When loan repayment has turned sour, a One-Time Settlement (OTS) offer may seem like the easiest solution. Borrowers scrounge up money, draft a proposal and submit it to the bank, hoping they’ll accept the offer to square accounts for an agreed amount. However, the situation turns more serious when accounts are already under recovery.
A SARFAESI demand notice may have been served. The lender may have symbolically taken possession of the assets. There may already be a case pending before the Debt Recovery Tribunal. In extreme cases, the bank may even have advertised the sale of the mortgaged property.
The short answer is no. Only because you have sent in an OTS proposal does not mean SARFAESI, DRT recovery or auctioning of your property will stop. You can negotiate a settlement while recovery proceedings are ongoing, unless the lender specifically agrees to halt recovery, or a competent authority issues an order to that effect.
The Supreme Court has also ruled that a borrower has no absolute legal right to insist on a benefit under an OTS scheme. Further, courts cannot ordinarily order a financial institution to accept an OTS application positively, just because the borrower desires it. The lender’s policy on settlements, its conditions to be eligible and commercial considerations continue to play a role.
It is this fine difference that confuses borrowers.
Submitting an application for OTS, having an OTS under consideration, having your OTS accepted and fully complying with a settlement are four distinct stages. They’re not legally the same.
BK Singh Advocate often guides borrowers who approach him for help after bank recovery is well underway and they want to negotiate a settlement. By this stage, the type of notices served and when, the condition of the property, whether there are DRT proceedings already and the correspondence around the settlement and the borrower’s ability to pay become important factors.
An unpaid loan does not stay an accounting entry for long. The legal and financial consequences can kick in once formal recovery process starts.
The asset that has been pledged may be a home or office property for an individual borrower. For a businessman, it could be a factory, office building, plant and machinery, warehouse or any other asset of value. Defaulting on such assets can impact your family/business.
That’s why borrowers in Delhi, New Delhi, Noida, Ghaziabad, Gurugram, Faridabad, Meerut, Lucknow, Mumbai, Pune, Bengaluru, Hyderabad, Jaipur & other cities in India want to understand OTS when a recovery process has started against them.
While a bona fide settlement offer can make business sense, it doesn’t stop existing proceedings just because it is made.
As per the RBI framework, regulated entities are allowed to enter into compromise settlements via board-approved policies. These are matters of commercial wisdom exercised along with defined internal processes and are not an automatic right of the borrower.
Borrowers understand this fact from the start: Negotiations and the legal process are parallel tracks unless linked by an accepted settlement or court order, cautions BK Singh Advocate.
If you brush aside recovery notices because bank managers are talking settlement to you, the law allows the statutory process to continue in parallel.
Proof can be often the way to check if the borrower is really aware of what stage is he at in the dispute.
Maintain a file with all the following:
Don’t rely on WhatsApp screenshots or verbal statement by a staff member instead of a legally executed settlement document.
BK Singh Advocate emphasizes on chronology. It clearly establishes through date-wise listings if the talks of settlement were initiated before the recovery proceedings started or during the possession proceedings or after the announcement of Auction.
Legal advice is often necessary when recovery and settlement start to intersect.
Tell-tale signs are auction notice, possession suit, section 13(4) action, pending DRT suit, rejection of OTS or uncertainty about/settlement amounts disagreed on what has already been paid.
Similarly, a borrower may need legal opinion where the bank is open to OTS but not willing to commit to any interim recovery agreement on paper.
Yet another red flag is straightforward: The borrower does not know what paper has arrived.
Ignoring a notice because it looks complex will only compound the problem.
BK Singh Advocate helps borrowers distinguish between three issues: what the bank is legally doing to them, what settlement is actually being offered and what time limits are running.
OTS negotiation, bank recovery, SARFAESI case and DRT matters handled by Loan Settlement Lawyer across India.
Lets start with reviewing documents instead of making false promises.
Loan Settlement Lawyer like BK Singh Advocate can review the loan account status, recovery notices sent, documents securing the loan, DRT case file, any previous settlement discussions and the borrower’s current capacity to finance a settlement.
If an OTS has already been approved, we look at the precise terms and payment timeline.
