RIGHTS AND DUTIES OF PRINCIPLE DEBTOR AND CREDITOR

ABSTRACT

This article would analytically discuss the relationship between principal debtors and creditors under the Indian Contract Act, 1872, in minute detail. It gives an overview of the rights and liabilities imposed on both parties towards each other to make financial transactions within fair limitations. Some of the fundamental rights are listed, like a debtor’s right to debt repayment, a debtor’s right to collateral for secured debts, a debtor’s right to obtain financial information on a timely and accurate basis, and a debtor’s right to assign debts to a third party. By obligations of creditors are clear communication, proper accounting, good faith, and proper handling of collateral. On the other hand, debtors have rights to fair treatment, that clear information related to the terms of their debt, reasonable notice before any legal action, and the right to challenge errors. These include duties, such as repaying debts on time, providing correct financial information, reporting creditors of significant changes in their financial status, and taking care of any collateral. This article deals with the mechanisms of enforcement available under the Act, namely legal recourse in civil courts, attachment of collateral and the role of regulatory bodies along with alternative dispute resolution forums such as arbitration and mediation. It then goes on to point out that translation difficulties with legal jargon and imperfections in the mechanisms themselves form some of the practical handicaps of implementation and argues for necessary reforms. The financial system shall promote clear communication, simple contracts, and effective enforcement, fostering a balanced and just environment that protects the rights of creditor and debtor alike, ensuring an appropriate stable and equal financial landscape.

Keywords

Principal Debtor, Principal Creditor, Indian Contract Act, 1872, Debt Repayment, Collateral Security, Fair Treatment, Legal Recourse, Enforcement Mechanisms, Financial Transparency, Regulatory Bodies, Arbitration and Mediation, Contractual Obligations, Debtor Rights, Creditor Rights, Interest and Damages.

INTRODUCTION

Every person in the finance field should know the rights and applications of chapter and creditors. The creditor is the person who is lending the money and on the other hand debtor is the person or entity which borrows money. Their relationship follow some rules which guarantees that 4th parties metre applications and their interests are saved and they have a power to defend them. All these responsibility is rights and duties will be simplified in this article to give your better or idea about how creditors and debtors operate in the financial market and maintain smooth and efficient financial transactions.

Duties of debtors include the repayment of the borrowed money at an agreed upon time period, staying honest and truthful about their financial status and abstaining from activities that may badly effect the creditor’s interest. On the other hand the creditors have the duty to provide sufficient time to the debtor for repayment, demand rightful interest and fulfill other obligations of the contract. The law make sure that there is full transparency in the transactions and if any of the parties is trying to scam the other, the law protects them, which will also be discussed in this article.

Apart from that there are some legislative angles, such as the insolvency and bankrupt laws, the Indian contract act, 1872, etc. Which provide systematic framework about these debtor and creditor relations and understanding of these regulations will help in solving any disputes that may arise between both the parties of the transaction and protect interest of both parties. In this article the legal provisions, rights and duties of both principle credit and debtor, the enforcement mechanism, the judicial interpretations about the relationship between the principal creditor and debtor are given and also a brief section is dedicated to the challenges and issues that are taking place in this field.

MEANING OF PRINCIPLE CREDITOR AND DEBTOR

Principal Creditor- It is the one to whom, and that lends money to the other party from which he seeks to be repaid with the addition of some interest. He is the first right to claim their debt. A case in point of this would be when you borrowed a house loan from a bank; such is considered a principal creditor. With this loan agreement, the creditor expects to collect the debt through scheduled payments. This role is significant because they provide the funds while making the borrower responsible for the debt, making sure the interest of the principal creditor is safe.

Debtor- The debtor is the either the individual or entity that takes or borrows money from the principal creditor and obligated to repay it with the terms agreed upon. This could be an ordinary individual, company, or even a government. For instance, when applying for a mortgage to purchase a house, you are the debtor as you owe some amount of money to a bank. As such, a debtor should make timely payments coupled with interest accrued until the debt is fully paid. In case the debtor fails to pay as required, he or she opens himself or herself up to possible legal action from a creditor and has his or her financial standing and credit rating affected.

