How to protect borrower after bank issues conditional OTS letter

How to protect borrower after bank issues conditional OTS letter

Loan borrowers who receive a conditional One Time Settlement letter from a bank may feel relieved from the continuous harassment of recovery. They think that since bank has proposed an OTS, their issue is almost settled. However, conditional One Time Settlement letter is not similar to settlement of accounts. Based on conditions, approvals, payments and compliance, borrower's rights and entitlements can still be impacted.

Borrowers who are undergoing recovery actions, tagged as NPAs, receiving SARFAESI notices or facing difficulties in repayments should know about the implications of a conditional OTS letter from banks. Most banks send conditional OTS letters where they specify terms including settlement amount, payment schedule, source of payment, required documents and conditions for approval. Borrowers should take heed of below points else they may face additional problems.

BK Singh Advocate has seen many loan recovery cases where borrowers approach the firm after they have received OTS offer/ letters from bank. However, they are unsure about following matters- will bank stop recovery immediately, will ongoing proceedings be paused or stopped, what if bank turns hostile later on, what legal rights do I have to prevent them from changing stance later.

Banks often raise vital issues pertaining to RBI rules, contract law and recovery laws in a conditional OTS letter. Borrower's rights in a conditional OTS letter would depend on the language used in the letter, whether he agreed to the conditions/bank's terms, any payment made against the OTS offer, representations made via email/ letters or whether the matter was pending before any forum such as DRT.

In this article, we cover what steps a borrower should take to safeguard their interests upon receiving a conditional OTS letter, precautions to take, important documents which hold value and when to consult a lawyer.

Should You Take a Conditional OTS Letter Seriously in India?

One should take a conditional OTS letter seriously because the bank sends this letter as a proposal to settle the case. It does not mean that the bank has already waived your outstanding loan liability. The borrower should ascertain that whether the bank has accepted your settlement offer unconditionally or if the proposal is subject to some internal approvals and other conditions.

Thousands of borrowers approach loan consultants in Delhi NCR, Ghaziabad, Noida, Gurugram, Faridabad and other commercial states of India every month because they have suffered a business loss, loss of job, high medical expenses or facing temporary financial hardship. Recoveries are initiated and the account is treated seriously when the bank has already started recovery proceedings against the loan account.

Borrowers often commit the mistake of assuming that the bank cannot take any action against them when they receive an OTS letter. However, the legal position would depend upon:

• Key terms mentioned in the OTS letter/email
• Whether the borrower accepted the bank's offer or not.
• Whether the borrower paid the demanded amount within the deadline.
• Whether bank allowed OTS after completing its internal approvals
• Whether bank has initiated recovery against you before DRT or other forum

If you are corresponding with the bank regarding a settlement offer, it is essential to keep all correspondence in writing. Verbal communications can be useful but are not enough to prove the borrower's understanding, intent, and compliance.

Understanding Conditional OTS Letter from the Lender's Perspective

If the OTS letter from the bank states that it is conditional, it means that the lender is ready to close the dues based on certain conditions. The offer will mention how much you have to pay, when you have to pay, till when the offer is valid and other terms on which they can approve your settlement.

When you receive such an offer from the lender, you need to understand that it is not a settlement. A letter with conditions still binds you to meet certain terms before the bank closes your account.

For instance, the bank may send you an OTS application where you need to pay the mentioned amount by a certain date. If you do not meet the conditions of the offer, the bank can initiate recovery against you as per the loan agreement and law.

When you approach a DRT Lawyer for help, you generally have queries about how an OTS offer would affect your SARFAESI action pending against you, recovery notice from the bank, or notice for possession or a matter pending before the tribunal.

Reading an OTS letter carefully can help you find answers to questions like:

• Is the amount of settlement final or can the bank change it?
• Are interests and/or charges still applicable?
• Are there any legal proceedings that are covered under this settlement?
• Does the bank have any conditions on which they can approve this settlement?
• Is your acceptance of the offer/terms mentioned correctly?

Which Law Would Be Applicable Post Receivers Consent to OTS Proposal Offered by Bank?

This would depend on the nature of the loan, securities provided and stage of recovery. Generally, matters relating to banking settlements would entail the application of contract law, law relating to loans and associated agreements, RBI regulations governing such expectations and law governing recovery by banks.

