Debt Recovery in India


We do multiple monetary transactions and other ailed components in our day-to-day life. With the rise in commercialization and globalization, transferring your funds is necessary. Everyone, from small shopkeepers to large-scale entrepreneurs, is taking loans and other financial aid to stay in the market.

The conduct of money in the form of loans shows credit creation, donating to economic development. Yet, things worsen when the borrower fails to repay the loan or cannot release his financial debt.

The lender must look at the legal tools to retrieve the amount at that time. In this article, we will discuss such legal provisions that deal with debt recovery in India. If you have given a loan to anyone; who is hesitant to pay, this article can significantly help you get back your dues.

Debt Recovery: An Introduction

Now when we get to the basics, let's understand the meaning of debt recovery. According to the Black Law Dictionary, debt recovery represents the lawful process or the ways to get the amount you have given to someone. Simply put, it directs to the fair modes of recovering the money you gave. It is essential to state whether you can carry interest or not the funds provided.

Methods of Debt Recovery in India

There are diverse methods to retrieve debts in India that are broadly classified into two parts:

  1. Legal methods 

  2. Illegal methods. 

The non-legal method is harassing the buyer via charge agents with the idea of forcing them to refund the money. In this article, we will discuss precisely the legal ways.

Legal Methods of Debt Recovery

1) Out of Court concession: 

Arbitration, Mediation, and conciliation are efficient and fast ways to fix recovery disputes beyond the Court. The Arbitration and Conciliation Act 1996 govern these cases.

2) Civil Remedy:

 A civil suit can be filed in any Court which has the appropriate jurisdiction by any aggrieved party against the defaulter

3) Criminal Remedy:

FIR can be lodged in the local police station, taking cognizance of the matter in severe cases. After this, a criminal case can be filed to carry on the legal proceedings.

Laws that govern debt recovery in India

1) Indian Contract Act 1872:

Dishonoring contracts amounts to most debt recovery cases in India. Sections 17, 18, 124, 126, and 73 can be gathered for various reasons like misrepresentation, fraud, settlement for breach of agreement, and so on.

2) The Penal Code of India:

Illegal violation of trust as on sections 405 and 406, cheating, and fraudulent misappropriation of belongings are some reasons that are open for any aggrieved party to close the Court under the corrective law.

3) RDDBFI Act:

If the party is a monetary institution, or even a private finance business, this Act states for the installation of various Courts to look into debt recovery matters.


SARFAESI act is passed to handle the securitization and renovations of economic assets. The installation of Asset renovations Enterprises is also one of the special provisions of this Act.

5) Negotiable Instruments Act:

In examples like section 138 for the dishonor of cheques, a legal notice is passed, and later, the happenings are formed.

6) Arbitration Act:

When the parties expressly insert an arbitration clause or choose to adopt arbitration as means of resolving the dispute, then in such cases, section 7 can be invoked for settling the matters in this quasi-judicial process.

There are various legal needs to gather any form of debt recovery proceedings. To exemplify, a resume suit as per CPC charge XXXVII if the amount of debt doesn't surpass Rs.10, 00,000/- or IBC can be gathered only at the time of the party's bankruptcy.

Under RDDBFI Act, the Debt Recovery Tribunals and Debt Recovery Appellate Tribunals were established and looked after these debt recovery proceedings. Yet, laws like SARFAESI and IBC were passed to others to distill their workings.

Filing of a Criminal case beneath the Indian Penal Code (IPC)

This process is mostly used to retrieve debts in India. The India Penal Code (IPC) supplies a list of crimes and penalties for the act concerning ruin in refunding money. The aggrieved party may file a suit under the listed sections-

  • Sections 405 and 406 of Criminal Breach of Trust.

  • Section 403 of Dishonest misappropriation of property.

  • Sections 415 and 417 of cheating.

It is essential to understand that some offenses listed above are cognizable and non-bailable, putting the defaulter in severe trouble.

Asking for relief under Indian Contract Act

Since a loan agreement is a definitive agreement between the parties. The agreement often has certain provisions that can change the nature of conflicts between the parties. Stating to the lawful codes, the aggrieved party can claim its share by:

  • Showing fraud (Section 17)

  • Misrepresentation (Section 18) 

  • Contract of indemnity (Section 124)

  • Assurance of security (Section 126).

RDDBFI Act, 1993 (Recovery of Debts due to Bank and Financial Institutions Act 1993)

This act is valid when the aggrieved party is any economical institution, such as a financial company (bank or non-banking). This act supplies for establishing special courts to judge the case applying the recovery of money. The DRT and DRAT are set up to take the arguments of people and partnership firms. The aggrieved party can start the recovery proceedings with the specified court fee per Section 19 of the RDDBI Act.

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

SARFAESI Act was to hold and rebuild the country's economic assets. For using SARFAESI, a safety interest must be made for a property (moveable or immovable). Interestingly, this Act can be used to regain the money without court intervention by dealing assets briefed as Non-performing Assets.

Section 13 of the Act states that notice is given to the borrower when a loan is typed as NPA. The data provides that the borrower must pay the payment within 60 days, failing which the creditor may exert the rights, which have to sell the loans to an Asset Reconstruction Company at an exorbitating rate.

Insolvency and Bankruptcy Code, 2016

This Code was enacted in 2016 to clear the flaws in all the existent legal conditions regarding the recovery of money and revival of sick business entities. The Code's primary objective is to restore corporate debtors, providing all the stakeholders involved in recovery. A creditor can use the NCLT if the debt exceeds one crore to get the Code into action.

