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Liability of guarantor (Civil Law)

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This query is : Resolved


Author : R.Manivasagan

Posted On 19 July 2013 at 20:38

One X borrowed amount from Bank and the Y stood as a guarantor to the Loan borrowed by the X. Y is not a party to the on-demand promissory note executed by the X. Y is not the beneficiary of the Loan. now the Bank filed the suit against the X and Y. The X became exparte in the suit. Any other latest citations with regard to the liability of Guarantor the Y from repaying the loan. The Y should be set free from the liability. please refer the latest position of law. please




Expert : Adv Archana

Posted On 19 July 2013 at 21:04

If Y has signed as a guarantor then he is liable to repay the loan.



Author : R.Manivasagan

Posted On 19 July 2013 at 21:26

@ Adv Archana. Madam, some of the advocates said that there is one citation is there, that the creditor should proceed against the principal debtor and in default by him only, can proceed against the guarantor.



Expert : Adv Archana

Posted On 19 July 2013 at 21:33

The liability of the guarantor is coextensive with that of the borrower as per my knowledge and view. If you know any such citation to the contrary then do share.



Expert : Adv Archana

Posted On 19 July 2013 at 22:50

I am of the firm view that both are equally liable but as the querist said about some 'citation', so I asked him to post it for the knowledge of others.



Expert : Sudhir Kumar

Posted On 20 July 2013 at 06:00

agree with expert Archana. It is the guarantor who had induced the bank to give loan to unsound party.



Expert : malipeddi jaggarao

Posted On 20 July 2013 at 08:33

I would like to add more to Expert Archana's views.
The liability of the guarantor is co-extensive with that of the principal debtor.
The consideration for the guarantor is consideration of the principal debtor. No separate consideration is required for the guarantor directly.
The creditor is free to take legal recourse either jointly or singly even against the guarantor leaving the principal debtor if the creditor feels that the recourse against the principal debtor will not yield the result.
Why Y should be set free? He has guaranteed the loan of X. If he is set free what is the purpose of obtaining/giving guarantee?

I am also eager to know if any citation is brought into light by anybody contrary to my above views.



Expert : prabhakar singh

Posted On 20 July 2013 at 10:22

Rightly advised by Adv Archana and Mr. malipeddi jaggarao.

One can clear with Indian Contract Act 1872.
Clear doubts you have going through provisions contained in chapter"VIII
Indemnity and Guarantee" and go especially through section 128 to understand law in this regard as creditor is at liberty to proceed against both or against any of them,the debtor or surety. Right of surety against debtor begins only when he has paid or performed towards creditor(see section 140).

There should not be ruling (against a crystal clear law )of the kind spoken and if it is there it can not survive for long
even in jurisdiction it has been decided.



Expert : ADVOCATE DEFENSE.

Posted On 20 July 2013 at 12:05

This is the basic law which every body will tell you.

I will give you a contrary view.

1) But first of all what happened to the borrower X and what he / she did of the loan.

2) When and how much amount was disbursed and what the borrower did for that money.

There will many legal defense from answers .

Till than read the agreements minutely. Banks and their advocates in arrogance and over confidence make many many and many mistakes.

1) The agreements may have not signed on all the pages by all parties.

2) There is no record that a copy of the completed agreement was supplied to all the parties thereto.

3) No proper notice was given to the borrower prior to filing of the case.

4) The bank parted with the securities that is the assets created from the loan by the principal borrower and hence Y is absolved from the liability.

5) There was no CONSENSUS AD IDEM that is the terms of the agreementS BETWEEN the parties and hence it can not be legally enforced.

THE AGREEMENTS EVEN TO DAY WILL BE BLANK AT MANY PLACES STUDY PROPERLY FROM COURT RECORDS.

6) The terms in the alleged contract were ONE SIDED and impossible to perform and can not be enforced.

7) The person who issued the notice or filed the case did not have proper LEGAL authority to do so.

THERE WILL BE MANY SUCH LEGAL AND VALID DEFENSES IF YOU CONTEST PROPERLY.



Expert : prabhakar singh

Posted On 20 July 2013 at 12:21

It was his query that was answered.

He did not ask how to defend a surety contract.

All is there in chapter VIII of the Act.



Expert : ADVOCATE DEFENSE.

Posted On 20 July 2013 at 12:24

SEE WHAT HE IS ASKING-

Any other latest citations with regard to the liability of Guarantor the Y from repaying the loan.

The Y should be set free from the liability.



Expert : ADVOCATE DEFENSE.

Posted On 20 July 2013 at 12:29

Improper authority, blank documents in the court and many such issues have to be found out by defense so that main issue is put on side lines.



Expert : ajay sethi

Posted On 20 July 2013 at 12:50

anyhow bank can proceed against the guarantor . agree with experts



Expert : prabhakar singh

Posted On 20 July 2013 at 12:58

Want of free consent ,lacunae of procedure in preparation of agreement and law laid in chapter VIII of the Contract Act are the possible defences available to surety.



Expert : Rajendra K Goyal

Posted On 20 July 2013 at 14:06

The defense suggested by the Advocate Defense are practical. Out of a no. of documents executed by the guarantor(Bank set of documents), it is doubted the guarantor would free from the liability.



