good as taking a loan yourself, in terms of credit exposure.”