CHENNAI: Lenders can declare a loan guarantor as wilful defaulter when the primary borrower is declared so, said an advocate in the apex court.

Referring to the circular issued by the Reserve Bank of India (RBI), D. Varadarajan, a Supreme Court advocate, told. "A guarantor is on the same footing as of a principal debtor. The liability of a guarantor is co-extensive of the principal debtor."

According to him, the RBI is on a strong legal footing on this aspect.

In a circular issued Tuesday, the RBI said: "While dealing with wilful default of a single borrowing company in a Group, the banks /FIs (financial institution) 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," the RBI said.

The RBI also clarified that a banker can proceed against the guarantor/surety in the case of a default by the principal debtor even without exhausting the remedies against the latter.

"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," the RBI said.

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