• Creating burden in unsecured property

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.
Asked 1 year ago in Civil Law from Ahmedabad, Gujarat
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 
Ajay Sethi
Advocate, Mumbai
24848 Answers
1337 Consultations
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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.
T Kalaiselvan
Advocate, Vellore
15343 Answers
141 Consultations
5.0 on 5.0
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.
Pradeep Bharathipura
Advocate, Bangalore
4161 Answers
141 Consultations
4.3 on 5.0
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. 
Ashish Davessar
Advocate, Jaipur
18884 Answers
474 Consultations
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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.
B.T. Ravi
Advocate, Bangalore
742 Answers
32 Consultations
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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 
Ajay Sethi
Advocate, Mumbai
24848 Answers
1337 Consultations
5.0 on 5.0
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.
Ashish Davessar
Advocate, Jaipur
18884 Answers
474 Consultations
5.0 on 5.0
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.
Nadeem Qureshi
Advocate, New Delhi
3646 Answers
138 Consultations
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