If you are stuck in such a situation, here is what to do.

Mr. Alok Sharma’s family, residing in Jaipur, had secured a vehicle loan top-up of approximately 30 lakhs from a Non-Banking Financial Company (NBFC) named ‘Pioneer Financial Services’. For a period, the repayments were regular. However, due to unforeseen business losses, they found themselves unable to keep up with the monthly installments. Consequently, they approached Pioneer Financial Services to negotiate a One-Time Settlement (OTS).

An initial OTS offer was made by the NBFC but unfortunately lapsed before the family could arrange the funds. Determined to resolve the matter, they continued discussions. The NBFC then requested an EMI payment as a show of good faith to consider a new OTS. The total EMI was around Rs. 75,000. The family had previously paid Rs. 30,000 and, after the first OTS expired, paid an additional Rs. 45,000 as a commitment towards a renewed settlement. They verbally agreed on a new OTS amount of Rs. 17,00,000, down from the initial offer of Rs. 18,50,000, and requested a 60-day window to make the full payment. However, less than 25 days after paying the commitment amount, the NBFC began demanding another full EMI. Mr. Sharma, having the entire settlement amount of Rs. 17,00,000 ready for payment within a few days, is now in a dilemma about whether to pay this additional EMI and is seeking to understand his rights and the potential repercussions of not paying it while an OTS is under negotiation.

Advice in such cases

Navigating a dispute with an NBFC over a loan settlement can be stressful. The key is to act strategically and protect your rights.

• Communicate in Writing: Cease verbal communication. Insist that all further discussions, offers, and demands be made in writing, preferably via email or registered post. This creates a clear and undeniable record of your interactions.
• Do Not Pay Without a Formal Agreement: Do not pay the additional EMI being demanded. Paying it could be interpreted by the NBFC as your agreement to continue the loan under the original terms, potentially weakening your position for the OTS. Only make payments against a formal, signed OTS agreement.
• Send a Formal Response: Immediately respond to the NBFC’s demand in writing. State clearly that you have the agreed-upon settlement amount of Rs. 17,00,000 ready for immediate payment and that you are awaiting the formal OTS letter from them. Reiterate that the payment of Rs. 45,000 was a commitment towards this final settlement, not a partial EMI.
• Set a Deadline: In your written communication, give the NBFC a reasonable deadline (e.g., 7-10 working days) to provide the official OTS letter, failing which you will explore other legal remedies.
• Document Everything: Keep a meticulous record of all documents: the original loan agreement, all payment receipts, bank statements showing transfers, and copies of all correspondence (emails, letters) with the NBFC.
• 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 of 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.

Applicable Sections of Law

This situation is primarily governed by civil and contractual law, along with regulatory guidelines.

• The Indian Contract Act, 1872: This act governs the original loan agreement and any subsequent settlement agreement (OTS). An OTS is essentially a new contract that alters the terms of the original one. For it to be valid, there must be a clear offer, acceptance, and consideration. The NBFC’s demand for an extra EMI after agreeing to an OTS amount can be seen as a breach of this new understanding.
• Reserve Bank of India (RBI) Guidelines: The RBI has issued a Fair Practices Code that all NBFCs must adhere to. These guidelines prohibit lenders from using coercive or unfair recovery practices. Persistently demanding payments that are not part of an agreed settlement could be considered an unfair practice. You can file a complaint with the RBI Ombudsman against the NBFC for such behaviour.

If you are the complainant

As the borrower facing unfair demands, you are the complainant in this matter. Here are the steps you should take:

• Gather All Documentation: Compile a file with the loan agreement, proof of all payments made (including the commitment amount for the OTS), and all written communication with the NBFC.
• Send a Legal Notice: Through a lawyer, send a formal legal notice to the NBFC. The notice should detail the entire sequence of events, state your readiness to pay the agreed OTS amount, and demand that they cease demanding extra EMIs and issue the formal settlement letter within a stipulated time.
• File a Complaint with the RBI Ombudsman: If the NBFC does not respond favourably to the legal notice, you can file a formal complaint against them with the RBI’s Ombudsman Scheme for NBFCs. This is a powerful grievance redressal mechanism.
• 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 of 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.

If you are the victim

If you feel victimized by the NBFC’s high-pressure tactics and shifting goalposts, here is how to proceed:

• Assert Your Rights Firmly: In all written communication, clearly state your position. Do not be intimidated. Remind them of the verbal agreement and your readiness to honour it.
• Record Communications: If permissible and where you have given due notice, record phone conversations with NBFC representatives. This can serve as evidence of their demands and your responses.
• Report Harassment: If the NBFC’s recovery agents resort to harassment, threats, or intimidation, you have the right to file a police complaint. Such actions can constitute offences under the Bharatiya Nyaya Sanhita (BNS).
• 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 of 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.

How the police behave in such cases

Typically, the police are reluctant to intervene in loan default cases, as they are considered civil disputes. If you approach them regarding the non-issuance of an OTS letter or a demand for an EMI, they will likely advise you to approach a civil court. However, their role becomes crucial if the matter escalates to a criminal offence. If the NBFC or its recovery agents engage in criminal intimidation, extortion, or harassment, the police are obligated to register a First Information Report (FIR) under the relevant sections of the Bharatiya Nyaya Sanhita (BNS) and investigate the matter.

FAQs people normally have

What evidence is required?

To build a strong case, you need comprehensive evidence. The most critical pieces of evidence include:

• The original loan agreement and all related schedules.
• Bank statements and receipts proving all past EMI payments.
• Specific proof of the commitment payment made towards the new OTS.
• All written correspondence with the NBFC, including emails, letters, and messages.
• Any draft or expired OTS letters.
• Call logs and, if legally obtained, call recordings of conversations with NBFC officials.
• The names and designations of the officials you have been communicating with.

How long will the investigation take?

This is not a criminal investigation in the traditional sense. The timeline for resolution depends on the path you choose. If the matter is resolved through negotiation following a legal notice, it could take a few weeks. If you file a complaint with the RBI Ombudsman, the process can take anywhere from 30 to 90 days. If the dispute escalates and a lawsuit is filed in civil court, the resolution could take several months or even years, depending on the court’s caseload and the complexities of the case.

Advocate Sudhir Rao, Supreme Court of India