The Bombay High Court has called upon the Reserve Bank of India (RBI) and the Union Government to examine whether a regulatory framework is needed to govern entities advertising debt management plans and loan settlement services, particularly those promising borrowers that they can avoid repaying their loans altogether.
A division bench of Justice Bharati Dangre and Justice Ashish S. Chavan observed that a clear distinction must be drawn between legitimate assistance to borrowers and activities that are prohibited. The court said a regulatory framework may be necessary to determine what such intermediaries can legitimately offer.
The court was hearing a petition filed by Bajaj Finance Ltd in 2022, raising concerns over debt management plans advertised by certain intermediaries. These entities were allegedly offering legal services, loan settlements and foreclosures to borrowers.
Bajaj Finance argued that the activities of such intermediaries could erode trust between banks and lenders. It expressed concern that banks would become apprehensive about recovering outstanding dues if these entities continued offering such services.
Two of the intermediaries filed affidavits explaining that their role was limited to helping customers secure loans or restructure and settle existing loans. They maintained that the ultimate decision rested with the bank and that they merely provided hand-holding assistance without giving borrowers any direct assurance.
The court noted that some intermediaries maintained that they merely assisted borrowers in restructuring or settling their loans. However, advertisements forming part of the petition went much further, promising borrowers that they could get rid of their loans altogether or avoid repayment entirely.
"In the wake of this conundrum, it would be necessary to have a clear demarcation as to what is permissible and what is not. It is for this purpose that we have called upon the Reserve Bank of India and the Union of India to respond as to whether any regulatory framework can resolve this issue. Unfortunately, the affidavit is not indicative of any such suggestion or plan being in the pipeline," the court observed.
The court was considering an affidavit filed by the Union Government pursuant to its earlier directions. The affidavit discussed measures undertaken by the Indian Cyber Crime Coordination Centre (I4C) to tackle illegal digital lending applications, including recommending the blocking of several applications and websites.
However, the bench found that the affidavit did not address the specific concerns raised by Bajaj Finance regarding debt management plans and loan settlement campaigns.
"Though an affidavit has been received, we are of the view that it does not at all address the issue with which we are concerned and about which the Petitioner has expressed its concern," the bench observed.
The court recalled that it had earlier expected the RBI, in collaboration with the Ministry of Home Affairs, to examine whether regulations or directives could be issued to address the activities highlighted in the petition.
It also noted that the I4C had examined the online activities of certain private entities and was preparing a factual report. The court clarified that the inquiry should not be restricted to these entities, as Bajaj Finance had alleged that several others were also involved in such activities.
The bench took note of advertisements forming part of the petition, which allegedly claimed that borrowers could get rid of their loans altogether or secure reduced interest rates. Some advertisements went further, claiming that borrowers would not have to repay their loans at all and would receive legal and other assistance.
The court observed that it intended to examine such operators and develop a mechanism that clearly distinguishes permissible advertising and assistance to borrowers from prohibited activities. It directed that no action be initiated against three of the private entities named in the petition until the report was placed before it.
The Union Government has been directed to file the report on or before December 5, 2026. The matter has been listed for further consideration on December 8, 2026.
For the Petitioner: Senior Advocate Zal Andhyarujina, Advocates Ranjeev Carvalho, Jahaan Dastur, Sachin Chandarana and Jaiveer Dhakan, i/b Manilal Kher Ambalal & Co.
For the Respondents: Rui Rodrigues, Advocate, Anusha Amin, Advocate, for Respondent Nos. 1 to 5 and 12, Senior Advocate Vijay Kumar Arora, Advocates J.A. Udaipuri, Aditya Manubarwala, Sarvagnya Trivedi, Sandeep M. Hirvadekar and Paras Gada, i/b Lion Law, for Respondent No. 6, Vishal Kanade, Advocates Hormuz Mehta and Ahsan Allana, i/b JSA, for Respondent No. 7, Senior Advocate Shiraz Rustomjee, Advocates Prachi Pandya, Prateek Pai and Bhavya Ganatra, i/b Corporate Attorneys, for Respondent No. 9; Senior Advocate Milind Sathe, Advocates Aditi Phatak and Twinkle Kalla, i/b BLAC Co., for Respondent No. 11 (RBI), Milind More, Additional Government Pleader, for the State.