The time for rejecting or accepting the application is 14 days. If the application is accepted, an IRP is set, which forms a committee of creditors (CoC) that brings all the company's crucial decisions. The Code has defined 180 days to meet the resolution way and pass a resolution plan. Yet, this period can be expanded by 90 days with a total outer limit of 330 days. A majority must support the resolution plan of 66%.

If the vital plan is not accepted, liquidation happens wherein the company's liabilities are paid off, and assets are sold. Under Section 53 of the Code, the dues of the creditors are paid by the waterfall mechanism provided. It is one of the most valuable ways of recovering the outstanding amount.

Debt recovery is essential as it is directly related to your credit score. There are numerous steps involved in the debt recovery process, and understanding what to expect is important when a debt recovery agent contacts you. Financial debt can be clingy, and legislation has been set to show the debt recovery process and confirm that consumers are safeguarded from nagging debt recovery practices.

Terminology of Debt Recovery:

  • Debtor: A debtor is a person who is bound to pay back the amount that was borrowed.

  • Creditor: A creditor is a person who extends credit with a deal that the required amount will be paid back.

  • Third-party collector: Third-party collector is a person or service that is hired to get debts for a creditor.

The Debt Collection Process

Collecting debts began when someone missed a loan or credit card payment. The debtor has 30 days starting from the date of bill due and not the billing date, to complete the payment before it is said to the credit units. Moreover, during this time, the creditor will try to reach the debtor via phone, message, e-mail, or letter to get the amount they lend. It’s good to take care of the debt during these 30 days. The debtor can describe their position and set up a compensation plan.

After 30 days, the debt is passed off to different departments at the exact company that specializes in recovering outstanding debt. This isn’t a group agency, just a team within the lending institution. They can report your failure to a credit union and close down your credit card.

After 180 days, the creditor will often acquire the debt and sell it to a debt supply agency. Be mindful that the creditor power contract or sell the debt any time before the 180 days, so it’s most useful to act shortly rather than later.

Debt Recovery Process

If the debt belongs to a group agency, the creditor will send the claim data and keep documentation to the debt collector stating your loss to pay as per the terms of the deal. After the debt supply service checks and receives the claim, recovery starts with a need letter sent to the debtor and a declaration letter standing sent to the client.

The account is said to be active, and the debt recovery involves the following steps:

  • Telephone contact starts in an attempt to arrange the outstanding balance amount and ensure that the costs are realized.

  • If the debtor doesn't conspire with fixing the debt, the debt accumulation service corrects the client with facts on delivering the claim to the related lawyers.

  • The delivered claim is inscribed by the client and mailed to the related lawyers, and if lawyers suggest legal action, suit conditions are provided.

  • The case is crafted and filed if the client permits the lawful action and decides upon suit needs. If the client doesn't want to seek legal action, the debt supply service is operated on for an extra 60 days and closed.

  • The complaint is served. If the debtor files a reply, the discovery process starts, and a trial date is made. If the debtor does not respond, a default decision is filed by the attorneys.

  • Suppose a judgment is granted in the client's favor. In that case, lawyers will file a Writ of Extension, attempt to find the debtor's assets, and begin steps to satisfy the judgment.

How can we help you in settling down the debts you have taken:

Step 1 – Primary Consultation

The initial step is to thoroughly understand your present situation, especially if you're facing debt-related issues, and need assistance from a Debt Recovery lawyer. We can provide you with advice on the next steps to follow. If you want to have a suggestion from our side, feel free to text or call us.

Step 2 – Perform Due Diligence

At this step, we examine the debtor in detail. We mainly want to comprehend if they have the economic capability to settle the debt, especially when the situation needs court documents to be filed.

Step 3 – Case a Letter of Demand

In this step, a Letter of demand is created to warn the debtor of possible lawful actions if the debt is not settled. It can encourage a response from the debtor if that step is to come to the negotiating plan.

The demand letter can also be presented in court, indicating that shots were made to get the debt before any step was made.

Step 4 – Look for a Response & Negotiate

After that, it is advised to wait for a response from the debtor. Commonly, a time restriction will be involved in the request letter, alerting the debtor of the next steps. In numerous cases, the debtor will answer, and we resolve to support our clients in negotiations if the debtor asks for a price plan.

Step 5 – Filing Court Papers

If the demand letter proves unsuccessful or the parties can’t reach a joint agreement on payment terms, we can then file a claim with the appropriate court. The amount and type of claim will depend on the route taken.

Step 6 – Enforcement of the decision of the court

Post any thriving court decision. The debtor may still not pay up. We will urge on the proper next steps to implement the collection.


As we discussed in this article, numerous methods exist to retrieve the due or debt. You can go for a civil suit if the debt is not very high. If a security interest accompanies, the loan must hover over SARFAESI for a speedy recovery. If you declare your capital against large companies, the IBC means there is a perfect fit owing to the time-bound redressal offered.

Keeping a lawyer by your side can prove beneficial and solve most issues. If you want legal guidance, feel free to reach us. Our lawyers will provide you best solutions.


Q.How long can a debt be collected in India?

According to the Indian Limitation Act, the end period of commercial debt is three years starting from the due date of the Invoice, the Date of the written disclosure of the indebtedness, or the Date of pay obtained on an invoice (whichever is later)

Q.Is debt collection agency legal in India?

The simple and clear answer is it relies on the deficit supply agent and the country's laws. In India, clear rules safeguard buyers from being bugged by debt collectors. Yet, not all group agents follow these laws.