Settlement of a CC OD account during the bank recovery process can seem daunting when the account becomes irregular or the bank has declared it an NPA or initiated formal recovery action. For a business owner, it can be stressful: you may find your working capital tied up, suppliers are chasing payment, your property is threatened and notices of recovery landing on your door mat when you are already working to keep up with cash flow payments. However, settlement may be possible in many cases. It is not an automatic right, legally speaking. A bank may be open to an OTS/settlement compromise under its relevant policy terms, but at the same time a borrower will want to protect any legal remedies that may be available. At BK Singh & Associates, we have found that acting at the earliest stage can be particularly helpful for borrowers located in Delhi NCR (Delhi, New Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad, Meerut and Hapur). The same is true for business borrowers in other major cities such as Lucknow, Kanpur, Prayagraj, Varanasi, Agra, Jaipur, Chandigarh, Mumbai, Pune, Bengaluru, Hyderabad, Chennai, Kolkata and Ahmedabad. Because a CC or OD facility is typically associated with ongoing business operations, rather than a traditional term-loan amortization schedule, the bank may have security in the form of hypothecation, mortgage documents, guarantee documents or other security arrangements. By the time recovery action is initiated, the outstanding monetary value is only part of the question. Terms of settlement, type of security provided, pending proceedings, ability to pay and legal positioning should be reviewed holistically. One tip from BK Singh Advocate – if you receive a verbal assurance from a bank official over the phone, do not treat that as the agreed settlement. Carefully review any proposed settlement in writing including amount payable, instalments (if any), treatment of security, interest and charges applied, any pending proceedings that will be stayed or withdrawn and require release of closure documents. On behalf of the borrower a CC OD account can turn bad overnight as interest and other charges which may be applicable keep getting added to the outstanding during the pendency of the recovery proceedings. A proposal for OTS can give a borrower a way out but the act of sending a proposal will not stop the recovery process automatically. It’s even worse when the facility is secured against commercial property, residential property, factory premises, machinery or any other asset. In such cases if the bank initiates the applicable recovery process(es) then the borrower needs to weigh his options with respect to the settlement opportunity available and the legal recourse available to him at that point of time. BK Singh Advocate & Associates takes these aspects into consideration depending on the documents involved and the stage of recovery rather than generalizing all CC’s or OD accounts to be the same. For instance, one borrower might receive a demand notice but may also want to send in a settlement proposal at the same time. Another borrower might already be under possession/auctioneering action. Some others may be contesting an Original Application in Debt Recovery Tribunal. Yes, technically a borrower can make a settlement proposal even after recovery proceedings have been initiated. Whether such a proposal would be accepted would depend on factors such as the lender’s policy on settlement, its powers and the specific facts of the account. The RBI’s framework on compromise-settlement explicitly allows compromise settlements of stressed accounts of covered regulated entities. It even states that if recovery proceedings have already been initiated before a judicial forum, such settlement would still be subject to such forum entering the appropriate recording or consent. A proposal made before the lender has taken possession or issued auction notices will be considered at a different commercial point than one made after the auction notices have been issued. Depending on the value of security, amount of dues, status of litigation etc., and the borrower’s ability to arrange funds, the lender may be willing to consider a settlement. BK Singh Advocate can help the borrower understand, based on the stage of recovery, what issues need to be addressed in the settlement proposal. The proposal must be backed by a credible statement of financial position and realistic payment ability. Further, the proposal must be consistent with the documents submitted in any pending proceedings. More often than not, a thorough document review will unearth angles for negotiation that are worth more than a hurried settlement discussion would achieve. Typically, the borrower must collect sanction letter and subsequent sanction or renewal documents; CC/OD agreements, security documents, guarantee documents, mortgage deeds (if applicable), account statements, stock statements, correspondence with bank/recovery notices, etc. If proceedings have been initiated, DRT pleadings, notices/ orders, possession notices/communications, sale notices or other recovery documents should be reviewed as well. For a business borrower, financials may be relevant too. Cash-flow documents, audited financial statements, details of collateral and a realistic source of settlement funds