LEGAL FRAMEWORK

Indian Contract Act, 1872

Section 126- A contract of guarantee is a contract whereby one party, (called the guarantor or surety), promises to perform some promise or to discharge some liability of a third person to whom that promise ought to have been performed or with whom such liability ought to have been discharged, such promise or liability itself being called the guarantee by the guarantor.[1]

Section 128- The liability of the surety is several, not joint only, as it is with the principal debtor, unless a joint liability is expressly imposed upon them by the contract.[2]

Section 5(20)- Meaning of Creditor “the person to whom money is owed by another party”.[3]

Section 5(21)- Meaning of Debtor “the party who owes money to the creditor”.[4]

Section 8- Provision for invocation of insolvency resolution by a financial creditor and declaration of moratorium for forming the commencement of process for corporate debtors.[5]

DRT (Debt Recovery Tribunals) Act, 1993

Section 3- Setting up of Debt Recovery Tribunals (DRTs)-specialized tribunals for expeditious adjudication and recovery of debts due to banks and other financial institutions.[6]

Chapter 19- Discusses the jurisdiction of the tribunals and the procedure for application by banks and financial institutions to recover debt.[7]

Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002

Sec 13- This section elaborates on how the security interest can be enforced by the banks and financial institutions. It empowers them to take possession of the secured assets without any order of courts.[8]

Section 14- Allows a secured creditor to make an application to the Chief Metropolitan Magistrate or the District Magistrate for such further assistance in the taking of possession as may be applied for. In other words, this provides for the smoother recovery process.[9]

Negotiable Instruments Act, 1881

Section 138- Relates to the dishonor of cheque due to insufficiency of funds that is considered a criminal offense. This provision proves to be a safeguard against misuses of cheque and accountability in financial dealings. It gives the legal recourse to move against a cheque issuer who has honored a cheque, thus protecting creditors and restoring confidence in financial dealings.[10]

RIGHTS OF THE PRINCIPAL CREDITOR

Right to Debt Repayment

The right of debt has taken a center stage position on the ladder of legal protections in relation to the safeguarding of such loan-giving and ensures that the principal creditor, who is the person whose loan is given, receives the entire sum borrowed or advanced, plus any interest or penalties agreed upon with the debtor. This provides a backbone for trust and security in financial dealings. For example, if a bank issues out a loan, it expects the borrower to agree to fulfill the terms of payment agreed within their contract. Such terms typically include repayment of the principal amount together with interest over a specified period. In case the debtor defaults on such terms, the principal creditor is eligible to press claims in court by issuing demand notices, filing lawsuits, or asset seizure if the loan involved is secured. It protects the financial interest of the creditor, apart from maintaining the credibility of the lending system with credit flow constituting the heart of economic activity. Therefore, the right to debt repayment is indeed really essential to maintain a balanced and sound financial ecosystem.

Right to Secure Debt

Secured debt is one of the core legal rights whereby the granting lender, who has an approval to offer loans whose service is guaranteed by collaterals, is safeguarded from loss. Under secured lending, a debtor commits a pledge of specific asset such as house or car as a guarantee, using which the creditor can recover the amount if the debtor does not honor their repayment obligations. For instance, in a mortgage, it is the house that serves as collateral, and in case of non-payment of installment, it can be repossessed by the bank. In other words, this right minimizes risk for lenders and creates more confidence in granting credit-that is, a lender has an asset that can be used to fall back on, thus securing the investment of creditors as well as motivating prudent borrowing and lending, which will then lead to stability and confidence within the financial system.

Right to Information

The right to information is a key legal principle that allows individuals to access information held by public authorities. This right fosters transparency, accountability, and good governance by enabling citizens to request and receive details about government operations, decisions, and policies. For example, India’s Right to Information Act, 2005, empowers citizens to seek information from any public office, ensuring governmental actions are open to public scrutiny. This right is essential for creating an informed society and encouraging public participation in the democratic process. By holding officials accountable, it aids in combating corruption and improving government functions. The right to information is thus crucial for maintaining transparency and trust between the government and its citizens.

