Supreme Court’s big decision on the accountability of loan guarantor, know what is the whole matter?

Supreme Court on loan guarantor: People often take help of loans to meet their needs. For this, a guarantor is also required. A guarantor is a person who guarantees the payment of the loan. Often there is a request to become a guarantor for a friend or relative. It is assured that this is just a formality. However, the Supreme Court has recently given an important decision regarding the accountability of loan guarantors. Let us know in detail what the matter is?

NCLAT’s old decision rejected

The Supreme Court on Thursday (February 26) said that under the Insolvency and Bankruptcy Code 2016, there is no bar on initiating CIRP (Corporate Insolvency Resolution Process) simultaneously against the main borrower and the corporate guarantor for the same loan. It was told in the decision that under Section 128 of the Indian Contract Act, the responsibility of the guarantor on the loan is the same as that of the borrower. The bench of Justices Dipankar Dutta and Augustine George Masih rejected the old decision of NCLAT given in the case of Vishnu Kumar Aggarwal vs Piramal Enterprises, considering it not correct.

Now relief to the bank in recovering money

It was said that if CIRP has been initiated against a guarantor for the same loan, then a second petition cannot be filed against the other guarantor or the main borrower for the same loan. This was considered equivalent to two punishments for the same mistake. The court said that now the bank can run CIRP separately against the borrower and all the guarantors at the same time. The court believes that the guarantor is also responsible for the loan, hence until the bank does not get its full share, it can knock on the doors of every person who had guaranteed the loan.

Under the earlier rule, if two people had given guarantee for the same loan, the bank could go to court against only one at a time. Due to this, it took years for the bank to recover the money because it had the right to take legal action one by one. Now this will not happen. Under the new rule, now in case of bank default, the borrower, the first guarantor and the second guarantor i.e. all three can file a case together in the same day. This decision of the Supreme Court is a matter of relief for banks and financial institutions.

Difficulties of loan guarantor increased

Earlier, loan guarantors used to remain relaxed thinking that till the time the CIRP issue regarding the defaulted company is not resolved, there is nothing to worry about. But now even if the company is sold, the bank can initiate proceedings in NCLT to confiscate the property of the promoter. Suppose, if the bank loan is not recovered even after the sale of the company, then the bank can knock on the doors of the promoters’ houses to recover the remaining money. If the bank wants, it can recover its losses by attaching your fixed deposits, account balance, mutual funds, commercial properties.

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