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Srikanth (Director)     28 March 2013

Can a bank release the guarantor documents without borrower

Our company is a pvt ltd with two directors, with me and one my friend as a another director.  We have availed  a cc loan from Pnb bank for 80lakhs with two documents as a collateral, one is my document ( 85 lakhs  as per surveryor) and another one belongs to  my father ( 55lakhs as per surveryor).  In between my father and brother joined together and sent a lawyer notice to bank stating that he is withdrawing the guarantee.  based on this the bank freezed  our company account at  -43 lakhs. debit  Subsequently after many letters the bank has sanctioned two  loans separately one with 43 lakhs  ( secured only by fathers property) and another 90 lakhs with my property alone with the condition on the sanction letter that no credits will not allowed on the first 43 lakhs other than our company cheque and the documents will not be released without the consent of the company.  The interest will be served by the company till dec 2012.  On dec end my father sent a letter to the bank stating that he will settle the 43 lakhs outstanding and wants the documents, based on this bank sent a letter to me to close that loan.  We are insisting on the sanction letter conditions that documents will not be released without our payment..  subsequently  my father deposited 43 lakhs cash in my account and got the documents discharged without our presence . 


We would like to know what the bank has done correct inspite of the sanction letter, also want to know whether the bank can return the document without the borrower presence

Can i proceed legally against the bank for accepting huge cash in my account without our consent and also for returning the documents without our knowledge and presence.


Please advice on this


 5 Replies

c.p.s. ramachary (1500)     29 March 2013

Bank has right and discretion to dicharge guarantor when guarantor is prepared to pay an amount equvalent to value of the security furnished by him is Rs.43 lacs. Bank is not concerned with your consent for such discharge, when it is able to recieve Rs.43 lacs instead of doing an exercise for realisation of the secured asset by taking legal action. Sanction letter is substituted by loan documents and hence sanction letter terms if any not incorporated in the loan agreements shall be deemed to be waived by both the borrower and the bank. Eventhogh the guarantor cannot revoke his guarantee, the bank can accept value of the security and dicharge him from guarantee allowing the redemption of the mortgage too. You have no scope to succeed in a suit if you intend to bring against the bank in this regard. Therefore I advise you not to take any action against the bank. However please ensure that your loan account is maintained in order and it is not slipped to NPA  category and avoid unsavoury action that may be taken by the bank for recovery of the balance amount of the debt.

khalid masood (partner.)     30 March 2013

When it is clearly mentioned in the sanction letter that property would not be released without the consent of the company then it is a clear lapse on bank side. Discharge of mortgage without the consent of the company could be termed as illegal. It is a different issue that bank is always interested in collecting its dues but in ur case it cannot go against the conditions drafted in loan docment. I would say that if ur account had become NPA then they could have resorted to this kind of method as the last means of recovery. As ur account is running smoothly you  should take this matter to the higher ups and tell them the difficulties u may face due to decrese of limit in near future.

Prasun Chandra Das (Banker)     01 April 2013

I disagree with Mr Ramachary in the part where he belittles the sanctity and importance of the sanction letter. The sanction letter is  a very important document where all the terms and conditions of the loan is mentioned. The "facility documents" like loan agreement etc, and the "security documents" like mortgage deed, hypothecation agreement etc., follows from the sanction letter, and not the other way round. The Bank/borrower cannot ignore the sanction letter when the situation suits the Bank/borrower. Therefore, I strongly believe that the Bank is wrong in releasing the property documents to the father "without the borrower's consent", as was required as per the sanction letter. However, I must add that presence of the borrower is not required to release such documents/security, unless sanction letter mandates it.


I agree with Mr Ramachary, however, with his advice that the Bank should not be proceeded against. The entire litigation process will take too muct cost & effort. The Directors should rather focus on running their business properly. I think the situation now is that there is not enough "security/collateral" for the avail suffcient cash credit loan. You cannot help it - I would suggest to approach different Banks and choose the Bank that sanctions highest loan amount on the basis of all available security.


Probably the members are is a guesing position in the absence of the language of the conditions of the sanction letter. Normally bank's documents are full of legal jargons and discretions, the interpretation there of is a must before arriving at some conclusive opinion.


So, it will be better if Mr. Srikant reproduces the extracts of the conditions included in the sanction letter on which he has any doubt instead of getting varied and confusing responses.



DATT K   20 June 2016

After 3 years!

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