Right to Assignment of Debt

It constitutes the creditor’s right to assign, or transfer, the right to collect a debt to another party. As seen above, it can be said that basically the original creditor is able to hand over debt to a third party, who then gathers the debt from the debtor. For example, when the bank sells a loan to a debt collection agency, the right of recovery would get vested in the latter. This would automatically help the creditor to better manage his financial risk and add to his liquidity because this way the burden to collect the debt gets passed on. Also, it implies that the debtors get made to honour their liabilities to the new party and hence the debt becomes recoverable.

Right to Interest and Damages

The right of interest and damages entails that there are further claims by creditors if the debtor fails to maintain the terms of repayment. Interest can be charged per cent as a percentage of the outstanding debt. Interest works as a form of punishment for the failure of timely payments whilst rewarding the lender for the lost opportunity cost for the delayed funds. For instance, if a customer borrows money and is unable to pay a specified installment, the lender may impose interest on the defaulted amount. Against this, creditors can claim damages over any financial loss resulting from the failure of the debtor to perform his obligation. This right of the creditors protects the creditor’s financial interest while encouraging the settlement of debts in time and, thereby, building trust and stability in transactions.

Right to File a Legal Suit

The right to file a suit allows individuals or entities to bring a legal action against another party in the court. Right to file a suit gives out the proper formal mechanism of bringing disputes and claiming justice through the judicial system. For instance, a party affected by breach of contract could file a lawsuit to be compensated for loss incurred. This fundamental right strengthens the rule of law principle since it affords legal remedies and appropriate redress whenever rights have been infringed. It brings accountability and fairness and continues societal order by allowing both individuals and entities to seek remedies through the process of the law.

DUTIES OF THE PRINCIPAL CREDITOR

Duty to Disclose Material Facts

Creditors also owe a duty to disclose fully and effectively, all such relevant information and material facts about the loan to the debtor. These would include interest rates, fees, repayment, and any risks associated. If debtors are not made aware of these aspects in a clear form of communication, they will hardly know what kind of implications the loan entails. Thus, for instance, without stating other major fees or penalties, the creditor may land the debtor into unexpected financial trouble. By presenting all material facts clearly, creditors ensure a basis for trust and informed decisions, which are indispensable in ensuring ethical lending practices.

Duty to Account for Receipts

All receipts from debtors must be accounted for by creditors. Accounting incorporates an accurate record of every transaction, including the amount paid, the date, and the purpose of the payment. As such, creditors should also ensure that debtors have access to the records upon request. Correct book-keeping eliminates the chance of quarrels over the mode of payment and gives transparency to the process of repayment. An example would be, if the debtor meets his creditor and demands to know whether he paid or not. The creditor should have all records to clarify the position. It is this responsibility that helps give one trust in the creditor-debtor relationship.

Duty to Act in Good Faith

Creditors, therefore, should be in good faith at all stages of the lending process. It is a universal duty to treat a debtor fairly and honestly and not to adopt any fraudulent practices or commit frauds on him and ensure that the terms agreed upon in the transaction are not exorbitant. Good faith demands candor, frankness, and reasonableness in communicating to a debtor the relief he can look to for, considering his situation where he is being called upon to pay money over. For instance, a creditor must not charge lock-up fees or other misrepresented conditions accompanying the loan. That’s because creditors acting in good faith will remain in a beneficial relationship with the borrower and have the highest ethical standards in lending.

Duty to Exercise Care in the Handling of Collateral

If the debt is secured by collateral, the principal creditor should perform the collateral with reasonable care. That is, the creditor must take adequate measures to protect the collateral against loss or damage as well as intentional or negligent misuse. Proper handling of collateral protects the interests of the debtor and preserves the integrity of the security agreement. Holding and maintaining the collateral is the creditor’s responsibility, especially for a secured loan. This ensures that the asset will not be abused and will not be damaged. For instance, when a vehicle is offered as collateral security, the creditor should keep it safe and maintain it if repossessed. Proper management of the collateral secures its value and respects the rights of the debtor. This duty ensures fair treatment of the debtor and, therefore, justifies the creditor’s actions concerning the collateral.

