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Corporate Debt Relief

Business & MSME Loan Settlement Services

Struggling with high interest Working Capital, Overdraft (OD), or Unsecured Business Loans? We provide expert legal protection for your enterprise and negotiate One Time Settlements (OTS) to save your reputation and business.

Get Free ConsultationUnderstand Section 138

Running Business vs Managing Debt

Running a business is a battle. When cash flow dries up due to market conditions, delayed payments from clients, or unforeseen disasters like COVID, the first casualty is often loan repayment. You are not a defaulter by choice: you are a victim of circumstance.

Unlike personal loans, business loan defaults come with higher stakes: Criminal cases under Section 138 (Cheque Bounce), seizures of stock/machinery, and threats to your professional reputation. At SettleLoans, we understand that a failed business attempt should not mean a life sentence of debt. We help you shut down bad debt so you can restart your business.

What is Business Loan Settlement?

Business Loan Settlement (or One Time Settlement - OTS) is a legal and financial process where you negotiate with your lenders (Banks or NBFCs) to pay a reduced lump sum amount to close your loan account permanently. This is usually done when the borrower is unable to pay the full outstanding due to genuine financial hardship.

Example Scenario:

A trader owes ₹20 Lakhs to an NBFC. Due to losses, he cannot pay. Interest piles up, making the debt ₹25 Lakhs. We negotiate with the lender, proving insolvency. The lender agrees to accept ₹10 Lakhs (Principal component) and writes off the remaining ₹15 Lakhs. The account is closed.

Why Do Banks Agree to Lose Money?

It seems illogical for a bank to accept 50% of the money. But they do it for three strategic reasons:

  • High Cost of Litigation: Filing civil suits, DRT cases, or Section 138 cases costs the bank legal fees and takes 3-5 years. They prefer immediate cash recovery.
  • NPA Cleanup: Guidelines require banks to maintain "Provisioning" (setting aside capital) for bad loans (NPAs). Settling the loan frees up this capital for profitable lending.
  • Tax Benefits: The amount they "write off" or waive can be claimed as a loss, reducing their corporate tax liability.

Know the Difference: Unsecured vs Secured

Your settlement strategy depends entirely on the type of loan.

Unsecured Loans

Examples: Bajaj Finserv Business Loan, Tata Capital, LendingKart, Indifi, Credit Card Overdrafts.
  • ✓ Collateral: None. They cannot sell your property.
  • ! Main Threat: Section 138 (Cheque Bounce) & Arbitration.
  • ✓ Settlement Chance: HIGH (40-60% Waiver). Since they have no asset security, they prefer some money over nothing.

Secured Loans (LAP/CC)

Examples: Loan Against Property (LAP), Cash Credit (CC) against Stock/Machinery.
  • ! Collateral: Property, Factory, Gold, Stock.
  • ! Main Threat: SARFAESI Act (Bank can auction property without court order).
  • ~ Settlement Chance: LOW / DIFFICULT. Only possible if the asset value is LESS than the loan amount (underwater asset).

Section 138 Defense Strategy

CRITICAL WARNING

Business Loan default often involves PDCs (Post Dated Cheques) or NACH mandates. When these bounce, it is a CRIMINAL OFFENSE under Section 138 of the Negotiable Instruments Act. Punishment can include 2 years imprisonment or double the cheque amount as fine.

Lenders use this fear to force payments. Here is how we defend you:

1. The "Security Cheque" Defense

We argue that the cheque was given as a "Security" at the time of loan disbursement and not for the discharge of any specific existing debt. Indian courts have ruled in many cases that security cheques cannot be used to file Section 138 cases indiscriminately.

2. Defective Notice

The law is strict. The Legal Notice must be sent within 30 days of the memo. It must demand the exact cheque amount. Lenders often make errors here. We challenge the validity of the notice itself, which can get the case dismissed.

3. Dispute the Debt Amount

Lenders often add illegal penal charges and compound interest. We prove in court that the "Enforceable Debt" is much lower than the cheque amount, making the cheque invalid for that debt.

4. Mediation & Settlement

Courts encourage settlement. We represent you in mediation cells, arguing that you are willing to pay the "Principal" but cannot pay the interest. Judges often pressure banks to accept settlements to reduce case backlog.

