Bajaj Finance Ltd. Vs Union of India And 9 Others (Bombay High Court)
“No Need to Repay Your Loan”: Bombay High Court Seeks Clear Limits on Loan Settlement Services
The controversy
Can an intermediary legitimately assist borrowers in negotiating a loan settlement, and where does such assistance become a misleading promise that repayment can be avoided altogether? This distinction arose before the Bombay High Court in a petition filed by Bajaj Finance Ltd.
The Court sought a clear examination of the boundary between permissible assistance to borrowers and activities involving objectionable advertisements or assurances concerning the extinguishment of loan liabilities. Significantly, the order is interim. It neither declares all debt management services unlawful nor gives unrestricted approval to their activities.
Petitioner’s grievance against debt management plans
Bajaj Finance approached the Court raising concerns about certain entities operating through “Debt Management Plans”, offering services relating to legal assistance, settlements and foreclosures.
According to the petitioner, some advertisements went beyond offering assistance in negotiations. They allegedly represented that borrowers could get rid of their loans, obtain reduced interest rates or even avoid repayment altogether, with legal and other assistance being provided.
The petitioner contended that such activities could erode confidence in the lending relationship and create uncertainty about recovery. Its grievance was therefore directed at the representations and conduct of intermediaries claiming to help borrowers escape or reduce their contractual liabilities.
These allegations required examination; they were not treated in this order as finally established findings against every respondent.
Government affidavit addressed a different problem
The Union of India filed an affidavit referring to the Indian Cyber Crime Coordination Centre (I4C), functioning under the Ministry of Home Affairs, and the National Cyber Crime Reporting Portal.
The affidavit described measures against illegal digital lending applications, including recommendations for blocking applications and websites. It also referred to an advisory dated 28 September 2022, addressing exorbitant interest, hidden charges, misuse of personal information, harassment, blackmail and coercive recovery practices.
The Court acknowledged the seriousness of those concerns. However, it found that the affidavit did not address the central issue raised in the petition.
Action against illegal lending applications and scrutiny of intermediaries advertising loan settlement or non-repayment services concern different activities. A response dealing predominantly with the former did not resolve the latter.
Intermediaries explained their role
The order records that respondent Nos. 6 and 9 had filed affidavits explaining the extent of their activities.
Their position was that they provided assistance concerning loans, restructuring or settlement, while making clear to customers that the ultimate decision rested with the bank. They described their services as a form of hand-holding, without a direct assurance of any particular outcome.
This explanation brought the essential distinction into focus. Helping a borrower approach a lender for a negotiated resolution is materially different from advertising an assured escape from repayment.
The Court considered it necessary to establish what is permissible and what is prohibited, after examining the material and the proposed regulatory response.
Need for a clear regulatory framework
The Court explained that it had sought the involvement of the Reserve Bank of India and the Union of India to examine whether regulations or directives could address the problem.
However, the affidavit did not indicate any concrete suggestion or proposed framework for resolving the issue.
The Court’s concern extended to determining the permissible limits of advertisements and assistance offered to borrowers. It contemplated a mechanism distinguishing legitimate services from prohibited conduct.
The order itself does not introduce a new licensing requirement, prescribe detailed advertising standards or finally determine the legality of any business model. Those questions remained open for comprehensive consideration.
Wider enquiry and limited interim protection
The affidavit stated that I4C had examined the online activities of respondent Nos. 6 to 10 within its technological and coordination mandate, and that a factual report was under preparation.
The Court clarified that the enquiry should not remain confined to those respondents, since the petition alleged that several other entities engaged in similar activities.
It also expected the report to be placed before the Court before criminal liability was fastened. Pending production of that report, it directed that no action should be initiated against respondent Nos. 6, 7 and 10.
This protection was expressly linked to production of the report. It was neither a final exoneration nor a blanket protection for every intermediary.
The report was directed to be filed on or before 5 December 2026, with advance copies to all concerned. The matter was listed for 8 December 2026.
Author’s comments
The order appropriately recognises that legitimate borrower assistance and misleading promises of freedom from repayment require separate treatment. Borrowers may need professional help in presenting their financial difficulties and seeking a negotiated settlement. Equally, advertisements suggesting that an intermediary can guarantee non-repayment require careful scrutiny.
The practical lesson is that assistance does not amount to authority to bind the lender. Any representation concerning settlement must accurately reflect the service provider’s role and the lender’s decision-making authority.
The Court has initiated an examination of these boundaries. A final declaration that debt management services are either universally prohibited or judicially approved would therefore overstate this interim order.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. We have before us the affidavit filed on behalf of the Union of India in furtherance to our directions. The affidavit is taken on record, and we have perused the same.
