loan without equitable mortgage

Proprietor

Can a co-operative bank (Gujarat or Multi State) give hypothecation loan to a factory owner without taking equitable mortgage ? Can it be considered negligence on part of the bank if such loan turns NPA ? Please give link of cases related to this matter.

Thanks

 
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Advocate

What is your grievance in this issue. Let the Bank take decision on the securities, whether hypothecation, charge, pledge, etc.


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Proprietor

Originally posted by : RAJU O.F.,
What is your grievance in this issue. Let the Bank take decision on the securities, whether hypothecation, charge, pledge, etc.

 

I was made guarantor in a Loan of my relative in a state co-operative bank. Neither the bank nor the relative disclosed that the loan was actually going on since many years. Moreover they didn't take any equitable mortgage at the time of giving loan. Couple of years later the loan turned bad. My relative doesn't have property in his name and hence the bank is after me now. 

In initial ruling the court suggested that bank was negligent in its approach since they didn't take any equitable mortgage. Moreover it was hypothecation loan but even when the owner sold off all the material, machinery etc bank didn't object or did anything to prevent it. Later bank auctioned off the factory citing the SARFESI Act (Which I don't think is applicable to state co-operatives).

My main defense is that since bank was negligent while disbursing the loan and it remained negligent till the account turned NPA, its is they and the borrowers who should bear the brunt and not the guarantor.

 
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Advocate

You did not disclose the above mentioned facts in your first post and asked as if to know the law accademically. As you are a guarantor, you have equal liablity as the borrower. You now  mentioned some case is pending in Court. You may contest the case in the said court through an expert advocate conversant with Banking cases. If you were served copy of the Notices under SRAFAESI Act, you had to challenge the said action by filing an Appeal under Sec.17 of the said Act. Even now explore the chances of filing such Appeal before DRT challenging the sale of property, if the said property (factory) was sold for lesser amount than market value and also taking advantage of other grounds, in sale of properties.


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Proprietor

Well I didn't disclose the details initially as I wanted to know what books says about a Loan without Equitable Mortgage.

While you've suggested future course of action, I still wish to know is it okay to give loans without any equitable mortgage? Secondly Sarfesi Act doesn't apply to Co-operative Banks or does it ? This happened back in 2004. 

 
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Advocate

The State Co-opertive bank would be included in Banks & FIs eligible to take action under SARFAESI Act, as per Govt. Notification.

Whether to take mortgage of property or not, or accepting only the machineries and other movables, etc., is the discretion of the concerned bank. No rule stipulate to compulsorily to take mortgage  


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Proprietor

Can you please point me to the section of the banking low which states there's no need of taking equitable mortgage against loan?

 
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Advocate

Even no section directing to take mortgage

 
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Proprietor

Sir, I believe there would be a section in the law which says how should a co-operative bank give a loan? Can you please point out that section?

 
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Advocate

Each bank will have their own credit policy, prescribed by their Board of Directors under the guidelines of RBI policy. Bank can grant loans with or without security considering the worth/goodwill/security etc. of the borrower.

 
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