can help you make a case for why the amount you are proposing is commercially reasonable. Some items that can go into your document checklist: Settlement Letter must be read like a legal document cum financial bargain and not just a discount coupon. Borrower must know the total amount of settlement, date of payment, penalty for delay if any, treatment of interest and other charges, status of guarantees, securities given and what about pending proceedings. If the loan is secured against property, borrower must also know when/how will lender release the security upon fulfillment of settlement terms. In case proceedings are pending, how will the settlement treat the procedural position needs to be clarified. As per RBI framework, for matters pending before a judicial forum, the settlement is subject to the initiation of such judicial process as may be required for recording the settlement. BK Singh Advocate advices borrowers to confirm the above before making the settlement payment. Sending in a partial payment without clear cut written terms can reduce the amount outstanding but may not create a full settlement. That difference can become crucial later. Legal intervention is warranted when the bank sends formal recovery notice, account becomes NPA, security enforcement proceedings commence, DRT suit is filed, possession/auction is threatened, proposed settlement is rejected/pending. Advice should be taken by guarantors where their liability/security is sought to be enforced. Proposer of settlement must also know whether the proposed settlement covers the overall exposure or just one account. Scrutinise the settlement proposal before the auction date approaches. Advocate BK Singh can review your documents, point out the general legal position and advise you if talks of settlement can go along with the legal remedies available. OTS negotiation and DRT defence can run concurrently, where the facts and stage of the procedure allow. Sending an OTS proposal does not automatically stay a DRT proceeding, SARFAESI action, possession application or auction process. Failure to comply with timelines and orders in the pending proceedings can still have consequences if the relevant proceedings are not properly stayed, withdrawn, disposed of or otherwise addressed. For example, the RBI compromise- settlement scheme itself contemplates the relationship between a settlement attempt and pending judicial proceedings. The quick answer is yes. Borrowers can be in talks with the bank recovery officer for a settlement even while a matter is pending before the DRT. Negotiations with the bank do not automatically erase what is on the legal record. That's why BK Singh Advocate manages the settlement file and litigation file concurrently. Settlement terms are reviewed relative to the standing of the lawsuit. At DRT Lawyer, we deal with bank recovery and DRT and SARFAESI disputes of borrowers, including negotiation of settlements where possible. BK Singh Advocate can help borrowers take stock of their position by reviewing CC/OD papers, bank recovery notices, securities papers and any ongoing proceedings. This wider review is particularly helpful for MSMEs and small business owners as the CC/OD facility could be bundled with collateral/security, guarantees or other bank loans. If a borrower has received a bank recovery notice, they can review our bank recovery notice legal help prior to deciding how to respond to the notice. Bank Recovery Notice Lawyer in India Likewise, if a MSME borrower is stressed for working-capital, our MSME loan recovery lawyer service would be applicable too if the CC/OD exposure is part of a larger business loan dispute. MSME Loan Recovery Lawyer in India Acceptance of the settlement is followed by documentation. The borrower should keep a copy of the settlement approval and evidence of payment and correspondence. In case a proceeding is pending before the DRT or any other forum, the appropriate record should be treated as per the terms of the settlement and the requirements of the forum. The borrower should obtain a no objection certificate / closure certificate or such other documents as may be required upon fulfilling the terms of the agreement. This may include depending on the account and security, a no-dues/closure certificate, release/satisfaction of security, return of original documents and an undertaking/confirms of pending recovery proceedings (if any). The nature of documents would differ based on the nature of the transaction and the terms of settlement. Ans. Yes, depending on the lenders applicable policy and exercise of approval authority, a lender can consider approving a compromise settlement or OTS for a stressed account. While RBI's compromise settlement framework does allow for compromise settlements with regulated entities, it does not grant every borrower the right to demand a settlement. Ans. Yes, a borrower can submit a settlement proposal, however submitting a proposal will not automatically stay the SARFAESI action. Any legal stage that has been reached and all applicable statutory timelines must be analyzed concurrently. Ans. No, merely submitting a proposal will not automatically stay a DRT proceeding. Any stays would likely require orders from DRT or withdrawal, disposal or another procedural action with respect to the matter. Ans. Yes. Compromise