Why is Legal Support Necessary?
Recently, India has seen a significant transformation in the working of non-banking financial companies (NBFC) in India as businesses have welcomed NBFCs for availing loan. The process of acquiring loans is relatively more straightforward than that from a traditional banking system. NBFCs are pivotal in boosting infrastructure development and generating employment. Our services cover Due diligence over loan product documents, Title Verification Report, Property Search Title, NBFC registration, Filing up NBFC applications, Preparing necessary documents, and getting requisite approvals from RBI.
NBFCs are registered under the apex financial institution of the country. They are restricted by strict rules and regulations made by the RBI for the proper functioning of the NBFCs and growth of the lending sector in India. A legal support to NBFCs is required to fulfil the obligations made by the government and to place various compliances in place to avoid penalties and generation of Non Performing Assets.
Classification of Loan Product
An organisation needs finance to expand and build infrastructure, establish new business manufacturing units, or move to new markets. Big businesses are moving towards the NBFCs for the loan facilities as NBFCs act faster in granting loans than traditional banks and have relatively less processing time. NBFCs offer the facility of secured and unsecured loans to its borrower.
Loans that can be applied by approaching NBFCs are as follows:
Business Term Loan: This loan is the most common loan facility availed by business entities. A business organisation avails term loans when they are confident about paying installments on time, you apply for business term loans.
Loan to Micro, Small and Medium Enterprise: These loans are extended to Micro, Small and Medium enterprises..These businesses mostly operate from homes/rented spaces. These loans are approved, keeping the borrower's business turnover and repayment capacity.
Overdraft and Working capital Loans: NBFC also issues unsecured loans and provides the same overdraft facility as banks. The NBFCs offer overdraft loans to the borrowers who require the amount of money for cash expenses or meeting other day-to-day operational expenses.
The working capital of any company is used in carrying out operational expenses, hiring logistics services, buying raw materials etc. The primary purpose is to keep the business operations active, and the funds needed for it is invested to ease the immediate burden of expenses. A significant portion of loans are availed for business expansions and building infrastructures.
Review of Loan Documents
In secured lending by NBFCs, a formal review has to be put in place for Loan Products and different documents required for lending. It is also emphasised to have a proper verification and due diligence over the legality of the documents, documents format and issuing authority. The Title Verification and Property Search reports must be filed beforeavailing any secured loans from NBFCs.
Opinion on Stamp Duty
The Stamp Duty cost and registration/ documents fee are charged for lending purposes, whether NBFCs or traditional banks. RBI brings regular changes to relaxing lending norms of Banks and Non- Banking Finance Companies. This easing of norms through the inclusion of stamp duty and registration/document charges is not likely to bring any consequencial change in the lending system. The applicability of the Stamp Duties depends upon the different jurisdictions of the lender and borrower of the funds.
After the inclusion of NBFCs into the SARFAESI, the lending rules have become more stringent and NBFCs have to adhere to rules related to the different lending processes. Loan to Value (LTV) ratio limit, the value considered for funding, is applicable on every loan issued by NBFCs. For Non- Banking Financial Companies, banks that are active in funding loans in this property segment, like Housing Finance Companies, already include stamp duty and registration charges for financing purposes, notwithstanding the cost of the property. Under this segment, NBFCs allows a borrower to avail higher loan amount without major restrictions and comparatively lower interest rate than the scheduled banks.
A legal notice is a formal intimation between two parties to recover money, informing/warning the other party to initiate legal action to get their non-payment of debt.
Legal notice for recovery of fund can be sent to the person to default in the scheduled payment of the loan amount; hence the significance of legal notice for recovery of due becomes essential. Legal notice for repayment of money can be filed against anyone from a distributor to an employee, tenant, friend, company, bank etc.
Some following essentials for legal notice for recovery of money are listed below;
- The legal notice must be drafted on the letterhead of an advocate with a proper and specific issue.
- It should contain details of the addresses and contact details.
- The legal notice issued must have a date, name, address details, and contact of the person to whom the legal notice is served is to be stated.
- The client's name and details should be mentioned in the legal notice to cover money.
- A legal notice must highlight the infringement of the right due to an act or omission by the opposite.
- A specific direction for resolving the issue must be stated in the legal notice served to the opposite party along within as stipulated time.
- The advocate and the sender must sign the legal notice (with date).
Litigation has been traditionally the forum of choice for resolving financial disputes. However, due to increased involvement of parties and delay in grievance redressals made parties shift towards alternative dispute resolution like arbitration and mediations. The issues related to the multiplicity of jurisdictions have attracted many violations for non-compliance. Customised solutions are needed for a smooth lending process to mitigate the issues. Now every contract/ agreement between the parties has a dispute resolution clause through arbitration as an alternative mechanism.
We also aim to assist financial institutions like NBFCs in making informed choices on dispute resolution strategy. The cases related to the bouncing of cheques under the Negotiable Instruments Act, 1881 and jurisdictional disputes related to being handled efficiently by the highly experienced teams at Enterslice.