Bank initiating process of auction

Shivendra Pratap Singh


High Court Lucknow

Civil Law | Property

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Advised on 27 Sep, 2015

Sir, my son has taken a loan from Bank of Baroda and he failed to repayment so the bank is now initiating proceeding against me for recovery of the loan. I was the guarantor of the loan. I am 65 years old and this is my one and only house. Bank filed a case before DRT. Now recovery officer came to my home and said that your house shall be auctioned in next month.

I am very afraid and want to save my home. How can I liable for the repayment of loan because I was the only guarantor? Is there any provision to stop this auction process and settle the loan with the bank?

You are liable to repay the loan amount because you are the guarantor of the loan. According to section 128 of the Indian Contract Act, guarantor’s liability is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.

If there is any provision in the contract that guarantor shall not be liable for any legal proceeding then you can object this proceeding. But it seems that there is no such provision in agreement because DRT accepted this proceeding and initiated the process of recovery.

It is the discretionary power of the bank to initiate proceeding against the borrower or guarantor of the loan. In the Ram Kishun vs State of Uttar Pradesh, (2012) 11 SCC; held by the Supreme court that it is prerogative of the creditor alone whether he would move against the principal debtor first or surety to realise the loan amount. So you cannot object this proceeding. Proceeding of DRT is legally valid.

You may file an application either before DRT or Permanent Lok Adalat for one-time settlement of the loan. If creditor and borrower agree to settle the loan through extra-judicial proceeding then lok Adalat will pass an award according to the agreement between creditor and borrower. This the only option you may avail.