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Banks cannot forfiet loan guarantor's money without notice

The National Consumer Commission has held that a bank cannot appropriate the money of a loan guarantor without prior notice.

india Updated: Feb 24, 2006 12:24 IST

The National Consumer Commission has held that a bank cannot appropriate the money of a loan guarantor without prior notice.

A National Consumer Disputes Redressal Commission Bench of Justice M B Shah and Rajyalakshmi Rao, rejecting a petition by ING Vysya Bank which had appropriated deposits of guarantor YG Sreeram Setty, asked it to pay Rs 5000 as cost to him. The bank had challenged a Karnataka State Consumer Commission order that described the move as "unjustified".

Setty had stood guarantor of a loan of Rs 80,000 advanced by the bank to Banglore-based M/s Gautam Enterprises in 1983-84.

Two Fixed Deposit Receipts of Setty of Rs 40,490 and Rs 60,735, lying with the other branch of the appellant bank and which had not been kept as bailment, were appropriated after the the debtor failed to repay the loan.

"The question in this revision petition is whether a banker in excercise of its lien... Straightway appropriate the money deposited by a guarantor in FDR without any bailment and without informing the guarantor? Obvious answer is - no," the Bench said.

The order came on a petition of ING Vysya Bank filed against the order of the Karnataka State Consumer Commission which on June six, 2003 termed the act as "unjustified".

First Published: Feb 24, 2006 12:24 IST