If an OTS has not been approved yet, the borrower must understand the distinction between a proposal and a binding agreement.
Loan borrowers should steer clear of individuals who claim to provide a fixed settlement amount or assure a sure stay of auction.
Lawyers and judges can not confidently assure borrowers that the bank will agree to a certain OTS offer.
No, generally. Borrowers do not have an inherent right to ask a bank to accept a One-Time Settlement offer. This includes considerations of lender policy, eligibility guidelines, recovery potential and commercial decision making. Recently, the Supreme Court has also asked banks to not be forced into giving OTS by writ petitions.
No. A request for settlement does not automatically stay the auction. The borrower will need to confirm with the bank if the sale has been officially suspended or if a court or tribunal order is applicable to the auction proceedings.
You can still send an OTS proposal after receiving a SARFAESI notice or where the bank has initiated recovery proceedings. Lender policy and facts will apply. BK Singh Advocate says deal with the OTS proposal on its merits and treat SARFAESI deadlines separately, as entering into a negotiation does not automatically stop SARFAESI process.
Yes. You can negotiate a settlement offer while a DRT case is pending. However, the existence of pending litigation is not a dealbreaker to negotiation and starting negotiations does not automatically dispose of the DRT application. Know your Rights
A verbal agreement to speak further is not the same as granting an OTS. Enquire if official written approval has been granted, how much is payable and what conditions are linked to the offer.
You cannot assume that payment = approval. While holding the sanction letter, go through payment receipts carefully. BK Singh Advocate suggests borrowers should ask questions to ensure yourself rather than believe that part payment changes the legal nature of your OTS.
This depends on the specific terms of the OTS and if conditions have been met. The lender may assert their rights per the OTS approval, if conditions are not met. A binding and complete OTS is on a different legal footing than a part-payment OTS offer.
No. Reporting and account closing is subject to the bank’s requirements and processing of the OTS. Borrowers should ask about how to receive official closure and account settlement letters instead of assuming that one payment erases all pending reports.
OTS can be discussed on a commercial basis after the bank has taken possession. However, as mentioned above the situation becomes more time sensitive after possession and legal proceedings have started. BK Singh Advocate looks at timing of possession, status of proceedings, funds being offered and all communication with the bank before advising our clients.
No. Filing an OTS application or having a pending settlement discussion is not grounds to stop following your DRT case. You should continue to monitor the matter until your Tribunal or lawyer says you can stop.
OTS can sometimes offer a sensible solution to serious loan default. However, it should never be seen as a 'get out of jail free card' that prevents recovery action.
The Courts have repeatedly acknowledged that reviewing improper recovery tactics is very different from compelling a lender to provide a commercial concession. Recently, the Supreme Court itself has said that OTS are not something that can usually be demanded as of right.
Perhaps the golden rule for borrowers is this: a promise is not a contract, a contract is not a finished deal, and negotiating settlement is not the same as receiving a stay order.
If SARFAESI action, DRT proceedings, possession or auction has been initiated, read everything in conjunction.
OTS specialist BK Singh Advocate can review the OTS negotiations along with the recovery proceedings to ensure the borrower is clear on what has been promised, what is still legally enforceable and what deadlines apply.
How Courts Deal With OTS Proposals During Recovery Proceedings
Why OTS During Recovery Proceedings Matters
Quick Facts
What Documents Matter in an OTS and Recovery Case?
File Transfer
When Should a Borrower Consult a Loan Settlement Lawyer?
How Loan Settlement Lawyer Can Help
Frequently Asked Questions
1. Does court can compel bank for accept my OTS?
2. Will the bank auction be stayed if I apply for OTS?
3. Can we negotiate OTS after receiving legal notice under SARFAESI?
4. Can we negotiate OTS if DRT case is pending?
5. What should I do if bank calls and says they accept the OTS proposal?
6. What should I do if I have already paid some amount against OTS?
7. Can bank continue recovery if OTS is already issued?
8. Will accepting OTS remove NPA from the day it is accepted?
9. Can we apply for OTS if bank has taken possession?
10. If bank has agreed to OTS should I stop appearing DRT?
Final Thoughts
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