The Settlement Process

Step 1: Financial Health Check

We analyze your current cash flow, assets, and liabilities. We calculate a "Realistic Settlement Offer" that you can actually afford to pay. Offering too little will be rejected; offering too much will hurt your business survival.

Step 2: The Delinquency Buffer

Loans usually become eligible for settlement only after they turn NPA (90 days overdue). During this period, you will face maximum harassment. We act as your shield. We handle calls, reply to legal notices, and keep the lenders at bay while you arrange funds.

Step 3: The Negotiation Table

We formally approach the bank with a settlement proposal. We use RBI guidelines and your financial proof to demand a waiver on all interest and penal charges. We negotiate hard to bring the amount down to the Principal or even lower.

Step 4: The Settlement Letter

Once a deal is reached, we ensure the bank issues a formal Settlement Letter. We verify this letter to ensure it contains clauses like "Full and Final Settlement" and "No Future Claims" to protect you from future legal trouble.

Step 5: Closure & Freedom

You make the payment directly to the bank (never to us). We then follow up to get the No Dues Certificate (NDC) and ensure any court cases (Sec 138) are formally withdrawn.

MSME Relief: RBI Guidelines

If your business is registered as an MSME (Udyam Registration), you have special rights. The RBI "Framework for Revival and Rehabilitation of MSMEs" protects you.

Committee ApproachBefore declaring an MSME NPA, banks must form a committee to see if the business can be saved. They cannot just declare NPA overnight.
Non-Discriminatory OTSRBI advises banks to have a transparent One-Time Settlement (OTS) policy for MSEs. You can demand a settlement based on these policies, not just the manager's whim.

Stop Factory Visits

Recovery agents visit your shop/factory, shout in front of customers, sit in your office for hours ('Dharna'), and call your vendors. This destroys your reputation.

Your Rights:

  • Agents CANNOT disturb your business operations.
  • Agents CANNOT speak to your employees or customers about your debt.
  • Agents CANNOT confiscate stock without a Court Receiver order.

If they violate this, we file a formal Police Complaint. Usually, one legal notice from our side stops these physical visits instantly.

Restructuring vs Settlement

FeatureRestructuringSettlement (OTS)
GoalSave the business & continue repayment.Close the loan & exit debt.
MethodExtend tenure (e.g., 2yrs to 5yrs).Pay lump sum (e.g., 50% of outstanding).
CIBIL ImpactModerate ("Restructured" tag).Severe ("Settled" tag).
Best ForTemporary cash flow issues.Business failure / Insolvency.

Documents Required for Business Settlement

For Sole Proprietorship

  • GST Registration Certificate
  • 2 Years ITR (Income Tax Returns)
  • 6 Months Current Account Statement

For Pvt Ltd / LLP

  • Board Resolution for Settlement
  • Audited Balance Sheet & P&L
  • List of Directors & Default Notices

Success Stories

R

Rajesh Gupta

Trader, Delhi

"My trading business collapsed post-COVID. I had 4 unsecured loans totaling 25 Lakhs from Bajaj and Tata. SettleLoans handled the arbitration notices and settled all accounts for 11 Lakhs. Section 138 cases were withdrawn."

S

Suresh Patel

Manufacturer, Gujarat

"Recovery agents were visiting my factory and harassing staff. SettleLoans issued legal notices to the NBFCs citing RBI circulars. The harassment stopped immediately, and we negotiated a 12-month settlement plan."

