In case a guarantor of a wilfully defaulting company refuses to comply with the bank’s demand, the guarantor would be treated as 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 defaulters 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.
As a recent buzz, Vijay Mallya-owned Kingfisher Airlines, now grounded due to financial troubles, was declared as a wilful defaulter by United Bank of India last month.
“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,” 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.
RBI further asked banks/FIs may include “Guar” in brackets i.e. (Guar) against the name of the guarantor and report the same in the Director column, while reporting such names to RBI.
The central bank also said this would apply only prospectively and that this position may be told to all prospective guarantors at the time of accepting guarantees.