Does RBI allow out-of-court settlements?

Answer

A:

Yes. The Reserve Bank of India (RBI) permits and even encourages out-of-court settlements in cases related to loan defaults, cheque bounce disputes, and debt recovery. Instead of dragging the matter through lengthy court litigation, RBI guidelines allow banks and Non-Banking Financial Companies (NBFCs) to resolve such disputes through compromise settlements, one-time settlements (OTS), and alternative dispute resolution mechanisms.

• While cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881 is a criminal offence, it is also a compoundable offence.

• This means both parties can mutually settle the matter outside court at any stage, with the court’s permission.

• RBI has issued circulars to banks and NBFCs encouraging amicable settlements with borrowers to reduce litigation burden.

• RBI allows One-Time Settlement (OTS) schemes where borrowers can negotiate and settle outstanding dues with banks.

• Compromise settlements are encouraged to clear stressed assets and avoid long court battles.

• Banks are given the flexibility to frame board-approved settlement policies for loan disputes.

1. Faster Resolution – Saves years of court time.

2. Reduced Costs – Avoids high litigation expenses for both borrower and lender.

3. Preserves Credit History – Settling early can minimize long-term damage to CIBIL score.

4. Finality – Both parties close the dispute with legal validity once settlement is recorded.

Yes, RBI allows out-of-court settlements in cases of cheque bounce and loan disputes. Since cheque bounce is a compoundable offence, parties are free to negotiate, settle, and withdraw cases with the court’s approval. RBI guidelines actively promote such settlements through OTS and compromise schemes to reduce litigation and speed up recovery.