Section 127 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A surety usually gets nothing directly from giving a guarantee. Section 127 answers the question "then where is the consideration?" It says that anything done, or any promise made, for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee. If you are drafting a guarantee that must stand up as a contract, our agreement drafting service can help you record the consideration clearly.
Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee. The surety need not receive anything himself. The Act's illustrations: delivering goods on credit because of the guarantee is sufficient; forbearing to sue for a year at the surety's request is sufficient; but a promise to pay made afterwards, without consideration, is void.
The text
"Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee."
Four points on the wording:
- "Anything done, or any promise made." Either an act or a promise can do. The Act uses both in its illustrations.
- "For the benefit of the principal debtor." The benefit goes to the principal debtor, the third person whose default the guarantee covers. The section says nothing of a benefit to the surety.
- "May be." The section says "may be a sufficient consideration", not "is". Whether something in fact qualifies depends on the facts, and the illustrations show cases.
- "To the surety for giving the guarantee." The consideration is what supports the surety's promise to the creditor. Roles are defined in section 126; see section 126.
For the general definition of consideration (including past, present and future consideration), see our article on section 2(d). Section 127 does not repeat that definition; it says what may count in the case of a guarantee.
The Act's illustrations
| Illustration | Facts | Result |
|---|---|---|
| (a) | B asks A to sell and deliver goods to him on credit. A agrees, provided C guarantees payment of the price. C promises to guarantee payment in consideration of A's promise to deliver the goods. | This is a sufficient consideration for C's promise. |
| (b) | A sells and delivers goods to B. C afterwards asks A to forbear to sue B for the debt for a year, and promises that, if he does so, C will pay in default of payment by B. A agrees to forbear. | This is a sufficient consideration for C's promise. |
| (c) | A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for them in default of B. | The agreement is void. |
Reading the three together
- In (a), the creditor's promise to deliver goods to the principal debtor is the consideration. The benefit goes to B, the principal debtor, who gets the goods on credit.
- In (b), the creditor's forbearance to sue at the surety's request is the consideration. The benefit goes to B in the form of time.
- In (c), the sale and delivery was already complete. The surety's promise came afterwards without consideration, so the agreement is void.
The contrast between (b) and (c) is worth noting. In both, the goods had already been sold and delivered. In (b), something new was given at the surety's request (forbearance for a year). In (c), nothing was given for the surety's promise.
A modern example (ours)
Vandana's company, Wave Textiles, wants to buy yarn worth Rs. 8 lakh on 60 days' credit from Yash Yarns. Yash agrees to supply on credit only if Vandana's husband, Zubin, guarantees payment. Zubin signs a guarantee in return for Yash's promise to deliver the yarn. Following the Act's illustration (a), Yash's promise to deliver is sufficient consideration for Zubin's guarantee. If Zubin had instead signed a letter six months after the yarn was delivered and paid for nothing, with Yash giving nothing new in return, the Act's illustration (c) suggests the promise would be void for want of consideration.
What can the parties change?
Section 127 has no "contrary intention" proviso. The parties' choices lie in the facts: what the creditor does or promises at the surety's request. A guarantee that recites the creditor's promise to supply goods, extend credit, forbear from suing or make a loan, and that is signed at the same time, gives a clear record of consideration. The section does not say that the consideration must be written down, and it does not say that the guarantee must be in the same document as the main contract.
Practical points
- Record the consideration in the guarantee: for example, "in consideration of the creditor granting the facility to the principal debtor".
- Sign the guarantee before or at the time the creditor acts on it. Illustration (c) shows the risk of a later promise with nothing given in return.
- If you ask the creditor to forbear, record the request and the period in writing, as in illustration (b).
- Do not assume the surety must benefit personally. The section speaks of benefit to the principal debtor.
- Keep the underlying contract on file. The guarantee is read with it.
- For the next question, how far the surety is liable, see section 128.
Need help documenting a guarantee properly?
A guarantee that lacks consideration can fail when you need it most, and one that has it recorded clearly is easier to rely on. Our agreement drafting team can draft the guarantee, the recitals and the linked facility letter so that the consideration is clear. Send the main contract and the proposed surety's details.
Key takeaways
- Anything done, or any promise made, for the benefit of the principal debtor may be sufficient consideration to the surety (s.127).
- The surety need not receive any benefit himself.
- The Act's illustrations: delivering goods on credit, and forbearing to sue for a year at the surety's request, are sufficient; a later promise without consideration is void.
- Record the consideration and sign at the time the creditor acts.
Read next
- Section 126: contract of guarantee, surety, principal debtor and creditor
- Section 128: surety's liability is co-extensive with principal debtor
- Section 2(d): consideration definition
Disclaimer: Based on the text of the Indian Contract Act, 1872 as consulted on 1 October 2026. Many questions under this Act turn on case law and on the wording of the particular contract, which this article does not cover. It is general information, not legal advice; check the official text and take advice before acting.