Entire group can be declared ‘wilful defaulter’ as RBI tightens norms

The Reserve Bank of India has tightened its guidelines on wilful defaulters, saying bankers can classify the guarantor group firms and management as wilful defaulters.

In effect this means that if a certain company is declared a wilful defaulter, all companies of the parent group stand similarly indicted. This may have ramifications for groups like Vijay Mallya's UB and Subrata Roy's Sahara.

The guarantor group companies can be reckoned as wilful defaulters 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, according to the new guidelines.

The banker will be able to proceed against the guarantor / surety even without exhausting the remedies against the principal debtor, when a default is made in making repayment by the principal debtor.

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 a guarantor refuses to comply with the demand made by the creditor / banker despite having sufficient means to make payment of the dues, such a guarantor would also be treated as a wilful defaulter, according to the new guidelines.

However, the revised guidelines apply only prospectively and not to cases where guarantees were taken prior to the circular. Banks / FIs may ensure that this position is made known to all prospective guarantors at the time of accepting guarantees.