By Abhay Ray 
Introduction
Despite bad loans dropping to a multi-year low of 2.8% in March 2024, financial institutions reported a rise in them in the September quarter. While you may be diligent about making timely payments, unexpected emergencies can sometimes affect your ability to repay. This makes it crucial to understand the potential legal implications of loan default in India. In this article, we will explore the legal actions that may follow defaults and the RBI guidelines for loan defaulters.
The Rights of the Borrower
The SARFAESI act gives the customer the right to appeal against the action of repossession taken by the bank in the Debt Recovery Tribunal u/s 17 within 45 days from the date when the action was taken. If the DRT passes an order against the borrower, then an appeal can be filed before the Appellate Tribunal within 30 days of receiving it. If it is held in the appeal that the possession of the asset taken by the secured creditor was wrongful, the Tribunal or the Appellate Tribunal may direct its return to the borrower, along with appropriate compensation and cost.
- Right to Notice
When you fail to pay the loan dues, the bank can’t take any immediate action against you. If you haven’t paid EMIs for 90 days, the bank must serve you a notice of 60 days. Once the notice period is over and if the dues are still unsettled, then the bank is allowed to repossess your property. And before the bank can sell off your property, it has to serve yet another notice of one month informing you about the same.
- Right to be Heard
Within the one month notice period, before the property is auctioned, a loan defaulter can file a representation to the authorities and raise objections towards selling off the property. The loan officer has to then respond to the representation and give valid reasons for turning down your objections within seven days.
- Right to Fair Value
If the bank has repossessed your property due to a loan default, it does not give them the sole right to decide the sale price of the property. Along with the one month notice informing the customer about the auction of the property, the bank has to send a fair value notice that clearly states the sale price of the property as assessed by the bank officials. However, if you feel that the bank is selling it off at an under-priced rate, then you can raise objections and declare a price that you feel is reasonable. The bank has to consider your plea to receive fair value for your property and will have to revaluate the property once again.
- Right to Balance
Since the rates of property are steeply rising with each passing day, there is a possibility that there might be a fair amount of balance left after the bank has settled the loan by selling off your property. You are entitled to get that balance amount as the bank has no claim on it once the loan is settled.
- Right to be Treated Politely
Banks are registered organizations and can’t act like independent money lenders when it comes to a loan default. In the past there have been reports of harassment and mistreatment of loan defaulters by collection agents but now banks have decided to follow a code of conduct that is polite and respectful. A collection officer has to politely request to meet you and the place and time of the meeting can be as per your convenience. If you don’t respond to the request, the collection officer may meet you at your home or work place. Also, the agent can meet you only between 7 AM and 7 PM and can’t harass you late at night or in the wee hours of morning. The collection agents are supposed to treat the defaulters in a respectful manner without resorting to abusive language and mistreatment.
- Right to Grace Periods
Many loans offer grace periods or the option to temporarily suspend payments if you’re experiencing financial hardship. This can provide immediate relief without penalties
Importance of Repaying Loan
Repaying a loan on time is crucial for financial stability and credibility. Timely payments uphold your credit score, opening doors to future borrowing at favorable rates. Conversely, late payments can tarnish your creditworthiness, leading to higher interest rates or loan rejections. Consistent repayment demonstrates responsibility, building trust with lenders and enhancing your financial reputation.
Moreover, avoiding late fees preserves your finances, preventing unnecessary expenses. Prioritizing timely repayments fosters discipline, aiding in long-term financial planning and avoiding debt traps. Ultimately, honoring loan commitments not only fulfills legal obligations but also empowers financial freedom and peace of mind.
Conclusion
When you take a loan, you must make sure that you are in a position to repay it. Also emergencies may come uninvited and if you face a situation where you cannot pay the EMIs on time, it is important to let your lender know in advance. For this reason, it is also vital to choose the perfect vendor that is flexible and allows you more affordable terms of repayment.
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