Guarantor's rights against borrower

As per the Indian contract Act, 1872, a "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default.  Hence in the given circumstance you are the surety for your nephew, who is the principal debtor.

Please note that you are supposed to settle with the bank, only when the principal debtor defaults in his payment and bank invokes the provisions of the contract of guarantee and instructs you to make payment.

According to the section 140 of the contract act, if you make payment of the debt upon the same becoming due or upon your nephew defaulting the payment, then as and when you make payment to the creditor on behalf of your nephew, you will be subrogated to the position of the Creditor and thereafter you will be vested with all the rights which the creditor formerly had against your nephew.

In simple words you can sue your nephew for recovery of the money which you propose to pay to the Bank. The bank would have financed your nephew on the basis of some underlying securities. Before making payment, you should ascertain it from the bank. If you make payment, you are entitled to the benefit of every such security.

Hope the same is clarificatory

Regards

Harikrishnan

Thanks for the detailed reply. 

The problem is that my nephew doesn't have any assets in his name. What can a court do in that case ?

1. In such instances his failure to repay will earn him sentence in judicial custody for a recprocative tenure. This the court can order.

Thanks Rohitji but can you please explain it in layman's terms :( 

Rohit Ji, does it mean that if the borrower doesn't pay me the money, the court will send him to jail ? 

In which court can I file the case ? FYI, I am currently fighting the case in "The Board of Nominees".