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NBFC (Claimant) V Educational Academy Owner (Respondent)
Synopsis
This dispute was between an educational academy owner and an NBFC. A teacher, who had been taking tuition and was quite successful at it, decided to upgrade to opening an academy. While banks were not really open to the idea of funding such a venture, the NBFC, based on the income details filed by the individual, decided to fund the project.
The venture was timed perfectly to open just before the start of the academic year 2020-21. The premise was identified and readied, and the venture was set rolling. The financing was done in two parts i.e. one part for capital expenditure and another part for working capital, but both clubbed into term loans.
While the capex was entirely used up, the working capital was not fully withdrawn as the inflow of fees from students made up for the gap. The total loan amount was now reduced from the initially sanctioned amount, and the EMIs were set accordingly. A total loan of Rs. 3,25,000/- was allocated to the project, and EMIs were allocated.
The account was well managed and was serviced without a hitch for the first year and almost half of the subsequent year. Things took a turn for the worse when the borrower failed to make payments regularly, and then eventually missed three consecutive EMIs and was marked as NPA.
Facts
While the loan had become NPA and the respondent was approached by the NBFC, it was learned that the borrower had been detected with cancer and was hospitalized for a few months. As the academy was completely run on the basis of his reputation as a teacher, they were facing issues of students withdrawing from the classes, and hence, the operations were in complete disarray.
While there was an extension given on health grounds and some payments were made towards the loan, there seemed to be no improvement in the regularity of EMI repayment of the loans. The case was now handed over to PDR COURT for settlement.
Our Philosophy
karmaṇyevādhikāraste mā phaleṣu kadācana।
mā karmaphalaheturbhūrmā te saṅgo’stvakarmaṇi॥ 2-47
कर्म करने मात्र में तुम्हारा अधिकार है, फल में कभी नहीं। तुम कर्मफल के हेतु वाले मत होना और अकर्म में भी तुम्हारी आसक्ति न हो।
To work alone you have the right, and not to the fruits. Do not be impelled by the fruits of work.
Nor have an attachment to inaction.
PDR COURT Proceedings
In this case, the PDR COURT team of experts looked at all the documentation and also studied the replies filed by the respondent to the previous communications. It was clearly evident that the respondent himself was not in the best of health to be attending a negotiation discussion.
What made the issues even more difficult was the fact that the loan was not secured by any asset that would pay off the loan in case of liquidation, and the Claimant's team was appraised of this fact. This resulted in a series of brainstorming sessions between the PDR COURT team and the Claimant company representatives.
While inspecting all the options, PDR COURT negotiating experts came up with a plan of finding out if the NBFC had any other client who was into a similar business and would be interested in taking up this venture for expansion. As luck would have it, they managed to find a prospect, and an approach was made, which was accepted in a few rounds of discussions.
The Settlement Agreement
An agreement was entered into between the respondents' side and the third-party buyers. A valuation was arrived upon, and a part of the same was paid to the respondent. The loans were now to be taken over by the third-party company. This solution not only ensured that the loans of the Claimant were paid for it also helped the respondent in his time of crisis and brought him some much needed cashflow.
