Top Ten Legal Tips for Entrepreneurs on the issue of Repayment of Bank Loan: Lawyers Advice on Debt Recovery Laws of India | Corporate Debt Recovery Attorney in Delhi NCR | Corporate Debt Recovery Lawyer in Delhi NCR | DRT Lawyer in Delhi NCR

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Entrepreneurs and small businesses run on loans, for effective operations. However, they are often faced with situations where it becomes impossible for them to make repayment. Thus, there are genuine defaulters and fraudulent defaulters. It becomes pertinent for businessmen to understand the solutions that lay before them on the account of non-payment.
Top ten legal tips for Entrepreneurs for the repayment of their bank loans are:

1. Receipt of a Mandatory Notice-A notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act of 2002, mentioning the amount payable and the secured asset intended to be enforced upon non-payment must be issued to the borrower. The secured creditor will have a right to take the borrower to the Court, after 60 days from the date of issuance of notice, if the reply is not satisfactory.
2. Right to Representation-Upon reply of the borrower, and if he has made any objections or raised any representations, the secured creditor will be required to answer the same, within one week of the receipt of such representation. This is stated in section 13(3A) of SARFAESI. The nature of this section is not directory, but mandatory, which was observed by the Supreme Court in the case of ITC Ltd Vs. Blue Coast & Ors, 2018.
3. Right to Fair Valuation and Realisation of Assets-When there is no reply to the notice, the secured creditor shall have the right to seize the secured asset, under section 13(4). However, the property proceeds can be realised only to the extent of the loan taken and not more. This is stated in the proviso of Section 13(4)(b).
4. Right to Humane Treatment-When seizing the secured asset or enquiry of proceeds of payment of the loan, the creditor is required to maintain dignity and treat the debtor humanely. This is important during alternative recovery process other than due process of law. Any kind of ill-treatment of the debtor will not be accepted and it becomes the duty of the creditor to maintain a conducive environment. This was observed by the Supreme Court in the case of Manager, ICICI Bank Ltd Vs. Prakash Kaur & Ors. Criminal Appeal No. 267 of 2007.
5. Right to Approach Debt Recovery Tribunal (DRT)-Upon aggrieved by the measures taken under section 13(4), the borrower has the right to appeal to DRT under Section 17 of the Act, within 45 days from the date on which such a measure was taken. For example, if possession is taken over by the secured creditor, which the debtor finds it illegal, he can file an application to the DRT, seeking restoration. This is stated in Section 17(4) of the Act. The process and procedure of DRT are quite simple and expeditious, where an application must be disposed-off, within sixty days from the date of such an application. This is stated under section 17(5) of the Act.
6. Right to file application against Section 13(4)-The nature of proceedings under Section 17 is in the nature of original proceedings and that even the amount which is claimed to be due to a secured creditor can be challenged, as stated in the notice u/s. 13(2) . This was observed in the case of Mardia Chemical Ltd. Vs. Union of India T. P. (Civil) No. 724-727 of 2002. Thus, if the borrower has grievance with any of the measures taken under section 13(2) or 13(4), he has every right to approach the DRT
7. Right to approach High Court-Generally, there is a bar on jurisdiction of regular civil Courts in addressing these matters. However, where a bank has wrongly classified an account as a Non-Performing Asset (NPA), then the High Court has every power to interfere. This is was observed in the case of Sravan Dal Mill Pvt. Ltd. Vs Central Bank of India, LPA 784 of 2014
8. Right to Appeal-Upon dissatisfaction with the order of the DRT, the borrower has every right to approach the Appellate tribunal i.e. the Debt Recovery Appellate Tribunal (DRAT), within 30 days from the date of receipt of the order of DRT. This can be observed under Section 18.
9. Right to Compensation-When it has come to the notice of the DRT or Appellate Tribunal that there has been an illegal seizure or that the requirements under section 13(4) has not been done as per due process of law, then the borrower shall be entitled to compensation and costs as per section 19.
10. Applicability of Civil Procedure Code (CPC) of 1908-For other money recovery, where the provisions of SARFAESI Act are not applicable, for example recovery of money or lien under Indian contract act, 1872, a summary suit is usually filed under Order 37 of the CPC. The borrower has all his rights as applicable under the CPC, whether it is with respect to notices, summons, right to heard etc.

 

Loans are easily available in today’s world, sometimes with minimum hassle and procedural requirements. However, it becomes important for small businesses and entrepreneurs to be aware of their rights, weigh pros and cons, restructure the borrowing, pay debts on time, dispose off assets and scrutinise financial conditions.
Authored By: Adv. Anant Sharma & Anusha G Rao