Can Banks Recover Loan Default from Pension of Guarantor?
The Orissa High Court has recently ruled that a bank cannot adjust loan default from pension of guarantor.
The case was filed by Bharat Chandra Mallick, a retired railway employee. He challenged the State Bank of India for deducting ₹5 lakh from a joint account he shared with his wife, without giving him any notice. The bank deducted the money to recover a loan taken by his wife.
Mallick found that ₹5 lakh had been taken from the joint savings account he held with his wife, Susila Mallick. This account was used for depositing his monthly pension of about ₹35,000. His wife had taken two vehicle loans from SBI in 2015—one for ₹5.9 lakh and another for ₹8 lakh—and Mallick had acted as guarantor.
When the loans turned into non-performing assets (NPAs) in 2018, the bank, without giving any notice, debited ₹2.3 lakh and ₹2.7 lakh from the joint account in February 2024. The bank said the money was used to close the unpaid loans.
Mallick argued that the bank took money from his pension savings, which was his only source of income. He said the action was illegal and caused him financial trouble. He also said the loans had already been settled under a government guarantee scheme.
The bank argued that since Mallick was a guarantor, he was also responsible for the loan, and because the account was jointly held, the recovery was legal. The bank also said the case should not be heard because Mallick filed it one year after the deduction. It further claimed that his pension was never stopped and showed account statements to prove he continued withdrawing pension after March 2024.
The Court said, “If a person owes a debt, the bank cannot take money from a joint account held with someone who is not a co-borrower. In this case, even though the petitioner (the husband) was a guarantor and the wife was the borrower, the bank treated the joint account as an easy source of recovery without checking whose money it was. The petitioner is a retiree, and the money in the account was his pension, which is protected by law. Just because the account is joint does not remove its pension nature.”
The Court rejected the bank’s arguments. It said that pension money stays protected even after it is credited to a bank account.
The Court added, “What the law does not allow directly cannot be done indirectly by adjusting or debiting pension funds.”
The Court said the bank is free to recover dues through legal procedures, but it must not touch the petitioner’s pension account without following proper legal steps.
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