Intellectual Property Rights: Practice and Drafting by Adv Gautam Matani. Register Now!
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Srikanth (Director)     16 October 2011

Freezing of bank cc account on withdrawal-guarantee

Hi, I am running a pvt ltd concern with one of my friend as a another director. for which we are having an cash credit account with punjab national bank for 80 lakhs, My father has given a collateral guarantee for the loan thru his property worth 84 lakhs and another propery of mine worth 103 lakhs . My loan is based on the stock and receivables and then the collateral security. Due to the family dispute , my brother has instigated my father to send a lawyer notice to the bank stating that he is withdrawing the guarantee. On the basis of this letter the bank has freezed my account for both credit and debits without asking me for an explanation neither in writing or by person. I want to know what they done is correct. they are quoting claytons law. Is it applicable for pvt ltd and the other collateral is already 128% how can they freeze the account. Moreover i am AA rated customer by the bank itself without any cheque bounce or defaulter forthe last 10 years and my stock onthat day is 155lakhs . I want to take them to the court, before going there i want to verify what i am doing is correct. I need the expert opinion on this


 5 Replies

Surendra Gupta (Banker)     17 October 2011

Legally, the bank is within its rights to freeze your accounts upon receipt of  notice of withdrawal of guarantee by the guarantor (father of one of the Directors). The bank usualy takes personal guarantee(s) of the Directors also as a matter of routine. It is not clear whether you are also guarantor and mortgaged your property with the bank as collatural security worth Rs.103 lacs. Please ascertain the value of your immovable property as assessed/accepted by the bank informally from the bank and offer to get it revalued if the existing valuation is old say 2 to 3 years old. In case the bank accepts your proposal, you will have to get your mortgaged property valued by banks approved valuer, for which his nominal fees shall be paybale by you.

In the meantime, you have the option to open a current account to continue operations. In case the bank is adamant in not defreezing the operations of your account inspite of availability of sufficient collatural security, you have the option of making a detailed representation/complaint with the bank's Circle Office/Head Officee. In my view, if you go straight to the court, your case is weak as no court can compel the bank to continue the credit facilities

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Srikanth (Director)     17 October 2011


In that company , myself is the director and one of my friend is another director,  whereas my father has given his property as thirdy party additional collateral.  He is not connected to the company other than a guarantor.  I have personaly as a managing director signed as a guarantor and my property valued rs.103 lakhs by the bank approved surveyor is also MOD done to the Bank..

My argument is not asking the court to defreeze, without  notice by  written letter or phone call they have freezed my account inspite of two properties have been given collateral.  One is my father which is 84 lakhs and another one is mine valued at 103 lakhs.  I hve give two properties to get additional 1 % interest less.  if  my fathers property is pulled off also i have 120 %  collateral security to cover the also( my facility is only 80 lakhs) ,  At the worst they can charge addtional 1 % interest more.  they cannot freeze the account.

Surendra Gupta (Banker)     17 October 2011

It appears that you are sadly mistaken if you think that the bank has given you concession of 1% in terest by your offering more than 200% collatural security. The rate of interest charged in any loan account is based upon base rate of the bank and certain other parameters as per RBI guidelines. The question is why you offered the collatural security of father of one of the Directors when the value of collatural security of one of the Directors was sufficient to cover the credit facilities applied for. You have not mentioned since how long you have been enjoying the credit facility and whether the facility was sanctioned at Branch level or at circle office level. Now you have the option to submit a detailed representation (in writing) to the bank branch jointly addressed to their Circle Office & Head Office requesting them to release the guarantee of the father of one of the Directors and release his property.  In case they reject your representation in writing, you have the option to approach another bank for the same credit facilities.

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Prasun Chandra Das (Banker)     17 June 2012

Dear Srikanth,

Firstly you are absolutely wrong in thinking that the bank cannot freeze the CC a/c for this reason, without any notice. The bank can do this, and even recall the loan, even if your transactions in your CC a/c is impeccable.

Secondly, I think what Surendra Gupta is advising is correct. However, I disagree with him on one part - in some schematic products, banks do charge X% less interest rate if the security coverage ratio is Y%. Regardless of this, I think you should speak to an appropriate authority in the bank (who is also sensible and proactive in finding solutions) and tell them that look, even if you release my father's guarantee and the property (it is common for banks to ask 3rd party mortgagors to also stand as guarantors), you will still have enough security to cover the loan by Z%. If the security coverage is adequate to the bank, it should release the guarantee and the property. If the bank says no, then I think you should shift to some other bank. Please do not go to court on this sensitive matter may go out of hand and cause embarassment for many people.

narendra.s.p (Chief Manager(Law))     22 June 2012

Once the guarantor withdraws his/her guarantee, then the terms and conditions undergo a change. If the guarantor is also a mortgagor, there will be dilution of security. Hence, the borrower should offer substituted guarantor and acceptable security and obtain fresh sanction form the Bank's competent/approving authority. Till such time the proposal to substitute guarantor [and new security offerred]  is approved, the Bank generally freezes the operations in the account of the Borrower. If the Borrower were to seek permission for operatin of the account for this interim period till sanction is obtained, the Bank Manager can make a special recommendation to the approving authority justifying continuing the operations. Reason being not to dishonour any cheques issued by the comapny as it affects the business. Such permission can be granted on case to case basis deperding upon the past transactions and credibility of the Borrower.

Once the guarantee is withdrawn, the Guarantor is liable for the balance outstanding and payable as on the date of his withdrawl notice issued to the Bank. If the Bank permits operations in the account after it receives notice of withdrawal of guarantee, then, the guarantor can take advantage of any subsequent credits in the account to reduce and mitigate his liability [clyton's rule is in operation]. For this reason the account is generally freezed till an acceptable guarantor [with good networth] is substituted.

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