Debt Settlement Strategies for MSME Borrowers Facing DRT Recovery Proceedings?
Typically Small Business gets into financial distress when a DRT case has been initiated against them. Most of the time it’s not just the bank loan which is not being paid. There are various other factors affected like operation of business, employees, vendors, assets which are pledged as security for loan and personal guarantee provided by promoters.
There are few options available where you can analyze the Settlement of your debt. It helps the borrower understand the amount owed to the Bank and the repayment capacity they have which they might be able to settle with.
Merchants, Transporters, Small scale industries, contractors, Startups, Service Based Companies. If your business is spread across Delhi NCR or Metro cities India then this article will help you. Your business can be in a sound financial position but they don’t have sufficient funds to clear their entire debt from the bank. Or you may have an outstanding amount which you owe to a bank which is under dispute. You want to understand how the bank has taken over your security.
Debt Settlement for DRT case, you are negotiating the amount your business owes to bank and come to a settlement. It can be done through OTS or any other form which the bank agrees to. Just because you have reached a settlement, that doesn’t mean your DRT case will be dismissed or you will not get any more notices of possession/auction.
Understand what bank wants to recover from you and why? First of all understand your loan agreement along with all other related documents. Go through your statement of account, documents related to security provided by you and the order passed by DRT. Once you have crunched all these numbers then only look at financial position of your business and then decide to proceed further.
BK Singh & DRT Lawyer assists Borrower / Surety / Business who have been affected by DRT. We will analyze all your options which are available to you as per the law.
Why Does DRT Settlement Matter for MSMEs in 2026?
Cash Credit, Overdraft, Term Loans, Equipment Finance & Secured Loan are few types of loans which are generally taken by small and medium enterprises. Your repayment capacity can get hampered when there is fall in sales or delay in receivables from your debtors. Legal problems are something you’ll have to deal with along with your recovery process once a recovery stage has been reached.
Any businessman especially the owner/operators of MSMEs based in Delhi, Gurugram, Faridabad, Ghaziabad or Greater Noida whose plant & machinery, property or stock & fixtures have been used as security to the bank will be wondering what happens if your bank initiates recovery proceedings against you. The director/proprietor who has signed his personal guarantee will also have the same question popping up his mind.
You should have consulted a lawyer at the very beginning to find out whether the bank has issued a notice for recovery of its loan, whether the bank has filed an application before DRT to recover the amount or whether the bank has initiated action under SARFAESI act. Though these are interlinked yet they can be dealt with separately. Only a thorough analysis of the documents will give you an idea about how you should proceed further.
Why acting sooner can save you cost?
There is no merit in sitting back and relaxing when you get a notice from the bank. Especially when time is against you and the bank can initiate auction or other proceedings against you. At the final stage you will have very little recourse left with you to find out a settlement or legal option available with you.
Always analyse the statement sent by the bank asking you to pay up to a certain amount. You need to find out whether all payments towards the loan have been accounted for or whether interest or other charges have been arbitrarily imposed by the bank. You take the counter measure as per the situation if you don’t want to pay the entire amount claimed by the bank against the loan you have taken.
Advocate BK Singh will review your documents and guide you as to what should be your next step. Do you want to respond legally to such notices, settle with the bank or dispute certain facts in the recovery process.
Quick Facts
- You can file an application before DRT under The Recovery of Debt and Bankruptcy Act, 1993 for eligible bank or financial institutions.
- For secured debts which are eligible SARFAESI act 2002 will apply.
- OTS can only be done if lender agrees to the OTS as per their policy & terms.
- Applying for an OTS will not stop any proceedings at tribunal or any recovery attempts being taken.
- You have the right to approach DRT against section 13(4) under section 17 of SARFAESI ACT if you satisfy the conditions mentioned in the law.
- This also depends on how the guarantee is worded. If you are a proprietor director etc.
- It's always good to clearly specify when you are coming to a settlement how much is paid,what is the time line and what are the terms if any default occurs.
What Is a Debt Settlement Strategy for an MSME Borrower?
Debt settlement basically refers to an intended mode of repayment of a loan through negotiations/legal proceedings or both. The borrower’s total liabilities are taken into consideration as well as how much he can actually pay. Then consider the legal options you will get once the settlement is done.
Considering MSME’s, settling your dues is not as simple as asking the lender to reduce your dues. You need to figure out if you are able to pay what you wish to settle for. Will your lender even accept that amount. What about the current DRT/SARFAESI proceedings that are already initiated against you.
Also, understand that settlement is different from restructuring your loan.
Settlement: The lender will allow you to settle your loan at a figure which they agree to (Upon Negotiations) in writing. This can happen through OTS as well. The amount to be paid finally, the time you’ll get to pay that amount and what you’ll be liable to after the settlement will be decided by what they agree to.
Restructuring: This implies that your tenor/emirate can be modified as per the lenders and conditions that they offer. If you want your EMIs to be lowered or your tenor to be increased then you can go for restructuring. If you think you are able to pay back in future then this might work for you. But in some cases, settlement might also be possible if you are able to come up with a payment amount that your lender can use to settle your loan.
