Guarantor of a ‘wilful defaulter’ is liable too: RBI

In case a guarantor of a wilful defaulting borrower refuses to comply with the bank’s demand, the guarantor would also be treated as a wilful defaulter, RBI said.

“Where a banker has made a claim on the guarantor on account of the default made by the principal debtor, the liability of the guarantor is immediate. In case the said guarantor refuses to comply with the demand made by the creditor/banker, despite having sufficient means to make payment of the dues, such guarantor would also be treated as a wilful defaulter,” RBI said in a clarification on Tuesday.

Amid rising concerns of wilful defaults among corporates, banks raised queries regarding inclusion of names of guarantors who are either individuals (not being directors of the company) or non-group corporates in the list of wilful defaulters.

Recently, United Bank of India declared Vijay Mallya, promoter of the now grounded Kingfisher Airlines, as a wilful defaulter.

“It is advised that the liability of the surety (guarantor) is co-extensive with that of the principal debtor unless it is otherwise provided by the contract,” the RBI said. Therefore, when a repayment default is made by the debtor, the banker will be able to proceed against the guarantor even without exhausting the remedies against the principal debtor.


Source : The Hindu