08 May 2024 Business Debt >> Business & Commercial Law   |   Recovery >> Civil/Debt   |   Property/Real Estate Law >> Property & Real Estate  

A recent court case, Anil Sharma & Ors. v. Genesis Finance Co Ltd & Ors., involved a dispute over a loan agreement between borrowers (Mr. Sharma and others) and Genesis Finance. The borrowers appealed a lower court decision that favored the lender.

Facts:

The borrowers took a loan of Rs. 2,75 crore from Genesis Finance at an interest rate of 17.67% per annum (flat rate). This translated to a monthly EMI of Rs. 11,68,735 for 36 months. The loan was secured by mortgaging three properties.

According to the borrowers, they were misled into believing the interest rate was a simpler calculation, resulting in a lower EMI. They stopped making payments after May 2013, leading to bounced cheques and legal action by Genesis Finance.

Settlement Attempt and Lower Court Decision:

To resolve the dispute, both parties entered into a Settlement Agreement. This agreement acknowledged that Rs. 2,03 lakh remained outstanding as the principal amount, with interest calculated at a higher rate of 36% per annum on a reducing balance.

Despite the agreement, the borrowers challenged the lower court's decision that favored Genesis Finance. The lower court upheld the Settlement Agreement and allowed the lender to recover the dues by selling the mortgaged properties. However, the court did reduce the pre-suit interest rate from 36% to 24% per annum.

Conclusion:

The borrowers appealed the decision, arguing that the Settlement Agreement was signed under duress due to a family emergency and that the court shouldn't have allowed the sale of properties without determining the exact amount owed. They also contested the high interest rate.

The appellate court dismissed the appeal. The court agreed with the lower court that the borrowers' defenses lacked merit and that the Settlement Agreement was enforceable. The court also did not address the fairness of the interest rate as Genesis Finance had already accepted the reduced rate of 24% per annum.

Key Takeaways:

This case highlights the importance of carefully reviewing loan agreements and understanding the terms of repayment. It also emphasizes the enforceability of Settlement Agreements when they are signed willingly by both parties. The court's decision to uphold the agreement despite the initial high-interest rate suggests that borrowers should ensure they fully understand the terms before entering into such settlements.

Negotiable Instruments Act, 1881    

RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993