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AJain_India (Law Student)     03 October 2012

Bank right to auction

1. Can a bank auction collateral security before first auctioning primary security

2. Can bank recover through sale of property under personal guarantee before auctioning primary and collateral security

3. I have read in many places that a directors persoanl guarantee is a void agreement

a) are there any rulings by any court which says otherwise also

b) if directors personal guarantee is a void agreement, then why do banks insist for personal guarntee of a director


 2 Replies

Rama chary Rachakonda (Secunderabad/Highcourt practice watsapp no.9989324294 )     03 October 2012

Consequent on Bank Nationalization Act 1970 as well the law declared by hon’ble Supreme Court in the matter of Kripak vs Union of India (AIR 1970 SC 150) and in the context of project oriented financing, taking of any personal guarantee and or collateral or any such security is void ab-initio. Hence the alleged Personal Guarantee Agreement executed by the Banks and Financial Institutions (hereinafter collectively referred to as ‘the Bank’ or ‘the Banks’) with alleged guarantors is not maintainable. Further, getting signature of a Director on the alleged Personal Guarantee Agreement of the Bank as the alleged Guarantor to the Company is itself illegal and in violation of the mandatory legal provisions legislated under the provisions of Sections 13(2), 34, 125, 270 (1) and 322 (1) of the Companies Act, 1956 and sections 10 and 23 of the Indian Contract Act, 1872 

1 Like

narendra.s.p (Chief Manager(Law))     06 November 2012

Please refer SBI Vs. Indexport reported in AIR 1992SC 1740 = 1992 SCC[3]159

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