Page 116 - A Banker Down the Rabbit Hole

The next day, I wanted to meet the guarantor. The borrowers appeared
nervous. I asked them what relationship the female guarantor had with
the borrower. They said no relationship but she was wife of one of their
family friends. It could be possible but it was difficult to digest for me
that a friend's wife would agree so easily to stand guarantor for loan
worth several crores of rupees to a trading firm and mortgage her
property. I had already got vigilant on their conduct while inspecting the
property. I had my doubts whether the female guarantor was properly
briefed about the purpose of her signatures on bank documents and her
liability for the loan. I told them, "I would like to meet the guarantor in
person before proceeding further to ascertain that she understands this
transaction and the nature of her liability."

The next day, they came and offered an alternative guarantor with
substantial worth. Now this appeared to be a possible case of
misrepresentation of facts to the earlier proposed guarantor. Many times,
the borrowers who are normally friends or relatives of the guarantors
request them to be a witness on the loan documents to be signed by
the borrower for a bank loan whereas actually the document is a
guarantee agreement. This is case of misrepresentation of facts to the
guarantor. Later, when the borrower defaults, the bank goes after the
guarantor also. The general stand taken by the guarantor is that he had
not signed any guarantee for the loan but was only a witness on loan
documents or takes the plea that the bank should recover the amount
from the assets of the borrower first and if still some amount is payable,
he would pay later.

Liability of a guarantor as per law
I made a very peculiar observation during these episodes. It was a general
notion that guarantor has to pay up only when bank is not able to recover
from the personal assets of the borrower or assets of the firm of the
borrower. That is not true; the bank can recover the dues from the
borrower or the guarantor or both.

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