R N HATHIRAMANI Vs. CANARA BANK
LAWS(DR)-2003-5-5
DEBTS RECOVERY APPELLATE TRIBUNAL
Decided on May 07,2003

Appellant
VERSUS
Respondents

JUDGEMENT

A.Subbulakshmy, - (1.)COUNSEL for the appellant submits that the appellant is only a guarantor and he is a NRI and for the NRI to stand as a guarantor the Bank must obtain permission or the Reserve Bank of India (RBI) and without obtaining permission from the RBI, the Bank has obtained the guarantee document from the appellant guarantor and so the guarantee executed by the appellant is invalid and the guarantee cannot be invoked and no proceedings can be taken against the appellant. COUNSEL for the respondent Bank submits that it is not mandatory on the part of the Bank to obtain permission of the RBI before taking NRI as guarantor and the appellant is the Director of the 1st defendant Company and he is also the guarantor and all the loan documents are signed by the appellant and the appellant has also signed the Guarantee document and the appellant is liable for the suit claim.
(2.)Counsel for the appellant relies upon the instructions given in the application form and submits that the Bank must obtain prior approval of the RBI before taking the guarantee document from the NRI. He has not produced any rules and regulations to show that it is mandatory on the part of the Bank to obtain prior approval of the RBI before taking guarantee from an NRI. The appellant alone has signed all the loan documents on behalf of the Company. It is seen from the documents that the appellant is the Managing Director of the Company and he has signed the Promissory Note and other documents as Managing Partner of the Company. He has also signed the Guarantee document as guarantor for repayment of the loan. He has also executed the guarantee documents as guarantor. So, in dual capacity, he has signed all the documents and has availed the loan facility from the respondent Bank.
It is seen from the plaint allegations that the appellant and the other guarantor the 2nd defendant informed the Bank that they would obtain necessary sanction from the RBI as may be required under the provisions of the Foreign Exchange Regulation Act (FERA), 1973 and would comply with all legal formalities for the loan. The appellant along with the other guarantor the 2nd defendant also offered to stand as guarantors for repayment of the loan in their individual capacity. Only on the representations made by these defendants the Dank sanctioned loan. The instructions set out in the Application form reveal that the application should be completed in duplicate and should be submitted through an authorised dealer from whom the applicant desires to avail of the loan/overdraft facility. The instruction 'through authorised dealer' reveals that the authorised dealer should seek the approval of the RBI before granting loan/overdraft facility where it cannot be granted under the delegated powers. Relying upon this condition, Counsel for the appellant submits that the Bank ought to have obtained the approval of the RBI before allowing the appellant as guarantor. From the Application form also it is evident that the application should be completed in duplicate and should be submitted through an authorised dealer from whom the applicant desires to avail the loan facility.

(3.)SECTION 68 of the FERA, 1973 states that "Where a person committing contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly." The same provision contains in SECTION 42 of the Foreign Exchange Management Act (FEMA).


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