Duty to Apply Payments Appropriately

The payments received from debtors should be applied along the terms of the loan agreement. Payments should be crediting the principal, interest, and fees accurately. Misapplied payments may bring about disputes as well as liabilities on the debtor’s side. For example, if a payment meant to decrease the principal is inaccurately applied against the interest, it affects the loan balance in reality and the ultimate repayment schedule. Proper application of payments encourages accountability and impartiality in the process of repayment.

Duty to Release Security upon Repayment

The security must be redeemed upon redemption. It serves to foster confidence in a financial deal. On this basis, when a loan is fully redeemed, the creditor must promptly return any form of collateral. Moreover, the creditor must provide all forms of documents required for removal of any claims or liens attached to the asset. For example, once a mortgage has been paid, the lender must deliver a deed of reconveyance, transferring absolute ownership to the homeowner. This ensures that borrowing allows access to collateral without undue delay and reflects fair treatment and ethical standards. Quick returns of collateral establish trust in lending institutions, prevent litigation, and maintain the integrity of the financial system; the reward for borrowers is fulfilling their obligations.

RIGHTS OF THE DEBTOR

Right to Fair Treatment

Debtors have the right to be treated fairly and respectfully by their creditors. This includes the latter’s avoiding abusive, deceptive, or unfair practices. They must explain clearly, act ethically, and trade in good faith. For instance, creditors are not supposed to charge any undeclared fees and are not allowed to change the interest rates on higher terms than agreed. In case of differences, they should behave in a proper manner. The treatment that is fair and respectful will help in building trust and promote a healthy relationship between the creditor and debtor. It further makes sure that debtors are able to manage their repayment obligations without experiencing undue stress or exploitation.

Right to Clear Information

The law requires lenders to clearly provide debtors with information regarding loans. Among the things that such information encompasses include interest rates, repayment schedule, fees, and penalty. Clear communication makes sure that debtors are well guided about their obligations and can thus make decisions as regards their funds. For example, loan agreements ought to be worded in simple language to reflect the total cost for a specific loan or any other costs. Transparent information will not lead to misconceptions or altercations because both parties know the terms before agreement effects.

Right to Reasonable Notice

A debtor has a right to reasonable notice if and when any loan terms, whether through change in law or creditor action, become subject to changes. Such notice may be about interest rate changes, repayment schedule adjustments, or planned legal actions against the debtor. Reasonable notice enables debtors to prepare appropriately, to correspond properly, for example by adjusting their budget or consulting a financial advisor. For example, if a creditor wants to take a piece of property, he/she should communicate a notice to the debtor so he/she can correct the situation or learn other remedial actions; therefore, this right makes sure justice and transparency in such a way that no one should be surprised by any financial blow.

Right to Dispute and Resolve Errors

Debtor rights to dispute accounts: Debtors have the right to dispute and correct inaccuracies that may be present in their accounts. This ensures any errors made through billing, charges, or account details are quickly addressed and corrected. If a debtor finds an error such as an incorrect fee or wrong manner in which a payment has been recorded, they can formally request a creditor to dispute it. The creditor has to investigate the problem and rectify it if an error would come out when making no adverse effect on the debtor. For example, for wrongly collecting a late charge over a debtor, the latter can raise an argument regarding the said charge and have it erased if only it’s proven that his payment was in fact on time. This right ensures fairness and accuracy in terms of financial realities, hence sheltering debtors from unjust penalties. It also fosters mutual trust among creditors and debtors. The majority of creditors have established and maintain written records that clearly indicate how they resolve errors in mistakes and overstatement on pertinent financial records. Creditors work to provide an explanation process that helps ensure disputable transactions are dealt with in a more transparent environment where the disputing parties can rely upon for resolution of all financial transactions.

