• Bank acted unfairly colluding with principal debtor

Dear sir/madam,

i stood as guarantor to one of my friends business loan Rs.10 lakhs. i gave surety in 2010.suddenly in 2014, September i received a letter stating that the loan became NPA and you should pay the amount as you stood guarantee. i rushed to bank and i verified the statement of loan account etc. with Bank. i found the following lapses in it.
1. the credit facility was renewed every year without my knowledge.
2.it seems it was doing good till 22.01.2014. Further i noticed that third person was allowed by bank and principal borrower to operate the a/c.
3.According to statement of account on 22.01.2014 bank discounted a cheque for Rs.3 lakhs and outstanding amount became Rs.13 lakhs. third person drew Rs.3lakhs.
4.i noticed that Bank authorities did not presented Discounted cheque for realisation immediately kept with them nearly for 25 days.
5. on 15.02.2014 Principal borrower got Rs 13.50 lakhs in his loan a/c. Bank allowed him to draw total amount.
6. Next day Bank showing the discounted cheque as bounced.
i am saying that bank shall inform me regarding renewals and further they are colluded with Principal borrower and made fraud by not presenting the cheque for realisation. i sent a notice but they not replying instead threatening.

Kindly advise me in this matter as i am a small government employee. Bank is threatening me saying we will complain and will loose your job.
thanking you,
Asked 7 years ago in Civil Law

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5 Answers

1) the liability of principal debtor is co extensive with that of guarantor

2) if principal debtor fails to pay bank can proceed against you or both jointly to recover loan amount

3) kindly peruse the guarantee agreement signed by you with the bank

4) there must be clause that you would be liable even if credit limit is renewed

5) cheque can be presented for payment within its validity period ie 3 months

Ajay Sethi
Advocate, Mumbai
95215 Answers
7611 Consultations

5.0 on 5.0

I regret to inform that the discrepancy you have mentioned will not come in saving you from making the payments.

The liability of the guarantor to make the payment of the loan amount is co-extensive with the principal borrower and the creditor is at will to ask for payment from either the borrower or the guarantor.

However if you are forced to make the payments then you can intiate appropriate legal proceedings to recover the said amount from the borrower.

Hence negotiate with the bank and settle amicably.

Devajyoti Barman
Advocate, Kolkata
22920 Answers
498 Consultations

5.0 on 5.0

1. Have you received copy of the demand notice sent to you u/s 13(2) of SARFAESI Act,2002?

2. If yes, then wait for the Bank to issue you copy of the possession notice and within 45 days from the date of receipt of the possession notice to be sent u/s13(4) of the Act, you shall have to file a SARFAISI Application (S.A.) u/s17 of the Act before your local Debt Recovery Tribunal praying for setting aside the entire SRFAESI proceeding initiated by the Bank for the reasons mentioned by you.

3. If you fail to get hustice from the DRT, approach DRAT by filing an application praying for setting aside the adverse order passed by the DRT and for filing the said application u/s18 of the act

4. Alternatively, you can file a Writ Petition before the high court with the same prayer.

Krishna Kishore Ganguly
Advocate, Kolkata
27245 Answers
726 Consultations

5.0 on 5.0

1. Under section 128 of the act the liability of the surety (guarantor) is described as co-extensive with that of the principal debtor i .e the surety becomes liable to pay the default amount made by the principal debtor. His liability is immediate.

2. Ordinarily, there is a provision in the agreement that the renewal of the credit limit shall not affect the liability of the guarantor.

3. Once you receive the possession notice from the bank then you can challenge the proceedings before DRT on the ground that it is vitiated by fraud, but the DRT does not grant a stay unless a substantial part of the amount is deposited.

Ashish Davessar
Advocate, Jaipur
30763 Answers
972 Consultations

5.0 on 5.0

The lender bank has to first exhaust the remedies available before it to recover the outstanding amount from the borrower.

Further the guarantor is held liable to the extent of loan amount granted and not for continuous loan to any extent that the bank may grant to the borrower without the knowledge of the guarantor.

It is not very easy to wriggle out of your role as a guarantor in case the original borrower defaults. Nevertheless, you can still come out of the situation with your credit record intact.

You have been magnanimous and become a guarantor of the loan that a friend or a close relative has taken, but after a while you decide that it has not been your wisest move and you want to opt out.

When you decide to opt out, you will have to approach the lender directly with an application. Unfortunately the discretion is solely dependent on the lender whether or not it will let you go. The bad news is that, in the face of rising bad loans that is crippling the banking industry, the lender may not be willing to relieve you

In the present case the lender is reported to have colluded with the borrower hence you may not get proper justice.

If you find that the borrower has taken an additional loan over the original amount that has been sanctioned without your consent, you may ask the bank to relieve you. However, you will still be liable to repay the outstanding on the original amount sanctioned.

It's tough to say no to people who may matter to you, but you cannot possibly put your financial future in jeopardy.

If you have been a guarantor for someone's loan, it's obvious that you know her/him very well. Try to make her/him see reason and help her/him out as much as you can to repay your debt. If it means seeking the help of other close relatives or friends, do so at the earliest.

If you have granted the bank a hold over some of your tangible assets when you were guaranteeing someone else's loan, the bank will auction the same to recover the outstanding. However if these assets are in the real estate space and are either under mortgage or is an under construction property, you can fight your case saying that it has not been fully paid for.

T Kalaiselvan
Advocate, Vellore
85416 Answers
2239 Consultations

5.0 on 5.0

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