With reference to the above I hereby inform you that I am a guarantor in a hypothecation loan of my nephew. The loan was given by a Co-operative Bank of Gujarat. I did not give any of my properties as security. After few years my nephew defaulted and due to negligence of the bank he managed to sell off his stock as well as machinery. He too had not given any property as security. As of today he doesn't have any property on his name and hence the bank is pressurising me to repay the same. The case is going on in court of Board of Nominees but the bank is trying to create burden in two of my properties. One is in my name while another is in name of my HUF. Can the bank create burden in my property without court's order ? Please help.
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1) the liability of principal debtor is co extensive with that of guarantor
2) bank can proceed against principal debtor and guarantor for recovery of loan amount with interest
3) bank can obtain injunction restraining you from selling your properties
4) it would need a court order
The bank can approach court against the borrower and the the guarantor for recovery of loan amount with interest.
The bank may also obtain injunction against you over the properties in your name or even can file a petition for attachment of properties before judgment or may obtain order to furnish securities till disposal of the money recovery case.
Whatever action the bank intends to initiate shall be by due process of law alone and not by its own.
Hi, as per law you being the guarantor for the loan transaction so if the principal borrowed has failed to pay the amount then it is your duty to pay the amount and recover the same from the principal borrower.
2. So you being the Guarantor of the property you are also liable to pay the amount for the property is concerned the bank has power to attach the property belonging to borrower and sell the same for recovery of the amount.
The liability of a guarantor is co-extensive with that of the borrower. If the borrower is unable to repay the loan the bank is at liberty to proceed against the guarantor. The bank can file a lawsuit for recovery of money against you in the court. Your property can be attached and sold by the bank if the court passes an order and you fail to obey the court order, but you will be given an opportunity to contest the rival claim. No burden can be created in the property which is not secured.
A.The guarantee should be checked to ensure it has been duly executed by the Personal Guarantor and if, as is usual, it is in the form of a deed, that this was done in the presence of a witness who attests the signature of the Personal Guarantor. Hence, you need to check is there any guaranter agreement was executed? if yes, what was the terms and condtions mentioned in that agreement is so arcane?
B.The guarantor of a loan is liable if the debtor fails to clear it, the Supreme Court has ruled, while maintaining that financial institutions too cannot act like property dealers in recovering debts.A Bench of Justices B.S. Chauhan and Dipak Misra also said the guarantor cannot insist that the creditor must first exhaust all remedies against the principal debtor before recovering the debts from surety holders.
C.The apex court said the financial institutions cannot be allowed to act like property dealers to recover their loans.“Undoubtedly, public money should be recovered and recovery should be made expeditiously. But it does not mean that the financial institutions which are concerned only with the recovery of their loans, may be permitted to behave like property dealers and be permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statutory provisions.(Source: The Hindu NEW DELHI, May 30, 2012)
D. However, “ the creditor has a right to obtain a decree against the surety and the principal debtor.
Thanks for the prompt answers. The case is going on since 2004 and hence I am aware about my liabilities. I request for further clarification. Please note the current conditions: 1) The lender got X Party judgement against us but then we got it restored so I believe the matter is sub judice. 2) I did not give any of my property towards my guarantee. Hence both my property are unsecured. 3) Court has neither given final judgement nor any interim attachment orders / injunction against me or any of my properties. 4) One property is in my name. Another is in name of my HUF which consists of me, my wife and my son. Now my questions: a) The bank is trying to create burden in my properties showing the court order that is already restored. Can this be considered Contempt of Court as they are knowingly showing false / ineffective documents ? b) Can the bank create burden in any of my property without having any decree or injunction against it ? c) Say if at a later stage they get a decree against me, how would they proceed in my HUF property where I am 1/3rd owner ? Thanks in advance.
1) it is not contempt of court as there is no willful disobedience of court orders
2) bank has to obtain court orders to restrain you from selling property
3) if bank obtain decree against you then in execution they can sell your share in property
1. There is no contempt of court as no order passed by the court has been violated. You should seek injunction from the court against the bank to restrain it from proceeding against your unsecured properties.
2. No charge can be created unless there is a court order to this effect.
3. Your share in the undivided HUF property can be attached and then sold at a throwaway price if you fail to comply with the decree.
A bench of justices BS Chauhan and Dipak Misra also said the guarantor cannot insist that the creditor must first exhaust all remedies against the principal debtor before recovering the debts from the surety holders.
"There can be no dispute to the settled legal proposition that in view of the provisions of Section 128 of the Indian Contract Act, 1872, the liability of the guarantor / surety is co-extensive with that of the debtor.
"Therefore, the creditor has a right to obtain a decree against the surety and the principal debtor.
"The surety has no right to restrain execution of the decree against him until the creditor has exhausted his remedy against the principal debtor for the reason that it is the business of the surety/ guarantor to see whether the principal debtor has paid or not," said Justice Chauhan, writing the judgement for the bench.
The apex court gave the ruling on an appeal by one Ganga Kishun, who had stood as a guarantor to a bank loan, raised by one Ganga Prasad, who had died without clearing it. Ganga Kishun had come to the apex court against the Uttar Pradesh government's decision to recover the loan arrears from him after the death of principal debtor Ganga Prasad.
