gurantors rights without recalling loan account

Dear sir,

Banks have right under section 171 of the Indian Contract Act, to have a lien in matters of loan transactions.  But the facts of your case is almost similar to a decided case by the Karnataka High Court reported in AIR 2004 Kant 199 which is in your favour wherein the court held that the bank cannot withold the securities of a person on account of liability of the said person as a director concerning a different loan account which is altogether a different contract.   If you use the judgment, I think you can succeed.

Best of luck.

Dear Advocate KrishnaI am really grateful for this...arguments will be next week..will keep you informed..thanks very much..may god bless you and your family..

Salil Gupta

Dear Advocate Krishna,

Just one quick clarification..in the gurantee that i signed in the other account there is a clause stating that Bank may hold documents to title to goods or other properties belonging to the gurantors which are in banks possession or which may at any time hereinafter come into banks possession and may also liquidate any or all of these  title to goods or properties etx. without notice to the gurantors.....my advocate is having difficulty in contesting this point ..however it may be noted that this gurantee was signed by me for the company in which the properties that i want back were not mortgaged..can u once again help me in this please..thank u very much..the judgement that you referred to does not contain this clause

Your querry is little confusing and not clear.  Please give the entire facts in detail regarding your accounts and your liability and the point which requires to be clarified. 

I and my wife are directors of a company which is on the verge of becoming a NPA.. Meanwhile I took a housing loan and mortgaged the land on which the house was to be built. Subsequently my wife floated a firm in which she availed Packing Credit and mortgaged a flat for this and the bank sanctioned this but extended the housing loan property as additional security to my wifes firm..Now v are asking the bank to release both these securtites against closure of both the packing credit of my wifes firm and the housing loan. However the banks argument is that since both me and my wife are directors in another company where we have also given our personal gurantee and further that this company is an NPA and clause 6 of the gurantee that we signed for the company allows them to retain both the above securities though the same were not specifically mortgaged for the company. This clause states the following: "Bank may hold documents to title to goods or other properties belonging to the gurantors which are in banks possession or which may at any time hereinafter come into banks possession and may also liquidate any or all of these  title to goods or properties without notice to the gurantors.....my advocate is having difficulty in contesting this point of the gurantee that we gave  for the company... I hope this is clear.. conversely if you can give me phone number  then I could call u...thank you very much once again! Salil Gupta

I am not much an expert in such matters.  But I believe the judgment which I referred to your earlier itself is self sufficient and applies to the issue raised by you.  I have not read the judgment in full.  But I believe the judgment clearly says that there is no justifiable ground for the bank to withhold securities in respect of an altogether different contract and different debts pertaining to other companies. I think this squarely applies your present querry. 

I suggest you to look into a judgment AIR 1960 Punjab 632 for clarifying the banks rights to have a lien on the property of your wife for a loan due from the partnership firm.

I also suggest you to look into an important judgment which may apply more better than the earlier one suggested by me.  (AIR 2004 Orissa 142)

Please note that I have not read the above referred judgments in full.  I merely state my opinion by merely reading the decided legal issue in the cases and hence my opinion may not be conclusive and may even be wrong.  You can read the judgments in full and assist your attorney.  Good luck.

Thank u very much!!

Dear Advocate Krishna.............very much grateful for your timely advice..pls let men know if i could compensate you in any way for this...My advocate has taken adjournment for a week in order to incorporate the 2 judgements and to counter the clause in the gurantee.

Meanwhile , is possible could you help me  in the following:

I mother in law was the md of the company, me and my wife directors and my wifes relative another director ..this was on paper ..however the day to day all decisions and running of the company was being done by the relative ..in fact for all practical purposes the company and its profits or losses all were of the relativ. however lately the company is in financial trouble..and we fear...there could be other issues which we are not aware yet.. during the last 8 months all of us except the relative have quit the company..our shares in the company is less than 10% the balance belongs to the relative...is there anyway.. i can protect myself, my wife and my mother in law from financial or possible other defaults of  the company..since we were in effect directors only on paper...

Thanks.  I don’t expect anything in return from you.  I would be happy if you inform me the result of your case (judgment) if it is positive in your favour.  Regarding your querry about your company problems, I don’t know whether you have filed form 32 of your cessation of directorship from the company.  (Because you have stated that you have quit the company 8 months before).  If you don’t want to continue to be director you can file form 32 and complete all other legal formalities of cessation of directorship.  Your querry is again not clear and I don’t understand what kind of financial trouble you have and other legal problems and what your relative is doing to you.  If your querry is specific I can answer better. If there is any default on the part of the company, the company only will be liable as per law.  You will not be personally liable unless you have committed serious misconduct in company affairs or fraud over the creditors or any other mistake to cast personal liability on you.  The company is a distinct and independent person in the eyes of law and the company would be liable in case of any default and so you need not worry. 

Have a nice day.

Thank you Advocate Krishna...but still i must do something for you..maybe in the near future! the world is round and a small place... ok to clarify further.. i retired as director a month ago..my mother in law and my wife 8 months ago...but we were in the company as directors and as md till then ....from the time of inception in 1995 till the time we retired ..our share holding was progressively reduced from 100% to now less than 10% as of now... till we retired we have been signing all personal gurantees for all fund and non fund based bank facilities to the company ..the last in dec 2008...last 6 months there are no transactions and the company is on the verge of becoming an NPa...anytime the bank may send notices to us and to the active director  who has brought the company to this position...we fear there may be other surprises that we still dont know of....is there any way of protecting ourselves from the forthcoming financial and god knows what other liabilities...???