Debt collection in India

The debt collection procedure in India begins with an assessment of the financial capabilities of the debtor, his field of activity, the history of the enterprise, the availability of documentary evidence of the debt, current court cases and initiated enforcement procedures, as well as the possibility of challenging this debt. This analysis serves as the basis for developing a strategy to be used on behalf of the client to recover the debt.

In the absence of current litigations against the debtor or outstanding court decisions regarding debt collection, and provided that the debtor is active, amicable debt collection becomes the preferred approach. 

This stage is based on active negotiations with the debtor to reach an agreement regarding payment of the creditor’s claims or other settlement options, such as return of goods, transfer of debt to a third party, exchange of services or goods.

Interaction with the debtor begins with sending a notification via mail, email, telephone or instant messengers. This process involves intensive communication with the debtor in order to put pressure on him. The main task is to establish a dialogue with key decision makers in order to speed up debt repayment.

The average term for out-of-court collection is up to 60 days. If this stage does not lead to the expected results, or if after an initial analysis it becomes clear that it is not applicable, then you should proceed to recovery through the court.

The limitation period in India for claims related to non-fulfillment of contractual obligations and debt collection is 3 years. According to the Limitation Act of 1963, after the expiration of the specified period, debt obligations are considered expired and the filing of claims is prohibited. At the same time, the 1963 law allows for the option of interrupting the statute of limitations due to partial payment by the debtor of the debt or providing a written acknowledgment of the debt. From the date of commission of one of the designated actions, the limitation period begins again.

Indian law provides two main options for debt recovery through court: writ petition under Writ 37 of the Code of Civil Procedure, 1908 and civil suit.

Suit under Order 37 of the Code of Civil Procedure, 1908. This option provides for a simplified procedure for considering cases related to the return of funds and resolving disputes with business transactions. The decision is made by the court without hearing the defendant’s defense position on the basis of written procedural documents. At its core, this option is aimed at quickly resolving the dispute, taking into account the fact that the defendant does not have an adequate material and legal basis for his defense. The simplified procedure is applicable only if the claims are based on documents such as securities, written agreements with a clearly fixed amount of obligations. The court’s decision is final and cannot be appealed unless an error is found in the court record.

A civil action is implemented under Order 4 of the Code of Civil Procedure, 1908 to initiate cases under the Commercial Courts Act, 2015 and in general procedure.

A civil action to bring proceedings under the Commercial Courts Act 2015 is available provided that the amount of the claim in such dispute exceeds the estimated value of $4,000.

The law prescribes the obligation of the parties to resolve their dispute through mediation before going to court, otherwise the opening case will be refused. The time spent on mediation does not count against the statute of limitations for going to court. The average duration of mediation is three months with the possibility of extension for two months.

As a result of the consideration of the case, the court makes a decision. Article 23 of the Code of Civil Procedure provides the opportunity in a court decision to order the payment of interest on the amount of the debt from the date of the decision until the date of actual return of funds. The interest rate is determined according to the contractual terms, and if the contract does not specify a rate, then its amount is determined by the rate at which money is lent or advanced by nationalized banks in connection with commercial transactions.

The court decision may be appealed on appeal within sixty days from the date of the appealed decision. The appeal must be considered within six months from the date of its receipt by the court.

A civil claim in general procedure is applicable to all other cases, subject to the following differences. The period for appealing a decision of a lower court by appeal is 30 calendar days from the date of the decision, appealing the decision to the High Court (re-appeal) within 90 days from the date of the decision. When filing an appeal, the higher court may suspend the effect of the appealed decision if the appellant requests it and the court considers such a request to be justified.

A re-appeal can only be filed if the case raises a significant question of law. However, a second appeal is not allowed if the subject of the claim is the recovery of money in an amount not exceeding 25,000 rupees.

The final decision of the court is executed by the court that made this decision, or by the court that received such a decision for execution. To implement compulsory execution, it is necessary to apply to the competent court with a corresponding application within 12 years from the date of the decision. The main methods of enforcement include the arrest and sale of the debtor’s property, the sale of the debtor’s property without arrest, the appointment of a manager of the debtor’s property, the arrest of the debtor’s accounts and writing off funds from them; in certain cases, the arrest and detention of the debtor for up to three months is allowed.

Also, if the debtor is unable to repay his debt and the amount of debt is at least 100,000 rupees, the creditor has the right to initiate bankruptcy proceedings for the latter. As part of this procedure, if there are appropriate grounds, the law provides for the possibility of invalidating transactions of the debtor that were made at a reduced cost, to the detriment of the creditor, or using fraud. In case of successful challenge of these transactions, the property that was the subject of the transactions must be returned to the debtor. Subsequently, at the expense of such property, the creditor can satisfy his financial claims.

As an alternative to debt collection, if there are specific circumstances of the case, one should consider the possibility of bringing the debtor to criminal liability for criminal breach of trust (Article 406 of the Code of Criminal Procedure), deception (Article 417 of the Code of Criminal Procedure), fraud and false inducement to surrender property (Article 420 of the Code of Criminal Procedure ) and for causing harm (Article 426 of the Code of Criminal Procedure).

If you have any questions or need support regarding international debt collection in the Republic of India, our company is ready to provide our expert assistance to effectively resolve your debt issue. Please contact us to receive additional information and professional support from our specialists.