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Don’t get involved in financial litigations


Litigation is a time taking and painful experience. 

Be it against banks and financial institutions or against individuals – litigation is a painful experience. The problem with these litigations is that in 99% of the cases, the matter may drag on for years and years. So it’s always wise to give a careful thought before embarking on any type of financial litigation.

Litigation involving lending institutions.

But the same cannot be said when a lending institution moves against you. Lending institutions secure their funds through solid agreement that runs into pages. The borrower, at the time of availing the loan, would have signed each page without even bothering to read what’s written. In the case of mortgage loans, there is an ACT in India called the SARFAESI Act which helps lending institutions to act fast against you. In the case of vehicle loans and personal loans, institutions would take actions to recover their funds by seizing the vehicle or by filing complaints at the economic offences court.

SARFAESI ACT- Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,  popularly called The SARFAESI Act, grants  special powers to lenders  to take the assets pledged without first going to court. Once the provisions of the Act is applied , it gives juts 60 days for the borrower to repay his debts. If he doesn’t pay within that time, the bank will proceed to seize the asset pledged. Alternatively, the borrower can file an appeal in the court for extension of time. The court normally allows a time of 6 months in addition to 60 days.

So, what’s important is to find out who’s actually on the wrong side. Mere reasons are not enough; you should also have the documentary evidence to prove your point.

If you are on the wrong side..

If you are on the wrong side, clear your debts the earliest. There is no point in starting a litigation since anyway, you’ll be finally asked to pay back the amount with all incidental expenses like legal fee, penalties, interest and fines. Finally it may add up to an unmanageable amount. The best option in such cases is to reach an out of court settlement. Such settlements may be advantageous to both the parties.

For example – you availed a loan, say a car loan, from a bank but unfortunately your business is in troubled waters and you have made some defaults in paying monthly installments. Now, in such cases, the bank has a separate recovery team who would liaise with you for pending payments including penalties. The best way to come out of such troubles is to ask for a ‘full and final settlement’. Ie, the agent handling the recoverywould give you a flat discount on the capital outstanding (and not on the total dues including bank charges and penalties). You can either sell off your car and pay it off, or find some alternative sources and finish off the debt.

The advantage is –

You get a ‘one time settlement’ offer which includes a welcome discount.

Your asset is free of debt.

Your name is removed from the credit defaulters list.

The bank will not take any legal action against you.

It Saves a lot of time.

Save a lot of other expenses like attorney’s fee.

Preserves your reputation and goodwill.

Finally … Peace of mind – not only for you, but for your entire family.

The disadvantage is – 

Your credit history will be reported to CIBIL and the one time settlement discount given , payment defaults etc will be shown there .

In Future , financial institutions may not lend money to you.

On the other side..

Now let’s think about the opposite situation.  You have to get money from somebody. In most cases that would be an individual or firm to whom you’ve given credit. You may have some form of written agreement with you to prove your point. The best option is to try for an out of court settlement since, if you go for a litigation against the party, it’s going to take years and years to get a decree. The court generally doesn’t consider the economic effect of delay in justice. Hence, they do not consider the effect of inflation or interest rates.

For example, if you sue a person to get back 2 lakhs, it may take 4 or 5 years for the court procedures to settle and get back those 2 lakhs. Isn’t it better to try for a settlement of 1.75 lakhs immediately? The effect would almost be the same.

You can also try to bring in a mediator like a politician or a bureaucrat and find a solution to the matter.

Financial litigations may take a lot of time to settle. If you are on the wrong side, today or tomorrow, you will have to pay back the amount or your assets will be lost. If you’re right, still it’s better to reach an out of court settlement or else your funds will be stuck for a long time.  The Hence always try to avoid such situations.

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