What are the Penal Measures for willful defaulters?

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Consequences of wilful default and penal measures for wilful defaulters are explained in this article.  [You should consider reading Meaning of wilful defaulters and procedure for identification of wilful defaulters

 

What are the Penal Measures for willful defaulters?

Names of wilful defaulters are made public. List of wilful defaulters is hosted on CIBIL’s website (you can access the database from here). By making names public, reputation of such borrower will be damaged in the society and no one would like to deal with such persons.

Apart from defaming the names of wilful defaulters, RBI has suggested following are the penal measures that banks should initiate against the wilful defaulters:

  • No additional facilities should be granted by any bank / FI to the listed wilful defaulters.
  • Such companies (including their promoters) should be debarred for financing, for floating new ventures for a period of 5 years from the date of removal of their name from the list of wilful defaulters.
  • The legal process, wherever warranted, against the borrowers / guarantors and foreclosure. The lenders may initiate criminal proceedings against wilful defaulters.
  • Banks should adopt a proactive approach for a change of management of the wilfully defaulting borrower unit.
  • Any company availing finance from banks/ FIs may not appoint any Wilful Defaulter as director.

 

Banks can also consider publication of the photographs of willful defaulters (borrower/ proprietor/ partners/ directors/ guarantors etc.) following instructions issued by RBI. [Read what RBI says regarding publishing of photographs of wilful defaulters in newspapers]

Read this article about : Diversion of Funds and Siphoning of Funds

 

Criminal Action against Wilful Defaulters

  • Banks should closely monitor the end-use of funds [Read how to monitor end use of funds] and obtain certificates from borrowers certifying that the funds are utilised for the purpose for which they were obtained. In case of wrong certification by the borrowers, banks may consider appropriate legal proceedings, including criminal action wherever necessary, against the borrowers.
  • Lenders should promptly consider initiating criminal action against wilful defaulters based on the facts and circumstances of each case under the provisions of the IPC
  • Penal provisions are used effectively and determinedly but after careful consideration and due caution.

 

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