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Willful Defaulters

A willful defaulter is someone who has the capacity to repay but deliberately avoids doing so. Lenders may aggressively pursue legal action against such borrowers, and they may face serious consequences, including being barred from future credit access and the remark of willful defaulter in the CIBIL credit report will affect adversely the credit profile and the credit worthiness of the individual. The term “wilful default” has been redefined in supersession of the earlier definition as under:

A wilful default, on the other hand, is a deliberate non-payment of a loan despite having the capacity to repay. Wilful defaults are more serious and can result in legal action.

CIBIL defaulter list is often misunderstood as a separate list maintained by banks or credit bodies. However, there is no such specific list. Instead, credit companies collect and maintain comprehensive data on borrower’s repayment performance across various types of credit. This data includes timely payments and defaulted payments, which impact the borrower’s credit score.

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A "wilful default" would be deemed to have occurred if any of the following events is noted

A wilful default, on the other hand, is a deliberate non-payment of a loan despite having the capacity to repay. Wilful defaults are more serious and can result in legal action.

CIBIL defaulter list is often misunderstood as a separate list maintained by banks or credit bodies. However, there is no such specific list. Instead, credit companies collect and maintain comprehensive data on borrower’s repayment performance across various types of credit. This data includes timely payments and defaulted payments, which impact the borrower’s credit score.

(a) The unit has defaulted in meeting its payment / repayment obligations to the lender even when it has the capacity to honour the said obligations.

(b) The unit has defaulted in meeting its payment / repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes.

(c) The unit has defaulted in meeting its payment / repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.

(d) The unit has defaulted in meeting its payment / repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given by him or it for the purpose of securing a term loan without the knowledge of the bank/lender. A wilful defaulter is a person or entity that deliberately chooses not to repay a loan despite having the ability to do so. This is different from a non-wilful defaulter who faces financial difficulties that prevent them from making payments.

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Here's a more detailed explanation

 

Key Characteristics of a Wilful Defaulter:

Deliberate Action: A wilful defaulter intentionally fails to repay a loan, even when they have the financial means to do so.

Disposing of Assets: They may also dispose of or remove assets secured by the loan without the lender’s knowledge.

Diverting Funds: They might divert or siphon off funds that should have been used to repay the loan.

Ignoring Obligations: They deliberately ignore their repayment obligations despite having the capacity to meet them

Consequences of Wilful Default


Legal Action: Banks can take legal action against wilful defaulters, including filing lawsuits.

Restricted Access to Capital Markets: They may be barred from accessing capital markets to raise funds.

Insolvency and Bankruptcy Code Restrictions: The Insolvency and Bankruptcy Code of 2016 may prohibit wilful defaulters from participating in the insolvency resolution process.

Potential for Criminal Charges: In some cases, particularly if fraud is involved, wilful defaulters may face criminal charges.

Distinction from Non-Wilful Default: A non-wilful defaulter faces genuine financial difficulties, such as job loss or business setbacks, that make it impossible to repay their debts. They are not deliberately choosing to default.

Willful Default: Intentional refusal to make payments, declared as deliberate.

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While credit bureaus like CIBIL do not maintain a list of loan defaulters, the Reserve Bank of India (RBI) does maintain a list of “wilful defaulters.” These are individuals who owe Rs. 25 lakhs or more to financial institutions such as banks or non-banking financial companies (NBFCs) within the country. The list of wilful defaulters is publicly available to ensure that financial institutions exercise due diligence before granting loans to such individuals in the future.

Some of the key provisions include the following

  1. A wilful default would be considered to have been occurred when a borrower took the money, has the means to repay but has still defaulted.
  2. In another instance, in case the borrower has siphoned off the funds for purposes other than the one it was borrowed for, it will be known as a wilful default.
  3. Besides, if the borrower has disposed off the asset that was given for the purpose of securing a loan, then also it will be known as a wilful default.
  4. Any wilful defaulter with an outstanding balance of Rs 25 lakh or more would attract the penal provisions.

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