Skip to main content

Guidelines on Wilful Defaulters – Clarification regarding Guarantor, Lender and Unit

___________RESERVE BANK OF INDIA_____________
www.rbi.org.in
RBI/2014-15/221
DBOD.No.CID.41/20.16.003/2014-15                                      September 9, 2014

All Scheduled Commercial Banks (excluding RRBs and LABs) and
All India Notified Financial Institutions (FIs)

Department of Banking Operations and Development, Central Office, 13th Floor, Central Office Building, S. Bhagat Singh Marg, Mumbai - 400 001

Dear Sir/ Madam

Guidelines on Wilful Defaulters –
Clarification regarding Guarantor, Lender and Unit

Please refer to the Master Circular on Wilful Defaulters DBOD.No.CID.BC.3/20.16.003/2014-15 dated July 1, 2014.

2. Paragraph 2.1 of the circular lists out various events when a “wilful default” would be deemed to have occurred. In view of references received from a few banks regarding scope/definition of “wilful default”, it is clarified as follows:

a) The term ‘lender’ appearing in the circular covers all banks/FIs to which any amount is due, provided it is arising on account of any banking transaction, including off balance sheet transactions such as derivatives, guarantee and Letter of Credit.

b) The term ‘unit’ appearing therein has to be taken to include individuals, juristic persons and all other forms of business enterprises, whether incorporated or not. In case of business enterprises (other than companies), banks/FIs may also report (in the Director column) the names of those persons who are in charge and responsible for the management of the affairs of the business enterprise.

3. Paragraph 2.6 of the circular is amended to read as follows:
“While dealing with wilful default of a single borrowing company in a Group, the banks /FIs should consider the track record of the individual company, with referenceto its repayment performance to its lenders. However, in cases where guarantees furnished by the companies within the Group on behalf of the wilfully defaulting units are not honoured when invoked by the banks /FIs, such Group companies should also be reckoned as wilful defaulters”.

4. In connection with the guarantors, banks have 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. It is advised that in terms of Section 128 of the Indian Contract Act, 1872, the liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract. Therefore, when a default is made in making repayment by the principal debtor, the banker will be able to proceed against the guarantor/surety even without exhausting the remedies against the principal debtor. As such, 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. I is clarified that this would apply only prospectively and not to cases where guarantees were taken prior to this circular. Banks/FIs may ensure that this position is made known to all prospective guarantors at the time of accepting guarantees.
5. Banks/FIs may take due care to follow the provisions set out in paragraph 3 of the Master Circular on Wilful Defaulters dated July 1, 2014 in identifying and reporting instances of wilful default in respect of guarantors also. While reporting such names to RBI, banks/FIs may include “Guar” in brackets i.e. (Guar) against the name of the guarantor and report the same in the Director column.

6. This circular is issued in exercise of the powers conferred upon Reserve Bank of India under Section 35A of the Banking Regulation Act, 1949.
Yours faithfully
(A K Pandey)

Chief General Manager

Comments

Post a Comment

Most viewed this month

Appellate authorities under Special Statutes cannot be asked to condone delay

Madras High Court in R.Gowrishankar vs. The Commissioner of Service Tax has held that Appellate authorities cannot be asked to condone the delay, beyond the extended period of limitation A Division Bench comprising of Justices S. Manikumar and D. Krishnakumar, made this observation while considering an appeal filed against Single Bench order declining to set aside the order made in the condone delay petition filed by the petitioner to condone 223 days in filing the appeal before the Commissioner of Service Tax (Appeals). Article referred: http://www.livelaw.in/appellate-authorities-special-statutes-cannot-asked-condone-delay-beyond-extended-period-limitation-madras-hc/
Post a Comment
Read more

'Seize assets to pay damages to accident victim'

Her story might be an inspiration for the physically challenged but justice has remained elusive for her. In 2008, a bus accident left research engineer S Thenmozhi, 30, paraplegic. In April 2013, the motor accident claims tribunal directed the Tamil Nadu State Transport Corporation (TNSTC) to provide her a compensation of 57.9 lakh. However, TNSTC refused to budge and on Tuesday a city court ordered attaching of movable assets of the transport corporation. Thenmozhi was employed in C-DOT, a telecom technology development centre in Bangalore. On July 21, 2008, she was coming to Chennai in a private bus. Around 2am, the bus had a flat tyre and the driver parked it on the left side of the road near Pallikonda in Vellore district on the Bangalore-Chennai highway. While the tyre was being changed, a TNSTC bus of Dharmapuri division hit the stationary bus. The rear part of the bus was smashed and passengers were injured. Thenmozhi who had a seat at the back of the bus suffered...
Post a Comment
Read more

Mumbai ITAT rules income of offshore discretionary trust is subject to tax in India

The Mumbai Income Tax Appellate Tribunal (ITAT) has recently determined the following issue in the affirmative in the case of Manoj Dhupelia: Should the income of an offshore discretionary trust be subject to tax in India, if no distributions have been made to beneficiaries in India? The question arose from appeals filed by individual beneficiaries in relation to a Lichtenstein-based trust, the Ambrunova Trust and Merlyn Management SA (the Trust) with the ITAT. It is important to note that the individuals in this case were amongst those first identified by the Government of India (GOI) as holding undeclared bank accounts in Lichtenstein. The ITAT ruling raises the following issues: Taxation of Trust Corpus: ITAT classified the corpus of the trust as "undisclosed income" and declared it taxable in the hands of the beneficiaries. Taxation of Undistributed Income: ITAT refused to draw a distinction between the corpus and undistributed income from the trust and declared i...
Post a Comment
Read more