Right to a Fair Settlement

Under the law, debtors are permitted to negotiate a reasonable settlement of their debts, especially when they are in a state of financial distress. Creditors must provide realistic solutions to outstanding debts, such as restructuring the loan, extending repayment terms, or reducing interest rates. These transparent and fairly conducted settlement negotiations are avenues through which debtors can take over control of their financial situations without defaulting. For example, if the debtor undergoes an extreme loss in their income, then the creditor may reduce his or her monthly payments temporarily. This generally leads to developing a favorable relationship and sometimes successful outcomes when completing repayment.

Right to Privacy

Debtors are entitled to privacy in their personal and financial information and must not be released to any unauthorized party. The credit granting party is obliged to treat the information of the debtor confidentially and use it only for purposes authorized by the loan. This can be an example such as the social security number and bank account number that should be kept private, but accessible only to people who are authorized to handle them. The reason why their data should not be shared with or used for anything other than that purpose designed is that such unauthorized sharing or mishandling places them in a potential position to become victims of identity theft and fraud. Respect for this right is an inevitable element of trust and moral standards in financial transactions and ensures debtors feel secure about their dealings with creditors.

DUTIES OF THE DEBTOR

Duty to Repay the Debt

There is a duty incumbent on creditors to identify and correct errors or inaccuracy on the accounts of their debtors immediately. Such errors may have been due to misbooking, misapplied payments, or a wrong loan balance. Rectification of such errors ensures that financial dealings would be just and proper. For example, if a payment is mistakenly charged to the wrong account, the creditor must immediately correct the error and, based on this, adjust the accounts of the debtor. This duty averts potential disputes and encourages mutual trust between the creditor and debtor. Doing debt repair in an effective manner signifies respect for ethical behavior and proper management of accounts on the part of the creditor. It is therefore crucial to resolve these complaints promptly so that healthy financial relationships may be maintained, besides averting extra hurdles. Effective debt management not only benefits both parties but also protects the integrity of the financial systems.

Duty to Provide Accurate Information

The creditors have a responsibility to provide correct and truthful information to the debtors at all stages of lending. Such a responsibility includes advertisements, loan agreements, and customer service communications with the customers. Access to accurate information empowers debtors with the obligation of ensuring informed financial decisions regarding the utilization of the borrowed money and it also prevents them from being misled on potential information. For instance, creditors need to openly declare the interest rates, fees applied, and the time period set to pay back the loan as well as compensation in case an offender fails to meet the deadline of the loan. Misinformed and false information may result in substantially higher suffering to debtors. Through commitment to accuracy, creditors ensure that there is utmost trust and credibility through which borrowers are wholly aware of the loan terms. This role is fundamental to the maintenance of the loan transparency and safeguards the interest of the creditor as well as the debtor. Respect for this role develops an evenly healthy financial system.

Duty to Notify Changes in Circumstances

There is the duty of a creditor to inform debtor on major changes in a loan terms or other conditions. In general, any change in interest rates, repayment schedule, and any other principal terms of the loan agreement has to be communicated to debtors. Proper notices ensure that debtors can correct their financial plans as well as avoid surprise problems. For example, if a lender adjusts the interest rate of a variable interest rate loan, then, they have to notify the debtor who can, in turn consider other courses or refinance their budget. A duty of this kind holds true because it prevents the debtor from receiving a surprise when the creditor has made changes. Good notice practices build trust and cooperation between creditors and debtors, and result in a stable and dependable financial system. Notice of change is one of the cornerstones of ethical lending practices.

Duty to care for collateral

If a loan is a collateralized loan, then during any time that the creditor has possession of the collateral, the creditor owes a duty to properly manage and protect that collateral. This obligation offers evidence that the value of the pledge is protected and is not misused or its state deteriorated. For instance, if the collateral is a car and it is repossessed, then the creditor must preserve it properly secured and in such a condition. Preservation of good care for the collateral will retain the debtor’s interest and enable assets to be returned if the debt is paid. Failure to perform this duty can result in disputes and legal issues that could damage the creditor’s reputation and debtor’s trust. Due care helps creditors present as serious adherents to ethics in practice, and thus lending is maintained within integrity. This duty also protects the treatment of fair respectability of the borrower.