Frequently Asked Questions

1. What happens if I default on an Unsecured Business Loan?
Since there is no collateral to seize, lenders primarily use legal pressure. They will deposit your security cheques to trigger a 'Cheque Bounce' (Section 138 NI Act) case, which is a criminal offense. They may also file for Arbitration. Settlement is the most effective way to close these loans and avoid court convictions.
2. Can police arrest me for business loan default?
Loan default itself is a civil matter. However, 'Cheque Bounce' is a criminal offense under Section 138. If you ignore court summons repeatedly, a Non-Bailable Warrant (NBW) can be issued, leading to arrest. We ensure you are represented in court to prevent this.
3. Is there a settlement scheme for MSME loans?
Yes. The RBI has a 'Framework for Revival and Rehabilitation of MSMEs'. Banks are mandated to have non-discriminatory One-Time Settlement (OTS) schemes for MSMEs. We help you draft a proposal under these specific RBI guidelines to demand fair terms.
4. Can recovery agents visit my office/factory?
They can visit, but they CANNOT harass, shout, sit for hours, or disturb your business operations. They must carry ID cards and authorization letters. If they create a scene, you can file a police complaint. We handle these escalations for you.
5. Difference between Secured and Unsecured Loan Settlement?
For Unsecured loans, lenders are willing to offer high waivers (up to 50%) because they have no asset to sell. For Secured loans (LAP), settlement is harder because they can sell your property under SARFAESI Act. However, we can still negotiate if the property value is lower than the debt.
6. What is the Section 138 procedure?
1. Cheque bounces. 2. Bank sends Legal Notice (15 days time). 3. If unpaid, they file a case in Magistrate Court. 4. You receive Summons. 5. You must appear and take bail. 6. Trial begins. We act as your defense counsel to delay proceedings and force a settlement.
7. Can I settle a loan if arbitration has started?
Yes. Arbitration is a private dispute resolution process often preferred by NBFCs. Even after an Arbitration Award is passed against you, effective negotiation is possible before the Execution Petition (EP) is filed in civil court.
8. Will business loan settlement affect my future funding?
Yes, it will adversely affect your credit score and the business credit file. You may not get unsecured loans from banks for 3-5 years. However, you can still access NBFC loans against property or private funding. Settlement is a survival strategy, not a growth strategy.
9. Can I get a Moratorium/Restructuring instead of Settlement?
If your business has sustainable cash flow but needs time, we can apply for 'Restructuring' under RBI norms, extending the tenure to reduce EMI. Settlement is better if the business has failed or cash flow is permanently damaged.
10. How to handle fintech lenders like LendingKart/Indifi?
Fintechs are very aggressive with digital collections and legal notices. They often use 'automated arbitration'. We have specific strategies for fintechs, focusing on challenging their high interest rates and hidden charges during settlement negotiations.
11. Do I need to close my GST registration if I settle?
Not necessarily. Settlement affects your creditworthiness, not your business registration. However, if you are shutting down the business entity entirely, you should surrender the GST license to avoid compliance penalties.
12. Are Directors personally liable for Pvt Ltd company loans?
Generally, Pvt Ltd offers limited liability. However, most banks take 'Personal Guarantees' from directors for business loans. If you signed a personal guarantee, you are personally liable, and your personal assets can be attached.
13. Can I settle a Mudra Loan?
Yes, Mudra loans are essentially unsecured business loans. They are covered under the CGTMSE scheme. Banks can claim a portion of the loss from the government trust, so they might be willing to settle the rest with you.
14. Can I travel abroad if I have a Section 138 case?
Yes, unless the court has specifically impounded your passport or issued a Look Out Circular (LOC). LOCs are usually issued only for very large frauds or economic offenses, not for typical business loan defaults. However, you must attend court dates.
15. What if I have multiple loans with different banks?
We recommend a 'Portfolio Settlement'. We prioritize the most aggressive lenders (those filing legal cases) first. We can also negotiate a consolidated payment plan if funds are limited.
16. Can I settle if I have already received a court summons?
Yes, absolutely. In fact, most settlements happen at this stage. We can inform the judge that we are in settlement talks, and the court will usually grant time (adjournment) to facilitate the compromise.
17. Is it better to file for Insolvency/Bankruptcy (IBC)?
For small businesses (MSMEs) and individual proprietorships, the personal insolvency process is not yet fully notified/smooth in India. Settlement (OTS) is faster and cheaper than the long legal route of bankruptcy.
18. Do I have to pay tax on the waived amount?
Technically, waived debt can be treated as 'Income from Business/Profession' under Section 41(1) of the Income Tax Act. You should consult your CA to handle this in your balance sheet to minimize tax impact.
19. Can I get a secured loan (LAP) after settlement?
It is difficult but not impossible. Some NBFCs offer 'sub-prime' loans or loans against property even with poor CIBIL, provided the property value is high and you have strong current cash flow.
20. How long does the settlement process take?
It typically takes 2 to 6 months. It depends on your availability of funds and the bank's approval cycle. We push to close it as fast as possible to stop interest accumulation.

Disclaimer: SettleLoans assists with settlement of loans. We are not a lender. we provide legal consultancy for debt resolution. Results vary based on individual cases.

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