Legal Question in Banking Law in India

Loan matter in case of sister concern
We [A Pvt. Ltd. Co.] have been enjoying Cash Credit [Fund & Non-Fund based] facility from a nationalized bank. Our account are running satisfactory & we are maintaining cordial relation with bank. But due to some policy matter of bank like exp. & inadequate arrangement 4 foreign BG. We planned to shift another bank but without the knowledge of existing. The another bank sent the letter of comfort to existing bank for covering the BG issue. The bank did not accept the letter of comfort, saying that one of the sister concern a/c of co. is irregular. So we cann�t allow this shifting until you adjust that irregular a/c. On our request to clarify banker told that one of our director is guarantor in that particular account by pledging his own property & that account is not regular. Please clarify as RBI guidelines:
(1) Is that firm comes under the definition of sister concern. (2) The said firm is withdrawing/ transferring funds as and when required & availment is 88% of sanction. Does this a/c stands as irregular.(3) Can our banker forcefully with held our account on this ground of sister concern

Asked on 4/25/09, 6:24 am

5 Answers from Attorneys

Fahri Toga TOGA//OKSUZ

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Re: Loan matter in case of sister concern

We think that we can help you to solve your affairs forthwith, please send us your documents or write an detailed e-mail in order to notify the circumstance. We checked over the documents thereafter, we will return your added phone number,e-mail or address,as soon as.

Answered on 4/28/09, 3:06 am

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Pranav Desai PD Legal & Associates

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Re: Loan matter in case of sister concern

If the facts stated by you are correct then bank is not justified in their acts. We suggest to settle the matter with the superior officer of the bank or file a complaint before the banking ombudsman.

Answered on 4/28/09, 3:20 am

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Sunil Goel S.G. SOLICITORS

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Re: Loan matter in case of sister concern

What your existing bank is doing clearly amounts to arm-twisting, which can't be done. Even assuming the defaulting concern is treated as your sister concern, the same can not be a ground to not to give letter of comfort for issuance of BG by another bank to your company. The bank can't say that unless your company pay for the irregular account of other concern, they will not allow you to shift the acount. You can definitely file a case with the Banking Ombudsman in the ministry of finance. you can also file a consumer complaint under Consumer Protection Act for deficiency in service on the part of your bank. You may immediately give a notice to your banker that any damages, consequences etc. suffered by you on account of thr bank's refusal to give letter of comfort or to shift the account, would be borne by the said bank.

Answered on 4/29/09, 8:58 am

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J. Radhakrishnan independent Practice

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Re: Loan matter in case of sister concern

we do not think that merely because one of the directors of your private co. is guarantor to the other company, that company cannot be treated as sister concern. In fact the word 'sister concern' has no legal definition. Commonly understood, if another company has the same shareholders as your company, or that it supplies materials to your company or vice versa, the banker may treat the other company as a sister company. What is necessary is common management and or proprietary interest. In the facts stated by you, you can take up the matter with the chairman of your existing bank to afford relief and if he fails, prefer a complaint to Banking Ombudsman for unfair trade practice and for damages

Answered on 4/26/09, 10:14 am

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