Supreme Court on loan guarantor: People often take help of loans to meet their needs. For this, a guarantor is also required. A guarantor is a person who guarantees the payment of the loan. Often there is a request to become a guarantor for a friend or relative. It is assured that this is just a formality. However, the Supreme Court has recently given an important decision regarding the accountability of loan guarantors. Let us know in detail what the matter is?

NCLAT’s old decision rejected

The Supreme Court on Thursday (February 26) said that under the Insolvency and Bankruptcy Code 2016, there is no bar on initiating CIRP (Corporate Insolvency Resolution Process) simultaneously against the main borrower and the corporate guarantor for the same loan. It was told in the decision that under Section 128 of the Indian Contract Act, the responsibility of the guarantor on the loan is the same as that of the borrower. The bench of Justices Dipankar Dutta and Augustine George Masih rejected the old decision of NCLAT given in the case of Vishnu Kumar Aggarwal vs Piramal Enterprises, considering it not correct.

Now relief to the bank in recovering money

It was said that if CIRP has been initiated against a guarantor for the same loan, then a second petition cannot be filed against the other guarantor or the main borrower for the same loan. This was considered equivalent to two punishments for the same mistake. The court said that now the bank can run CIRP separately against the borrower and all the guarantors at the same time. The court believes that the guarantor is also responsible for the loan, hence until the bank does not get its full share, it can knock on the doors of every person who had guaranteed the loan.

Under the earlier rule, if two people had given guarantee for the same loan, the bank could go to court against only one at a time. Due to this, it took years for the bank to recover the money because it had the right to take legal action one by one. Now this will not happen. Under the new rule, now in case of bank default, the borrower, the first guarantor and the second guarantor i.e. all three can file a case together in the same day. This decision of the Supreme Court is a matter of relief for banks and financial institutions.

Difficulties of loan guarantor increased

Earlier, loan guarantors used to remain relaxed thinking that till the time the CIRP issue regarding the defaulted company is not resolved, there is nothing to worry about. But now even if the company is sold, the bank can initiate proceedings in NCLT to confiscate the property of the promoter. Suppose, if the bank loan is not recovered even after the sale of the company, then the bank can knock on the doors of the promoters’ houses to recover the remaining money. If the bank wants, it can recover its losses by attaching your fixed deposits, account balance, mutual funds, commercial properties.

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Loan guarantor: Many times a close friend or family member needs to take a loan, then we become guarantors without any hesitation. If you also do this, then be careful immediately, otherwise doing so can be heavy on you.

Becoming a guarantor means that you are guaranteed to repay the loan being taken. If your credit rating is good, then considering you a guarantor, a loan is also passed without any inattention.

Your credit score can go wrong

Now the responsibility of the person taking the loan is to pay the loan installments with interest from time to time. If he is unable to do so, then the first notice is sent to the guarantor as a defaulter and they are expected to get the loan amount.

This default can also affect your credit score, so before becoming a guarantor, it should always be kept in mind that the person you are becoming guarantors, you know well and you are so confident that they are able to pay loans on time. If your credit score goes wrong, then in the coming time you may have trouble taking loan or you may get a loan at a higher interest rate.

You will be responsible

It is not so easy to become a guarantor because the bank will count this loan in your total credit limit. If a person borrowing in a situation is called bankrupt, even if he is exempted from repaying the loan, the guarantor will have to pay the entire amount with interest. It is also not easy to get back from becoming a guarantor, when the loan is completely paid or the bank does not give a discount in writing.

Benefits of becoming a guarantor

However, becoming a guarantor also has some benefits. One, it helps someone close to you. It may be that your credit score will also be upgraded. If you become a guarantor for a responsible person and he repays the loan on time, then it will affect your credit score. In such a situation, if you want to become a guarantor for someone, then you should be of course, but keep checking your credit score from time to time or take advice of an expert.

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