Blank cheques for security purpose

Deeksha nayyer (Querist) 04 June 2020 This query is : Resolved

I am taking a non collateral Loan from NBFC's without giving any collateral.
The NBFC in which I have applied for Loan is reputed company which gives Loan to many Lakhs customers every year.

Since they are giving non collateral Loan , but they are taking 4 Blank cheques at the time of agreement for their security purpose..
They take Blank cheque with name of company written on it, signature and amount. (NOT DATE)

From the beggining of the procedure of Loan I am recording all the calls from Bank officials,exchanging all the documents by Gmail to collect evidences that i am taking loan.

Q1. Is it Ok if I give the cheques and take the loan from Bank. Is it all right?

Q2. Is there anything that I can do to make myself secure, Anything that i make them write on agreement about cheques so that I will be safe.

What should I do???

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Quick Summary

When taking a non-collateral loan from an NBFC, it's common for them to request blank cheques as security. While this is a standard practice for lenders to protect their investment, it's crucial to ensure your own security. It's advisable to have the details of these cheques, including their purpose and the fact that they are for security only, clearly documented in the loan agreement. This provides a safeguard against potential misuse and clarifies your liability. Always ensure you retrieve these cheques upon loan closure or cancel them.

Adv Deepak Joshi +917017821512 (Expert) 04 June 2020
Dear Querist,
You may enter into memorandum of underrating with the Bank that you are giving this cheque as security purpose and once repayment is done than bank if return these cheque to you.
Regards
Adv Deepak Joshi
9456777600
Djaa.legal@gmail.com

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Raj Kumar Makkad (Expert) 04 June 2020
1. Question is not of right or wrong rather is a mutual consideration. If you have to take loan from that NBFC, you are required to follow their clear terms and conditions. After all creditor also requires safety of the loan amount.

2. You are already mentioning the amount on the cheques and if the same are got mentioned in the agreement or in any of the correspondence between you then you are fully secured.

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Deeksha nayyer (Querist) 05 June 2020
@Raj kumar Makkad Sir,
Thanks for reply..

Sir, While doing an agreement with that NBFC if it is mentioned on agreement regarding the deposite of blank cheques and the detail of cheques. There should be no problem.

If it is mentioned in agreement that NBFC cannot misuse the cheques for any unlawful gain.

Can you please clarify, I just want to make sure I don't get in trouble in future if I give blank cheques.

P. Venu (Expert) 05 June 2020
When you are seeking loan without any collateral, there is not much room for negotiating the terms. In the ordinary course of things, there is no scope for any risk if you could be regular in paying the EMIs.

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Raj Kumar Makkad (Expert) 05 June 2020
Yes. If the details of the said cheques is duly mentioned in the agreement, there shall not be any problem to go ahead.

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Deeksha nayyer (Querist) 05 June 2020
Thank you dear experts

Rajendra K Goyal (Expert) 05 June 2020
Blank cheques are enough to cover the loan amount.

On loan agreement the fact of Blank cheques is mentioned.

Dishonor of such cheques when presented attracts action under section 138 NI Act in which drawer can be convicted.

Do not forget to take back the blank cheques from said NBFC while closing the loan account. Alternately, you can cancel the cheques at the time of closing of the loan.

These days companies and even private lenders consider blank cheques as good security of the loan.

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Raj Kumar Makkad (Expert) 06 June 2020
You are always welcome Mr. Author.

Rajendra K Goyal (Expert) 06 June 2020
You have not clarified whether the NBFC is taking the cheques with amount filled, if so whether full amount or if not so, what amount in each cheque.

Generally in such cases, the holder of the cheque enter full amount with all expenses and get it bounced to drag the drawer in section 138 NI Act proceedings.

Raj Kumar Makkad (Expert) 07 June 2020
The author has already clarified that the company is adamant to take 4 undated cheques however, the amount shall remain filled. If this arrangement is made, the author has no loss to incur.

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Rajendra K Goyal (Expert) 07 June 2020
If amount is filled, the author has limited liability only upto the amount entered on the cheques.

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