Facing DRT Proceedings as a Guarantor?
When the primary borrower defaults, being a guarantor for a business loan, corporate facility, home loan, cash-credit limit or any other bank borrowing can lead to severe legal and financial consequences.
Guarantors often think that the bank will first make efforts to recover the full amount outstanding from the borrower and then turn to the guarantor. In reality, however, the legal position is quite different. Depending on the language of the guarantee documents, loan agreement, securities involved and facts of the case, the guarantor can be pursued for recovery along with the primary borrower.
Consequently, legal notice sent by a bank, financial institution, DRT, RO or any other agency should not be disregarded.
Advocates specializing in DRT Guarantor Defence can explain the nature of the claim to the guarantor, review the guarantee documents, highlight potential legal issues and represent the guarantor in appropriate legal proceedings.
DRT Lawyer represents guarantors against bank recovery claims, Debt Recovery Tribunal (DRT) suits and SARFAESI related issues. We also handle other related financial-recovery matters. The legal strategy varies based on the documents, facts and specific circumstances.
What Is a DRT Guarantor Defence Lawyer?
A DRT Guarantor Defence Lawyer represents individuals, directors, partners, family members, coborrowers and any other persons who have entered into a guarantee for the repayment of a loan and now find themselves embroiled in recovery proceedings.
If the primary borrower defaults and cannot repay the loan/facility, the bank / financial institution may take up suitable recovery proceedings in respect of such debt depending on the nature of such debt and the remedies available under law.
The principal legislation governing the adjudication/recovery of debts owed to banks / financial institutions is Recovery of Debts and Bankruptcy Act, 1993 which envisages adjudication and recovery through Debt Recovery Tribunals.
Indian Contract Act, 1872 also has several crucial provisions dealing with guarantee contracts and surety liability. Section 128 provides that "subject to the terms of the contract, where a surety agrees to be responsible for the debt of a principal debtor, his liability is co-extensive with that of the principal debtor."
The legal position, however, is not quite so simple in every case of guarantor liabilities.
Actual legal position would depend upon the terms of guarantee, the loan documents, subsequent variations, conduct of lender, securities provided, amounts already paid, etc. and other facts of the case.
It is therefore necessary for a lawyer to analyze all aspects of the transaction and identify what arguments can be made based on the documents and proceedings.
Why Legal Assistance Is Important for a DRT Guarantor
Signing as a Guarantor can have significant financial implications for a person during a bank recovery.
An Advocate can help clarify some of these queries :
- What exactly was signed by the Guarantor?
- What Guarantee was provided ?
- What is the Claim Amount ?
- How has the outstanding amount been worked out?
- What are the securities provided ?
- Has the bank filed DRT/SARFAESI proceedings ?
- Are there any contractual or procedural issues?
- Are payments/settlement reflected/credited properly ?
- What proceedings are pending ?
- Can any response or representation be made ?
Not every claim by the bank can be upheld and not every defence can succeed, so a Guarantor should keep this in mind.
On the other hand, a Guarantor should not sign a guarantee and think that there is no issue to investigate.
The answer is document based legal analysis.
How a Lawyer Can Help in DRT Guarantor Defence Matters
Nothing contained in this article should be taken as legal advice for any specific situation.
Services of DRT Guarantor Defence Lawyer
Services of a defence lawyer may be availed at various stages of a recovery dispute by a guarantor.
Scrutinizing Guarantee and Loan Documents: Loan Documents
The loan documents like guarantee deed, sanction letter, loan agreement, documents evidencing security (if any), correspondence and other related records can be scrutinized.
Scrutinizing the Bankās Recovery Claim
Scrutiny of statements/repayment records etc. can be performed to understand how much money the bank/financial institution is claiming and the basis for such claim.
Analyzing Guarantorās Legal Standpoint
Legal provisions especially those which are present in the Indian Contract Act, 1872 which deals with sureties i.e. Sections 126 to 147 can be analysed to see if any of them are applicable to the facts of the guarantor.
Representation at DRT
Upon examining the facts, a lawyer can represent you before the Debt Recovery Tribunal and help you in respect of filing pleadings, documents, attend hearings and help you with various procedural requirements.
Help with SARFAESI
Section 13 or Section 14 notices and attachment and auction of secured property can be examined to see if any legal remedies are available to you.
