Loan Agreement with Surety Without Security - India Format

A practical sample agreement for an unsecured private loan supported by one or more sureties. It covers the loan amount, interest, repayment, default, guarantee obligations and execution requirements under Indian contract law.

Legal basis: A guarantee is principally governed by Sections 126 to 147 of the Indian Contract Act, 1872. Section 126 defines a contract of guarantee and the roles of surety, principal debtor and creditor; Section 127 deals with consideration for the guarantee; and Section 128 provides that the surety's liability is co-extensive with that of the principal debtor unless the contract provides otherwise.

An unsecured loan does not create a charge, mortgage, pledge or hypothecation over specific property. The lender therefore relies primarily on the borrower's contractual promise to repay and, where included, the surety's guarantee. The agreement should clearly record the amount advanced, mode of disbursement, interest rate, repayment schedule, events of default, consequences of default and the exact scope of the surety's liability.

For enforceability and evidence, parties should ordinarily execute a written agreement and retain proof of disbursement and repayment. Witnessing is advisable, but the Indian Contract Act does not make two witnesses a universal condition for the validity of every guarantee. Applicable stamp duty, registration requirements and money-lending restrictions can vary according to the State or Union Territory and the facts of the transaction.

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Updated sample loan agreement
Legal position of the surety
Stamp duty and registration
Official legal sources

Sample Loan Agreement with Surety and Without Security

Before use: Fill in every blank, remove inapplicable clauses, verify the applicable stamp duty in the State/UT of execution, and obtain legal advice where the loan is substantial, commercial, regulated, recurring or connected with a money-lending business.

LOAN AGREEMENT WITH SURETY

This Loan Agreement is executed at ____________________ on this _____ day of __________, 20_____.

BETWEEN

1. Borrower / Principal Debtor:
Mr./Ms. ______________________________, son/daughter/spouse of ______________________________, aged about _____ years, residing at ________________________________________________, hereinafter referred to as the "Borrower" or "Principal Debtor".

2. Surety / Guarantor:
Mr./Ms. ______________________________, son/daughter/spouse of ______________________________, aged about _____ years, residing at ________________________________________________, hereinafter referred to as the "Surety" or "Guarantor".

3. Lender / Creditor:
Mr./Ms. ______________________________, son/daughter/spouse of ______________________________, aged about _____ years, residing at ________________________________________________, hereinafter referred to as the "Lender" or "Creditor".

The expressions Borrower, Surety and Lender shall, unless repugnant to the context, include their respective legal heirs, representatives, successors and permitted assigns.

Recitals

A. The Borrower has requested the Lender to advance an unsecured loan of ₹____________ (Rupees __________________________________ only).

B. The Lender has agreed to advance the said loan on the terms recorded below and on the strength of the guarantee furnished by the Surety.

C. The Surety has agreed to guarantee the due repayment and performance of the Borrower's obligations under this Agreement.

Terms and Conditions

1. Loan and disbursement. The Lender shall advance / has advanced to the Borrower a sum of ₹____________ by ______________________________ on ____________. The Borrower acknowledges receipt of the amount to the extent actually disbursed.

2. Purpose. The Borrower shall use the loan for ________________________________________________ and shall not use it for any unlawful purpose.

3. Interest. The outstanding principal shall carry interest at _____% per annum, calculated on __________________ basis. Any change in the agreed interest rate must be recorded in writing and accepted by the Borrower and, where it may affect the guarantee, by the Surety.

4. Repayment. The Borrower shall repay the loan in _____ instalments of ₹____________ each, payable on or before ______________________________, with the final payment due on ____________. Payments shall be made by bank transfer, cheque or another traceable mode agreed by the parties.

5. Prepayment. The Borrower may prepay all or part of the outstanding amount on ____________ days' written notice. Prepayment charges, if any, shall be: ________________________________________________.

6. Events of default. An event of default occurs if the Borrower fails to pay any amount when due, breaches a material term of this Agreement, provides materially false information in connection with the loan, becomes insolvent, or expressly repudiates the repayment obligation.

7. Consequences of default. Upon default and subject to applicable law, the Lender may issue a written demand and declare the unpaid principal, accrued interest and contractually recoverable charges immediately due and payable.