settlements are usually subject to the lenders applicable policy and approval levels. The borrower should not expect the bank to accept any particular discount. Ans. No. The two are different and can have different legal and prudential implications. RBI's framework on compromise settlements specifically distinguishes between compromise settlement and restructuring and treats them differently where the payment period of the settlement amount exceeds 3 months. Ans. That would depend on the express terms of the settlement agreement and performance of the promised payment obligations. Borrowers should get a written confirmation from the bank that expressly states the security will be released along with return of any property documents. Ans. Yes. Just because a settlement is reached with the principal borrower, the guarantor should not be ignored. All liabilities and security should be specifically dealt with in the settlement documentation. Ans. Yes, settlement is possible even if a DRT case is pending. The settlement would then need to be coordinated properly with the pending DRT proceeding and either recorded with the DRT or disposed of as it may legally require. Ans. A borrower should be cautious when making payments under these circumstances. The borrower should not assume the payment is construed as a full and final settlement unless the written terms from the lender specifically states. Ans. Consult sooner than later. If your CC/OD account has become irregular, turned into an NPA, received a recovery notice, facing SARFAESI action, has a pending DRT case, or if your bank has offered or rejected an OTS offer, contact BK Singh Advocate to find out your options. BK Singh Advocate can review your documents and explain the legal options and potential for a settlement based on the stage of the matter. Settlement is possible even after recovery process has started by the bank, if asked in time with proofs/documents to back it up. Filing an OTS will not stop the bank’s recovery process in its tracks. The debtor will have to comply with the pending proceedings as it tries to negotiate a settlement with the bank. Always the best approach is decided upon after understanding the due amount, security/guarantee involved, stage of recovery, your available funds and realistic ability to pay to settle. BK Singh Advocate offers legal services for DRT and SARFAESI related issues for borrowers in Delhi NCR and other Indian cities facing recovery issues/ wanting to settle. Do not fall into a trap of just talking to the branch/recovery agents over phone about settling your CC/OD account which is already in recovery. Seek legal opinion of such offer along with the proposal, your account statements and any legal notices received by you before making a financial decision which you may not be able to undo. Reach out to BK Singh Advocate and we can review your position and inform you of the practical legal option available to you based on facts and documents.How to settle CC OD account during bank recovery proceedings
Why Does CC OD Settlement Matter During Recovery Proceedings?
Quick Facts About CC OD Account Settlement
Can You Negotiate OTS After Bank Recovery Proceedings Start?
What Documents Should Be Checked Before Settling a CC OD Account?
Document
Reason
Sanction & renewal documents
To establish terms and conditions of the facility
CC/OD statements
To help you analyze the claimed outstanding amount
Security documents
To understand collateral and exposure upon enforcement
Guarantee documents
To understand implications on guarantor
Bank notices
To understand the current stage of recovery
DRT/ SARFAESI papers
To understand pending legal remedies & deadlines
Settlement correspondence
To confirm what the bank has actually offered
Financial records
To help you determine realistic repayment capacity
What Should a Borrower Check in a Settlement Letter?
When Should You Consult a DRT Lawyer for CC OD Settlement?
Can Settlement and DRT Defence Continue Together?
How Can BK Singh Advocate Help With CC OD Account Settlement?
This may include reviewing the terms of any proposed settlement; highlighting issues which need clarification; coordinating the settlement position with ongoing DRT or SARFAESI proceedings and advising on the paperwork necessary for settlement closure.
Our existing service dealing with CC/OD recovery defence would also cover aspects of recovery defence and settlement related queries from borrowers from various Indian cities. CC/OD Recovery Defence Lawyer in India What Happens After Bank Accepts Settlement?
Frequently Asked Questions About CC OD Account Settlement
1. Is it possible to settle a CC OD account once it is declared NPA?
2. Can I apply for OTS after receiving a SARFAESI notice?
3. Will submitting an OTS proposal halt proceedings in DRT?
4. Can bank reject OTS proposal on CC OD account?
5. Is a settlement on a CC OD account the same as restructuring?
6. Does the bank return the mortgaged property after settlement?
7. Does settlement on a CC OD account affect the guarantor?
8. Can I settle my CC OD account if there is already a pending DRT case?
9. Do I have to make an advance payment once OTS terms are agreed but before written approval?
10. When should I contact BK Singh Advocate?
Conclusion
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