Can You Negotiate an OTS While a DRT Case Is Pending?
When you receive a DRT notice you will start feeling that you will not be able to pay off your dues. If you are running a business you may be in stress of paying salaries and other dues to vendors. If you are working in an organisation you might start thinking of all your savings and family expenses along with the property which was given as collateral. Your problems take another turn when you come to know that bank has initiated case against you in Debt Recovery Tribunal.
Some borrowers are of the opinion that OTS is not possible when a case is initiated by bank. Some feel that as long as we submit OTS proposal to bank our case will be stayed. This is not true in most of the cases.
OTS or One Time Settlement means bank or any lender agree to accept certain sum of money less than what he is demanding from the borrower in his loan account. It may ask you to pay lumpsum amount or if the lender allows it may pay in installment too. However this is possible only if lender accepts your offer. You cannot demand from bank to reduce your liability if you are unable to repay.
But the scenario changes if case is already filed with DRT. Parties can arrive at an agreement even in such case. Once there is a compromise in writing or agreement lawfully made between the parties, Section 19(20A) of Recovery of Debts and Bankruptcy Act, 1993 states that DRT shall pass an order in respect of such compromise or satisfaction of claim. There can be different scenarios as per case stage and nature of agreement made.
At Loan Settlement Agency we help you understand your option of settling with the bank. Advocate BK Singh can guide you about legal consequences when case is pending with DRT. What are some things that you should look at before closing your bank loan settlement.
Can I get OTS if my case is pending in DRT? Yes there can be an OTS. But can I get OTS that I am comfortable to pay and is suitable for me? The answer is No. OTS is based on mutual discussion. The lender has the discretion to accept the amount or not. There can be a case where lender allows you to pay in installments or may ask for lumpsum amount.
Why Does a Pending DRT Case Matter in Delhi NCR and Across India?
If you have a case pending you need to be aware of the facts surrounding the same. Bank would be asking for recovery from DRT or taking steps against your collateral or through recovery officer. You can discuss for OTS during pendency of case. However your case will still move forward unless certain circumstances.
If you have a bank case you will fall under one of many DRT jurisdictions covering Delhi NCR area. You can have similar situation if your bank is situated in Mumbai, Bengaluru, Hyderabad, Chennai Kolkata or any metro city across India. You will have to follow the applicable jurisdiction rule while dealing with Debt Recovery Tribunal.
If it's your business you may have a financial crunch in your business or you may want to take fresh loans. You might be looking at how to settle your business loan with bank. If it's an individual then your own house given as collateral may be in jeopardy or the guarantor provided at the time of taking the loan. Or you may simply not know your actual loan out standing.
When I talk about one time settlement I will always remind you to keep your pendency in mind. Whether you are in the first hearing stage or recovery certificate has been generated by DRT.
Quick Facts
- Case pending in Debt Recovery Tribunal may have OTS negotiation done.
- Bank need not accept your offer for reducing the loan account.
- Keep any agreement that you reach upon with bank in writing. Make sure that it is signed by authorised persons.
- As per section 19(20A) of Recovery of Debts and Bankruptcy Act 1993 you can arrive at a compromise and get order passed in writing from DRT for settlement/adjustment of your claim.
- Your proposal of OTS will not stay your case in DRT or actions being taken by bank against your secured asset.
- You can keep any timeline that bank asks from you while negotiating with them. What if you fail to meet your timeline as stated in agreement. Read the clauses mentioned in your settlement.
- Get a written confirmation from your bank if your loan account is closed.
What Does OTS Mean When a DRT Case Is Pending?
When you negotiate with bank or other lender to settle your dues in a lumpsum or installment that is called One time settlement. Bank may agree to reduce the loan that you owe from them or they may not. This purely depends on the amount that you offer to bank or any lender and how you reach out to them.
One Time Settlement (OTS) is commonly practised by banks and other lenders. If a business loses it's biggest customer and is not in a position to pay back the entire loan that is owed. They can reach out to their lender and show them the current condition of the business. How can they pay the loan amount offered by the bank. This way you can reach out to the bank.
Bank will check their policy regarding one time settlement and may accept the proposal. Or they can ask you to offer some other amount. Now that your bank has agreed to take one time settlement you can arrive at a solution. But make sure that you have resolved the issue with bank through proper channel.
I cannot reduce my loan by reaching out to a lawyer or anyone else. This is purely on negotiation with the bank. However once you have an OTS done there are some things you should know about before accepting the offer from the bank.
What Is the Legal Framework for OTS During DRT Proceedings?
Debt Recovery Tribunal is governed by several acts. It mainly comes under the purview of RBI act and provisions under Recovery of Debts and Bankruptcy Act. If your property is in jeopardy as your security bank can initiate action under SARFAESI Act 2002 as well.
Provision under Recovery of Debts and Bankruptcy Act, 1993
Section 19(20A)
It states that when the Debt Recovery Tribunal is satisfied that the claim of the applicant has been adjusted either whole or in part. By making a written agreement or any other compromise signed by all parties involved. If defendant repays or agrees to repay the whole or any part of the claim. Then the Tribunal shall pass order accordingly.
What this means is that you can compromise with the bank. If you manage to negotiate the bank you can ask the tribunal to record the compromise between you and the bank. Or if you pay off your dues before they reach a conclusion. You can ask DRT to record your payment in their books.
What to keep in mind while getting your OTS from bank
Your OTS should be reached out through legal means. Make sure that bank is aware of your situation. How can you manage to pay the amount asked by the bank. If you are able to do that you can request the DRT to record it. You can also record what stage your loan account will be at once you fulfill the criteria mentioned by the bank.
