When a debtor refuses to repay a loan or outstanding amount, filing a civil suit becomes one of the most effective ways to legally recover money. In India, both civil and criminal legal remedies are available to protect the rights of lenders.
In this guide, we explain the complete money recovery process in India, important laws involved, and practical steps you should take to safeguard your financial interests.
Filing a Suit for Money Recovery: The Basic Process
Under Which Law Is the Suit Filed?
A suit for money recovery in a civil nature is instituted under Order IV of the Code of Civil Procedure, 1908 (CPC).
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Limitation Period for Filing a Suit
The limitation period is three (3) years from the date the cause of action (default) arises. However, in exceptional cases, courts may condone delay if a valid reason is demonstrated.
Where Is the Money Recovery Suit Filed?
The suit should be filed:
- In the court with territorial jurisdiction (where the debtor resides or conducts business).
- In the court with pecuniary jurisdiction (based on the amount to be recovered).
Example (Delhi Jurisdiction):
- ₹1 lakh to ₹20 lakh ➔ District Courts
- Above ₹20 lakh ➔ Delhi High Court
Important Legal Steps Before Filing a Suit
Sending a Legal Notice
Before approaching the court:
- Send a legal notice demanding payment.
- The notice should clearly mention the dues, demand repayment, and warn about legal action if unpaid.
A well-drafted legal notice often prompts faster settlement and strengthens your case later if litigation is needed.
What If the Debtor Responds or Doesn’t Respond?
- If the debtor responds positively ➔ Settlement negotiations can resolve the matter.
- If the debtor ignores or denies liability ➔ Proceed to file a money recovery suit in court.
Major Laws Involved in Money Recovery
1. Order 37 of CPC — Summary Suit
Summary suits enable quicker disposal for claims upon written contracts, promissory notes, bills of exchange, and cheques.
The defendant has to reply within 10 days from the date of receipt of summons.
Failure to respond allows the court to pass a decree swiftly.
Note: Summary suits cannot be filed for uncertain amounts like penalties or damages.
2. Negotiable Instruments Act, 1881 — Cheque Bounce Cases
- Section 138 deals with cheque dishonor for want of funds in the account.
- Process:
- Send a legal notice within 30 days of cheque return memo.
- If unpaid within 30 days after notice, file a criminal complaint.
- Send a legal notice within 30 days of cheque return memo.
3. Bharatiya Nyaya Sanhita, 2023 — Criminal Breach of Trust
- Where the debtor misappropriates money entrusted to him voluntarily, you can bring a case for criminal breach of trust under BNS.
4. Insolvency and Bankruptcy Code, 2016 (IBC)
- If the debtor is insolvent, IBC proceedings enable quicker recovery or liquidation.
5. Indian Contract Act, 1872
- For money recovery based on breach of contract or unpaid dues under an agreement.
6. Companies Act, 2013
- Where the defaulting party is a company, remedies under the Companies Act as well as proceedings in the National Company Law Tribunal (NCLT) can be initiated.
Alternative Dispute Resolution: Out-of-Court Settlements
- Arbitration: In case of an arbitration clause, disputes can be referred to an arbitrator.
- Mediation or Conciliation: Voluntary, faster, and less expensive. A neutral third party facilitates settlement.
Challenging Arbitration Awards:
An award may be challenged if:
- It is invalid
- One party was not given a fair hearing
- Arbitrator’s appointment lacked proper notice
Conclusion
Recovering money legally in India can be smooth if you follow the right process.
Key steps include:
- Sending timely legal notices
- Choosing the correct legal remedy
- Filing properly structured suits
- Maintaining strong documentation
One can talk to lawyers from Lead India for any kind of legal support. In India, free legal advice online can be obtained at Lead India. Along with receiving free legal advice online, one can also ask questions to the experts online free through Lead India.
FAQs
1. Can a cheque bounce case be filed for recovery of money?
Yes. Section 138 of the Negotiable Instruments Act provides a strong remedy.
2. What happens if the debtor does not respond to the legal notice?
You can proceed to file a money recovery suit if no satisfactory response is received.
3. Is arbitration a good option for recovering money?
Yes. It’s faster, cost-effective, and legally binding if both parties agree.
4. What documents are needed to file a money recovery suit?
Key documents include agreements, invoices, emails/communications, bank proof, and outstanding balance records.
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