CaseStudy

Summary

PrivateCourt has been impanelled as the Arbitrator for a Pvt. Ltd. incorporated under the Companies Act, 1956 also it is registered as NBFC as per the provisions of the Reserve Bank of India Act, 1934. This company is in the business of lending under the licence issued by the RBI. The NBFC being operational for over a decade has been running profitably for as many years. But the pandemic and post-pandemic phases have shown a rise in repayment defaults by many borrowers, especially in the unsecured vertical.

This case is peculiar as the customer or respondent, as he might be referred to in this case, had almost completed his repayment on his first borrowing and had been refinanced by the company for a Personal loan for financial assistance for Home Decor purposes. Post this refinance, the respondent maintained his EMI payment records for a 6-month period, after which he defaulted and stopped paying the EMIs entirely amounting to a disputed amount of Rs. 92,570/-.

On being approached by the employees of the company, the respondent cited poor health as a reason for his inability to pay and requested to extend his repayment period. The NBFC, looking at his track record, considered giving him a longer rope, but the respondent defaulted to the extended timelines.

The claimant NBFC then handed over the issue to PrivateCourt for negotiation and settlement.

The Arguments

PrivateCourt sent notice to the respondent, and 3 dates for the initial discussion were given with a choice for the respondent to pick a convenient time for Arbitration. The respondent made himself available, and the Arbitrator, after looking through all documents like the statement of claim, loan agreement, board resolution, statement of accounts, and notice of invocation of arbitration, impressed upon the respondent his dues. The respondent was also shown the impact this nonpayment had on his credit scores and how it would affect his future borrowing abilities.

The arbitrator, in the course of the discussions, coaxed the respondent to close the loan with an offer to waive off the penal charges applied to him so that the amount would reflect as closed and not settled on his credit report. Overall, the Arbitrator explained the principle of Natural Justice basis which, the respondent failed to repay the amount and was bound to clear the dues along with the interest and arbitration proceedings cost.

The Settlement Agreement

The respondent was made to agree to the following terms:
• Rs. 92,570/- The Principal outstanding is to be closed with immediate effect
• An additional levy of Rs. 15,000/- towards arbitration charges is to be added to the same.
• The interest amount payable is to be paid within 60 days, failing which a compound interest of 18 % is to be charged till the complete payoff is made.

The Inference

While most settlements are done by selling bad debts at a fraction of the actual outstanding, Arbitration allows lenders to collect most of their dues to the maximum capacity.