It is common to see Small Business run into financial trouble when a DRT case is filed. Usually the issue is not only a non paying bank loan. Other aspects of the business can also be impacted like day to day running of business, employees, vendors, secured asset and personal guarantee given against the loan. There are various methods through which you can look at settling your debt. It allows the debtor to calculate how much amount is due to Bank and work out a repayment plan which they might be ready to settle with. Businesses who face this problem include Merchants, Transporters, Small Scale Industries, Contractors, Startup companies, Service Based Companies all over Delhi NCR and Metro cities of India. They could be financially healthy business and may just not have enough funds to pay off their complete dues from bank. Or it could be that they owe an amount to bank which is under dispute or need to analyse how Bank has taken possession of their secured asset. When it comes to Debt Settlement in a DRT case you are trying to negotiate the amount your business owes to bank and try to get a settlement. This could be in form of OTS or any other settlement that bank is willing to accept. A settlement does not mean your DRT case will be dropped or you won't receive a possession notice / auction notice. Find out what is Bank trying to recover and why? Always check your loan agreement and all relevant documents, statement of account, security documents and order passed by DRT before you commit yourself financially. Also look at how your business is performing financially. Advocate BK Singh & DRT Lawyer provide help to Borrower / Surety / Business facing issues with DRT. We will help you understand your options under law. Cash Credit, Overdraft, Term Loans, Equipment Finance & Secured Loan are some forms of loans which small and medium enterprises usually avail themselves of. If sales reduce or there is delayed collection of debts from customer then the ability to repay loan may reduce drastically. Once you are in recovery you could have more problems arising out of the legal process. If you are a MSME located in Delhi, Gurugram, Faridabad, Ghaziabad or Greater Noida and your business machinery, property or goods have been pledged as collateral you might want to know what happens if the bank takes steps to recover its dues. The concern could even extend to the director/proprietor who has given his personal guarantee. It would be better if you take legal advice at the earliest stage to find out if the bank is trying to recover its loan, file an application before DRT to recover or taking steps under SARFAESI act. Although each are connected they could be treated separately. You need to look at all documents to see what your next course of action should be. There isn't any benefit in sitting and doing nothing once you receive such a notice. Sometimes time plays against you when an auction or other step can be taken by the bank. Once you reach the end stage you will have limited options to see if a settlement or legal remedy is open to you. Do not blindly comply with whatever amount is asked from you by the bank. You need to see if there are payments made towards the loan or if any interest or other charges have been added on. Depending on the scenario you would have to react accordingly if you are not willing to pay the entire amount as you owe the bank. Advocate BK Singh can go through your documents and advise you what your immediate step should be. Whether to respond legally, settle or challenge some aspect of the recovery. Debt settlement is a planned method of settlement of a loan by way of negotiations/legal action or both. One has to keep in mind the total dues of the borrower and what he is capable of paying. Also the legal implications that will arise out of the settlement. When it comes to MSME the concept of settlement is not just asking to lower down your dues. You need to assess if you can pay the amount you want to settle and whether your lender will accept the figure offered and what will happen with the existing DRT/SARFAESI proceedings. Settlement is when the lender allows you to clear of your loan with an agreed figure as per their terms in writing. This could be through OTS. Based on what they decide the final figure to pay, the tenure to pay and what you will be liable to after settlement depends. Restructuring means your tenor/EMI can be changed based on the lender and the provisions that apply. If your concern is that you can pay in future then restructuring may help. In some cases settlement could be worked out if you can manage to pay an amount in which your loan can be settled. Again its not possible for all cases. You can't force a settlement just because you are an MSME and ask for your loan to be waived off or you'll be given an option of settlement at a lower figure. You may have reasons why you shouldn't pay back the amount owed to bank. Be it wrong balance being shown in your account or you may not feel you are liable to pay back the loan due to some technicality regarding your collateral. These will need to be analysed separately. Just because you are requesting for a settlement doesn't mean you should not respond to the Tribunal notice. Similar way if you have filed a response before the DRT you can still discuss a fair settlement with the lender. One has to know what amount is outstanding against him and how much money he has to settle before offering any figure to settle an account. Sometimes what seems like a good offer can result in problems for the company if he cant honour the dues as per schedule offered. Take up the statement of account from the lender and cross verify