New Delhi, Dec. 14 (PTI): Banks cannot recover a loan from a guarantor’s pension account if the borrower defaults, the Delhi Consumer Commission has ruled.

“It is a settled law that from the pension account, no bank can make any recovery,” the commission said. It asked Punjab and Sind Bank, which had deducted loan dues from a pension account, to pay compensation.

The commission dismissed the bank’s appeal against a district consumer forum order asking it to compensate Kamaljeet Singh, who was guarantor for Harminder Singh.

The commission noted the bank was deducting Rs 1,700 each month from Kamaljeet’s pension account although he brought to its notice that the practice was illegal. The deductions continued even after Harminder’s employers gave the bank post-dated cheques for loan repayment, it said.

Earlier, the consumer forum had held the bank guilty of unfair trade practice and ordered it to pay Kamaljeet a compensation of Rs 10,000.

The commission said banks must first exhaust all options of recovering unpaid loans from a borrower before moving to the guarantor. “The first charge has to be on the borrower,” it said. Even when money has to be recovered from the guarantor, it is the bank’s duty to see the “pension account remained intact”, the commission said.