Provided statutory conditions are met, banks can initiate proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act") in respect of secured loans. Borrowers can initiate proceedings before Debt Recovery Tribunal under the provisions of SARFAESI ACT, wherein they can challenge certain recovery proceedings.

The Debt Recovery Tribunal and Debt Recovery Appellate Tribunal try cases in relation to recoveries permitted under Recovery of Debts and Bankruptcy Act, 1993.

When a consent to OTS proposal is given by the bank, it does not waive its statutory rights of recovery unless the settlement is duly concluded as per agreed terms. Hence, it is imperative for borrowers to know about how settlement talks interact with the concurrent proceedings.

Which Documents Should a Borrower Preserve After Receiving a Conditional OTS Letter?

Typically useful documents are:

The borrower should also maintain copies of any written correspondence where bank has accepted to talk about settlement. Discussions of verbal nature with bank officials won't help as proof.

At What Stage Should a Borrower Meet A DRT Lawyer Regarding OTS Letter?

Meet a lawyer when the OTS letter proposes significant monetary liability, asks for collateral/security property, involves active recovery action against borrower or where borrower is unsure about terms of settlement.

Legal assistance is recommended when:

• OTS issued by Bank But Recovery Action is Still Going On
• 
  When SARFAESI action, possession suit or DRT proceedings have not been withdrawn even though you have been negotiating a settlement, it is advisable to first know what legal position you can take based on documents and the stage of the case.
• Unable to Pay the Amount Offered in OTS Within Specified Time
• 
  Borrowers sometimes face financial crunch and are unable to pay the amount offered to be settled within the time frame mentioned in OTS. It is useful to understand how to communicate with the bank and what could be the implications of not meeting the deadline.
• Conditions of Settlement Are Not Clear
• 
  OTS letters sometimes come with terms and conditions which explain under what circumstances the settlement would be approved, mode of payment, requirement to withdraw proceedings/initiate withdrawal of charges or requirements to provide/release security or property. It may be useful to discuss such terms with a lawyer prior to agreeing to the settlement.
• OTS concerns Property or Assets of Business
• 
  Settlement letters which concern commercial properties, residential apartments, machinery or other business assets need to be reviewed carefully since wrongful action on part of the borrower can have major consequences.

How Can DRT Lawyer Help Protect Borrower Interests After Conditional OTS?

A DRT Lawyer can help you look at whether OTS communication/recovery proceedings initiated by the bank/taking action in accordance with legal principles. Settlement discussions with banks is not the only scope of work; DRT Lawyer can also help you review the entire recovery scenario.

BK Singh Advocate will help you with Bank Recovery Notice, SARFAESI matters, Debt Recovery Tribunal (DRT) matters, or issues related to Settlement.

How Can Lawyers Help A Borrower?

• Understanding OTS and its implications
• Connection between the settlement and existing recovery proceedings
• Documents which can help the borrower case
• Issues in communication with bank or financial institution.
• Legal issues which can be foreseen in relation to secured assets.

Many borrowers approach a lawyer when the recovery efforts by the bank starts impacting their personal finances or business operations. Professionals are commonly approached by borrowers from Delhi NCR, Mumbai, Bengaluru, Hyderabad, Chennai, Kolkata, Ahmedabad, Pune and other cities in India.

Having the matter reviewed by the lawyer can save you from jumping to conclusions. All matters are evaluated on the facts of the loan documents, communication received from bank, payment made till date and the legal process involved.

Frequently Asked Questions

Conclusion

A conditional OTS letter allows borrowers to settle loan disputes, but it isn't necessarily the final point. You shouldn't stop being worried about loan recovery just because you have received such a letter. If borrowers educate themselves about the conditions mentioned in the letter, keep relevant records, and understand its legal consequences, they can arrive at a well-thought decision.

Debt recovery cases involving banks, security assets, and tribunal notices should always be taken seriously. A slight error can lead to grave monetary loss.

If you're still confused about the future course of action after receiving a conditional OTS letter, feel free to contact BK Singh Advocate. We will analyze your situation based on the facts and help you understand your legal standing.