Receiving a legal notice regarding a financial default means that informal reminder phases have concluded, and formal litigation is being initiated. Ignoring a legal court notice issued on behalf of Bajaj Finance does not pause the legal process; instead, it allows the lender to move forward with ex-parte proceedings, where the court may pass orders in your absence.
A formal notice serves as a final opportunity to resolve an outstanding default outside of court. Failing to acknowledge or respond to this communication escalates the matter from a standard collection follow-up to an active judicial case. This significantly reduces your chances of negotiating a mutually agreeable settlement or restructuring plan. Addressing the notice immediately ensures you retain the right to present your case and avoid complex litigation.
Immediate consequences: From late fees to criminal liability
When a loan account transitions into deep default, the financial and legal consequences escalate rapidly. The primary impacts include:
- Accumulation of overdue charges: Continuous default results in the compounding of penal interest and late payment fees on top of the principal overdue EMI amount, exponentially increasing the total debt burden.
- Bounce charges for payment mandates: Every time an automated payment fails, banks levy automated bounce fees on your linked account.
- Activation of Section 138 of the NI Act: If a repayment cheque or a NACH mandate is dishonoured due to insufficient funds, a statutory 30-day demand notice is issued. Failure to pay the specific cheque amount within 15 days of receiving this notice converts a civil default into a criminal offense.
- Warrants and legal summons: Unresolved cases under Section 138 can lead to the court issuing bailable or non-bailable warrants if judicial summons are repeatedly ignored.
- Litigation expenses: The borrower may ultimately become liable to bear the legal costs incurred during the recovery proceedings, as determined by the court.
Legal provisions: Section 138 (NI Act) and recovery suits
Financial defaults are handled through distinct civil and criminal legal routes in India. If a repayment instrument bounces, Section 138 of the Negotiable Instruments Act, 1881, applies. To establish an offense under this section, the lender must issue a written demand notice within 30 days of receiving the bounce memo from the bank. If the outstanding sum is not cleared within 15 days of receiving that notice, the lender can file a criminal complaint within the next 30 days. Conviction under Section 138 carries a penalty of imprisonment for up to two years, a fine extending up to twice the dishonoured amount, or both.
Simultaneously, for the recovery of the total outstanding loan amount, an NBFC can file a civil recovery suit under Order XXXVII of the Code of Civil Procedure, 1908. These summary suits fast-track debt recovery based on written contracts.
How ignoring EMI payments damages your CIBIL score severely
Every missed EMI is reported to credit bureaus like CIBIL within 30 days, directly pulling down your credit score. A drop in your score changes your status from a reliable borrower to a high-risk individual. This financial damage restricts your access to future credit options, ensuring that subsequent applications for credit cards, home loans, or personal loans face outright rejection or carry high interest rates.
Furthermore, if an account remains unpaid for over 90 days, it is classified as a Non-Performing Asset (NPA). If the default culminates in a "Written Off" or "Settled" status on your credit report, this history remains visible to financial institutions for up to seven years, restricting your borrowing capacity and eliminating your eligibility for competitive loan terms across the industry.