Help with Property & Security related issues
Documents related to security interest provided by the guarantor on his property can be examined.
Help with Settlement
Corresponding with bank or financial institution regarding possibilities of a settlement can also be done. Lawyers are not expected to assure you that bank will waive x% of the dues or settle for y amount of money.
Help at Stage after Order has been passed/ Recovery Stage
Advice can be provided on the legal avenues available after passing of an order/recovery certificate. Section 18 of Recovery of Debts and Bankruptcy Act, 1993 deals with actions of Recovery Officers for recovery of debts.
Key Legal Concerns Related to Guarantor Defence
- Liability of Surety Under Indian Contract Act
- Section 128 of Indian Contract Act says that unless otherwise provided by contract, the surety is bound jointly with the principal debtor or, if there are several sureties, with all of them.
- In view of the above: a lender should not assume that it must always exhaust every available remedy against the borrower before pursuing the surety; nor should a guarantor assume that the lender will resort first to the borrower.
- However, the precise contractual and factual matrix does remain relevant.
- Nature & Scope of Guarantee
- Often, the wording of the guarantee itself is decisive. Does it cover:
- The amount guaranteed?
- Whether continuing?
- Any contractual limits?
- Cover for subsequent transactions?
- Any amendments?
- Any particular conditions within the guarantee?
Changes to the Underlying Contract
Section 133 extends to discharge of a surety where there is any variance in the contract to which he is surety without his consent and if such variance is authorised by the contract or by law or prejudicial to his rights under the statutory provision or facts of the case.
The existence or not of such an issue can be decided only on reference to the documents. Facts.
Security Enforcement
In cases where there is a security asset, lender enforcement may bring into play provisions of SARFAESI.
Section 17 of SARFAESI Act deals with application against certain actions taken under Section 13 (4).
Limitation & Procedural Issues
Questions of limitation, jurisdiction, service, pleadings, evidence and other procedural compliance issues are often encountered in recovery disputes.
They cannot be presumed to exist but have to be decided on facts of each case.
Settlement, Payment and Release
In case payments are made or parties enter into a settlement, documents & payment trail should be reviewed. Guarantors should be aware of what remains unpaid after the proposed settlement is taken into account.
Documents and Information Generally Required
Documents required will vary from case to case. Usually a guarantor is required to produce the following:
- Guarantee deed/ agreement
- Loan sanction letter
- Loan agreement
- Demand Promissory Note, if any.
- Mortgage/ Security document, if any.
- Hypothecation documents, if any.
- Bank notices and correspondence.
- DRT summons/ pleadings.
- Bank statement/ statement of account.
- Record of repayment.
- Settlement letters.
- Restructuring documents.
- SARFAESI notices, if any.
- Possession notices, if any.
- Particulars of secured asset.
- Prior orders passed in the case.
- Recovery certificate, if passed.
- Any correspondence with borrower/bank which are relevant.
- Any documents signed by you for variation of the loan facility.
- Try to submit originals and enclose genuine documents wherever possible.
Clients are requested to cooperate with the lawyers and provide them with all the necessary documents.
We will be able to advise you better once we have all the facts and documents.
Why Choose DRT Lawyer for Guarantor Defence?
Specialized Knowledge of Debt Recovery Related Issues
Guarantor issues commonly span areas of contract, banking finance documents, debt recovery legislation and secured creditors remedies.
At DRT Lawyer, we specialise in legal issues arising out of debt recovery and proceedings related thereto.
Tailored Analysis of Individual Matters
Every guarantor issue is different.
The legal situation can vary based on the nature of the loan, guarantee and security, amount involved, structure of the borrower and procedural history of the matter in question.
For this reason, we evaluate each matter on its own facts.
Skilled Advocacy and Legal Support
If representation is needed, Adv. BK Singh and other lawyers associated with DRT Lawyer can help clients obtain competent legal representation for matters relating to the DRT and associated debt recovery issues.
Understandable Advice
Clients have the right to know what they are up against.
Clients should receive advice regarding the nature of the proceedings against them, issues at play and available legal remedies in a manner that is practical and easy to understand.
Assistance Throughout India
Debt Recovery Tribunal matters can pop up all over India.
