Personal guarantee in a npa account
Shruti
(Querist) 31 May 2012
This query is : Resolved
Hi,
I am a freelance script writer working from home and my husband was a director in a pvt. ltd. company. Approx. 5 years ago my husband joined hands with a man to start off a business, for this business a loan was acquired from a bank and at that time my husband gave personal guarantee. We also mortgaged our flat in this process, I being a joint holder of the flat had to sign the mortgage papers. Now this account has been declared as NPA and I have learned even I am a personal guarantor (is this possible). I understand that the mortgaged property can be attached by the bank to recover the loan amount but what about other personal assets in my and my husband's name? Can they be attached by the bank? Also how can I be liable as personal guarantor if I am not a part of the company? Please help?
P.S. the house that I currently stay in is not morgaged to the bank but we have a home loan from the same bank(lender). And both, me and my husband are joint holders. Housing loan is in my husband's name.
ajay sethi
(Expert) 31 May 2012
if account has been declared NPA bank will take recovery proceedings against principal debtor and gurantor . bank can also sell of the mortgaged property .
wht are total outstanding sof the bank ? try to reach a settlment with bank under one time settlement scheme .
in case decree is passed aginst gurantors bank will try to proceed aginst your other assets to recover the loan
Shruti
(Querist) 31 May 2012
Yes the account has been declared npa and we have recieved sarfaesi notice. My husband is not principal debtor and he is one of 7 directors who have given personal guarantee. I understand that my mortgaged property can be sold off but what about the house I am staying in? Can it be protected? Both, me and my husband are joint holders. Am I also equally liable even though I am not working in this company?
DEFENSE ADVOCATE.-firmaction@g
(Expert) 31 May 2012
This case has fact and law and can be contested on its basis since certain conditions have to be followed prior to accepting PERSONAL guarantee of directors for the company.
Anirudh
(Expert) 31 May 2012
Dear Shruti,
If only the property has been mortgaged, then the mortgaged property will be touched.
Apart from the mortgaged property, if you had given additionally personal guarantee also, then you will be asked to make good the money, and they can come after your other property (house in which you are living) also.
Whether or not you are an employee of the company is the question. The question is whether you stood as a guarantor or not.
Anirudh
(Expert) 31 May 2012
Please read the penultimate sentence as: Whether or not you are an employee of the company is NOT the question.
K.K.Ganguly
(Expert) 01 June 2012
If you have stood as guarantors and allowed your property to be mortgaged creating security interest on it in favour of the Bank, then the Bank will proceed under SARFAESI Act,2002 to recover the outstanding, when the loan account has become NPA. No Court can interfere accepting the DRT.
The Bank will issue Demand notice u/s13(2), then Possession Notice u/s13(4) & finally apply u/s14 of the Act for getting possession through police help.
Even after selling the property, the outstanding is not fully recovered, they will apply for attachment, possession & recovery of balance outstanding by selling your other properties since you have stood as guarantor for the loan.
If after selling any property, the Bank finds that the realised sale price is more than the outstanding amount then they will refund you the excess amount after fully realising their outstanding.
Take care. SARFAESI Act,2002 is s Draconian Act & it is difficult to escape.
S Jadhav 98336 98330
(Expert) 01 June 2012
Please do not stand guarantee for any loan unless you are sure that you are ready to pay from your pocket if the debt is not repaid by those who who have taken the loan.
Banks/Qualified Lenders can invoke the personal guarantees to recover their money from the original debtors as well as the guarantors. Also, please note that the banks are permitted to recover their money from any person i.e the main debtors as well as the guarantors - the selection of persons from which to recover the money is of the banks as per the SARFAESI Act.
I would also advise that if the banks are trying to recover the money from you then it is better that you negotiate with them and go for one time settlement.
S Jadhav
DEFENSE ADVOCATE.-firmaction@g
(Expert) 01 June 2012
Personal guarantee by a director in a joint stock co is PERSE illegal and so any agreement is void AB INITIO.