8. Guarantee. In consideration of the Lender granting the loan to the Borrower, the Surety irrevocably guarantees payment of the amounts lawfully due from the Borrower under this Agreement. Unless expressly limited below, the Surety's liability shall be co-extensive with that of the Borrower in accordance with Section 128 of the Indian Contract Act, 1872.

9. Limit of guarantee, if any. The maximum liability of the Surety under this Agreement shall be ₹____________ / shall not be separately limited, subject always to applicable law and the express terms of this Agreement.

10. Material variation. No material alteration of the loan terms that may affect the Surety's legal liability shall be made without obtaining such consent from the Surety as is required by applicable law.

11. No security over property. This Agreement is an unsecured loan arrangement. Nothing in this Agreement by itself creates a mortgage, charge, pledge, lien or hypothecation over any specific movable or immovable property.

12. Notices. Any demand or notice shall be sent to the addresses stated above, or to any updated address communicated in writing, by a mode that provides reasonable proof of dispatch or delivery.

13. Costs. Stamp duty and other execution expenses shall be borne by ______________________________. Recovery costs shall be payable only to the extent permitted by law and this Agreement.

14. Governing law and jurisdiction. This Agreement shall be governed by the laws of India. Subject to applicable rules on territorial and pecuniary jurisdiction, courts at ______________________________ shall have jurisdiction.

15. Entire agreement and amendments. This document records the parties' agreement concerning the loan. Any amendment shall be in writing and signed by the affected parties.

16. Severability. If any provision is held unenforceable, the remaining provisions shall continue to operate to the extent permitted by law.

IN WITNESS WHEREOF, the parties have signed this Agreement on the date and place stated above after reading and understanding its contents.

BORROWER / PRINCIPAL DEBTOR
Name: ____________________
Signature: _________________

SURETY / GUARANTOR
Name: ____________________
Signature: _________________

LENDER / CREDITOR
Name: ____________________
Signature: _________________

WITNESS 1
Name & Address: ___________
Signature: _________________

WITNESS 2
Name & Address: ___________
Signature: _________________

Legal Position of a Surety under the Indian Contract Act, 1872

Section 126 - Contract of guarantee

Section 126 identifies a guarantee as a contract relating to performance of the promise or discharge of the liability of another person in case of default. The person giving the guarantee is the surety, the person whose default is guaranteed is the principal debtor, and the person receiving the guarantee is the creditor. A guarantee may be oral or written, although a written instrument is generally preferable for proof and clarity.

Section 127 - Consideration for guarantee

Under Section 127, something done or a promise made for the benefit of the principal debtor may constitute sufficient consideration for the surety's promise.

Section 128 - Extent of surety's liability

Section 128 provides that the surety's liability is co-extensive with that of the principal debtor unless the contract provides otherwise. Parties may therefore define an express monetary cap or other lawful limitation on the guarantee.

Other provisions in the guarantee chapter are also important. Depending on the facts, material variation of the principal contract, release or discharge of the principal debtor, certain arrangements giving time, or conduct impairing the surety's eventual remedy may affect the surety's liability. For this reason, material changes to the loan terms should be documented carefully and the Surety's consent should be obtained where legally necessary.

Stamp Duty, Registration and Execution

A loan agreement is an instrument that may attract stamp duty. The applicable rate and method of payment can differ because State amendments and local stamp laws may apply. Parties should verify the rate in the State or Union Territory where the instrument is executed or becomes chargeable.

A simple unsecured loan agreement that does not itself create or transfer an interest in immovable property is generally different from a mortgage or other instrument that affects immovable property. Whether registration is compulsory depends on the substance of the document and the applicable provisions of the Registration Act, 1908 and State amendments. If the transaction creates rights in immovable property or includes another registrable instrument, professional advice should be obtained before execution.

Official Legal Sources

Indian Contract Act, 1872 - see Chapter VIII on indemnity and guarantee, including Sections 126-147.
India Code - Indian Contract Act, 1872
Indian Stamp Act, 1899 - central framework concerning instruments chargeable with stamp duty, subject to State amendments and State stamp laws.
India Code - Indian Stamp Act, 1899
Registration Act, 1908 - relevant where a document is of a class for which registration is compulsory or optional.
India Code - Registration Act, 1908

Important: This is a general legal format for information and drafting assistance. The correct stamp duty, enforceability of interest or default charges, money-lending licensing requirements, limitation issues and registration obligations depend on the transaction and applicable State/UT law.