Like I said before, this won’t be possible for everyone. You can’t negotiate a settlement just because you are an MSME and threaten the lender with loan waivers or you will be given a settlement option at a cheaper price.
Settlement doesn’t mean you have to challenge the lenders case
You might be under the impression that you don’t have to pay your dues to the bank. Whether it be because your account shows a wrong balance or you simply feel that you are not liable to pay back the loan because of some technical fault with your collateral. These issues will have to be looked into separately.
Just because you are asking the lender to settle your loan, doesn’t mean you shouldn’t reply to your tribunal notice. At the same time if you have already submitted your response to DRT you can still negotiate a settlement with your lender.
How Should an MSME Assess Its Debt Before Making a Settlement Offer?
He must know how much amount is outstanding against him and how much money he will be left with if he pays certain amount to settle before going ahead and offering any amount to clear the account. Sometimes an amount which looks good to offer, can land you in trouble. If he will not be able to honour the payment as per agreed schedule.
Know about the amount lender is claiming
Take the statement of account provided by the lender and match it with sanction letter terms and your payment book of the company. See if all the payments which have been made are recorded. Cross check if principal outstanding, interest and charges being asked can be arrived at from the above documents.
Once you spot a discrepancy mark it. Don’t just blindly accuse the bank staff. Asking questions referring to the account statement will help you far more than saying your calculations are wrong banks..
Know how much you can realistically offer
Your company should be able to calculate how much is it going to offer without affecting the daily business operations. Look at your current available cash, receivables you are expecting to receive from customers, day to day operating expenses, payments for other dues which are pending.
Lets say a small scale engineer gets a large order which will pay off in 2 months time. He can consider this when putting a figure but only if the receivable is confirmed with a purchase order/invoices/customer's capability to pay. Don’t bank on orders you think will come in to arrive at your figures.
He must also consider if he will need the funds to complete the orders which he has pending with him. Offer everything you can pay back, will sound great but your company will have no funds to generate more revenues.
Know what assets/persons are involved in the loan
While offering to settle, you must consider what all securities/persons have been involved while the loan was taken. There can be mortgaged商标登记 of property/machinery/stocks etc. There can be personal guarantees from directors/proprietors/third parties.
Speak to the bank and find out about the security provided and what was the extent of guarantees. Dont assume that once the company loan is settled all the guarantors/security given will be freed from the loan. Make sure you get the same in writing in the settlement deed.
How Can an MSME Explore Settlement While a DRT Case Is Pending?
It depends on what stage you are at with your case and if the Lender is willing to settle. There is no specific order that borrowers need to do things in. Speak to your lawyer depending on what notices/pladings/orders are out there.
Know what stage you're at
Ask yourself if you have been served a demand notice, if you haven't filed an application for recovery, if you filed your application and its pending in front of the DRT, if you have been issued a certificate of recovery or if the lender is proceeding against your security.
You do NOT want to not respond to a notice just because there is a DRT case pending. Unless the act/court tells you otherwise.
Have an OTS figure ready
If you want to offer a lump sum, tell them why you are offering that number. Provide financials if you can to support your offer. Explain to them why you can pay the X amount.
Don't low ball yourself on an OTS figure because you hope/pray that they will accept it. If its depending on your property selling/investment/paycheck from a new customer then calculate that into your number.
Read what the Bank has to say
If they happen to send you back an offer. Read every word. Don't just read where the amount they want to settle for. How long do they want payment? Will there be due/interest still owed? What happens if you default on their terms. What happens to your security/guarantor?
If the settlement is accepted ensure that its put on the records of your case.
You may need to file it in your DRT case or get paperwork that shows its been satisfied.
Make sure your case is closed.
Just because you settled does not mean your case will be "disposed" (closed) by the court. If a settlement has occurred, make sure its done in a way that satisfies your current DRT pending case. There might be additional steps you need to take to have your case dismissed.
Just because you have a receipt stating you paid the bank doesnt mean your case is over. Inquire as to what else needs to be done and make sure you have copies of those orders.
Why Should MSME Borrowers Seek Legal Advice Early?
A lawyer will help you if you are confused if you should negotiate, defend against the debt or take any action at all. Maybe all of the above applies to you. You might want to defend against the case and see if there is a settlement you can afford to pay.
If you receive a summons/recovery application from DRT
Go through the documentation that is being sent to you. As a borrower it’s very important to understand what you are being proceeded against, what documents they have and how you should reply in accordance with procedure. If you miss one procedure you could be at a disadvantage.
BK Singh Advocate can help go through the pleadings/papers and see what remedies are available for your case.
If you receive a Possession / Auction Notice
You must act quickly if you have received a Notice of Possession or Auction. You may have the option to do something depending on what is done and when. If SARFAESI Act has been applied to you see what provisions you can ask for under Section 17 to your benefit.
One shouldn’t always consider a settlement instead of working within the limitation period to see if you have legal remedies. It will depend if your case has the possibility of an Interim Order being granted by the tribunal.
If you have provided a personal guarantee
You might have provided a guarantee against your own business because you are the owner or a director. Each situation for a guarantor will be different depending on your documents and loan. Consult a lawyer if you have provided a personal guarantee and understand how you will fair.