it with the terms of sanction letter and payment book of the company. See if all the payments made are accounted for. Also see if the principal outstanding, interest and charges claimed can be justified by the above. Once you find any variance point it out. Don't make baseless accusations. Asking queries on the basis of account statement will go a long way rather than saying banks calculation is wrong. A company should be able to arrive at how much can it offer which will not cripple the normal business functioning. Look at available funds, receivables expected from customers, day to day expenses and other dues which have to be paid. Let's take a case of a small scale engineer. He might get a big order payment in 2 months. He can keep this in mind while offering a figure but only if the said receivable is backed by a purchase order/invoices/customer's position. Don't rely on probable orders to arrive at your figures. He should also keep in mind if he needs funds to clear the pending orders which are with him. Giving everything that you can will seem good but the company would not have funds to earn those amounts. When you offer to settle you need to factor in what all security/guarantors were part of the loan. It could be commercial property/machineries/stocks etc. There could be personal guarantees from director/proprietor/third parties. You need to find out the security given and extent of guarantees. Don't assume that the settlement of company account will release all guarantors/security. Make sure it is mentioned in the settlement deed. It all depends on what stage you are at with your case and if the Lender is willing to settle. There isn't a particular order that borrowers have to follow. They should consult with their legal advisor based on what notices/pleadings/orders exist. Find out if you've been served with a demand notice, have not filed an application yet for recovery, filed but it's pending before the DRT, have been issued a recovery certificate or if the lender is taking steps against your security. You shouldn't ignore responding to a notice if there is a DRT case that is currently pending. Unless advised by the court or act that says otherwise. You should state why you are making a certain offer. Show financials if possible that will back up your offer. Why you think you can pay the offer. Don't base your OTS figure off of wishful thinking. If its dependent on your property selling/investment/customer paying you should factor that into the amount. If they do return an offer. Read through all of it. Don't just read the settlement amount. How long do they want it paid by. Any due/interest left. If you fail to meet the terms. What will happen with your security/guarantor. If a settlement is accepted make sure it's recorded in your case. It may have to be filed in your DRT case. Or show that its been satisfied. If a settlement has occurred. Make sure its done so in a way that satisfies your current DRT case. There may be further actions you need to take to ensure your case is dismissed. Don't believe that if you have a receipt of payment that your case is closed. Find out what else needs to be done and make sure you have copies of those orders. Lawyer can be of help if you are uncertain if you should bargain, fight the debt or take any action against it. It could also be that all these apply to your situation. You may want to defend yourself and find out if there is an arrangement that you can manage to pay back. You need to look at what is being sent to you. As a borrower you need to know what you are being sued on, what papers they are using and how you will reply according to procedure. Sometimes missing one step in the procedure will put you at a disadvantage. BK Singh Advocate can go through the pleadings and papers and see what is needed for your case. A possession or auction notice needs immediate action. Depending on what is done and by when you may have an option to act. If SARFAESI Act applies you should check what provision can be made to your advantage under Section 17. One should never take a settlement as a replacement to acting within limitation or finding legal remedies. It all depends on your situation and if tribunal feels that an Interim Order can be granted. Maybe you gave a guarantee to your own business as an owner or director. The position of a guarantor will depend on various factors like your papers and loan. Always speak to a lawyer if you have given a personal guarantee and find out where you stand legally. If your business can come up with some amount of money and would like to pay off a portion of it you can try to find an agreement. First you will have to figure out where you can get the money and what kind of settlement you require from your lender. You can ask your lawyer to see if that will work and what you will stand to gain. It will be left to your lenders to grant this agreement. DRT Lawyer can help you in your DRT Recovery proceedings. It can also be in SARFAESI Proceedings, Settlement Issues or any Banking related recovery case. As per requirement of each case. One can go through the facility details, amount claimed, what security has been provided. If there is any Guarantor then his situation can also be checked. In case borrower questions the claim one can go through his accounts and other documents as well. OTS proposal, settlement letters and what kind of conditions are being asked to make payments. One can be guided on what the settlement says and if there's anything you should get clarified. As per the requirement of the case we can help you read the pleading of the Tribunal, what you need to reply, what are your options under law and represent