Criminal action can be initiated against wilful defaulters

Live Mint15 Aug 14

 Kingfisher Airlines Ltd is back in the news. According to reports, lenders to Kingfisher Airlines are likely to issue a wilful defaulter notice to the beleaguered airline after a scheduled meeting of the lenders’ consortium, over the next one week. If the airline is indeed declared a wilful defaulter, it would lose access to any further bank funding as per existing norms.

Who is a wilful defaulter?

When you take a loan from a bank or a non-banking finance company, you have an obligation to repay the loan. Due to various reasons, many borrowers default on their loan repayment. Individuals, or companies, who fail to repay the loan are called wilful defaulters under the following circumstances. If you are financially capable of repaying the loan and yet fail to repay; if you use the loan amount for other purposes than what you had availed it for; if you use the money for illegal purposes; if you sell the property that you have kept as security with the lender for availing the loan. Remember that you will be termed as a wilful defaulter only if it is proved that your action was intentional, deliberate and calculated.

Apart from these factors, the minimum outstanding amount should be Rs.25 lakh or more. Defaults below Rs.25 lakh are not reported to the central bank. A person or a company is termed a wilful defaulter based on the track record.

What is its impact?

Once a financial institution determines that you are a wilful defaulter, it will send a notice in this regard to you. The Reserve Bank of India (RBI) states that the borrower should be given reasonable time, say, 15 days, to respond to the notice via a grievance redressal committee. The committee should also give a hearing if the borrower wants to clarify her stand. Only after considering the committee’s view is a person or a company finally declared a wilful defaulter.

Once that happens, you will not be able to access any kind of services or facilities from any financial institution for a new venture for five years. You will also be barred from participating in the capital market. To prevent access to capital markets, a copy of the list of wilful defaulters is sent to the Securities and Exchange Board of India by the RBI and the Credit Information Bureau (India) Ltd.

Wherever there is a consortium or multiple lending, financial institutions inform all the stakeholders as well. Criminal action against wilful defaulters under the existing legislations can be initiated by financial institutions under the provisions of sections 403 and 415 of the Indian Penal Code (IPC), 1860.