A Guide to Money Recovery from Debtors in India
If you have sold something to a customer or a client, and the payment is getting delayed, then it is time to act. You cannot resolve the matter without taking action that might put the customer or client in trouble. There is no other option but to make the customer pay so that your money recovery does happen without any further delay.
There will be situations when sending a notice or filing a lawsuit becomes necessary. Let us look at some of the options you can try if you are looking for money recovery from your customer or clients who have not paid on time for the goods bought from you.
Sending written reminders is the best way to start if the payment has not been done on time. Send written reminders in good intervals, and keep a copy of the letters you are sending to the customer or client for money recovery.
Calling the Customer or Client
In case the written reminders are ignored, then it would be better to call your customer or client who is the debtor. Speak to them directly. Sometimes that will help from resolving the matter without letting it go out of hand.
Legal Notice with Final Warning
If written reminders and calling does not work, then you might have to go ahead and think of sending a legal notice. The final warning for money recovery should include:
- The time frame when the money should be paid.
- The amount that should be paid.
- The legal action that would be taken if the money recovery does not happen within the time frame mentioned.
- The type of proceedings that will be used including the court fees and the costs if any.
- An out-of-court settlement is also possible if the debtors are willing to talk and sort out the matter through negotiation and mediation.
Legal Methods of Money Recovery in India
There are legal methods and non-legal methods of debt recovery in India. Let us look at some of the legal debt recovery methods.
- Civil Remedy
What does the term civil remedy imply in a money recovery process? A civil remedy is when a legal notice is sent to the debtors by the aggrieved party. A civil suit can be initiated for the payment of dues or damages incurred by the debtors.
- Criminal Remedy
An FIR can be filed in the local police station by the aggrieved party if the case is serious. The criminal proceedings will follow once the FIR has been filed.
- Out-of-Court Settlements
Out-of-Court settlements are the best way to deal with this if both parties are willing to negotiate. It can avoid the hassles of going to court and court proceedings.
If none of the above methods work, the assets can be seized. The money recovery agents can change the repayment terms to suit the needs of the defaulter.
RBI Guidelines for Money Recovery Agents
RBI has loan recovery guidelines for lenders so that they do not harass the debtors in case of default of payment. These loan recovery agents are legally bound by these guidelines while asking for loan recovery. They are:
- The agents should give the recovery agency details to the borrower.
- An authorization letter and a copy of the notice issued by the bank should be taken when the agent goes to meet the defaulter.
- The banks should have a proper process when it comes to dealing with loan recovery agents. The banks are responsible for all the complaints filed against them.
- If the borrower has complained, the banks cannot forward the case to a recovery agent. Whatever is the complaint, it must be disposed of before that. If the bank feels the complaints are not serious, they can be nullified.
- The borrower’s grievances must be properly addressed by the bank.
Sometimes, the borrower will find it difficult to repay the loan on time due to personal issues and other problems. In that scenario, the lender can make a few adjustments with the help of the government to make payments easy for these borrowers. This restructuring of the loans will help the borrowers to pay the loan principal and interest that are due.
Loan restructuring is preferred by the lender so that the loan will not be classified as a Non-Performing Asset (NPA). NPA can reduce the bank’s profits and loan restructuring is better than declaring bankruptcy.
Loan restructuring is available for personal loans, all types of retail loans, home loans, education loans, car loans, and other types of loans. If the defaulter wants to apply for restructuring loans, they will have to get in touch with the lender. Though there are a lot of benefits with loan restructuring, it is better to discuss it with the lender and follow the steps that are best suited keeping the situation in mind.
Loan Restructuring Guidelines
Loans can be restructured by-
- Making changes in the amount that must be repaid.
- Extending the period of repayment by changing it.
- Making changes in the previously agreed number of installments.
- Changing the rate of interest that was charged before.
- Giving an option for provision for additional loans.
- Increasing the time due for settlement of payments.
Loan restructuring has been mistaken for loan refinancing. They are both different and have different meanings. Refinancing is expensive and must be managed well. Loan refinancing is availing a new loan to pay off the current existing loan. If the new loan has better terms and interest rates, then loan refinancing is a good option. It is a good way for borrowers to increase their liquidity.
Loan refinancing comes with its own set of problems, and everything including the expenses, interest payments, and difficult financial situations like a job loss, should be taken into consideration before going for it.
Wrapping it Up
There are laws for money recovery in India. Checking which law should be applied while looking for recovery of money can be a difficult task by itself. There are so many legal procedures that must be observed it is better to approach a lawyer. A lawyer’s office will help to file your application under the DRTs (Debt Recovery Tribunals) or before the NCLT (National Company Law Tribunal).
A lawyer will be able to guide the client and show them the proper route to debt recovery. They will be able to advise clients and give funds recovery solutions keeping the laws and legal processes in mind.
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