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

Mr. and Mrs. Verma, residents of the city of Navpur, embarked on an ambitious business project, financing it with substantial non-collateral loans. They secured a total of ₹6 crore, with ₹4 crore from various banks and an additional ₹2 crore from private financiers and local chit funds. Unfortunately, their business venture failed to take off and resulted in significant losses, leaving them financially depleted and unable to cover their operational costs. With no personal assets or property registered in their names, their situation became dire. The lenders, especially the private parties, began employing aggressive tactics and harassment to recover their dues. Feeling cornered and distressed, the Vermas are considering filing for an Insolvency Petition (IP) but are deeply concerned about the legal process and the potential risk of imprisonment.

Advice in such cases

• Document Everything: Keep a detailed record of all communications with your lenders. This includes call logs, text messages, emails, and letters. If you are being harassed, try to record instances of threats or intimidation, if legally permissible in your situation.
• Prioritize Your Well-being: The mental and emotional stress in such situations can be overwhelming. It is important to seek support from trusted friends, family, or mental health professionals. Your well-being is paramount.
• Understand Your Rights: Inability to repay a loan is primarily a civil issue, not a criminal one, provided there was no fraudulent intent at the time of taking the loan. Lenders cannot resort to illegal means like threats, intimidation, or violence.
• 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

In situations involving significant debt and harassment, several Indian laws come into play:

• Insolvency and Bankruptcy Code, 2016 (IBC): Part III of the IBC specifically deals with insolvency resolution for individuals and partnership firms. This is the primary legal framework for declaring bankruptcy, which provides a structured process for debt resolution and offers a “fresh start.”
• Bharatiya Nyaya Sanhita, 2023 (BNS): If the harassment from lenders involves threats to cause harm to your person, reputation, or property, it can amount to criminal intimidation under Section 351 of the BNS. Coercive recovery tactics may also fall under the purview of extortion.
• Reserve Bank of India (RBI) Guidelines: The RBI has laid down strict guidelines for banks and financial institutions regarding fair practices in loan recovery. These guidelines prohibit banks from resorting to harassment or intimidation.

If you are the complainant

If you are being harassed by lenders for loan recovery, you are the complainant in the context of the harassment. Here are the steps you can take:

• File a Police Complaint: Visit the nearest police station and file a formal complaint (FIR) against the individuals harassing you. Provide all evidence you have, such as call recordings, messages, or details of witnesses.
• Send a Legal Notice: Through a lawyer, you can send a legal notice to the lenders, demanding that they cease and desist from all illegal recovery tactics and harassment.
• Inform the Higher Authorities: If the harassment is from a bank or a registered financial institution, you can file a complaint with their higher management and the RBI’s Banking Ombudsman.
• 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

As a victim of overwhelming financial distress, your primary legal recourse is through the Insolvency and Bankruptcy Code.

• Initiate Insolvency Proceedings: You can file an application for initiating the insolvency resolution process under Part III of the IBC with the Debt Recovery Tribunal (DRT).
• Moratorium Protection: Once your insolvency application is admitted, a moratorium is declared. This means all pending and new legal actions by creditors against you are stayed. Lenders cannot continue with recovery suits or harass you for payment during this period.
• Work with a Resolution Professional: The DRT will appoint a Resolution Professional (RP) who will take stock of your debts and assets (if any) and help formulate a repayment plan that is manageable. If a viable plan isn’t possible, the process may lead to a discharge of your debts.
• 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

The police response can be mixed. Initially, they might perceive the issue as a civil dispute over loan repayment and may be hesitant to register a criminal case. However, you must insist that your complaint is not about the loan itself but about the criminal acts of harassment, intimidation, and threats. If you provide clear evidence of such criminal conduct, the police are obligated to register an FIR under the relevant sections of the Bharatiya Nyaya Sanhita, 2023. Having a lawyer accompany you or sending the complaint through a lawyer can often ensure the police take the matter seriously.

FAQs people normally have

Will I go to jail for filing for insolvency or for being unable to pay my debts?
No. The inability to repay a loan is a civil wrong, not a criminal offense. You cannot be sent to jail for defaulting on a loan or for filing for insolvency. Imprisonment is only a possibility in cases of criminal activity, such as obtaining loans with fraudulent intent, cheating, or deliberately hiding or transferring assets to deceive creditors. Filing for insolvency is a legally recognized process to resolve financial distress.

What happens to the harassment once I file for insolvency?
Upon the admission of your insolvency petition by the DRT, an automatic “moratorium” comes into effect. This legally prohibits all creditors from initiating or continuing any legal action or recovery efforts against you. This provides immediate relief from harassment and collection calls, allowing the resolution process to proceed in an orderly manner.

What evidence is required?

To build a strong case, both for the insolvency petition and against lender harassment, you should gather the following evidence:

• All loan agreements, promissory notes, and related documents.
• A detailed list of all creditors and the amount owed to each.
• Bank statements and business financial records showing the flow of funds and the subsequent losses.
• Records of all communication with lenders, including emails, text messages, and call logs.
• Any evidence of harassment, such as audio or video recordings of threatening calls or visits, and statements from any witnesses.
• A copy of any police complaints filed against the lenders.

How long will the investigation take?

The timeline varies depending on the legal process. The personal insolvency resolution process under the IBC is designed to be time-bound, typically aiming for completion within 180 days, though extensions can occur. A police investigation into criminal harassment has no fixed timeline and depends on the complexity of the case, the evidence available, and the efficiency of the investigating agency. The two processes—insolvency and the criminal complaint—will proceed independently on their respective tracks.

Advocate Sudhir Rao, Supreme Court of India