At DRT Lawyer, we can provide legal support to those looking for professional guidance with respect to guarantor issues pertaining to debt recovery throughout India, where permitted by the appropriate forum, jurisdiction and legal engagements.
Benefits of Taking Professional Legal Assistance
Timely legal opinion can enable a guarantor to:
- Get clarity on nature of banks claim
- Analyse the guarantee document signed by him
- Spot the legal issues involved
- Get DRT process explained
- Scrutinize SARFAESI action taken
- Help sort relevant documents
- Respond to proceedings correctly
- Not miss any critical notices
- Explore potential legal options
- View settlement notices with a practical eye
- Ensure his rights are protected by suitable representation
- Take a decision only after reviewing the facts of the record
Legal opinion would not assure that the guarantor will get discharged from liability or that recovery proceedings will be halted. Rather the aim of professional intervention would be to make sure that the guarantor's position is examined and put forth legally.
Frequently Asked Questions About DRT Guarantor Defence
1. Can the guarantor be dragged to DRT for loan of borrower?
The guarantor can be joined in recovery proceedings against the borrower as per nature of debt, guarantee and governing law. Contractual liability of a guarantor and remedies available to the lender has to be analyzed based on the documents.
2. Is guarantor liable for entire loan amount automatically?
Not all guarantees are the same. Section 128 of Indian Contract Act states that the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. Therefore, the actual guarantee document is important.
3. Can the bank go after the guarantor?
A lender can have remedies against a guarantor as per the applicable law and contract. A guarantor should not assume that the lender has to exhaust the remedy of recovery against the borrower first. A guarantor should consult a lawyer.
4. I have given my personal guarantee for my company. What should I do?
If you are a director, shareholder or any other person who has given personal guarantee to the lender for your company, you may have obligations towards the lender separately from your company. Guarantors cannot claim protection merely because the company has a separate legal identity.
5. Can a guarantor file an objection against recovery?
Subject to documents and facts, a guarantor may have legal rights and grounds to object against recovery. Legal options available to a guarantor should be reviewed against the forum and nature of proceedings. Contact a DRT Guarantor Defence Lawyer.
6. Can property of guarantor be attached in loan recovery?
The lender may take recovery measures against property of the guarantor, if the property is provided as security by the guarantor or is otherwise liable to be attached by virtue of an enforceable security interest. Grant deeds and facility agreements should be reviewed.
7. Can SARFAESI be invoked against guarantor?
Guarantors and securities are often related to SARFAESI issues. Depending on the nature of the banking transaction and the enforcement action taken by the lender, SARFAESI Act provisions may become relevant. Read the Act to understand provisions dealing with securities and applications to prevent specified actions.
8. What should I do if I receive a DRT notice?
Ignoring a notice from DRT is not a solution. Relevant documents should be reviewed by a lawyer as soon as you receive the notice so that you understand what is claimed, what deadlines apply and what legal response is appropriate.
See How We Can Help You section on this website to learn how a DRT Guarantor Defence Lawyer can help.
9. Can a DRT Guarantor Defence Lawyer negotiate a settlement?
Yes. If a settlement is possible or desirable based on a legal and commercial analysis, your lawyer can help review the terms of settlement and communicate with the bank. A lender may agree to settlement depending on facts and their interest.
10. I am just a guarantor, why should I consult a lawyer?
Guarantors can be held responsible to fulfill the obligations of the borrower. Loan documents, guarantee, security and recovery process can have various provisions which when read together can have several implications. Timely review by a lawyer can help a guarantor understand their exact legal position and options.
Conclusion
Guarantors wake up calling when the borrower goes into default.
Donāt treat a DRT proceeding, recovery notice or SARFAESI action against you as ājust another piece of paperā. The guarantee itself, the loan documents, the amount due and payable, the security documents and the facts and procedure leading up to the action against you can all affect your rights.
An experienced DRT Guarantor Defence Attorney can help you review these issues, discuss the relevant law with you and represent you if necessary.
Advocate BK Singh and the DRT Lawyer team assist guarantors in India with respect to bank recovery actions, DRT proceedings and related debt-recovery litigation.
If you have been issued a DRT notice, recovery notice, SARFAESI notice or other demand with respect to a guarantee provided by you, itās important to speak with an attorney early.
Call DRT Lawyer to schedule a consultation to discuss your guarantor issue with an attorney.
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