Before jumping on to the Debt Recovery Laws, it is important to get an idea about what the term ‘Debt Recovery’ signifies. Debt means any financial liability or an obligation that one party (known as borrower), owes to the other party (known as Lender); whereas Recovery refers to the process of retrieving the debts from the borrower who has defaulted in his financial obligations to repay the debts. The borrowers who fail to meet their contractual obligations are said to be the loan defaulters.
LEGAL ACTIONS AGAINST LOAN DEFAULTERS IN INDIA
There are a variety of laws that govern those borrowers who are in such a financial crisis that they are unable to repay the loan amount. Debt Recovery methods may vary and include sending regular reminders, contacting the debtors, sending legal notice, and taking various legal actions. Some of them are discussed as follows:
LEGAL NOTICE AGAINST DEFAULTERS: This is the first step taken by lenders against the loan defaulters i.e. sending a legal notice to the defaulter. This notice provides information to the borrower about their outstanding debt, requests repayment, and provides a particular timeframe within which the borrower must respond. This notice is a legal requirement and is usually a precursor or a warning to further legal action.
FILING A LAWSUIT: In case the borrower fails to respond or refuses to cooperate after receiving the legal notice, the lender has the authority to file a civil lawsuit against them. The lawsuit seeks to obtain a court order to recover the outstanding debt. The suit can be filed in the court where the jurisdiction lies. One of the important advantages of filing a civil lawsuit is that the civil court has wider powers than those of NCLT or DRT, additionally, the reliefs sought might be influenced by the facts of the case.
RECOVERY TRIBUNALS: Debt Recovery Tribunals were established in India via the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), with the primary objective of facilitating the expeditious adjudication and recovery of debts outstanding to financial institutions. These tribunals were designed to offer an alternative to traditional courts for lenders because of the increasing problem of NPAs (Non-Performing Assets) in the banking sector. DRTs are concerned with matters related to debt recovery, inclusive of loans, advances, and financial dues to banks, financial institutions, and entities specified in the RDDBFI Act. The DRT’s orders can be challenged in DRATs. If unsatisfied with the DRAT’s decision, the parties may appeal to the High Court, and if necessary to the Supreme Court of India.
SARFAESI ACT: The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, is an act that empowers banks and other financial institutions to take possession and sell assets of the defaulter without the intervention of the court. This is an act that provides lenders with a streamlined & expeditious process for asset recovery. This act emphasizes upon the concept of “security interest”, which simply means the claim or the legal interest that the lender has upon the property or asset kept in security.
Section 13- This is an important section in the SARAESI Act which talks about the following:
LEGAL DEMAND NOTICE- As the first step the Bank might issue a legal demand notice against the defaulter, demanding the repayment of the loan within 60 days
RIGHT TO APPEAL- In case of any objection to the legal demand notice, the borrower has the right to apply DRT within 45 days of receipt of the notice.
POSSESSION OF SECURED ASSET: If the borrower is unable to comply with the notice within the stipulated period of sixty days and fails to raise any valid objections, the creditor has the right to take possession of the secured assets. The secured creditor has the right to transfer or assign the assets to itself or any other person in whom the secured interest is vested.
INSOLVENCY AND BANKRUPTCY CODE (IBC), 2016: The IBC, enacted in 2016, is an act that offers a comprehensive framework for the resolution of insolvency and bankruptcy cases. In the case of corporate defaulters, IBC allows creditors to initiate insolvency proceedings i.e. CIRP(Corporate Insolvency Resolution Procedure). The main objective of IBC is to provide a speedy & effective process for resolving insolvency & bankruptcy in a clear & transparent manner. An application under IBC can be filed by the lenders in NCLT(National Company Law Tribunal) for initiating the process of CIRP against the defaulter company.
ARBITRATION PROCEEDINGS
In the facility agreements containing the arbitration clause, the lenders have the option to initiate Arbitration proceedings against the defaulter borrower for the recovery of the outstanding liability amount. By filing an interim application under section 9 of the Arbitration & Conciliation Act, 1996, the lender can even obtain interim relief at the very outset. The Arbitration are advantageous as they are considered fast proceedings and the arbitral awards are deemed to be the decree for the enforcement purpose.
CONCLUSION
Therefore, it can be concluded that in case of default by the borrower, the Lender has a lot of options to pursue against the loan defaulter. Any of the above remedies can be taken up by the lender against the defaulter to recover the debt amount. These properly drafted laws provide a framework in favor of the lenders to deal with the non-payment of the outstanding liability, thereby empowering the creditors to a larger extent.
To deal with the above remedies in favor of lenders, the borrowers require proper guidance from a legal professional.