However the banks and NBFC as a routine take such guarantees.
You have to file 1) a declaratory suit 2) take objection to notice sent u/s 13 (2) and
3) file civil suit for stay for enforcement of an illegal agreement.
At the same time object to any effort for taking possession so the lender will have to go to the civil court for enforcing possession., even under SARFAESI ACT.
NO NEED TO GO TO DRT FOR THE BORROWER , LET THE LENDER GO.
All this job is for a professional who has handled such problems. Mis conceived half backed efforts will do more harm than any good.
Anirudh
(Expert) 01 June 2012
Dear Mr.JSDN,
For my personal knowledge, can you please indicate under which specific provision of law, personal guarantee by director in a joint stock company is illegal and void ab initio.
I would like to get myself updated in this regard.
K.K.Ganguly
(Expert) 01 June 2012
Lender can not go to the DRT as per SARFAESI Act,2002. Only persons (including the borrowers) aggrieved by the Possession Notice issued u/s 13(4) can go to the DRT and file an application u/s 17 of the said Act.
Banks can go to the DRT under Recovery of Debts Due to Bank & Financial Institution Act, 1993 for recovery of the Debts if they do not want to follow SARFAESI Proceedings.
In this case Bank has already initiated SARFAESI Proceedings & Civil Court has no jurisdiction in this matter.
Shruti
(Querist) 01 June 2012
As asked by Mr. Anirudh, I am a personal guarantor, but this was not in my knowledge. Everytime I went to the bank to sign papers, I was under the impression that I am renewing the mortgage deed of my flat(as I am joint holder). I understand that ignorance cannot be an excuse in the court of law. What I am trying to do now is salvage whatever I can. If there is any law which can get me out of the personal guarantee as I have not been part of this company, then maybe I can hold onto some asset in my name. Thank you all for your inputs. I highly appreciate them.
ajay sethi
(Expert) 01 June 2012
shruti
contact a local lawyer immediatedly . it would be in your interest to dispose of the properties which are not mortgaged to the bank .
DEFENSE ADVOCATE.-firmaction@g
(Expert) 01 June 2012
And far Mr Ganguli section 14 of the act even the word MAY is used still the lender has to go to the civil court DM or CMM for getting possession for which the borrower will be given opportunity to put his / her objections.
More over after 13(2) notice borrower has legal right to take objections within next SIXTY DAYS which the lender must reply within next seven days .
There are no of case laws in this matter.
Also as suggested by Ld expert Mr Sethi the questioner should contact an expert advocate since advice and such public discussions will be of little use and valuable time will be lost for taking timely remedial action.
M V Gupta
(Expert) 01 June 2012
Obtaining Director's personal guarantee is the general practice amongst the banks and financial institutes. These are being obtained as collateral securities and are enforced in courts of law. To my knowledge there is no legal prohibition on such guarantees.
DEFENSE ADVOCATE.-firmaction@g
(Expert) 02 June 2012
Please read from a recent SC CITATION , those interested can search banking judgments. Recently, the Supreme Court has observed as follows (in para 18):
“18. Banking practice - that the banks have developed the practice to execute personal guarantee agreements with the directors of a company to secure the debts of the company without the authority of law. This practice is against the principle of limited liability of the shareholders as well as directors of the company as provided in the Companies Act, 1956. Accordingly, it is clearly against the letter and spirit of the Companies Act and therefore unlawful.
M V Gupta
(Expert) 02 June 2012
Dear Mr. JSDN, will u please provide the full citation of the case from which u have extracted the para. It will be useful for all of us. The judgement seems to strike at the root of the practice being followed by almost all the Banks and FIs.
RAJU O.F.,
(Expert) 04 June 2012
It is sad that the bank took your personal guarantee, without properly explaining the same, ( while they usually do) while executing the documents for mortgage. For recovery of the dues, the bank can proceed under SARFAESI Act for directly selling the mortgaged property. If the debt is not satisfied they can bring the personal properties of the guarantors for sale through court only, which you may strongly contest.
