The Reserve Bank of India has issued a set of clarifications under which it clarifies that the management of the firm defaulting on loans would also be covered as ‘wilful defaulter’ and the firm is not restricted to firms. The banking regulator had earlier issued a master circular in July where it had associated ‘wilful defaulters’ as a ‘unit’.
RBI has now said the term ‘unit’ 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.
It has also clarified that the term ‘lender’ 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.
RBI said that 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 reference to 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,” it added.
Moreover, the regulator has also brought under the ambit of ‘wilful defaulter’ tag guarantors for a loan in case they they refuse to clear the dues on behalf of the firm in question.
In connection with the guarantors either individuals (not being directors of the company) or non-group companies, RBI said the liability of the surety is co-extensive 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, according to RBI.
“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,” RBI said.
The regulator, however, clarified that this would apply only prospectively and not to cases where guarantees were taken prior to this circular.
This means it would not be applicable to loans taken by Kingfisher Airlines. Recently United Bank of India (UBI) declared liquor baron Vijay Mallya, chairman of the grounded Kingfisher Airlines, as wilful defaulter following his failure to pay dues to the bank.
UBI has also sent a wilful defaulter notice to United Breweries Holdings, a guarantor to loans taken by Kingfisher Airlines. Apart from UBI, other banks that lent to the airline, including the country’s largest lender SBI, have followed the suit.
The RBI had last year made it mandatory for the banks to receive personal guarantees of the promoter at the time of restructuring the loan.
(Edited by Joby Puthuparampil Johnson)