Recovery Proceedings by DRT against the Guarantors Are Without Jurisdiction

It is submitted that the recovery proceedings under section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as “DRT Act”) against the Guarantors are absolutely without jurisdiction. As per Black’s Law Dictionary, Ninth Edition, at page 1389, “recovery” means the regaining or restoration of something lost or taken away. It follows that the DRT has no jurisdiction to proceed against the Guarantor, as he has not taken any "debt", which he has to repay. 

As per section 4 of the U.S. Statutes of Frauds, 1677 a promise ‘to answer for the debt, default or miscarriage of another person’ is a contract of guarantee. The Guarantor promises to discharge the debtor’s liability if the debtor should fail to do so. The Guarantor’s liability is, therefore, secondary to that of the principal debtor {Guild & Co. v. Conrad (1894) 2 QB 885, 896}. The concept is explained below.

 (i) As per scheme of Indian Contract Act, 1872 ultimately the debt is to be recovered from the principal debtor, either primarily by the creditor or finally by the guarantor. Certainly, there is no mandate of Contract Act that finally the principal debt is to be recovered from the guarantor. (please consecutively refer sections 126, 140, 141 and 145)

(ii) The Guarantor is entitled to submit before DRT and/or Court that the personal guarantee agreement is not based upon a real consent, but was induced by undue influence by the Bank. The consent of the Guarantor having obtained by undue influence by the Bank, therefore, the personal guarantee agreement is voidable at the option of the Guarantor under section 19-A of the Contract Act.

 (iii) It is undisputed that, firstly, there is such an inequality of bargaining power between the Bank and the Guarantor that the Bank can cause economic duress to the Borrower and/or Guarantor; secondly, the personal guarantee agreement is always drawn up one-sidedly.

There Is More Than One Way to Buy NPA (Non-Performing Assets) From Banks

Everyone wants to be in 'distressed asset' acquisitions today. It's the cool term of the moment in real estate investment circles and it can be incredibly profitable. However there is more than one way to do this, some more profitable than others.

For years now Realtors have listed just about everything as 'foreclosures' in order to give the perception of a discount. However, it is clear that it is normally far more profitable for investors to go right to the source if they want to enjoy the best bargains and realize the biggest spreads. This means acquiring NPA (non-performing assets) direct from banks.

Some still like to chase after individual property owners in the hopes of digging up a few nuggets among 'motivated sellers' but once you do the math it is pretty obvious that buying non-performing assets from banks can be far better. It certainly beats splurging on a ton of marketing, only to deal with bull-headed, unrealistic and flaky sellers on the street.

On the other hand those electing to purchase their NPA from banks are tapping right into the spring and are able to connect directly with many of the most motivated sellers on the planet.

While single family homes are normally the first obvious step for newbie investors, there are other options. In fact, in some areas even bank REO inventory of residential homes is very low. However, real estate investors can still pick from commercial properties, construction REOs and even multifamily apartment buildings. Of course those set on finding distressed multifamily properties will need to invest in some good software and be prepared to do a little hunting as these are perhaps the hottest items of the moment.

What many don't realize is that there are far more options for acquiring NPA (non-performing assets) from banks than just REOs. Bank owned foreclosure properties are great, though there is nothing wrong with diversifying either. In addition to actually buying properties themselves, investors can also just buy distressed property notes and non-performing loans.