Bank loan and guarantors role
Querist :
Anonymous
(Querist) 28 October 2011
This query is : Resolved
I stood as one of the guarantor in an SME loan. The project was completed and some licences were not received for full fledged operation.
Meanwhile Govt. came up with a notification prohibiting all commercial activiting within certain areas. The unit also declared to be within that area and ultimately, govt. sealed the premises and took possession. The dispute between the proprietor and govt. is going on in a writ matter.
Meanwhile the bank after such sealing closed my FD prematurely without giving any notice. And when I made a representation to revoke my FD stating the above impediments which the unit is undergoing at present, the bank without replying to my representation filed a money suit for receovery by suppressing the facts pertaining to present situation of unit.
My query is :-
1. Whether security agreements entered into with the bank became void after sealing in accordance with section 56 of Indian contract act?
2. Whether closure of my FD after the unit was sealed by the Government is in accordance with the RBI guidelines?
3. Whether the bank has committed a fruad by suppressing the facts before the civil court while filing money suit?
4. Can I initiate a criminal action against the bank under 409, 420, 120B for taking my FD amount after a supervening frustrating event which automatically discharged me from the liability?
Raj Kumar Makkad
(Expert) 29 October 2011
1. No. Both the matters are distinct and separate.
2. Yes.
3. You have not mentioned in your query what was suppressed by bank in civil court and further what was a fraud so no comment.
4. No such case lies against bank on the bases of securing its loan amount.
prabhakar singh
(Expert) 29 October 2011
Section 56 of Contract Act is of no use in your case as that deals with Doctrine of frustration of Contract.The Doctrine of Frustration is really an aspect or part of law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of Section- 56.So in your case if there is any supply order under taken
which obviously now can not be complied,the provisions can be invoked.
But your facts are all togather different.
Had there been a clause in your agreement with bank called 'Force-Majeure'it could have been very well possible for you to escape from liability.
The requirements of Force-Majeure are:
(a) It must proceed from a cause not brought about by the defaulting party’s default.
(b) The cause must be inevitable and unforeseeable.
(c) The cause must make execution of the contract wholly impossible.
The Force Majeure clause should be construed with a close attention to words which precede or follow it, and with regard to the nature and the general terms of the contract. Therefore, the words “any other happening” in such a clause must be given ejusdem generis construction so as to engulf within its folds only such happenings and eventualities which are of the nature and type illustrated in the same clause with close attention to the nature and terms of the contract and would not reasonably be within the power and control of the party.
Where reference is made to Force Majeure, the intention is to save the performing party form the consequences of any thing over which he has no control. This is the widest meaning that can be given to Force Majeure’.
But I know it must not be there as bank agreements are always in modeled standard forms to fasten parties and not to absolve from liabilities.
However i advise you to explore about this possibility going through various clauses of agreement with the Bank because some time possibilities are created against a plain NO by constructive labored YES.
A bank has generally constructive lien against deposits of its debtor,so being the case FD could be adjusted.
A suppression of fact before court may or may not amount to fraud played upon the court.If the suppression is of the nature that if disclosed and known to the court,the court shall not grant the
relief sought,then it may amount to fraud
but otherwise if the fact suppressed has no relevance to the grant of relief then it would be construed as NOT MATERIAL FACT.
I hardly believe you have rights to charge bank with any criminal liability either under sections envisaged by you are under any other.
Shonee Kapoor
(Expert) 04 November 2011
Agreed with the expert opinion on the matter.
Regards,
Shonee Kapoor
harassed.by.498a@gmail.com
Querist :
Anonymous
(Querist) 07 November 2011
1. The loan granted to the Unit was business loan for setting up of unit. One of the condition clearly stipulates that "the bank will have the first charge on the profit of the units towards repayment of installments under Term loan sanctioned"
2. After setting up the unit before it could generate some profit for repayment (within the moratorium period)the government prohibited commercial activities within the area where the unit is located.
3. Therefore performance of contract became unlawful as well as impossible after sealing of the premises.
4. The Guarantee agreement was a continuing gaurantee which has come to an end after sealing which was beyond the contemplation of the parties at the time when the contract was entered into.
5. The failure of the loan is only due to the change is Government policy so why the Guarantor who has no control at all over the change in Government policy should not be dicharged?
