This lesson examines the various legal and non-legal methods used to recover debts from defaulting borrowers.
7.1 Non-Legal Recovery Steps
Before resorting to legal action, banks typically employ a range of non-legal recovery methods :
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Tele-calling and Personal Visits:Â Direct contact with the borrower to negotiate repayment.
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Compromise Proposals:Â Settling the debt for less than the full amount through One-Time Settlement (OTS) arrangements.
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Restructuring Discussions:Â Negotiating new repayment terms.
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Management Engagement: Working with management to stabilise the business .
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Recovery Agents: Engagement of third-party agents, subject to regulatory guidelines .
7.2 Self-Help Enforcement
Self-help repossession allows lenders to take possession of collateral without court intervention . This is typically available for certain types of assets and requires compliance with regulatory guidelines. Key precautions include:
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Understanding when self-help repossession is legally available.
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Compliance with RBI (or equivalent) guidelines on recovery agents.
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Observing a list of Dos and DON’Ts.
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Managing vicarious responsibilities of the lender.
7.3 Legal Enforcement Mechanisms
Legal enforcement involves recourse to the courts and specialised tribunals :
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SARFAESI Act:Â Self-help enforcement of security interests with specific procedural requirements.
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DRT Proceedings:Â Debt Recovery Tribunal action under the Recovery of Debts and Bankruptcy Act, 1993.
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Winding Up Applications:Â Insolvency proceedings against the borrower.
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Civil Suits:Â Filing suits for recovery.
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Summary Suits:Â Expedited recovery proceedings.
7.4 Winding Up and Insolvency
Winding up proceedings address the priorities in winding up and making efficient use of the process . This includes understanding the ranking of claims and the concept of the “automatic stay” that can protect creditor interests . The Insolvency and Bankruptcy Code (IBC) provides a comprehensive framework for resolving distressed companies .