OTS and compromise settlement policy of RBI
On 8th of June 2023, Reserve Bank Of India came out with it's circular on One Time Settlement and Write Off. It talked about some guidelines for regulated entities to follow when settling with customers. Under the said circular RBI has asked covered regulated entities to formulate their own policy for settling with customers.
This policy has to be approved by the board of directors. There are other guidelines set up by the RBI that we won't go into. The bank which you are dealing with will have it's own policy in place which can vary based on various parameters.
Who Should Consider OTS During a Pending DRT Case?
Any individual or entity who has a bank loan or any kind of dues can try for OTS. If you think that you will not be able to pay your full loan out standing. You can reach out to your bank. As stated above that the bank doesn't have to accept your offer. However you can negotiate with them and see if you can arrive at a common decision.
If you are a businessman who has been hit hard from recent times. And your business is not generating the revenue that was promised to bank. You can negotiate with bank to lower down your loan account and pay them in installments or lumpsum.
If you are a working professional who is not able to pay your EMIs. Due to any unforeseen circumstances you can approach the bank to help you settle. There can be a scenario where your guarantor is asked to pay the remaining amount. Try to understand the situation and see if you can negotiate with bank for better terms.
How Can You Negotiate an OTS While a DRT Case Is Pending?
Always have your loan records ready before talking to any bank official. Know what amount is shown as loan outstanding in your account. What bank has mentioned as total dues from you. Make note of everything and be prepared to discuss about your loan account.
Once you have your data ready you can ask bank to provide you their policy of OTS. What do they expect from you and how do you want to go about it. Once both the parties have come to an agreement and bank has sent you a formal letter you can proceed further.
Bank may give you the offer for some specific days. What happens if you can't pay within the given timeline? Keep all your records with you. Have enough backup for the amount you are going to offer them. Don't overspend or give commitments you can't keep.
Documents and Evidence Checklist
Below is a list of documents that you may need to submit to your bank. Not everyone will need all of these documents. This is just a suggestion to you to have at least some of these documents ready before talking to bank.
- Loan documents from bank
- Loan sanction letter / Agreement
- Bank Recovery Case application filed in DRT
- Notice you have received from DRT if any
- Salary slips or any income source
- Any document related to SARFAESI like auction notice or notice for possession of collateral
- Closing your loan account documents
How Can Loan Settlement Agency Help?
Bank will decide if they want to offer you a settlement or not. There is no fixed time frame prescribed by law. You should keep in mind the time that bank has given you to pay them. If you have your secured asset nearing for auction you need to consult a lawyer immediately. Get to know all your options. Advocate BK Singh can tell you more about your case and what you can do.Loan Settlement Agency
We can help you reach out to the bank for your bank loan settlement. We will gather all your documents and keep everything in place. Once bank has given you their proposal you can proceed further.
Frequently Asked Questions
1. Whether we can settle Bank Loan once DRT case is filed?
It is possible. There can be discussion between Borrower & Lender for settling at OTS during the pendency of case. Lender has to accept the terms and you need to make sure proper step are taken with DRT for noting of the same.
2. Can I instruct DRT to allow me a OTS figure?
There can not be any compulsion on lender to allow you discount only because you have submitted your offer. If there is lawfully executed Compromise / Satisfaction in writing which is duly recorded Section 19 (20A) applies. It's not to tell lender that accept my figure.
3. Once I apply for OTS will DRT come to halt?
No. As stated above, merely submitting your OTS will not automatically stay in your DRT case. Kindly check for order/s passed in this regard or take necessary steps.
4. If I have already received a recovery certificate can I discuss with the bank for OTS?
You can but as mentioned above you need to look into steps that were taken till recovery certificate was awarded to the Bank and ensure they are dealt with in your settlement.
5. Can Bank say no to my OTS proposal?
They can say no to your proposal or even revise the figures as per their policy. So you need to know what your financial situation looks like and try to negotiate with them based on that. Don't think of a discount because you are unable to pay.
6. Once i do OTS will Guarantor be released from obligation?
This will be subject to what is being offered to Bank & what the agreement is. You should make it clear to your Bank that you want Guarantor / Co-Borrower to be released as well if that's your intention.
7. Will the secured asset be Auctioned if I'm negotiating OTS?
If that's the policy then yes they can go ahead and Auction your secured asset. Make sure to look at the notice and settlement paper you are offered. Consult a lawyer as soon as you can.
8. What all things should be there in an OTS Letter?
Loan Account number, Amount you are offering to pay to Bank (Settlement Figure), Date of Payment, What will happen if you don't pay, Interest & Cost that will be levied on you & how your DRT Case will be noted and Secured Asset dealt with.
9. Will my CIBIL report reflect that I paid less than what I was supposed to?
Depends on the position in which your Loan Account is closed by the Bank. This will vary case to case so ask your bank. Make sure to get a copy of all the documents you receive from your bank regarding OTS.
10. Can Advocate BK Singh assist if DRT Case is pending and you wish to negotiate a OTS with the Bank?
Yes. He can help you understand the legal position you are currently at and guide you through the process and possible ways in which you could benefit. It all depends on the case and paperwork you have.
Final Thoughts
No, it's not the end if there is a pending DRT. You can always talk to the bank with a fair offer and get it in writing. Make sure you have an idea about the debt and ensure the bank agrees to this and clear the pending case and have documentation for it.
You should never believe that the bank has settled your case without any documentation in hand. If you would like more information about this contact Loan Settlement Agency and Advocate BK Singh we can go through your documents and provide information about what may need to be done. This will all depend on your case and the bank's decision.