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Debt recovery in Indian legal mechanisms is heterogeneous and possesses a multifaceted landscape, which tries to resolve financial disputes by way of recovery and settlement to creditors from the debtor's default payment through the medium of recovery channels, having its statutory bodies, which gives a clear pathway to the solution of timely recovery and restructuring of the process every now and again. To keep a check and balance on the money flow in the market, resolution and smooth mechanisms of debt recovery and insolvency play a pivotal role. Furthermore, ‘debtor’ is more of an accounting word, and hence it can also be addressed as defaulters, so any individual or corporate legal person who is being granted capital is a debtor from any bank, including non-banking financial institutes (NBFI's), which are also a source of credit along with banks, or any individual or group of individuals who are creditors. If the debtor fails to pay off, then he is termed a defaulter for the money that remains unpaid.

At the cutting edge of the recovery of money from debtors, statutory bodies and procedural law are granting the best recovery channels and methods to seek resolution for unpaid debt based on its nature and the amount of recovery and settlement. This article aims to understand various debt recovery methods and the legal implications for defaulters through recovery suits and how they are filed via legal notice.


The purpose of a legal notice is to formally inform the debtor of his outstanding debt, which has to be cleared within the stipulated time from the day of receiving the notice. Ending a legal notice is of mere importance before taking any further stages of filing a suit. As in almost all civil and a few criminal cases, the method of serving a notice remains consistent regardless of the nature of the matter.

Delivery of Notice: The notice can be served through personal delivery in hand, which ensures the concerned person has acknowledged the notice. Another method of serving a notice that is widely used is via speed post or registered post, where one can track down the delivery of the notice via the shipment number mentioned in the acknowledgement. Although this method is not used in all matters to send a notice, if there is prior consent to it, it may be served as an addition to either of the above-mentioned methods.

Reply to a notice received: Once the notice is acknowledged by the recipient and he doesn’t agree to the content, he may choose to further reply and seek settlement or negotiation on the demand. If he agrees with the demand notice, then complying with the notice can be the best option.

No acknowledgement of the demand notice by the debtor: If the recipient of the notices doesn’t claim the notice or receives it but neither replies nor fulfills the demand within the stipulated time period, then the creditor may, at his choice, initiate the recovery suit from the above-discussed method depending upon the nature of the matter, as non-response to the notice is an indicator that whatever is mentioned and demanded in the notice is to be true and mere silence can’t deny the fact.

Essentials of a Legal Notice for a Recovery of Money:

  • Name and proper address of a defaulter
  • A legal notice should be formal and clear and should highlight the seriousness of sending it.
  • The demand for the default amount should also mention the consequence in the case of an unpaid amount.
  • It is a legal right of a creditor to seek resolution, and legal notice is the first step to it,whereas it is a legal obligation to a debtor to respond to a legal notice in a formal way, neglecting to acknowledge that whatever is written in a legal notice is to be true and the creditor agrees to it.

Legal notice also opens the door to amicable settlement before going further with the recovery suit and summary suit.


1.    Recovery under the Civil Procedural Code, 1908:

Civil Procedural Code provides the framework for a creditor seeking to recover money from debtors. Under Order 37 of Civil Procedure Code 1908, which applies to all levels of court for recovery suits by creditors in any cases where the debtor fails to fulfill a financial commitment and the debt remains unpaid, an unfulfilled written contract, or any other debt demand other than a penalty with or without interest from the debtors.

Further, a creditor can go ahead with filing the summary suit in cases involving different negotiable instruments such as Cheques, Electronic Cheque Clearing Systems(ECS), hundies, Bills of exchange, and promissory notes by presenting a complaint for the suit applied in this order, which shall contain the averments of the recovery addressing the claims seeking a speedy redressal, and then the court sends a summons to the defaulter.

If one doesn’t meet the requisite condition of order 37 for the summary suit, one can also apply for an ordinary summary suit. If the applicant has a check that is not being honored and results in a bounced check, the aggrieved party can file for recovery under Section 138 of the Negotiable Instruments Act. The edge and advantage of filing under this is that the court fees are very negligible in comparison to all other methods of recovery, where court fees are at the rate of ad valorem, which simply means according to the percentage of the recovery amount. Recovery of money from the debtor under the Commercial Court Act, 2015, read with the Civil Procedure Code, can be initiated if the matter of recovery is of a commercial nature, simply by filing a suit by the applicant or aggrieved party under the said act, which is read with the Civil Procedure Code, 1908.

