Revoke from the status as guarantor
minsal
(Querist) 10 September 2012
This query is : Resolved
Sir,
one of my client's relative was in need of money and he applied for bank loan. In the loan application, my client without any knowledge of risk and also in good faith has signed as a guarantor. now he came to know that his said relative is not regular in repayment of installment and someone told my client that if the said fellow fail to pay the loan amount then the banker will recover the said amount from you.
My client then approached his relative and told him to arrange some other person as guarantor and replace his name as guarantor from the said loan. in reply his relative said that it is not possible as there is no such provision under the law to change the guarantor and the banker will also not consider his request of changing the guarantor.
my query is that ......
(1)a person who availed a loan facility can apply for change the guarantor?
(2)can the banker refused to change or replace the guarantor?
Thanks in advance.
Anish Thakur 7018812737
(Expert) 10 September 2012
no gaurantor can not be changed during the pendency of the loan and garauntor is fully liable to pay the loan in case the main loan holder is not paying the installments or loan back.
malipeddi jaggarao
(Expert) 11 September 2012
(1) Yes, the borrower can apply for the change of guarantor to the Bank.
(2) It is the prerogative of the Bank whether to accept or reject such proposal for change of guarantor. Normally Banks do not accept change of guarantor till the loan is closed unless there is strong reason. For example if your client is not having much worth and he did not offer his properties as collateral securities and he is not a regular employee, his relative can approach the bank with a proposal for another guarantor who is a regular employee, who can give his properties as collateral securities. This is also not immediately possible. The account has to be reviewed by the Bank and normally they do this exercise only once in a year.
The liability of the guarantor is co-extensive with that of the principal debtor. The guarantor is equally liable for repayment. The creditor (Bank) has option either to proceed against the borrower, or the guarantor, or both. Some times, they prefer to go against only guarantor.
The guarantor has the right of subrogation. The moment he repays the dues of the principal borrower, he acquires all rights of the creditor. Literally he steps into the shoes of the creditor.
These are all of academic interest.
The purpose of obtaining guarantee is to safeguard the repayment in case of need. Hence it is the moral and legal duty of your client to assert pressure on his friend and see that the installments are regularly repaid.
Arun Kumar Bhagat
(Expert) 21 October 2012
I fully endorse the views of malipeddi jaggarao.
Guest
(Expert) 21 October 2012
My views are as under:
1) The borrower can apply for change of guarantor any time.
2) Although the bank has the right to verify the financial soundness, credibility and other credentials of the new guarantor, but does not enjoy the prerogative to refuse such change, if the new guarantor is financially sound and reliable.
In fact, the banks refuse to accept replacement just to avoid the whole process of cancelling the previous guarantee, taking a fresh guarante, affecting the whole of loan record with fresh entries of cancellations, replacements, etc., in the case. if the previous guarantor does not want to stand guarantee any more for a person, the bank cannot make him bound to remain as guarantor for ever against his wishes. In that case the bank is obliged to ask the borrower to replace the guarantor or to repay the loan and other dues in lump sum. On refusal by the banker the guarantor can drag the banker to the court of law.
malipeddi jaggarao
(Expert) 22 October 2012
While I agree with the comments of Mr.Dhingra, if the guarantor insists cessation of guarantee, he has to give a notice to the Bank to that extent and he will liable to the extent of liability as of the date receipt of such revocation.
Guest
(Expert) 22 October 2012
Of course a guarantor cannot be treated like a bonded labour at the mercy of the bank to serve the bank till the extinguishment of the loan when guarantor's dissent and change is notified by the guarantor or the borrower. The banker is obliged to do its own home work for implementing the change. The bank is supposed to restrict its jurisdiction only up to the security of its dues on account of loan amount and interest, not with insisting on keeping the same guarantor to stand for ever at the sweet will of the bankers.
malipeddi jaggarao
(Expert) 22 October 2012
Guarantor is at liberty to serve revocation notice, in which case his liability is restricted to the date of receiving of such revocation notice by the Creditor/Bank. Guarantor is not responsible for any further liability in such cases. To make it very clear, in Banks there are running accounts like cash credit/over draft. As there is a facility to withdrawal/deposit/withdrawal, the entire sanction limit need not be fully drawn. If a borrower is sanctioned cash credit account of Rs.10 lacs to A, and B guaranteed the facility. B wishes to revoke his guarantee on a particular date and serves a notice. The amount outstanding in this Rs.10 lac cash credit might be Rs.1 lac on the date of revocation. In such the guarantor's liability is restricted to this Rs.1 lac only. Though the remaining balance of limit is disbursed/not disbursed, B is not responsible beyond this Rs.1 lac. In such cases, the Bank will review account ask for a new guarantor whose worth is to its satisfaction. But B can not say I am not liable for any dues and relieve me totally. This is not possible.