2. The exhaustive affidavit makes reference to I4C, an organisation functioning under the Ministry of Home Affairs, which has been established to address cybercrime in a coordinated and comprehensive manner. Reference is also made to the National Cyber Crime Reporting Portal, which provide a centralised mechanism for reporting cybercrime complaints. With reference to our directions, the Deponent of the affidavit has perceived that the High Court is concerned with certain entities allegedly operating under the guise of Debt Management Plan, loan settlement and legal services, and the need to address misleading and unethical campaigns promising borrowers that their loan liabilities can be extinguished through impermissible means.
3. The gist of our order dated 4th February, 2026, is set out in Paragraph 8 of the affidavit. However, we are not very sure whether the entire affidavit, which sets out the work undertaken by I4C and the proactive measures being taken concerning illegal loan applications operating in the digital environment, addresses what we intended to focus upon. Undisputedly, cybercrime and the illegal loan applications being operated through digital platforms deserve a consideration, and for that purpose, it is clear from the affidavit that I4C is playing a proactive role and has recommended the blocking of several applications/sites with the involvement of the Information Technology Rules, 2009. Paragraph 17 of the affidavit also refers to the Advisory dated 28th September, 2022, issued to the Chief Secretaries/Administrators of all States/Union Territories, highlighting the serious concerns arising from digital lending applications, including exorbitant interest rates, hidden charges, misuse of borrowers’ personal data, harassment, blackmail and coercive recovery practices. However, the focus of the entire affidavit is on illegal loan applications operated through fake Apps, which result in charging of excessive processing fees and extremely high interest rates, far beyond the legal limits. It has also been unearthed that the biggest warning signs in cases where such mechanisms are adopted are that the Apps do not provide any valid contact details, customer support number or official website, thereby making it impossible for the users to seek any assistance once they fall into the trap.
4. The affidavit has definitely highlighted a very important issue of concern for all. However, that is not the focus of the Petitioner, who approached us with the aim of addressing the propaganda by some of the Respondents, namely, Respondent Nos. 6 and 8. This propaganda, according to the Petitioner, was in the form of ‘Debt Management Plans’, which included offering legal services, settlements and foreclosures. It was urged before us that this would definitely erode the trust between banks and lenders, and that banks would always be apprehensive about the amounts to be recovered if such intermediaries are in the field. It is against this background that we expected the Reserve Bank of India, in collaboration with the Ministry of Home Affairs, Union of India, to examine the issue, particularly since we were informed that the concerned Ministry of Home Affairs should also be roped in, to ascertain whether any regulations/directives could be issued by the Reserve Bank of India to deal with the menace highlighted in the petition. 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. However, what is highlighted in the affidavit is also a very important aspect, which is of even greater relevance at the present time, namely, illegal loan applications. From a reading of the affidavit, the respective Counsel representing Respondent Nos. 6 to 10 apprehend that illegal loan applications are operating. Several affidavits are filed before us by Respondent Nos. 6 and 9, wherein they have explained the extent of their activities, with a clear understanding being conveyed to the customer/consumer that they will offer only assistance in securing a loan and in restructing/settling the loan, and that the ultimate decision lies with the bank. They are only offering some form of hand-holding, without any direct assurance. 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.
5. In Paragraph 14 of the affidavit, with regard to the private entities, i.e. Respondent Nos. 6 to 10, it is stated that the nature of their online activities, based on the relevant material available in the petition concerning their operations, has been examined by I4C within its technological and coordination mandate, and that the factual report is under preparation. Once the report is submitted, the position would definitely become clear. However, we do not expect the enquiry to be restricted only to Respondent Nos. 6 to 10, as, according to the petition, several other entities are also involved. Respondent Nos. 6 to 10 have been specifically referred to, and some of these entities have placed their defence before us. However, according to the Petitioner, there are various entities which advertise and allure customers by claiming that they will help them get rid of their loans altogether or secure a reduced rate of interest. Some advertisements, copies of which form part of the petition, have gone to the extent of claiming that the consumer will not have to repay the loan at all and that all legal and other assistance shall be provided. According us, the Petitioner, and indeed we ourselves, intend to target such operators. Therefore, upon the report being placed before us, as indicated by the Deponent of the affidavit in Paragraph 14, it will probably be necessary to segregate what is permissible under the Reserve Bank of India’s regulations and to what extent advertisements or hand-holding assistance to a consumer/borrower can be allowed. As indicated in the affidavit, we expect the report to be placed before any criminal liability is fastened, as we intend to develop a mechanism that clearly demarcates two categories, namely, the permissible limits of advertising and assisting borrowers, and the activities that are prohibited. We, therefore, direct that, until the report is produced before us, no action shall be initiated against Respondent Nos. 6, 7 and 10. Upon receipt of the report, we expect to undertake a comprehensive examination of the entire scenario. To be listed on 8th December, 2026. We expect the report to be filed on or before 5th December, 2026. Copies of the report be served in advance on all concerned.
