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Govind MNM (Legal Advisor)     06 March 2010

recovery of loan after death of principal borrower

I need to know that what happens if the pricipal borrower passes away before repayment of loan to a bank? Would the bank proceed against the legal heirs or the guarantors in this case? Also,is there any limitation period? Is there any enlightening judgment by the Hon'ble High courts or Hon'ble supreme court in this regard?



 21 Replies

B.P. Bhardwaj (delhi)     06 March 2010

Bank can file suit for recovery but not take action under section 138. Legal heirs and guarantor are liable to pay the balance amount, it is sttled law.

B.P. BHARDWAJ

Parthasarathi Loganathan (Advocate)     06 March 2010

Loan granted to any applicant is secured either by guarantee or security or both.  Death of the principal borrower will not bar the creditor to resort to recovery even from the legal heirs.

1 Like

Arvind Singh Chauhan (advocate)     06 March 2010

In addition to above openions, I have to add that limitaion period is 2 years from when the loan amount becomes due.

rajkumar.vnm.marupeddi (advocate)     07 March 2010

If the principal borrower dies, Bank can proceed against his estate only, the legal heirs of the principal borrowers are not personally  liable to discharge the debt borrowed by principal borrower. I am of the opinion that the limitation period for the recovery of money is three years.

1 Like

P.K.Haridasan (Advocate)     07 March 2010

If the principal dies the legal heirs are liable to the extent of property inherited by them from the deceased. You can take action against them or you can take steps to attach the property of the deceased. The poor guarantors are equally liable to repay the loan amount.

1 Like

J. Kumar (Accountant)     09 March 2010

If a person has been given a personal loan on the basis of performance of credit card without any security or gurantors and if he dies before the repayment. Can the bank recover the loan from his/her legal heirs?

If not then do the bank has to writ off this loan?

Parthasarathi Loganathan (Advocate)     09 March 2010

Write off is only the last resort that any bank exercises after exhausting all means of recovery process.  It goes without saying that legal heirs becomes the first option for the bank to execute recovery process.

1 Like

B.P. Bhardwaj (delhi)     10 March 2010

Yes, money lander can recover the balance loaned amount from legal heir(s). File suit for recovery within the jurisdiction with proper documents.

B.P. BHARDWAJ

k.chandrasekharan (advocate)     13 March 2010

Whenever any loan is secured by any assets and/or by personal guarantee/co-obligation, the lender has got right to recover the dues by proceeding against all of them.

As per present law, if any post-dated or undated cheques were also obtained from the principal borrower, the cheques can not be presented by the lender on dates mentioned/dating the cheques. Consequently, the risk of cheque-bounce case under Section 138 of N.I.Act, does not arise. Also, if any cheques had been bounced earlier to the death of the issuer and criminal complaint had been filed or contemplated, they can not be proceeded with and will all abate. However option of a summary civil suit under Order 37 of CPC remains alongwith other remedies.

If the liability is exceeding Rs. 1 lakh, and any assets (irrespective of ownership whether of the principal borrower or guarantor) are mortgaged/pledged/hypothecated, the bank has got option to realise these assets by attachment by the Competent Authority of the same Bank, without court action, under the Recovery of Debts due to Banks and Financial Institutions Act. If any balance dues are there, then DRT/civil court has to be approached if such dues exceed rs.10 lakhs or lesser, respectively.

If there are no assets to be realised, then case has to be filed before DRT/civil ourt, monetary jurisdiction as aforesaid.

Notice procedure prescribed under the laws have to be observed by thebank. In any case, the legal eirs o the principal borrower alongwith the guarantor have to be made as parties in the legal proceedings.

If after a decree by a civil court/cerificate of recovery by the DRT, execution/recoery proceedings are launched, then at that stage, at the option of the bank, even without proceeding against others, action can be enforced against the guarantor.

Limitation:

Three years from the date of loan/any acknowledgement of debt. Any dated cheque upto the date of death of the drawer, any repayment made into the loan account by the borrower, any acknowledgement of debt instrument executed, any correspondence containing acknowledgement of debt, any balance conirmation letter etc. have got the effect of extending limitation by three years from the date of such transaction/document.

If any notie under RDDB Act/ proceedings before civil court/DRT is not launched within the said limitation, the part of the debt that suffers limitation, can not be enforced.

Part of the debt: This is a confusing concept. Wherever a debt is agreed to be repaid in instalments, each instalment becomes a sub-debt, from the respective due date and time for limitation starts running from such date for each sub-debt. So, even if overall debt is apparently lapsed by limitation, really only such instalment or interest debited but not repaid suffers limitation after three years from such date. This concept of sub-division, will come into play only when no acknowledgement of debt for the overall debt is avaialable.

RAVI (Law Student)     13 March 2010

If it is housing loan and proper insurance done at the time of loan processing the entire loan amount will be waived off.And in some of the Banks/HFC if the borrower expired and insurance has done they will return the entire payments made by the borrower to their dependents.

Rama chary Rachakonda (Secunderabad/Highcourt practice watsapp no.9989324294 )     14 March 2010

Brother Govind,

The subject of debts under Hindu Law is rather complicated due mainly to the reason that under the joint family system the father contracts a debt and after his death liabilities fall on the sons in the joint family. Once the liability falls on the sons more often than not, the sons will not be willing to discharge the debts and set up the plea that the debts contracted by their father were 'avyavaharika' debts and therefore they are not liable to pay the same.

1 Like

SACHIN AGARWAL (ADVOCATE)     03 December 2010

On teh death of borrower, his legal heirs are liable upto the extent of property inherited by them and the guarantors are liable as they are in the presence of the borrower.

P GOYAL (TRANSPORTER)     26 June 2012

what if the guarantor has only asset say house in his name and that too is hypothecated to another creditor/ lendor. How the banks can recover dues from the guarantor.

narendra.s.p (Chief Manager(Law))     01 July 2012

The Borrower means and includes his legal heirs as per the agreement. Therefore on death of the Borrower the legal heirs can give as suitable letter of undertaking to service the loan liability and continue the loan without Bank reclling the Loan and enforcing the security can be given by the legal heirs. 


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