Banking - guarantor

A guarantee as to overdraft is a continuing guarantee within the meaning of S.128 ICA and can be revoked as to future transactions. If overdraft is not availed of currently - he can revoke - it serves bank's interests as well as bank can ask him to get other security. 

respected advocate

so the guarantor can revoke his guaranty at any time as he pleases? is it necessary to give notice to the debtor?

thanks

yours

v.lakshminarayanan

palani

1) You have to see the guarantee deed. Normally, the deed should contain something like "the guarantor shall not revoke/withdraw his guarantee without the prior written consent of the bank in writing." This means that the guarantor can withdraw his guarantee if the bank chooses to let him do that. Normally, if the guarantor writes to the bank saying that I would like to withdraw my guarantee, the bank writes to the borrower to furnish another guarantor/security, before allowing the present guarantor to withdraw his guarantee. It is prudent and fair that the guarantor informs the debtor that he wishes to withdraw his guarantee. In any case, the bank is going to inform the guarantor.

2) An EM of a property is created to cover a certain amount of loan, alongwith interest, costs etc. So, whenever the loan amount is increased, it becomes necessary to execute a fresh document, or a supplementary/link deed to the original one, to cover the new loan amount. This is absolutely correct. However, for reduction in loan amount, this is not necessary.

The Guarantor can revoke/withdraw his guarantee anytime by giving a written notice to the bank and upon receipt of the notice, any further debits to the overdraft account if allowed by the bank shall not be binding upon the guarantor and guarantor's liability shall decrease with each credit in the overdraft account. The banks generally ask the borrower to provide alternate guarantor acceptable to the bank and in the meantime stop further debits in the overdraft account to protect the bank's interest.

As regrads registration of deed of further equitable mortgage, in case the original mortgage is equitable mortgage ( mortgage by deposit of title deeds). the bank can cover the additional limit also therein by obtaining a suitab le letter from the guarantor

You cannot revoke the guarantee at your will during the subsistence of loan.  If the guarantee deed covers the amounts to be released in consequence of enhancement of limits from time to time (this clause normally exists in every guarantee deed signed by borrower with bank), then there is no use of even expressing your desire to withdraw guarantee.  Property offered as security under third party guarantee is a secured asset within the meaning of Securitization Act hence bank reserves the right to enforce the security interest if the account of borrower is declared NPA as per RBI guidelines. 

If you write to Bank your desire to withdraw guarantee, he Bank may ask the borrower to replace the security and guarantee so as to help you, but it is not mandatory for the bank to do so.  Till the borrower replaces the security and guarantee, it has no obligation to release the title deeds of the guarantor and release the guarantor from agreement.

The views expressed by Mr. Chandrashekhar are not relavent for overdraft accounts. I re-iterate my previous views.

Wonder people putting up hell a lot of service in banks do not even know the difference between Secured loan and Unsecured loan.  As they are in the habit of allowing overdrafts without securing the debt they think overdraft is not a secured loan or every OD is an unsecured loan.  Here in this case the author is clearly saying it is an OD limit and it is secured by Third party guarantee and property offered as mortgage by the same third party.  So this is a Secured loan and within the meaning of Section 2(I) Financial Asset of SARFAESI Act, 2002. 

And there is no rule that even if OD is allowed it need not be secured by any guarantee or property by the Manager.

It is within the meaning of S.2(l) of the Securitization Act and S.2(l)(i) can be a claim to any debt or receivables or part thereof, whether secured or unsecured.

What unsecured asset has to do with Securitization?  Any prudent man will ask this question because Securitization Act relates to assets that are secured, not the assets that are not secured.  Where there are unsecured assets like personal loans they can only be recovered through Recovery of Debts Due to Banks and Financial Institutions Act, 1993 by filing O.A. in DRT and only DRT is empowered to attach the properties of borrower which are not mortgaged to the Bank/FI.

That being the case why a claim on unsecured loan/advance is also made part of Securitization Act? One will understand the reason when S.2(l) is read with S.2(q) of SARFAESI Act which defines the word "obliger". This is included because along with secured loans even unsecured loans/advances can be claimed by the bank while enforcing Security Interest.

So when a Bank sends a Demand Notice to borrower under SARFAESI Act it need not exclude unsecured loans/advances presuming that there is no separate agreement between bank and borrower that the said overdraft which is granted here and then is not covered by any loan agreement or mortgage of property. 

I disagree with Surendra Gupta.

In our bank, among other things, such words are used: "the Guarantor hereby unconditionally, absolutely and irrevocably guarantees to and agrees with the Bank ...."; "This Guarantee shall be irrevocable and the obligations of the Guarantor hereunder.." etc.

 Therefore, normally, guarantors cannot withdraw their guarantees unilaterally. If this was possible, the sanctity of providing and obtaining guarantees would be zero.

Banks generally do not obtain irrevocable guarantee agreement. A guarantor can revoke his guarantee obligation by giving a notice to the Bank.The liability of the guarantor will then be crystallised. Guarantor is jointly and severally liable to pay the dues as on the date of his withdrawal. However, if in a cash credit account, credits are subsequently permitted by the Bank, then the liability of the guarantor who has withdrawawan his guarantee will be reduced to the extent of credits in the cash credit account after the date of his withdrawal(clyton's rule).

Withdrawal of guarantee implies and warrants change in Terms and conditions of sanction to continue the credit facilities. Borrower can offer substituted guarantor and acceptable security. If the competent authority of the Bank approves change in Terms & conditions, the acount will continue.

However approval takes time. For the interim period, If the borrower makes out a good case for permission to operate his cash credit account, the Bank Manager may seek special approval from its competent authority to permit the Borrower to operate his cash credit account and not to dishonour cheques issued by the Borrower.

Which bank is taking revocable guarantees from guarantors.  I am curious to know.  Show me one such guarantee agreement.  As far as I know bank's clauses are so complex and elaborate that if we read properly we will even find such clauses that even the properties of the great grandsons of borrowers also can be attached if there is default.  I never saw any bank guarantee format that is revocable by the borrower. 

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