recovery of loan after death of principal borrower

Legal Advisor

I need to know that what happens if the pricipal borrower passes away before repayment of loan to a bank? Would the bank proceed against the legal heirs or the guarantors in this case? Also,is there any limitation period? Is there any enlightening judgment by the Hon'ble High courts or Hon'ble supreme court in this regard?

 
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Bank can file suit for recovery but not take action under section 138. Legal heirs and guarantor are liable to pay the balance amount, it is sttled law.

B.P. BHARDWAJ

 
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Loan granted to any applicant is secured either by guarantee or security or both.  Death of the principal borrower will not bar the creditor to resort to recovery even from the legal heirs.

 
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advocate

In addition to above openions, I have to add that limitaion period is 2 years from when the loan amount becomes due.

 
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If the principal borrower dies, Bank can proceed against his estate only, the legal heirs of the principal borrowers are not personally  liable to discharge the debt borrowed by principal borrower. I am of the opinion that the limitation period for the recovery of money is three years.

 
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Advocate

If the principal dies the legal heirs are liable to the extent of property inherited by them from the deceased. You can take action against them or you can take steps to attach the property of the deceased. The poor guarantors are equally liable to repay the loan amount.

 
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If a person has been given a personal loan on the basis of performance of credit card without any security or gurantors and if he dies before the repayment. Can the bank recover the loan from his/her legal heirs?

If not then do the bank has to writ off this loan?

 
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Write off is only the last resort that any bank exercises after exhausting all means of recovery process.  It goes without saying that legal heirs becomes the first option for the bank to execute recovery process.

 
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Yes, money lander can recover the balance loaned amount from legal heir(s). File suit for recovery within the jurisdiction with proper documents.

B.P. BHARDWAJ

 
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Whenever any loan is secured by any assets and/or by personal guarantee/co-obligation, the lender has got right to recover the dues by proceeding against all of them.

As per present law, if any post-dated or undated cheques were also obtained from the principal borrower, the cheques can not be presented by the lender on dates mentioned/dating the cheques. Consequently, the risk of cheque-bounce case under Section 138 of N.I.Act, does not arise. Also, if any cheques had been bounced earlier to the death of the issuer and criminal complaint had been filed or contemplated, they can not be proceeded with and will all abate. However option of a summary civil suit under Order 37 of CPC remains alongwith other remedies.

If the liability is exceeding Rs. 1 lakh, and any assets (irrespective of ownership whether of the principal borrower or guarantor) are mortgaged/pledged/hypothecated, the bank has got option to realise these assets by attachment by the Competent Authority of the same Bank, without court action, under the Recovery of Debts due to Banks and Financial Institutions Act. If any balance dues are there, then DRT/civil court has to be approached if such dues exceed rs.10 lakhs or lesser, respectively.

If there are no assets to be realised, then case has to be filed before DRT/civil ourt, monetary jurisdiction as aforesaid.

Notice procedure prescribed under the laws have to be observed by thebank. In any case, the legal eirs o the principal borrower alongwith the guarantor have to be made as parties in the legal proceedings.

If after a decree by a civil court/cerificate of recovery by the DRT, execution/recoery proceedings are launched, then at that stage, at the option of the bank, even without proceeding against others, action can be enforced against the guarantor.

Limitation:

Three years from the date of loan/any acknowledgement of debt. Any dated cheque upto the date of death of the drawer, any repayment made into the loan account by the borrower, any acknowledgement of debt instrument executed, any correspondence containing acknowledgement of debt, any balance conirmation letter etc. have got the effect of extending limitation by three years from the date of such transaction/document.

If any notie under RDDB Act/ proceedings before civil court/DRT is not launched within the said limitation, the part of the debt that suffers limitation, can not be enforced.

Part of the debt: This is a confusing concept. Wherever a debt is agreed to be repaid in instalments, each instalment becomes a sub-debt, from the respective due date and time for limitation starts running from such date for each sub-debt. So, even if overall debt is apparently lapsed by limitation, really only such instalment or interest debited but not repaid suffers limitation after three years from such date. This concept of sub-division, will come into play only when no acknowledgement of debt for the overall debt is avaialable.

 
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