Money is one of the basic necessities of our life and is required for almost everything. Apart from basic necessities, lifestyle spends such as buying a home, higher education of children or to buy a car. Apart from all these things there are many personal needs as well for which we need money.Hence it is not surprising that most of us run out of it many times. In this case the only option left with us is borrowing either from family and friends or we can go for a legal borrowing through Banks or NBFCs.
Banks and NBFCs lend us money readily as they charge interest on the amount lent. This interest is a profit to them and we have to repay the borrowed amount in form of EMIs. The amount which we have to pay in EMI totally depends on the amount we borrowed and on the interest rate and tenure period at which it was lent.
While the borrowing part is a happy experience, the struggle starts after that. Repaying the borrowed amount is much more difficult than it seems. Ups and downs are the part of life and it has been truly said that it isn’t sunny throughout the year. A situation may come where you need to spend money on something which is very urgent and hence you are not able to pay the EMI of your loan as the money has been used on different thing. If this situation continues for few month you can be in pain as your lender has all the authority to take the required action against you. In starting you will be charged penalties and if the borrower still defaults, legal action are for sure.
When a person takes a loan, he enters into a legal contract with the lender (whether it is a bank or any other financial institution who are eligible for such purposes). After this the bank is allowed by law to take any steps in accordance with the law to recover the borrowed loan amount if has defaulted on it. Hence, it’s important to everyone to know their rights if they are defaulting with their loan.
Rights of Every Loan Defaulter
Communicating with the Bank
To be allowed to communicate with the lender is the right of any Defaulter. The Bank is bound to behave civil in this case. The Banks are expected to understand the difficulty of the borrower if the case is genuine and he/she is not able to pay the EMIs due to some valid reason.
One can try to talk about increasing their loan tenure which will result reduction in the monthly EMI. One may also approach the bank and ask them to restructure their loan.
Right to Ample Notice
Any default in case of any kind of loan does not strip you of your rights and this doesn’t make you a criminal. Banks have to follow process and are bound to give you time to repay dues before repossessing or reselling your assets to realise the arrears.
Generally, banks starts any kind of legal proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act. If the borrower’s account is classified as a non-performing asset (NPA). This happens when a borrower is defaulting in his/her payments from last 90 days i.e. 3 month. In this case the Bank has to first send a legal notice of 60 day to the defaulter.
Right to Ensure Fair Value
When the defaulter is not able to clear the outstanding amount even after the 60 days’ notice period then the lender has the full authority to take legal action and sell the property which was given as collateral against the borrowed amount. There also before the Auction- the lender needs to fix the value of the property and had to talk once with the defaulter. The auction can be stopped if the defaulter has a better plan to repay the outstanding amount.
Right to be Heard
During the notice period of 60 days the defaulter has the full authority to visit any authorised officer, advocate etc. regarding the notice and he/she is authorised to make legal objections to the notice proposed by the Bank.
Right to Humane Treatment
Banks are regulated entities and they can’t behave inhuman like the local moneylenders who tries collect dues in one way or another. Behaving inhuman by the bank is a criminal offence. The banks need to follow all the rules and regulation which is made by Reserve Bank of India in order to do the recovery too. Banks have no right to harass and humiliate any defaulter.
Hence, paying your EMIs timely is the only option to avoid such a situation. Don’t go for any loan which you can’t afford. If in case you are unable to pay the EMIs first talk to your lender and then take any decision.
Legal Actions Against Loan Defaulters
Being not aware of rights of a loan defaulter can cost you much. In case of any loan default legal actions can be taken against you.
Under Section 7 of the Insolvency and the Bankruptcy Code, 2016 a financial lender may file a case to the adjudicating authority against a corporate defaulter. The authority within 14 days from the application filed ascertains the existence of any such default as mentioned by the lender. If it is found true the legal actions can be taken against the defaulter.
Under section 420 of Indian penal code, defaulting in loan even after several notices is considered as a crime.
When you default with your loan’s EMI more than 2 or 3 times your lender has the full authority to file a case of fraud and cheating against you.
In case your lender files a case against you, then, in that case, you will be convicted to jail by the court.