Wednesday 16 November 2011

Go Legal At The Right Time

Here, we will limit our discussion to recovery of bad loans through Indian legal system.

When follow up and negotiation fail, the only option is to go through judicial process. Many fraudsters ( sometimes on the advice of their legal counsel) refuse to settle through negotiation as they are aware that the last option left to lenders is to go legal, and which takes ages in India.

All of us know that Indian courts are overloaded with very high number of cases; obviously it is going to take time to see the light at the end of tunnel. Delay is not all because of inefficiency of courts or judges alone. In about 80% of cases, delay is attributed to late start, improper preparedness, attitude and quality of legal counsel.

Many companies do not have legal department or lack a legal professional in the department. As mentioned elsewhere, top guys do not have skills and/ or attitude for debt collection or do not believe in recovery through legal recourse. They have a preconceived notion that it takes a long time and they are not sure whether they would remain at the top that long. They rather believe Keynes who said, ‘everybody is dead in the long run’. The Board and promoters need to be focused; recovery could be a good profit centre.  Besides, lenders need to enjoy a good reputation in the area of operation that bad debtors will be haunted.

Management many a time argue that they cannot put good money after bad money; it shows their attitude.

Much of litigation is started by lenders very late, in most cases to cover them. They cite very delay in the courts as the reason. Appropriate litigation must start immediately after an account is ‘charged off’ and moved to ‘losses’, which is normally after 180 days past due in case of many well run finance companies and it is beyond 720 days past due in many companies in India. It is the delay in charging off by many companies that makes highly improbable to collect through legal proceedings. Law of limitations apply.

Of course, there must be a prudence used as to whether one should resort to legal recourse in each case; however, review and decisions cannot be unduly delayed. Where is the customer contact/ interaction history for a meaningful review?

In almost all cases, history of contacts and other important papers are not found in the customer file. For example, a motor vehicle is repossessed and sold by a lender, he needs to let customer know at each stage of the sale process (as his equity is involved) and produce enough evidences to that effect to the courts that the vehicle was sold through a good process by which the best value of the vehicle was realised. In cases, where such papers are not found, manger responsible removes the account from the probable list or achieves to lose the file in full.

It is sad that legal counsel in India, irrespective of quality or experience, just wants more and more legal cases from the company. He is willing to under quote and resort to wrong means, just to get accounts.
Obviously, he is more interested in upfront advance payment; he has neither infrastructure nor intention to start proceedings early and move fast. There is a huge delay here. They keep blaming lenders for not providing information or the right papers; why should they accept such incomplete files? Many legal firms have put enough hardware and software to use, more to print their bills. It would be in the interest of both t to speed up complaints and proceedings. Sadly, most of the times, it is the plaintiff counsel who seeks postponement or vaaidha in courts. I do not blame here the total legal community, but more than a few.

Lenders need to start legal proceedings in appropriate cases through professional counsel who may charge high but deliver results, and quickly.

Currently, not all debtors are having the last laugh!