If you can pay some of the money due
If you can afford to pay some money back and would like to settle your debt you can attempt to negotiate a settlement. You will firstly need to understand where your money is coming from and what you want to ask of your lender.
Have your lawyer analyze if your proposal will work and what you’d benefit from. It will be up to your lenders if they wish to accept this settlement.
How Can a DRT Lawyer Help MSME Borrowers?
If you require help during your DRT Recovery proceedings, you can hire DRT Lawyer. This can also include SARFAESI Proceedings, Settlement Issues or any Banking Recovery case. As the name suggests, we will help
Reviewing your Recovery Claim.
Through this portal one can check the facility details, amount claimed, what securities they have taken. If any Guarantor has been provided you can check his status also. If borrower disputes the claim, then one can go through his accounts and other papers too.
Assisting you with Settlement Issues
OTS proposal given, any settlement letters sent and what all conditions are they asking you to do in order to release payment. You can get help to understand what exactly does the settlement say and if there is anything which you should ask them to clarify.
Representing you at DRT / SARFAESI
We can help you go through the pleading filed by the Tribunal. What you have to reply to and what all options do you have as per the law and represent you at DRT. If they have issued any notice of possession / auction we can review the same at earliest.
Click here to read more about DRT Loan Settlement Lawyers or How to fight your DRT case.
Most MSME borrowers search for DRT Lawyer near me Delhi NCR. But depending on your case, it could be from anywhere in India. There are many factors to consider like which DRT will have jurisdiction to hear your case. Where are the properties located etc.
BK Singh Advocate will help you with above problems depending upon the jurisdiction. We will not promise you any specific amount of settlement or stay or results.
Frequently Asked Questions
Below are some questions we have received over the years. Hopefully these will help you determine what actions you should take.
1. Can an MSME loan be settled with bank after filing in DRT?
They sure can. If your borrower has MSME status then they can attempt to settle with the lending bank for the amount owed. Obviously its up to the bank if they want to accept that settlement or not. If the bank does agree then you should follow through with proper proceedings with what ever situation you are in.
2. What is OTS (One Time Settlement)?
One time settlement is when you have took a loan from a bank. Let’s say the bank gives you the opportunity to pay off your amount due to them within their terms and conditions. The amount of money and timeline will be up to the lender and what they will specify on paper.
3. Once I file for OTS will it stay my case in DRT?
Filing for OTS will not stay your proceeding nor will it stop the bank from taking measures to recover there money. However, if you were told that your proceeding will be stayed or they will halt recovery then make sure this is in writing.
4. Can banks reject MSME borrowers who wants to settle there loan?
Yes banks can reject you if they feel it’s necessary by looking over your situation. Just because you have MSME status doesn’t mean the bank has to settle with you.
5. Can I negotiate the banks asked for figures?
Yes of course you can negotiate with the bank if you believe there is an error. Always go back to the documents provided to you when you borrowed the loan. If you see any thing that was not suppose to be there then mention it in your reply to there letter.
6. Can bank Auction my property if I'm settling with bank?
Just because your settling with the bank doesn’t mean they won’t auction your property. Find out how long they are or if they're far in the process. Once you know that information you can decide what you want to do. If you know your going to be auctioned off contact your lawyer.
7. What's the time limit to file an appeal against banks actions under Sarfaesi?
According to section 17 of Sarfaesi Act you have 45 days from the date they served you notice under section 13(4) to appeal to the banks actions to the DRT. Keep in mind this depends on the situation your in.
8. Will I get loan waiver if I have MSME registration?
No you will not be waived your loan just because you have filed for MSME registration. There can be instances that can allow this to happen but nothing is certain.
9. Can I request bank to reschedule loan instead of asking for OTS?
You can always request your bank to reschedule your loan. This can be better for you if your business is going good and your just looking for more time to pay back the bank. You can also request to settle but that would again be up to the bank.
10. Can bank pursue directors/accounts signatory of an MSME?
If someone gave you there guarantee to sign up for the loan then yes the bank can go after them to recover there lost dollar. If your a director you aren’t liable to all debts of your company unless you signed your word on paper.
Conclusion
One thing borrower MSME must keep in mind when he is a party to a debt recovery proceeding is his obligation to the bank and how will he run his business in the coming years.
Sometimes it all depends on the amount of dues what security has been created by you stance of the bank and at what stage you are in Debt Recovery process.
One Time Settlement can be an option if you are able to pay a lump sum which bank can sanction. There are times when you want to dispute the dues maybe you have some objections on attachment of properties or what is your guarante liability all these things can be negotiated one.
Once you get a notice from Tribunal don’t just sit back and wait for the bank to respond to you with a settlement. Also don’t jump on the first settlement option if you don’t have that kind of money.
Carefully go through the papers and the amount you have at hand before you take a call on settlement.
At Advocate BK Singh and DRT lawyer we have helped numerous businessmen and individuals who were defaulted to the bank or had been a guarantor for a loan. Our motive is to make you understand your rights and help you with the process.
If you own a business and have received either a notice from Debt Recovery Tribunal or Notice of possession of Sale of your assets then do contact us.