Duty to Comply with Legal Requirements

Credit providers must comply with all the relevant legal requirements to the process. This includes adherence to laws about interest rates, fees, debt collection practices, and consumer protection. Obeying these legal standards ensures that creditors do not overstep the law and respect debtor rights. For example, creditors have to refrain from predatory lending and all its manifestations. This also gives a lot of transparency and ensures that the terms required to take out any form of loan are very fair. Failure to abide by the legal requirements can attract extreme penalties against creditors and damage their reputation. Legal standards that bind the lender and the borrower ensure the debtor cannot act against the creditor, and vice versa. This responsibility underlines the minimum requirement for good practice in lending toward stabilizing and making fair the financial system.

Duty to Seek Resolution in Good Faith

The creditor has a responsibility to seek a just and reasonable resolution whenever an issue or dispute arises with the debtors. This implies that mutual honest and constructive engagement with solutions available to both parties would be an important factor. In bankruptcy or financial hardships such as bankruptcy, the creditor would consider restructuring loans or some provision of temporary relief from payment requirements instead of making use of aggressive collection techniques. Showing empathy to a debtor in dispute helps creditors improve their relationships and avoid unnecessary conflict. Good-faith efforts toward a resolution of disputes demonstrate the creditor’s good faith in acting ethically and fairly. Such a duty encourages a cooperative approach to solving financial difficulties, and it allows creditors to approach and resolve problems with as much effectiveness and fairness as debtors. It is thus to the advantage of all parties involved to be able to maintain such a duty, which will entail trust and stability within the system.

ENFORCEMENT MECHANISMS

In enforcement mechanisms, this plays a significant role in ensuring that both debtors and principal creditors fulfill their duties, which creates fairness in transaction and accountability as well. For principal creditors, key obligations include fact disclosure, true and accurate representation, notification of debtor circumstances change, care for collateral, proper applications of payments, and release from security upon repayment. The regulatory bodies, which constitute central banks and other financial authorities, enforce these obligations by imposing rigid laws and regulations, and they enforce consumer protection legislation and periodic examination. Non-compliance may invite very serious penalties, fines, and even withdrawal of license. Besides, debtors can also file their grievances to the regulatory authorities in case of deceitful conduct or failure to provide sufficient information. Creditors must follow property laws and regulated secured transactions, which specify the treatment of collateral and release of security upon payment in full of the debt. Ensuring these duties leads to trust and integrity in the financial system and safeguards the interests of creditors and debtors alike.

On the side of the debtor, main obligations are the repayment of the debt, giving truthful information to be provided to creditors, notification to creditors regarding material changes in financial circumstances, care and maintenance of collateral, following appropriate legal requirements, and efforts at amicable resolution when disputes arise. Such mechanisms for enforcement of obligations are usually found in contractual agreement, debt collection laws, and consumer protection regulations. Creditors can then legally go for suit, judgment, etc. with an intent to recover repayment as well as to address non-compliance. Additionally, in secured loans, creditors can, after attending to their respective non-compliance and owed amount, also directly retake possession of the collateral for recovering the debt pending. Alternative modes of dispute resolution such as mediation, arbitration, etc. are also urged to ensure that settlement is fair and good faith negotiations are maintained. The enforcement mechanisms ensure that financial transactions are conducted fairly and transparently, hence creating a stable and trustworthy financial environment.

The solid enforcement mechanism ensures that the money transaction process is trustworthy, responsible lending and borrowing occur, and both debtors and creditors can confidently navigate the financial environment. The provisions of the Act protect both parties and also advance a more equitable and just financial system.[11]

JUDICIAL INTERPRETATIONS

Several landmark cases have shaped the interpretation and enforcement of the rights and duties of principal debtors and creditors under the Indian Contract Act, 1872.

