Allahabad High Court Seeks Details Of RBI Guidelines For Loans To Foreign Firms With Guarantors & Assets Abroad

The Allahabad High Court recently sought specific instructions from the Union of India regarding Reserve Bank of India (RBI) guidelines pertaining to loans given to foreign companies on foreign soil, where the collateral security is from a foreigner. A bench of Justice Atul Sreedharan and Justice Anish Kumar Gupta was dealing with a Writ petition filed by one Mohammed Farouk, an Australian citizen who had moved the HC regarding a loan dispute with the Bank of Baroda involving a firm based in the United Arab Emirates (UAE). Briefly put, the Bank of Baroda had given a loan to a non-Indian entity, M/s Farlin Timbers. The petitioner, an Australian citizen, stood as a guarantor for the firm in Dubai. As collateral security, a warehouse situated in Dubai was mortgaged to the bank. Allegedly, at the time of accepting the petitioner as collateral in favour of the Firm, a blank cheque was given to the bank, which later bounced and a criminal proceeding related to the same is pending before a court in the UAE. The bench was apprised that, including interest and principal, the loan amount due to the petitioner today stands at "in excess of Rs. 104 crores". However, the original loan amount referenced in relation to the warehouse value was Rs. 55 crores. Taking into account the facts of the case, the bench noted that nothing happened in India; the persons concerned, but for the bank, are not Indian citizens and neither, prima facie, are they amenable to the Indian law. Thus, given the peculiar circumstances in which the borrower, guarantor and collateral are all situated outside India, the High Court has directed the Union of India to place the relevant regulatory framework before it. The Court directed the Union of India to produce the "Reserve Bank of India guidelines for banks to observe and follow when loans of this nature are to be given to a foreign company on foreign soil and where the collateral security is from a foreigner." The Court stated that it would expect instructions from the Union of India on the next date of hearing (the first week of January 2026). Importantly, since the petitioner submitted that the mortgaged warehouse in Dubai has been "sold out", but it did not cover the full cost of the loan amount, the Court directed the counsel for the Bank of Baroda to seek instructions regarding the documents relating to the value of the warehouse. The Bank has been directed to provide details regarding the purchaser of the warehouse and the price at which the warehouse was sold in Dubai.Case title - Mohammed Farouk vs. Union Of India And 2 OthersClick Here To Read/Download Order

Allahabad High Court Seeks Details Of RBI Guidelines For Loans To Foreign Firms With Guarantors & Assets Abroad

Sparsh Upadhyay

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