Indian Contract Act Section 135 — Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor

CHAPTER VIII OF INDEMNITY AND GUARANTEE

Commercial / Corporate

Summary

If the creditor and the principal debtor make a new contract where the creditor agrees to accept a composition (a settlement for less than what is owed), gives the debtor more time to pay, or promises not to sue the debtor, the surety is released from their obligation. This happens automatically, unless the surety agrees to that new contract.

Official Text

A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.