One of my clients recently had a case which I am explaining below and if you are stuck in such similar situation, here is what to do.

Note: Due to attorney-client privilege, I cannot disclose complete case details or identify the actual parties involved. However, I am sharing the essential facts and legal approach so that if you find yourself in a similar situation, you can understand the available solutions and legal remedies.

Mr. X’s father had taken an unsecured personal loan of Rs. 4 lakhs from ABC Bank approximately ten years ago. He had paid down the amount to approximately Rs. 1 lakh but then stopped making payments due to financial difficulties about four years back. Recently, while checking his CIBIL report, Mr. X discovered that a new loan entry from XYZ Debt Recovery Company appeared showing an outstanding amount of Rs. 4.5 lakhs. The original bank had apparently sold the debt to this recovery agency, and surprisingly, the amount had been reset to even higher than the original principal amount. Mr. X was concerned about the legal implications and whether this practice was legitimate under Indian law.

Advice in Such Cases

Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation to come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

• Demand complete loan transfer documentation from the debt recovery company
• Challenge any unauthorized increase in the principal amount through proper legal channels
• Verify the legitimacy of interest and penalty calculations as per RBI guidelines

Applicable Sections of Law

Under the Bharatiya Nyaya Sanhita (BNS), relevant sections include Section 318 (cheating), Section 351 (criminal breach of trust), and Section 424 (mischief) if fraudulent practices are involved. The Bharatiya Nagarik Suraksha Sanhita (BNSS) provides procedural remedies under Section 223 for filing complaints. Additionally, the Reserve Bank of India guidelines on debt recovery and the Recovery of Debts and Bankruptcy Act, 2016 govern such transactions. The Consumer Protection Act, 2019 also provides remedies against unfair trade practices by debt recovery agencies.

If You Are the Complainant

• File a complaint with the Banking Ombudsman if the original lender violated RBI guidelines
• Approach consumer forums for unfair trade practices by the debt recovery company
• Lodge an FIR under relevant BNS sections if fraudulent enhancement of debt is proven
• Seek injunctive relief from civil courts to prevent coercive recovery actions
• Request CIBIL to investigate and correct any erroneous credit report entries

If You Are the Victim

• Immediately request complete account statements from both the original lender and recovery agency
• Document all communications and maintain records of previous payments made
• Challenge the debt amount through written disputes citing specific discrepancies
• Avoid making any payments until the debt amount is properly verified and validated
• Report harassment or coercive recovery tactics to local police and RBI

How the Police Behave in Such Cases

Police typically treat debt recovery disputes as civil matters unless criminal elements like fraud, forgery, or harassment are involved. They may be reluctant to register FIRs for purely contractual disputes. However, if the debt recovery company engages in criminal intimidation, wrongful confinement, or fraudulent documentation, police are obligated to investigate. Documentation of threatening behavior or illegal recovery practices strengthens the case for police intervention.

FAQs People Normally Have

Can banks sell loans to recovery agencies? Yes, but with proper documentation and adherence to RBI guidelines.

Is increasing the debt amount legal? Only if justified by legitimate interest, penalties, and legal costs as per the original loan agreement.

How long can they pursue the debt? Generally three years under the Limitation Act, unless acknowledged or part-payment is made.

Can they take legal action? Yes, but they must follow due process and cannot use coercive methods prohibited by law.

What Evidence Is Required?

• Original loan agreement and all related documentation
• Payment receipts and bank statements showing payments made
• Assignment deed or sale agreement between lender and recovery agency
• Complete account statements from both entities
• CIBIL reports showing the timeline of entries
• Communication records between all parties
• Legal notices or recovery communications received

How Long Will the Investigation Take?

Banking Ombudsman complaints typically take 30-60 days for resolution. Consumer forum cases may take 6-12 months depending on complexity. Police investigations for criminal aspects can take 2-6 months. Civil court proceedings for debt disputes generally take 1-3 years. CIBIL dispute resolution usually takes 30-45 days from the date of proper documentation submission.

Advocate Sudhir Rao, Supreme Court of India