What is the difference between a friendly loan and a commercial transaction ?
A friendly loan does not necessarily include interest upon loan amount whereas a commercial loan can be given only by a licensed and registered money lender along with chargeable interest.
How dangerous is it to give loan to a friend or a relative ?
Legally, it is the same as any commercial transaction. But otherwise due to your awkwardness or inability to refuse it may be risky for survival of a friendship if the loan money is not returned.
Can a case be filed for recovery of a friendly loan?
Only if it is supported by a document such as a promissory note or an agreement to repay the amount within a stipulated date. You may also take a post dated cheque of same value with or without additional interest.
Is this the same as a Security cheque and can such cheque be encashed?
Most borrowers try to excuse repayment by making excuses that the cheque was given for security purpose only or the cheque was stolen or deposited without their consent.
How does one go about recovery of such amounts?
If you have a promissory note and/or a post dated signed cheque given by the borrower, you should deposit the cheque within the validity period or limitation time for expiry of such cheques as stipulated by the bank.
In addition to this a “lawyers legal notice” has to be mandatorily sent to the borrower, that too within 1 month of cheque dishonour along with “intimation letter” which has reason for dishonour of cheque.
Failure to send notice within 1 month may weaken complaint for filing a cheque bouncing case in a criminal court. There are time guidelines for filing a case. Also as it is a punishable offence to “bounce cheque” it has to be filed before a criminal court. In addition to punishment and penalty the criminal court may grant cheque amount or even more than the amount mentioned in the bounced cheque along with interest and litigation cost to complainant or penalty for cheque bouncing.
What if there was no agreement or document? Can a person use email or phone communications as proof of loan?
Yes, any written admission to return the loan amount can be produced as proof of promise to repay.
How is a 138 NI Act case or cheque bouncing case different from a summary suit or a ordinary suit ?
A cheque bouncing case is filed in a criminal court whereas, a summary suit is filed in a civil court. The complainant is required pay “court fees” on the amount claimed even though it’s a criminal offence and in addition to return of money the court will sentence the defaulter.
In summary suit, there is no need to pay “court fees” and if the borrower fails to comply with conditions levied by court to defend his case the judgement is faster and sometimes the court may ask borrower to first pay part of the amount in order to be able to defend his side of the story. However, the judgement in summary suit which go undefended is within 1 month of filing such summary suit. Therefore this is a faster and easier relief for the lender.
In a civil suit also the lender may have to first deposit certain percentage of claim amount towards “court fees” to initiate his claim for recovery. Therefore, one should lend carefully and only if there is certainty that the money will be returned.
Can a money lender take such amounts and keep security cheques and trouble the borrower and pass off as friendly loan ?
There are laws to protect innocent borrowers. If the borrower was manipulated into taking a loan and forced to give a security cheque and if there was no privity of contract and if it is found that the lender was involved in giving “black money” on interest, the court may direct the case for investigation along with directions to the Economic Offences wing to conduct investigation to find out source of such money and to take necessary action.
Is there any time limit for recovery of such loans?
There is no limitation of time for filing a criminal case or a complaint against a borrower for cheating but the only result will be punishment if found guilty. Most people avoid doing that to their friends or relatives. But all civil cases are bound by the limitation period and have to be filed within 3 years.
How does the court help in such cases?
Almost all courts have a mediation center or Lok Adalat now. If there is a possibility that the borrower is willing to pay and the lender can allow some extension of time for repayment, the mediation officers help in working out proper consent terms and in case of failure to repay the loan amount.
What about the Tax liability of a person who has given loan and after he recovers the same ?
If there is an interest paid upon such loan, the same will be treated as income to the lender and he will have to pay tax upon same.
Can a person be imprisoned for cheque bouncing if it’s a punishable crime?
Yes even though its a punishable crime and if there is prison sentence the lender may agree to waive off or excuse the borrower or in other words the court may compound prison sentence for cheque bouncing.
What if the borrower changes his address or goes missing?
If the person goes missing after judgement, the complainant can make applications for arrest warrant or impound passport of the defaulter or issue a look out notice and inform airport authorities to be on the lookout for such person travelling out of country and if the person is already out of the country can even search through international police or Interpol. There are several legal remedies provided the complainant acts upon it and has money and time to remain persistent for recovery of his money. And in most cases of friendly loans it is only the friendship that is lost.