___________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
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