Expert : ADVOCATE DEFENSE.

Posted On 20 July 2013 at 18:13

You go in any court or legal forum and you will find glaring lapses in filing the cases by banks / FIIs.Just because the legal documents are framed by their HO and local person has no expertise to even properly read them and execute them.

Then the banks engage high profile advocates who in turn pass on the job to fresh juniors who just copy paste from earlier records so mistakes creep in.

Only thing is that the defendant in guilt complex and by not having proper legal assistance suffers.




Expert : Rajendra K Goyal

Posted On 20 July 2013 at 19:51

Expert Defense Advocate sir,
Your advise is perfect but negligible cases are decided against Banks.



Expert : malipeddi jaggarao

Posted On 21 July 2013 at 08:49

The expert Advocate Defence's comments based on assumptions that banks would commit errors. If the assumptions are real, yes you defence. Why the guarantor to be set free? If he has guaranteed the liability and the law will take its course. Defending a specific case is different. We can find out many lacunae in specific cases. But in many cases this type of defenses are ignored by the judges as they personally feel that the bank's money is public money and should protect the banks unless otherwise proved.



Expert : Adv Archana

Posted On 21 July 2013 at 09:34

I fully agree with the above view of malipeddi jaggarao, that defending a specific case is a different thing and also that concept of 'bank's money is public money' is so strong in the mind of a judge that practically rare cases are decided against the bank and the stringent rules of evidence and defences creeping out of them which are otherwise accepted, are generally ignored by the judges in bank's money recovery suits, bcoz of their view that 'public money should be protected'. So actually only few cases are decided against the banks depending upon particular circumstances where there are very serious lapses on the part of the bank.



Expert : prabhakar singh

Posted On 21 July 2013 at 10:17

Judges have a right bearing in their mind that all has gone for consideration passed by bank as debt so there must not be any scope of flee on the part of debtor or surety.

In individual lending cases passing of consideration is some time found very doubtful which can never be in bank lending cases.



Expert : ADVOCATE DEFENSE.

Posted On 21 July 2013 at 10:44

All these comments are good in theory, what happens practically. Just see the history of law making.

1) Laws in favor of lender were working alright since BRITISH days that enterprising borrowers started finding faults in cases and many co op banks failed.

Than Govt drastically amended law and took out co op sector from civil courts and gave powers to junior officers to issue recovery certificates.

2) Even this was also not working properly so SERFAESI act was brought and direct powers were given to the banks to attach property and it is being amended and amended as court cases come in.

4) In between came the cheque law which has been amended time and again with draconian provisions and since Govt banks are biggest litigants and could not get results so now they have decided to annul it and go for arbitration.

3) Now yesterday Govt issued ORDINACE just against one party - SAHARA.

Just because defense advocates could point out flaws in laws, procedures and even notices and even after no of orders by APEX COURT nothing was moving.

And what the ordinance says the party is guilty till proved innocent and unlimited powers to SEBI BEYOND COURTS and even police.




Expert : R.K Nanda

Posted On 21 July 2013 at 10:51

go to forum for long discussion.



Expert : PS Dhingra, dcgroup1962@gmail.

Posted On 21 July 2013 at 11:11

Dear Mr. Manivasagan,

The question arises, if the guaranor is so afraid to meet with his liability as a guarantor, who compelled him to stand guarantee without giving any thought over the issue and future liability he would stand while signing the guarantee.

Irrespective of whether the guarantor was not a party to the on demand promisory note or a beneficiary of loan he stood guarantee against the default of the beneficiary of the loan. So, your plea about his being a non-party to the promisory note or non-beneficiary of loan would be termed as irrelevant in terms of law during the trial. Guarantors are made always other than the benficiaries of loan to ensure recovery of the debt by the bank in case of default.

So, better fight the case on merits and technical flaws, if any, in the case.

The other alternative is that the guarantor should persuade the debtor to clear his loan dues.



Expert : PS Dhingra, dcgroup1962@gmail.

Posted On 21 July 2013 at 11:13

I also stand by the views of Shri Malipeddi Jaggarao.

I don't think the querist has asked for the critical analysis from someone on comments of the experts or the history of law making. Evidently, he seems to have sought for solution, not the commentary on the views of experts, which are termed as "all these comments are good in theory" by one expert.



Expert : malipeddi jaggarao

Posted On 21 July 2013 at 16:08

Thanks Mr.Dhingra other experts who supported my views. My views are based on law as well as 32 years rich experience in the bank.



Author : R.Manivasagan

Posted On 22 July 2013 at 21:43

Thank you seniors. I got too, what i had expected from the legends in law. Thanks a lot. finally i learnt so many facts and the latest position of law. once again thank you for spend your precious time for me.



Expert : prabhakar singh

Posted On 22 July 2013 at 21:48

Thank you too as had there been no query from you no such revelations could have taken place.



Expert : PS Dhingra, dcgroup1962@gmail.

Posted On 22 July 2013 at 22:07

You are welcome, Mr. Manivasagan.



Expert : malipeddi jaggarao

Posted On 23 July 2013 at 07:30

Welcome dear Mr.Manivasagan.


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