Situation Of Default

This attitude of the lender creates many problems to a Borrower. A Borrower has to be vigilant at all the time so as to ensure that no situation arises which may result in any kind of suspicion to the lender. Knowingly or unknowingly he may not commit any act which may constitute a default according to the conditions of the loan agreement, for it may have disastrous consequences for him.
A Default means the occurrence of a situation when the Borrower is likely to commit default in the discharge of his financial obligation. i.e. the payment of interest or other dues or repayment of the loan amount to the lender as and when due in accordance with the terms and conditions of the loan agreement. Generally, the word “default” is not defined in the loan agreements. According to Oxford Dictionary, “default” means failure to act, failure to pay, not meet money calls, etc. However, a “default means any Event of Default or any …show more content…
A breach of any of the provisions of a loan agreement constitutes an event of default. The others are anticipatory events which make it probable that the Borrower will soon commit default. The consequences of the occurrence of an event of default are serious. It is therefore, necessary that the Borrowers examine these events of default very carefully. It may be ensured that the events of default mentioned in the loan agreement should not give too much discretion to the lenders. The events of default should be properly negotiated with the lenders so as to ensure that they contain sufficient safeguards for the Borrowers. Preferably, grace periods varying from 15 to 60 days can be provided wherever time limits are prescribed or payment obligations are involved. In other appropriate cases test of “materiality” may be added. Further, as far as possible, vague provisions should be avoided in the “Events of Default” clause. These suggestions will be further discussed at the relevant and appropriate