Do Not Worry about Be­ing a Loan Guar­an­tor

You are pro­tected

Consumer Voice - - Contents -

You are pro­tected

“In the old days, when you took out a mort­gage, it was prob­a­bly through a lo­cal bank ora credit union, and who­ever gave you your loan held onto it for life. If you lost your job or got too sick to work and sud­denly had trou­ble mak­ing your pay­ments, you could call a hu­man be­ing and work things out.” – Matt Taibbi

Un­til a few months ago, to stand as a guar­an­tor be­fore a bank for a friend seek­ing a loan was one of the most dif­fi­cult de­ci­sions one had to make. While a bla­tant ‘no' could strain the re­la­tion­ship, agree­ing to be­come a guar­an­tor meant the pos­si­bil­ity of hav­ing to face ruth­less re­cov­ery agents. If you have not faced ha­rass­ment your­self for be­ing a guar­an­tor for some­one, you would have known some­body who re­pented stand­ing as a guar­an­tor for some­one, faced le­gal no­tices, or even had to tackle un­ex­pected vis­i­tors from the lend­ing banks or com­pa­nies. From the bank's per­spec­tive, the guar­an­tor is treated as good as the bor­rower and hence it is the re­spon­si­bil­ity of the guar­an­tor to clear the loan. Un­til re­cently, the guar­an­tor re­ally had no clearly de­fined le­gal pro­ce­dure to fall back upon.

In some cases, the loan agree­ments have clauses wherein the guar­an­tor is li­able to pay on be­half of the bor­rower un­til the loan is set­tled. Al­though the amount paid by the guar­an­tor is sup­posed to be re­turned by the bor­rower as per the law, it does not hap­pen of­ten and the guar­an­tor mostly has to seek le­gal help to claim the same (or avoids do­ing so as the bor­rower is a known in­di­vid­ual). Some banks go to the ex­tent of spoil­ing the guar­an­tor’s per­sonal credit score by shar­ing neg­a­tive in­for­ma­tion with credit-rat­ing agen­cies, thereby im­pair­ing his chances of ob­tain­ing any loan in the fu­ture from any bank or non-bank­ing fi­nance com­pany (NBFC).

Now, though, with the in­tro­duc­tion of In­sol­vency and Bank­ruptcy Code (IBC) 2016, things are chang­ing—and chang­ing for the good. The code not only lim­its the li­a­bil­ity of the guar­an­tor, it also pro­tects his right to claim his money back from the bank or the NBFC.

IBC came into ef­fect from 15 De­cem­ber 2016 and the Delhi bench of the Na­tional Com­pany Law Tri­bunal (NCLT) started ad­mit­ting cases un­der the same from Jan­uary 2017. A case filed by a guar­an­tor (un­der in­sol­vency res­o­lu­tion pro­ceed­ings for a loan where the bor­rower had taken the loan from a bank but failed to re­pay it) was ad­mit­ted in Jan­uary and opened doors for many such cases that would reach the tri­bunal later in the year.

In this case, the guar­an­tor had ap­proached NCLT un­der IBC against the ‘main bor­rower’ (for whom he stood as guar­an­tor), to re­cover dues that the lend­ing bank had col­lected from the guar­an­tor. The cor­po­rate debtor had mort­gaged im­mov­able prop­erty with the bank against the loan while he was the guar­an­tor.

As per IBC, af­ter the case is ‘ad­mit­ted’, the guar­an­tor will be able to re­cover his dues within 270 days of ad­mit­tance of the case as the cred­i­tors have to come up with a re­vival plan within 270 days.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.