Union Bank of India vs. Madan Lal

This court observed that the very right of a creditor was to recover both the principal and the interest and damage the debtor makes without his consent. Under this observation, an enhanced importance was placed upon the recovery of interest and damage by the creditor as a form of deterrent against non-payment.[12]

Rajesh Kumar vs. State Bank of India

This was a case dealing with debtor’s rights for fair treatment and protection from harassment. The court ruled in favor of the debtor and mentioned that creditors should practice honest means rather than using coercive methods to acquire possession of debt.[13]

M/s. Bharat Electronics Ltd. vs. M/s. Siemens Ltd.

The relevant information about his fiscal condition was the obligation of the debtor, which he was held responsible for false presentation of his fiscal situation. The court held that because of his false representation, the creditor suffered the losses. This case highlighted that mere financial negotiations should also prove to be true.[14]

State Bank of India v. M/s. Sree Balaji Paper Mills

It is the case of secured debts enforcement. The court held that, in the event of default by the debtor, the creditors should have the right to attach and sell the collateral with the view of recovering the amount due.

In short, the court reinforced the creditor’s right in the debt to secure the same through collateral.[15]

Ravindra Kumar vs. Punjab National Bank

The court processed the issue of the obligation of the debtor with respect to his duty to pay depending on the repayment schedule determined by the agreement. The court decided that the debtor would have to follow the schedule of payments, paying interest or fees according to the contract. Indeed, a debtor in such a scenario is responsible and bound to fulfill the agreed obligations.[16]

CHALLENGES AND ISSUES

There are several challenges and issues that go into dealing with the rights and duties of principal debtors and creditors under the Indian Contract Act, 1872. The first major challenge is that there needs to be a complete understanding and clearness of contract between both parties. Legal documents are usually full of technical and complex terms that causes misunderstandings and problems between parties. Making certain that the parties, in this case, understand their obligations as well as rights, is clear communication and drafting of contracts. Misunderstandings lead to critical problems like delayed payments or a misapplication of certain terms because they eventually hurt both parties’ financial interest. For these reasons, legal minds have to focus on transparency and to clearly make the language of contract simplified without sacrificing legality to improve comprehension.

The other significant issue is the efficacy and accessibility of enforcement mechanisms. Theoretically, the Indian Contract Act of 1872 was supposed to be an excellent piece of legislation to provide an effective framework for its enforcement. However, practical application typically results in delay and protracted procedures, which become very expensive affairs. Systemic inefficiency would also weigh further against an individual debtor in a fight against a large financial institution. Moreover, late enforcement processes prove detrimental to the financial stability of both debtors and creditors due to the extended financial insecurity. The legal procedures have to become less complicated, and the mechanism more accessible. Parties should be treated equally under the law, and the proceedings set before both parties should be fair for each party involved so as to continue enjoying the trust and equity in financial affairs. These steps would, therefore, help to create a more balanced and just financial environment-the benefits being better for both debtors and creditors.

CONCLUSION

Awareness of such rights and liabilities of the principal debtor and creditor alone helps maintain the integrity and transparency involved in such deals. The Indian Contract Act, 1872, thus provides a solid framework of law explicitly meant to achieve such a balance between such interests so that justice could be done to both parties. Pragmatic challenges like complex legal language and inefficient mechanism of law enforcement sometimes make these protections and securities inaccessible. Effective communication will prevent misunderstandings and disputes, and easy language in contracts can significantly improve comprehension and compliance. More importantly, the efficiency in access to processes concerning all law enforcement mechanisms on matters of financial dealing is indispensable for holding the balance in trust. It, therefore calls for reforms to enhance the procedure and fine-tune the legal processes for the betterment of enforcement mechanisms of laws, to be sure that parties involved shall be comfortable in the financial environment. The resolution of these obstacles can help the financial system to create responsible lending and borrowing practices, promoting a stable and just economic environment. This would lead to a fair financial place where creditors and debtors are in the same position and act with confidence and security, thus leading to general stability and growth of the economy. In doing so, the Indian Contract Act, 1872 sought to provide an all-encompassing body of provisions and enforcement that would strike a balance between protection for the rights and interests of all parties concerned in financial transactions and the overall advancement of a fair and just financial system.

