Can lenders take legal action against defaulting borrowers? 

In case of non-payment of loan, lenders can take legal action to recover the defaulted loan, but there are limits to this too. Actually, delay in paying EMI is a civil case, not a criminal one. This means that you cannot be sent to jail for not paying. However, bouncing of a cheque issued to repay the loan can be considered a criminal offence under the Negotiable Instructions Act, 1881.

What legal protections do borrowers have when they don’t have money?

1. Right to notice (Section 8(2) of the SARFAESI Act, 2002): Before resorting to legal action, borrowers are obliged to provide a written default notice. This notice, usually issued 60 days before initiating legal proceedings, should clearly outline the missed payment, the total amount outstanding and the potential consequences of nonpayment. It is your right to get this information in a language that you can comprehend.

2. Right to be heard (RBI Guidelines on Fair Practices Code, 2003): The bank OF INDIA' target='_blank' title='reserve bank of india-Latest Updates, Photos, Videos are a click away, CLICK NOW'>reserve bank of india (RBI) mandates fair practice for all lending and borrowing entities. This includes the right of the borrower to oppose a default notice. You have the option to object to the notice if you believe it to be incorrect. The lender has 15 to 30 days from the date of the bank's notice to reply.

The procedure of recovering a loan ought to be courteous and handled with decency. No institution or bank can resort to intimidation, harassment or threats to the borrower to recover the loan amount. This includes making unsolicited calls, publicly shaming the defaulter or using abusive language.

3. Proper valuation of property (Section 13 of the SARFAESI Act, 2002): If things like a car or property are being seized against the loan, then the borrower's property should be properly valued before taking possession of it. The RBI mandates a transparent valuation process, which often involves independent valuers. If you feel that the loan giving bank is undervaluing your seized property, you have the right to inform the bank about it and demand that the property be sold at the correct valuation.

4. Surplus balance right (Section 17 of the SARFAESI Act, 2002): The balance amount left after selling your property to recover the loan amount must be returned to you. This “surplus balance” ensures that you do not owe more money than the loan borrower.