EMI Default: Legal Ramifications and Borrower Remedies
Defaulting on an equated monthly installment (EMI) is more than a missed payment—it’s a legal breach that triggers consequences for borrowers under Indian law. But it also opens a set of rights and remedies that borrowers can rely upon.
Contractual Consequences for Borrowers
Every loan agreement comes with the borrower’s obligation to pay EMIs as agreed. Failing to do so amounts to a contractual breach under Section 73 of the Indian Contract Act, 1872. Typically, lenders will:
Levy Default Interest – A higher rate on unpaid amounts as per the contract.
Charge Penalties – Additional fees that are meant to cover costs and discourage further default.
These charges can sometimes be heavy, but they’re based on the agreed contract terms.
Cheque Dishonour and Section 138
If the borrower pays an EMI by cheque and it bounces, it can bring in criminal liability under Section 138 of the Negotiable Instruments Act, 1881. This law says:
A demand notice must be sent within 30 days of the bank returning the cheque.
The borrower gets a 15-day window to pay once the notice is received.
If there’s no payment, the lender can file a criminal complaint in court within 30 days after the 15-day period ends.
A conviction can lead to jail time (up to two years) or a fine that can be up to twice the cheque’s amount.
SARFAESI Act: Enforcement of Secured Loans
For secured loans like mortgages or car loans, repeated EMI defaults can push the account into Non-Performing Asset (NPA) status. Then, lenders have powers under the SARFAESI Act, 2002:
Section 13(2) – A 60-day notice to repay.
Section 13(4) – If the borrower doesn’t comply, the lender can take possession of the asset and sell it.
Section 17 – The borrower has 45 days to file objections before the Debt Recovery Tribunal (DRT).
Borrowers need to be aware: these are powerful tools for lenders, but there are also checks to stop misuse.
Borrower’s Options and Remedies
Clear the Default – Paying the overdue EMI and any penalties is always the first step to stop things from escalating.
Explain in Writing – Borrowers can write to lenders explaining real financial hardship, which may help get penalties waived.
Respond to Legal Notices – Deadlines under Section 138 and SARFAESI are strict. Missing them can make the situation worse.
File in DRT – If the lender tries to take over a secured asset, the borrower has the right to file objections and get a fair hearing.
Why Legal Help is Important
Dealing with these rules alone is never easy. That’s why legal counsel matters. At Legals365 and Online Noida, lawyers help borrowers by:
Drafting replies to legal notices.
Representing borrowers in Section 138 cheque cases in court.
Representing them before the DRT for SARFAESI issues.
Negotiating for one-time settlements or restructuring, using RBI guidelines.
Legal support isn’t about fighting every case—it’s about making sure your rights are protected and that the process stays fair.
Conclusion
An EMI default isn’t just a small slip—it’s a legal event that can snowball if not handled carefully. Acting early and using the legal protections you have can make all the difference. And having a lawyer on your side is often what makes sure your side of the story is heard.
If you’re dealing with EMI default or a legal notice, let Legals365 help—real lawyers, real advice, and real results.
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