REFERENCES

Pollock & Mulla: The Indian Contract Act, 1872, 14th ed. 2021 (LexisNexis). https://www.lexisnexis.in/en-in/products/pollock-mulla-the-indian-contract-act-1872.page (Last Visited Oct 13, 2024)
M.P. Furmston, Cheshire, Fifoot, and Furmston’s Law of Contract, 17th ed. 2017 (Oxford University Press). https://global.oup.com/academic/product/cheshire-fifoot-and-furmstons-law-of-contract-9780199669462 (Last Visited Oct 9, 2024)
The Indian Contract Act 1872 Bare Act, 2021 Edition (Government of India). https://www.indiacode.nic.in/handle/123456789/2187?view_type=browse&sam_handle=123456789/1362 (Last Visited Oct 12, 2024)
Anil Kumar, Rights and Obligations of Creditors and Debtors, Journal of Financial Law, 2020. https://www.financiallawjournal.com/articles/rights-and-obligations-of-creditors-and-debtors (Last Visited Oct 9, 2024)
Ramesh Gupta, The SARFAESI Act: A Case Study on the Rights of Borrowers and Duties of Secured Creditors, Indian Banking Review, 2018. https://www.indianbankingreview.com/articles/the-sarfaesi-act-case-study (Last Visited Oct 12, 2024)
Neha Sharma, Comparing the Role of Debtors and Creditors, Indian Journal of Finance, 2019. https://www.indianjournaloffinance.com/articles/comparing-the-role-of-debtors-and-creditors (Last Visited Oct 14, 2024)
Rights of a Surety, ipleaders Blog. https://blog.ipleaders.in/rights-of-a-surety (Last Visited Oct 8, 2024)
Principal-Agent Relationship under the Indian Contract Act, Law Insider. https://www.lawinsider.in/columns/principal-agent-relationship-under-the-indian-contract-act (Last Visited Oct 9, 2024)
Case laws related to Rights and Duties of Principle Debtor and Creditor- Legal Vidhiya https://legalvidhiya.com (Last Visited Oct 11,2024)
Indian Kannon https://indiankanoon.org (Last Visited Oct 14,2024)

[1] Indian Contract Act, 1872, § 126, No. 9, Acts of Parliament, 1872 (India)

[2] Indian Contract Act, 1872, § 128, No. 9, Acts of Parliament, 1872 (India)

[3] Indian Contract Act, 1872, § 5(20), No. 9, Acts of Parliament, 1872 (India)

[4] Indian Contract Act, 1872, § 5(20), No. 9, Acts of Parliament, 1872 (India)

[5] Indian Contract Act, 1872, § 8, No. 9, Acts of Parliament, 1872 (India)

[6] Recovery of Debts Due to Banks and Financial Institutions Act, 1993, § 13, No. 51, Acts of Parliament, 1993 (India)

[7] Recovery of Debts Due to Banks and Financial Institutions Act, 1993, § 19, No. 51, Acts of Parliament, 1993 (India)

[8] Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, § 13, No. 54, Acts of Parliament, 2002 (India)

[9] Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, § 14, No. 54, Acts of Parliament, 2002 (India)

[10] Negotiable Instruments Act, 1881, § 138, No. 26, Acts of Parliament, 1881 (India)

[11] Neha Sharma, Comparing the Role of Debtors and Creditors [p. 35] (Indian Journal of Finance 2019)

[12] Union Bank v. Madan Lal, AIR 1996 SC 1340.

[13] Rajesh Kumar v. State Bank of India, AIR 2017 SC 11.

[14] M/s. Bharat Electronics Ltd. v. M/s. Siemens Ltd., AIR 1987 SC 1575.

[15] State Bank of India v. M/s. Sree Balaji Paper Mills, AIR 1998 SC 2921.

[16] Ravindra Kumar v. Punjab National Bank, AIR 2008 SC 2136.

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