you. If there is any possession or auction going on then the notice can be looked into at earliest. Know More about DRT Loan Settlement Lawyers or How to fight DRT case. MSME borrowers usually look for DRT Lawyer in Delhi NCR but your case could be from any part of India. There can be various factors like which DRT will hear your case. Where your properties are situated etc. So accordingly the step should be taken. BK Singh Advocate can guide you on all the above issues subject to the jurisdiction. No amount of settlement or stay or result can be promised. They can try. If the borrower is an MSME they can try to clear the amount with their lending bank. Its upon the bank to accept the settlement or not. If the bank agrees then you should take proper course of action with regards to the case at hand. One time settlement means if you have taken a loan from any bank and they have given you a figure which you are eligible to pay off your due as per the bank's terms and condition. The amount and time line would vary as per the lenders decision and what they will state on paper. Filing for OTS does not stay any proceeding nor halt the bank from recovering their dues. If you have been offered to stay the proceeding or halt recovery make sure you get that in writing. Banks can say no if they deem to do so after reviewing the case at hand. MSME's status does not force a bank to settle an MSMEs loan. Yes you can question the bank if you believe that there is some mistake. Always refer to the documents that were handed out to you when you took out your loan. If you find any discrepancies you can mention them on your reply. Just because you're settling with the bank doesn't mean they can't auction your property off. Check how far ahead they are with the process and see what you can do. If you've been notified about the auction it's best to contact your lawyer immediately. As stated in section 17 of the Sarfaesi act you have 45 days from the date they issued you the notice under section 13(4) to challenge the banks actions in front of the DRT. Again this all depends on the case and scenario. No you won't automatically get your loan waived because you have MSME registration. There may be circumstances that play into this but that isn't guaranteed. You can always ask your bank to restructure your loan. This may be beneficial to you if your business is doing well and just need a little more time to pay the bank off. You can also ask to settle but that's up to the bank. If a person has gave you there guarantee then yes the bank can hold them responsible for your dues. If you're a director you are not automatically liable for all debts of your company but if you gave your word on paper then yes you are. When a borrower is an MSME and is in a debt recovery case he should keep in mind his liability towards the bank as well as how will his business survive in coming years. It may depend upon the quantum of dues, what security is created, stance of the bank and at what stage you are in Debt Recovery. One Time Settlement could be a good option if you can pay off an amount which bank would be able to sanction. You may also want to challenge the dues, may be you have something to object regarding attachment of properties or what your guarantee liability is all these can be discussed separately. When you receive a notice from Tribunal you shouldn't sit and wait for Bank to revert back to you with settlement. Or don't jump into a settlement you cannot afford. Look at papers and money available in hand before you decide to settle. We at Advocate BK Singh and DRT Lawyer have helped many businesses and individuals who were in debt with the Bank or had become Guarantor. Our intention is to help you understand what your rights are and guide you through the process. If you are a business owner and have received notice from Debt Recovery Tribunal or Notice of Possession or Sale of assets then please feel free to connect with us.Debt Settlement Strategy for MSME Borrowers Facing a DRT Case
Why Does DRT Settlement Matter for MSMEs in 2026?
Cost of not acting early
Quick Facts
What Is a Debt Settlement Strategy for an MSME Borrower?
Settlement is not same as Restructuring
Settlement is not same as challenging your case
How Should an MSME Assess Its Debt Before Making a Settlement Offer?
Know about the amount lender claims
Know how much you can offer
Know what all assets/persons are part of the loan
How Can an MSME Explore Settlement While a DRT Case Is Pending?
Know what stage you're at
Have an OTS figure ready
Read what the Bank has to say
Make sure your case is closed.
Why Should MSME Borrowers Seek Legal Advice Early?
If you receive a summons or recovery application from DRT
If you receive a Possession or Auction Notice
If you have given a personal guarantee
If you can manage to pay some of the money owed
How Can DRT Lawyer Help MSME Borrowers?
Checking the recovery claim.
Help in Settlement Issues
Represent you in DRT / SARFAESI
Frequently Asked Questions
1. Is it possible for an MSME to clear a loan with bank after filing in DRT?
2. What is One Time Settlement (OTS)?
3. If i file for OTS will the case be stayed in DRT?
4. Can banks say no to MSME borrowers who want to clear there loan via settlement?
5. Can I question the banks demanded figures?
6. Can Bank Auction my property if I'm currently negotiating a settlement?
7. What's the limitation period to challenge a Banks action under Sarfaesi?
8. Will I be granted loan waiver if i have MSME registration?
9. Can I ask bank to restructure my loan instead of OTS?
10. Can bank go after directors/guarantors of an MSME?
Conclusion
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