Legal Remedies Available for Recovering Money: Lawyers Advice

Trade & Commerce takes place in India on a daily Outstanding basis, at various levels and different avenues. However, it is important to keep in mind that in a lot of cases, there may be a default in this seemingly simple transaction and the creditor may be unable to recover his/her money. It is therefore essential to know the various legal remedies available for the recovery of money in India. The Indian legal system provides for remedies that are civil, criminal or out of court.

Code of Civil Procedure, 1908:
If one wants to pursue legal action of civil nature, the Code of Civil Procedure, 1908 provides for the same under Order 37. Order 37 provides for recovery of money through a recovery/ summary suit which provides for a speedy disposal as the defendant as he/she is not entitled to defend as a matter or right and can defend only after applying for leave of the court. Therefore, unlike other suits, the trial in such cases commences after the court grants leave to the defendant to contest the suit. The judgement is usually passed in the plaintiffs favour in cases where the defendant may not have applied for leave to defend, or such application has been refused by the court or in case leave is granted, the defendant fails to adhere to the conditions under which said leave was granted.

Such a suit can be filed in various cases such as default in payment through bills of exchange, hundies and promissory notes, cases where the plaintiff seeks to recover a recover a debt or liquidated demand in money payable with or without interest by the defendant arising out of a written contract, legislation or guarantee. The limitation period for filing the same is 3 years.
In the case of Kocharabhai Ishwarbhai Patel v. Gopal bhai C. Patel [AIR 1973 Gujrat 29 (31)], the court opined that the very object of summary suits was to ensure an expeditious hearing as well as disposal of the suit in order to avoid obstruction from the defendant who is such cases may have no or a frivolous defence. This remedy is therefore highly utilized in the current market situation.

Negotiable Instruments Act, 1881:
Section 138-142 of the Negotiable Instruments Act, 1881 provides for the penalties in the case of dishonour of the cheques or non-fulfilment of the obligations that one undertakes when issuing a cheque. As per Section 138 of the Negotiable Instruments Act, 1881, in cases where any cheque drawn by the person on an account maintained by him (drawer) for any sum of money to another person (payee) for the payment of any debt or liability, is returned unpaid from the bank due to reasons such as insufficiency of funds or the amount to be paid exceeds the amount allowed to be paid due to an agreement with the bank. The section states that in such cases, said defaulter shall be deemed to have committed an offence and may be punished with imprisonment for a maximum term of two years, or a maximum fine of two times the amount of the cheque, or both.

However, there are certain conditions that are to be fulfilled in order for this section to be applicable and they are as follows-
• The cheque is to be presented to a bank within a period of 6 months (the Reserve Bank of India vide its circular dated 4th November, 2011 changed the default period within which a cheque may be presented for payment to 3 months from date of the instrument) from the date of its drawing or within the period of its validity, whichever comes first, and
• The payee or holder of the cheque, makes a demand for the payment of the amount of the cheque by giving a written notice to the drawer, within a time period of thirty days from the receipt of information from the bank regarding the cheque being returned as unpaid, and
• Drawer fails to make the payment to the payee within a period of fifteen days from the receipt of notice from the payee which was to be sent within a period of thirty days of receiving information that the cheque was dishonoured by the bank.
In the case of MSR Leathers v. S. Palaniappan [Supreme Court Criminal Appeal Nos. 261-64 of 2002] held that in order for a person to be held criminally liable for the bouncing of a cheque, it is essential that all conditions laid down in Section 138 of the Negotiable Instruments Act, 1881 are fulfilled.

The Indian Penal Code, 1860:
The Indian Penal Code, 1860, also provides remedies available to the creditor in certain matters under sections such as Section 406 (Punishment for criminal breach of trust), Section 417 (Punishment for heating) and Section 420 (Cheating and dishonestly inducing delivery of property).
Section 406 of the Indian Penal Code, 1860 can be applied in cases where a seller has sold a particular good or service for the which he has not been paid by the buyer. In such matters, the seller will have to prove criminal breach of trust on behalf of the buyer. If found guilty of criminal breach of trust, the punishment will be imprisonment of either description for a maximum period of three years, or with fine, or both.
Section 417 of the Indian Penal Code, 1860 may be applied in any case where there is proven cheating, therefore it may be between buyer and seller, creditor and debtor or any other such fiduciary relationship. The punishment for the same is imprisonment of either description for a maximum period of one year, or with fine, or both.
Section 420 of the Indian Penal Code, 1860 may be applied in cases of dishonour of cheques or in cases of post-dated cheques issued for the payment of goods or services purchased or loans taken. The punishment prescribed for the same is imprisonment of either description for a maximum period of seven years, or with fine, or both.

