Recovering Money Under the Insolvency and Bankruptcy Code

Last Updated at: Oct 20, 2020
money recovery
Central Government through gazette notification dated March 24, 2020 specified one crore rupees as the minimum amount of default for initiation of proceedings under the Insolvency and Bankruptcy Code, 2016 (‘the Code’).


In the event of default by the debtor, recovery proceedings can be started against him or her. To initiate recovery proceedings one can approach the National Company Law Tribunal (NCLT) (this applies to corporate persons) which exercises the authority to dispose of cases under the Insolvency and Bankruptcy Code.

The Default is generally defined as non-payment of debt when whole or any part of payment of the amount of debt has become due and payable and is not paid by the debtor.

Who can initiate the recovery proceedings on the admission of a default by the debtor?

1)    Financial Creditor (Financial creditors are those whose relationship with the entity is a pure financial contract, such as a loan or debt security)

2)    Operational Creditor (Operational creditors are those whose liabilities from the entity comes from a transaction on operations)

Before Insolvency and Bankruptcy Code, initiation of a resolution process lied with the debtor, and the creditor may follow separate actions for security enforcement, recovery, and debt restructuring. But Insolvency and Bankruptcy Code make a noteworthy departure from the present resolution regimen by shifting the obligation on the creditor to initiate the insolvency resolution process against the debtor.

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How is this code useful for recovery of debts?

Supplier of goods and services

Under this code, any person who has supplied goods and services to any debtor and such debtor makes default as non-payment of the debt or any part of the debt, non-payment of the installments due, then the creditor can initiate the action against the debtor by filing a petition in the NCLT.

Recovery time period

Demand notice will be issued to the debtor by the creditor. If the creditor does not receive any payment due within 10 days of the notice then he or she can file an application in the NCLT for initiating the recovery process (Corporate insolvency resolution). The NCLT within 14 days of receiving the application will either accept the application or reject the application.

Therefore, under the  Insolvency and Bankruptcy Code, within 24 days from the date of issue of the demand notice, the petition filed by the creditor will be either accepted or rejected by the NCLT. The amalgamated regime envisages an organized and time-bound process for insolvency.


  • The new stringent laws which would take care of the existing defaulters in a time-bound manner.
  • It addresses the issues faced currently in the context of insolvency and winding up
  • It improves the ease of doing business in India and also facilitates a better and faster debt recovery mechanism.

Through the Insolvency and Bankruptcy Code, debt can be recovered very quickly. There is no need of going to high court which is a time taking process.

Small Businesses

As per the requirements mentioned above regarding the supply of goods and services, the creditor has authority to initiate the process in the NCLT for recovery of the debt with cost-effective and time-bound manner.

Previously small businesses used to avoid initiating recovery process against the debtors due to following reasons-

1)    Long time to admit the cases by the adjudicating authorities due to lack of time-bound rules.

2)    Filing a matter in courts which was a costly affair.

3)    The Primary onus to initiate a resolution process was under the control of the debtor.

Due to the above-mentioned grounds like time, money etc., small business owners used to avoid filing applications in the courts against the debtors to recover the pending payment dues.

But with this Insolvency and Bankruptcy Code within 24 days of issue of the demand notice, the only creditor will come to know if his petition is admitted or not. It is less costly compared to the application in the court.

Employee and workmen dues

Under this Code, employees and workmen are also considered as the operational creditor. If a Company fails to pay salaries to its employees or workmen and the total payment is more than Rs.1 lac then the employees can file the application against the Company with the NCLT for initiation of the process of recovery.

Debtor of Loan

Under this code, if an individual has rendered money to any debtor and such debtor makes default as non-payment of the debt, interest or any part of the debt, non-payment of the installments due then that particular individual can initiate the action against the debtor by filing an application in NCLT.

Insolvency and Bankruptcy Code is considered as the game changer for the debtors. Powers are vested with the creditors to initiate the insolvency proceedings against the debtor. The main aim of the code is to identify the financial failure early and maximize the asset value of insolvent firms.

The amalgamated regime envisages an organized and time-bound process for insolvency resolution and liquidation, which should considerably improve debt recovery rates and rejuvenate the ailing Indian corporate bond markets.