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Vijay (Management Consultant)     09 February 2018

Guarantor's role during sarfesi proceedings

Hi Experts,

Borrower sold the property under mortgage to settle the outstanding liability through OTS. However, it ended up in a litication after registering the sale deeds. Borrower has defaulted and SARFESI proceedings are on course by the Bank. Given this scenario, from the Guarantor's perspective, what could be the consequences? At the time of loan application, Guarantor had shown the source of income from 'another' property which is not under mortgage.

Can the Bank chase Guarantor's property too?

Please provide your expert view.

Kind Regards.


 4 Replies

G.L.N. Prasad (Retired employee.)     09 February 2018

Details are insufficient for giving guidance .

1.Borrower sold the property under mortgage to settle the outstanding liability through OTS

While selling the mortgaged property to settle outstanding, whether there is consent from Bank and guarantor for OTS in writing.  Who has purchased the property ?  Whether Guarantor has purchased the property ?  Who initiated litigation on such property ?  What are the family  relations in between borrower, guarantor, purchaser ?

2.At the time of loan application, Guarantor had shown the source of income from 'another' property which is not under mortgage.

Whether the property was mortgaged or not mortgaged, Guarantor has equal footing at par with borrower towards obligations to Lending Bank.  Banker, can exercise Right of General Lien on all properties standing in the name of both Borrower and guarantor.  If there was any alienation during the course of litigation, he can even report it as a fraud to DRT.

Bank can attach all the properties through tribunal whether mortgaged or not, and banker depends on outside agents and collects such certified copies fo sale deeds, Tax payment records to convince tribunal that the properties belong to borrower or Guarantor.

However, if the Bank has made any change in terms and conditions without involvement of guarantor directly, there is a chance of denying the liability after such understanding in between borrower and bank without consent / participation of Guarantor.


1 Like

Vijay (Management Consultant)     09 February 2018

1. Borrowers and Guarantor jointly own the property. Borrowers are children of Guarantor. Borrowers are the primary applicants in the loan. Borrowers have serviced the lona for few years. Property was actually under trespass by an ex-naxal and there was no income on the property. Borrowers explained the situation to the Bank that the only way for them to foreclose the loan is to sell the property and have sought for OTS. Bank has asked for Sales agreement from prospective Buyer and Borrowers have submitted the same. OTS negotiations kept happening for months. Borrowers, Guarantor have parallely started selling the property floor-wise. Eventually when the Bank has sanctioned OTS to foreclose the loan in 3 months, Buyer had fled from the scene due to threat from ex-naxal. Litigation arised out of the sales deeds.

2. Present valuation of the property is expected to be higher than the outstanding loan amount with all the penalties, legal charges etc., Can the Bank chase other properties of the Borrowers, Guarantor by leaving out on the property under mortgage?


Thanks for your advise.

R.K Nanda (Advocate)     09 February 2018

yes, bank can attach guarantor property to get its dues.

G.L.N. Prasad (Retired employee.)     09 February 2018

Immediately file a case either before Legal Services Authority  of HC Legal services Authority a compromise petition, explaining all the facts.  They must sympatheticallly consider your case.

As far as I know, the collateral security has nothing to do with business.  Business must have been running on losses, and the truth May be (probability) knowing that the property can not be sold due to naxals threat, the borrowers might have raised the loan, and became wilful defaulters.

Please do not think think otherwise, but many accounts became default in this manner.  As they can not sell away some land lords in Telangana stayed at Hyderabad and raised loans against those properties which are occupied by naxals.

Why the negotiations failed at early stage, and why prospective buyers has gone back is not known.   Now that the property was treated as lost by you, bank can also never sell the property.  As far as I know, no Bank knowing those circumstances prevailing can never advance against those assets, unless they were managed through political or other pressures.

I do not think that you can get any solutions in this forum in these complicated  issues .  You know how others were able to sell in the past and I do not want to suggest or reduce the procedure on forum.

As I understand Guarantor is not innocent and within family of borrower.

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