Various laws and regulations govern debt collection (or loan recovery) in India. Always consult with a legal professional for the most accurate information.
In India, debt collectors and financial institutions sometimes cross that legal line and tend to become over-aggressive. This is partly because the Indian legal system is a slow than its Western counterparts. For example, in USA, a lawyer can get a civil judgment from the court in a matter of months. However in India, we are talking years to get a case resolved. Lengers can therefore become restless and choose to take the aggressive (illegal) route.
- Insolvency and Bankruptcy Code, 2016 (IBC): The IBC provides a consolidated framework for the insolvency of companies, partnership firms, and individuals. It’s a unified law that replaces multiple existing laws. It aims to resolve insolvency in a time-bound manner.
- The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act): This law establishes tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions.
- The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act): This law allows banks and other financial institutions to auction residential or commercial properties to recover loans. The Act does not apply to unsecured loans, loans below ₹1,00,000, or where the remaining debt is below 20% of the original principal.
- The Companies Act, 2013: This law governs the functioning of companies in India and includes provisions for the recovery of debts by companies.
- Reserve Bank of India (RBI) Guidelines: The RBI, India’s central banking institution, has issued guidelines for the recovery of debts by banks and financial institutions, and these guidelines bind these institutions.
- Limitation Act, 1963: This law sets the limitation period for various types of lawsuits, including for recovering debts. If a debt is not recovered within the limitation period, it may become unenforceable.
These are some of the primary laws and regulations that govern the recovery of debts in India. They are designed to ensure that the process of debt recovery is fair, equitable, and conducted in a manner that respects the rights of all parties involved.
The actual process of debt collection can be complex and varies depending on the type of debt, the type of debtor (individual, partnership firm, company etc.), the amount of debt, the age of the debt, and other factors. It can involve going to court, negotiating settlements, or potentially even invoking insolvency or bankruptcy proceedings.
What Indian Loan Recovery Agents cannot do!
The Reserve Bank of India (RBI), has issued certain guidelines for debt collection that banks and other financial institutions are expected to adhere to.
- Harassment: Debt collectors should respect the privacy of debtors. Harassment, such as persistent phone calls, use of abusive language, or making false and misleading statements is prohibited.
- Undue Pressure: Debt collectors cannot use undue pressure or unfair practices to recover debts. This could include threatening legal action without proper grounds or authority.
- Contacting at Odd Hours: As per the guidelines issued by the RBI, debt collectors are typically prohibited from contacting debtors at odd hours. Contact with the debtor should usually be limited to a specified time slot agreed upon.
- Misrepresentation: Debt collectors cannot misrepresent or provide false information, either about their own identity, or about the debt, such as the amount owed, legal status of the debt, etc.
- Contacting Third Parties: Debt collectors are usually not allowed to disclose information about the debtor’s debt to third parties without the debtor’s consent.
- Invasion of Privacy: Violating the privacy of a debtor is not permitted. This includes practices like public shaming, publishing the debtor’s name in “defaulters’ lists” without legal authority, etc.
- Unfair Treatment: Debt collectors cannot treat a debtor unfairly on grounds of gender, caste, religion, or other protected characteristics.
These guidelines are intended to protect the rights of debtors and ensure ethical practices in debt collection. Failure to adhere to these guidelines could result in penalties for the financial institution employing the debt collector.
It’s important to note that specific circumstances might lead to different interpretations of what is permissible and what is not. Always refer to the most updated guidelines or legal consultation for precise information.