"Akshay" wants to take a loan of ₹ 10,000 from "Bharat", but "Bharat" does not know "Akshay" very well and fears that "Akshay" may not return the money. "Chandar" is a good friend of "Akshay". "Chandar" tells "Bharat" th

Yes, he can. The contract, described above is called a Contract of Guarantee. This contract involves three persons. Under the above illustration, "Akshay" is the Principal Debtor, "Bharat" is the Creditor. "Chandar" is the Surety. Therefore, in the above scenario, "Chandar" shall pay to "Bharat" ₹ 10,000/-. However, it is important to note that the contract does not end here. "Bharat" can, after he has paid the amount to "Chandar", claim the same amount from "Akshay". This is the unique feature of a Contract of Guarantee. There are actually two separate agreements each between two of the parties. The first is an express contract between the person standing guarantee (surety) and the person to whom the guarantee is made (creditor). The second agreement is between the person who is being guaranteed (principal debtor) and the surety and this is an implied contract. The essence of guarantee is that a guarantor agrees to discharge his liability in the happening of one event, i.e., when the principal debtors fails in his duty. The surety should undertake to perform the promise or discharge the liability of a third person in case of his default. A contract of guarantee must be supported by consideration and consideration between the creditor and principal debtor is a valid and good consideration for the guarantee given by the surety. Injunction against encashment of bank guarantee without establishing fraud or irretrievable injustice not granted (Dodsal Ltd. Vs. Krishak Bharati Co-operative Ltd.). An unconditional irrevocable bank guarantee provides, inter alia, for encashment on demand without demur.