Conditions to be fulfiled by an applicant for filing a suit: There are two conditions before the applicant while filing for the recovery suit under CPC, 1908, be it of any nature, that is, an ordinary suit of recovery or a summary suit of recovery in case of recovery against a negotiable instrument within 3 years of the cause of action mentioned under the imitation act. The primary condition is that there has to be an absence of debt, making it legally enforceable under this code. Secondly, the dependent must have failed to repay 80% of the default amount.

Remedies pertaining to the defendant: The exercise of the defendant's right to get a fair judgment and safeguard his interests makes it important to have certain remedies. Once the suit is filed under the proper court of jurisdiction, the defendant can file a written statement, which is a kind of reply to the suit filing, and with it, he can seek a legal defense and raise an objection to the honorable court. Furthermore, the defendant can appeal to the higher court if the decision has already been made by the subordinate court.

2.    Insolvency Bankruptcy Code,2016:

The purpose of the IBC was to channel the proper legal mechanism to the companies registered under the Company Act 2013 or any previous company law. The share of market borrowing increased by 10% from 78.1% to 68.1% in the years 202–2023, according to the date of the annual report, whereas the cumulative recovery has stood at 3.21 lakh crore since 2016.

A creditor can file an application of insolvency under Section 7 of the Insolvency and Bankruptcy Code, 2016 with a minimum default of Rs. 1 crore, which increased in 2020 from Rs. 10 lakh to any default amount under the National Company Law Tribunals for recovery through auction.

Who can be a creditor? Particularly, two types of creditors can file for recovery with the adjudicating officer (NCLT); one is a financial creditor, and the other is an operational creditor or corporate debtor.

  • Financial Creditors: A financial creditor can file an application with the adjudicating authority to initiate the corporate insolvency resolution process by itself or jointly with other financial creditors or any person who is further notified by the central government. How are those financial creditors apart from the creditor itself, as mentioned below
  • Guardian
  • Executor or administrator of an estate of financial creditor.
  • Trustee.
  • Authorized person by the board of directors.

There has to be a financial default to initiate the process of CIRP against the corporate debtor, which is a prerequisite for applying for recovery with the document enclosed, such as a record or evidence of default, the name of the proposed IRP (Interim Resolution Process), and other essentials as may be required, after the submission of the application. Ascertaining that there has been a default with evidence and a record is important.

1.    Operational Creditors: An operational creditor is an individual or group of individuals to whom the debtor owes the payment against the goods and services, such as vendors, suppliers, employees, or any other person involved in any course of the business. Firstly, the operational creditor has to deliver the demand notice to the debtor demanding the payment of the default amount within 10 days of the acknowledgment of the notice from the operation creditor. If there is no response to the denial of payment, then the operational creditor can go ahead with the initiation of the corporate insolvency and resolution process (CIRP), which is very similar to that of financial creditors.

2.    Corporate Debtors: A corporate debtor can be an individual or a company that is registered under the Companies Act, 2013, or any special act pertaining to the title of a legal entity or any previous Companies Act. The insolvency proceedings cannot be initiated without a default, as insolvency is a state and bankruptcy is an end result of it, but the only exception a corporate debtor gets is under Section 59, where a person can initiate voluntary liquidation. Here, the corporate debtor himself can initiate the process of corporate insolvency and resolution process (CIRP) via application to the adjudicating officer by enclosing books of accounts as evidence and 1/3 of the partners should agree in the case of an LLP. A corporate debtor can go for voluntary liquidation in the event of a default to pay the near-future debt.

Specific monetary default threshold: As defined by the IBC, a financial default is a state where the debtor fails to pay its debt. For the individual debtor under IBC, the threshold amount is not specifically mentioned, but it may be subject to the obligations determined by the parties before ending up in the lending and receiving transaction. However, the code specifies the threshold of default amount; if it exceeds 1 crore, a corporate debtor will initiate the Corporate Insolvency Resolution Process according to the amendment in 2020 amid post-COVID relief.

