A large number of borrowers become defaulters and their loan accounts become NPA because necessary precautions were not taken before taking loan. Many borrowers become defaulters and lose their life’s savings and capital, because their business and industry had no chance of success from the very beginning.
Do not take the loan simply because a viability report (a report about the success of the business or industry) has been prepared by a consultant. Almost, in all cases, a viability report is prepared for submission to Banks and Financial Institutions for getting the loan sanctioned. The viability report in such a case does not actually show whether the project is really viable or not. It is advisable to consult an independent expert who is not connected with the preparation of the viability report for submission to Banks and Financial Institutions and who can give you correct advice.
Even when, you decide to take the loan, you must consider several very important points, which are mentioned hereinbelow in the form of Frequently Asked Questions (FAQ).
Should I mortgage my residential house or flat?
Answer: Do not mortgage the residential house or flat, unless there is absolutely no other alternative.
If the residential house or flat has not been mortgaged but is in the name of borrower or guarantor, can the Bank attach and sell the same?
Answer: If the residential house or flat in the name of borrower or guarantors has not been mortgaged, the Bank cannot sell the same under Sarfaesi Act, 2002. However, the bank can file a case (Original Application) in the Debts Recovery Tribunal (DRT) against the borrower and guarantors under RDB Act, 1993 and DRT has the power to attach and sell the residential house or flat, even if the same is not mortgaged.
I want to save my residential house or flat from bank’s recovery action. What is your advice?
Answer: If at the time when you approach the Bank or Financial Institution for loan and if at that time, the residential house or flat is in the name of borrower or guarantors, the Bank or Financial Institution will insist that the same should be mortgaged or they may obtain an undertaking from you that you will not sell or mortgage the same to any other party till the bank’s entire loan is repaid. Hence, our advice is that the residential house or flat should not be in the name of borrower or guarantors. The residential house or flat should be in the name of a family member who is neither the borrower nor a guarantor. In such a case, you will not be ousted from your residential house or flat even if you are not able to repay the Bank’s loan and Bank takes recovery action.
Apart from the business or industry for which I am taking loan, there is another business or industry in the name of the borrower or guarantors. Is there any risk that the Bank or Financial Institution may attach and sell the same?
Answer: If you have another business or industry in the name of the borrower or guarantors, the bank can get the same attached and sold even if the same are not mortgaged. Though the bank cannot take Sarfaesi action in respect of such other business or industry, the bank or financial institution can file a case (Original Application) against the borrowers and guarantors under RDB Act, 1993 and DRT has the power to attach and sell such other business or industry, even if the same are not mortgaged.
I have another business or industry in the name of the borrower or guarantor, apart from the business or industry for which I am taking loan. How can I save my other business or industry from the bank?
Answer: Our advice is that do not keep such other business or industry in the name of the borrower or guarantors. It is advisable to keep such business in the name of a family member who is neither a borrower nor a guarantor or in the name of a limited company or limited liability partnership, which is not a guarantor. In such a case, even if you commit default and even if the mortgaged and hypothecated properties and other properties belonging to the borrower and guarantors, are attached and sold, your separate business or industry will remain unaffected and you will be able to maintain your family from the earnings of this separate business.
I want to start a new business or industry, should I start it in the name of the borrower or guarantor?
Answer: Our advice is that do not start a new business or industry in the name of the borrower or guarantors. It is advisable to start such new business or industry in the name of a family member who is neither a borrower nor a guarantor or in the name of a limited company or limited liability partnership, which is not a guarantor.