In Satishchandra Ratanlal Shah v. the State of Gujarat [SLP (Crl.) No. 5223 of 2018], the Supreme Court of India ruled that the mere inability of the defaulter to repay the amount of loan taken by him/her will not amount to criminal prosecution for cheating unless there is a dishonest or fraudulent intent present because this is the mens rea which is considered to be the essence of the offence.

The Insolvency and Bankruptcy Code, 2016:
The Insolvency and Bankruptcy Code, 2016 provides for recovery proceedings against the debtor in cases where he/she has defaulted in payment. One can approach the National Company Law Tribunal for the same. The recovery proceedings can be initiated by financial creditors and operational creditors to whom debt is owed in relation to goods and services, employment or repayment of dues under any law which are payable to any local authority, State or Central Government. In order to initiate proceedings under the Insolvency and Bankruptcy Code, 2016 the minimum value of default is Rupees One Crore.

Section 7 of the Insolvency and Bankruptcy Code, 2016, provides for the Initiation of corporate insolvency resolution process by financial creditor. In cases where one has supplied goods or rendered services to a debtor, who makes a default of non-payment for the same, wholly or in part, the creditor may initiate action by filing of a petition in the National Company Law Tribunal. The Creditor has to issue a notice of demand to the debtor and if the creditor does not receive the payment within a period of ten days, he can file an application in the National Company Law Tribunal for the initiation of the recovery process which is also known as the Corporate Insolvency Resolution Process. The National Company Law Tribunal will then within fourteen days from the date of the application either accept or reject it.

Under the Section 9 of the Insolvency and Bankruptcy Code, 2016, provides for the Initiation of corporate insolvency resolution process by an operational creditor. As per this section, on the occurrence of a default, the operational creditor may deliver a demand notice upon the corporate debtor. The corporate debtor must within a period of ten days from the receipt of said notice bring to the notice of the creditor any existing dispute and repayment of the unpaid amount in question along with proof of the same. After the expiry of ten days, if payment is not received by the creditor, an application may be filed by the creditor for the initiation of the recovery process which is also known as the Corporate Insolvency Resolution Process. The adjudicating authority shall within a period of fourteen days of receipt of said application admit or reject the same.

Similarly, Section 10 of the Insolvency and Bankruptcy Code, 2016, provides for the initiation of corporate insolvency resolution process by corporate applicant. In all cases, the adjudicating authority shall before rejecting the application, give a chance to the creditor/applicant to rectify the defect in the application made within a period of seven days of the receipt of notice for the same from the adjudicating authority. If the application is accepted, corporate insolvency resolution process shall be considered to have commenced from the date on which the application was admitted.

According to Section 12 of the Insolvency and Bankruptcy Code, 2016, the corporate insolvency resolution process is to be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process and may be extended by a maximum period of ninety days, subject to conditions mentioned in proviso (2) and (3) of Section 12 of the Insolvency and Bankruptcy Code, 2016.

In M/S. Surendra Trading Company v. M/S. Juggilal Kamlapat Jute Mills Company Ltd. and Ors. [Supreme Court Civil Appeal No. 15091 of 2017], the court held that the period of seven days for removal of defects from the application made as provided for in Section 7(5), 9(5) and 10(4) of the Insolvency and Bankruptcy Code, 2016 is directory and not mandatory. However, the court also observed that while the provisions are interpreted to be directory in nature, in case the creditor does not remove the objections within the seven-day period, while refiling the application after the period of seven days, he shall also have to file an application in writing showing cause as to why he took more than seven days to do so. If the adjudicating authority is not satisfied with the reasoning given, it may dismiss the application.

Out of Court Settlement:
Both parties may mutually agree to refer the dispute to alternate methods of dispute resolution such as Mediation, Arbitration or Negotiation. They may do so by including them in an agreement signed by both parties, mutually agreeing to do the same or in cases where the court may refer them to the process of arbitration.

It is essential that the creditor is aware of his/her rights in cases of non-payment of money, in order to recover the amount due to them. In an economy as large as ours, such cases are very common and therefore, knowledge of the legal remedies provided by our legal system is extremely useful and necessary. In such cases, it is best to be informed and ready in order to recover the money due so as to be able to take the best possible route for the same.
Authored By: Adv. Anant Sharma & Suvigya Buch