3.    Scrutinization and Reconstruction of Financial Assets and Enforcement of the Security Interest Act:

The Insolvency and Bankruptcy Code of 2016 does not include banks and financial institutions, as the enactment and enforcement of the Scrutinization and Reconstruction of Financial Assets and Enforcement of Security Interest Act allows creditors such as banks and NBFCs to seek resolution under this and escape the lengthy court proceedings where the ability of recovery increases from non-performing assets. As this is the best recovery method for secured creditors (banks and non-banking institutes) for any default payment of Rs 10 lakh, which again differs from state to state, any financial institute or bank can file an application under Section 17 of the said Act and seek a resolution, and hence this makes it an important mechanism.

As the redressal authority is concerned with the establishment of a quasi-judicial body, which is the Debt Recovery Tribunal (DRT), it came into existence under the roof of the Scrutinization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which aims to facilitate the recovery of non-performing assets (NPA’s) and its jurisdiction over matters specifically related to security interest by secured creditors. As a quasi-judicial body, DRT has similar powers as any civil court.

Step one to delve into the recovery procedure via this channel of recovery under the SARFAESIA Act, 2002, is that the secured creditor has to give a formal notice of demand to the default debtor, and 60 days are provided to the debtor to comply with the demand notice. If the notice of demand is not replied to and there is no payment of the default within the stipulated period of 60 days from the day of sending the said notice, then the creditor can go ahead and initiate the recovery application with the Debt Recovery Resolution (DRT). As the adjudicating authority, DRT examines the application, another notice is sent to the debtor on behalf of the creditor. Still, if the debtor feels that the application was made under DRT, he can file an appeal under the Debt Recovery Appellate Tribunal (DRAT) to clear his defense within the stipulated time of 30 days from the order of the application. 

4.    Lok Adalat:

Lok Adalat is also a significant medium of settlement for recovery, usually in the cases of compound tables of tenses, in a very hassle-free manner through the pathway of alternate dispute resolution mechanisms and mediation related to the recovery of money. As it's hustle-free, creditors can achieve resolution quickly and efficiently, avoiding a lengthy process if they undergo a traditional court process.

As the process is amicable, it becomes cost-effective, and the creditor can file an application for the recovery of the amount. The default amount can be petty or larger than that, or it can be a compound offense owing to the claim of money.

Who may apply under Lok Adalat for the recovery of money? Any individual or group of individuals, banks, or any other financial institution, legal entity, or government organization can initiate a recovery suit, or even if the matter of civil litigation is at the pre-litigation stage, an individual who wants to settle amicably can apply just by filing an application.

Condition Requisites: A matter of recovery can be of any nature, such as an unpaid loan, a bounced check, an ECS, or any other negotiable instrument. Unpaid debt or any monetary claim involves amicable settlement among both parties, and there is no third party involved. The matter of recovery should be of the simple nature of seeking redressal through settlement and mediation and meet the specified default claim threshold, which differs from state to state, which is decided, as defined by the State Legal Service Authority under the Legal Service Authority Act, 1987. 

Limitation: As discussed above, Lok Adalat handles matters of money recovery of an amicable nature, which means any matter answerable with legal complexity or involving factual issues is not an appropriate place to seek resolution. Another barrier one may see is that matters of public interest or any third-party involvement seeking resolution or better interpretation than Lok Adalat would not be the right resolution method to go ahead with.

Stipulated Time to seek resolution: One can seek resolution within 3 years from the date of cause of action at the pre-litigation stage, or the creditor can initiate an application for recovery of debt. The Lok Adalat aims to offer a speedy resolution to avoid any further delay in payment. Disputes here are resolved in a short period as the parties involved are willing to reach a settlement without extending to further sessions.


All the above methods of recovery of the amount from a debtor, which is a legal right of a creditor to claim, form a pillar of the legal system by timely recovery of the amount from time and again, which allows the nation to recover the non-performing assets, create stability of money flow in the market, and encourage the creditors to invest in the market as they have the opportunity and remedies for their recovery of amount from debtor. By using this framework, the navigation of recovery debt complexities is backed by statutory bodies and procedural laws to safeguard the interest and in a way encourage the creditors. The court focuses on strict compliance to meet the payment of debt recovery. By providing different channels of recovery, the burden of debt recovery can be reduced, creating a space for widespread mechanisms. But every coin has two sides; similarly, the interpretation of these many methods gets complex, and the advice and guidance of a legal professional becomes much needed when it comes to filing a recovery suit or summary suit, and the primary step is to send a legal notice as a formal intimation.

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