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Debt Collection - Overview

We frequently come across cases where the person who borrowed the amount fails to return or repay the money within the time frame specified. As a result, the lender party has a number of legal options to pursue against the defaulter party. Filing a lawsuit for recovery of payment under the Civil Procedure Code is one of the procedural acts that an individual can perform within a certain period of time. It starts with sending a debt recovery notice to the corresponding person. Vakilsearch has a team of experienced debt collection attorneys and financial experts who can provide personalised solutions to help you recover what's in your possession.

The Debts Recovery Appellate Tribunals (DRATs) was launched under the Recovery of Debts and Bankruptcy Act (RDB Act), 1993 for providing expeditious adjudication and debts recovery due to Banks and Financial Institutions.

Money Recovery Suit

Filing a legal notice for recovery of money lawsuit is an effective remedial action to recover money from violators. The lawsuit can be brought under Ordinance IV of the Civil Procedure Code of 1908. This is a summary prosecution (Article 37, Civil Procedure Code) that allows the case to be resolved quickly because the defendant does not need to defend himself in a reasonable manner.

Documents Required for Filing a Debt Recovery Suit

A document that serves as proof of a person granting money to the defaulter is sufficient to establish the debt recovery through debt recovery agency. On-demand payments, online banking, contracts or other payments made in this way are considered proof of loan. In addition, any document, message, contract, mail, telephone conversation, or post can be used in court to prove the debt.

Different Ways Of Debt Collection

Every lawsuit must begin with a plaint. The plaint describes the facts of the case as well as the amount claimed, including any interest. An affidavit proving the facts must be filed with each plaintiff. The following information has to be present in the complaint:

  • Name of the court
  • Applicant's name, applicant's description and applicant's address
  • Respondent's name, respondent's description and respondent's address
  • The reason for the action
  • Establishing the court's jurisdiction
  • The plaintiff's requested relief
  • Any set-off or waiver of claim by the plaintiff
  • Value of subject matter for jurisdiction and court fees
  • Signature and confirmation of recovery of money is a special case and the amount claimed must be stated in the petition.

Send legal notice

After receipt of the legal notice for recovery of money suit , the nonpayer has 15 days to hand back the money. In which a complaint is filed with the court, or a FIR is filed with the police.

Suits in Summary

According to the Order 37 of the Civil Procedure Code summary judgments are the fastest way to recover money because it is based on printed declarations and speeds up court records.

Act on Negotiable Instruments

This Act contains provisions for money recovery for instruments such as cheques, bills of exchange, and so on.

Case in Point

According to the Indian Penal Code of 1860, a criminal action can be taken against the bankrupt for money recovery.

Bankruptcy and Insolvency Act

The contracting debt collection agency will be presented with an insolvency record for debt collection. Within 14 days, the plea should be accepted or rejected.

Institutional Procedures

Summons: A summon is a document issued by a court that summons a person to appear before a judge or judicial officer for the purpose of identification. After reviewing the plaint and its jurisdiction, the Court issues a summons, which is duly served on the defendant within 30 days of the suit's filing.

Written statement: This is a reply filed in response to the claimant's complaint. The defendant must file a written statement defending it before the first hearing or within 30 days of receiving the summons. The respondent must raise new issues in their favour or file a lawsuit in reply to the claimant's request in the written statement. According to the agenda, the petitioner is accountable for paying the court costs. If the petitioner does not pay the court fees, no action will be taken.

The Application of a Decree: The last step after getting a court order against another person is to comply with that order. The process by which a person goes to court to enforce their sentence is called coercion. Execution proceedings enable the enforcement of a court order or the giving effect to a court of law's judgement. When the judgement debtor accepts relief under the judgement, decree or order, the execution ends.

Scope of Legal Notice for Recovery of Money

In India, a legal notice is a formal written communication that is served on another party to inform them of a legal claim or demand. It is a precursor to filing a lawsuit and can be used for money recovery, property, or other legal remedies.

The scope of a legal notice for recovery of money depends on the specific facts and circumstances of the case. However, it generally includes the following:

  • The amount of money that is owed.
  • The date on which the money was due.
  • The reason why the money is owed.
  • A demand for payment.
  • A warning that legal action will be taken if the money is not paid.

The legal notice for recovery of money suit should be drafted by an attorney to ensure that it is legally sound and enforceable. It should also be served on the other party in a way that complies with the law.

Statutes Under Which a Case Can Be Filed Against the Defaulter

The statutes under which a case can be filed against a defaulter vary depending on the type of debt and the circumstances of the default. Some of the most common statutes include:

  • The Indian Contract Act, 1872: This Act governs all contracts, including those that involve debt. If a person breaches a contract, the other party may be able to file a money recovery suit.
  • The Negotiable Instruments Act, 1881: This Act governs negotiable instruments, such as cheques and promissory notes. If a person fails to pay a cheque or promissory note, the holder of the instrument may be able to file a money suit under CPC.
  • The Consumer Protection Act, 1986: This Act protects consumers from unfair trade practices and misleading advertising. If a person buys goods or services on credit and the seller fails to deliver the goods or services, the consumer may be able to file a complaint with the Consumer Protection Authority.
  • The Debt Recovery Tribunal Act, 1993: This Act establishes Debt Recovery Tribunals to hear cases involving defaulted loans. If a person defaults on a loan, the lender may be able to file a case with the Debt Recovery Tribunal to recover the money.
  • The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: This Act allows banks and financial institutions to recover defaulted loans by taking possession of the assets of the borrower.

Various Instances Where Recovery of Money Arises

There are various instances where recovery of money arises. Here are some of them:

  • Breach of contract: If one party to a contract breaches the contract, the other party may be able to recover money damages. For example, if a contractor fails to complete a project on time and within budget, the owner of the project may be able to recover money damages from the contractor.
  • Debt: If a person owes money to another person, the creditor may be able to recover the money by filing a lawsuit. For example, if a person borrows money from a bank and fails to repay the loan, the bank may be able to file a lawsuit to recover the money.
  • Negligence: If a person is injured due to the negligence of another person, the injured person may be able to recover money damages. For example, if a person is injured in a car accident caused by the negligence of another driver, the injured person may be able to recover money damages from the driver.
  • Fraud: If a person is defrauded by another person, the defrauded person may be able to get money recovery. For example, if a person is tricked into investing in a fraudulent scheme, the person may be able to recover money damages from the person who committed the fraud.
  • Unpaid wages: If an employee is not paid the wages that they are owed, the employee may be able to recover the money by filing a lawsuit. For example, if an employee works for a company for two weeks and is not paid for their work, the employee may be able to file a lawsuit to recover the unpaid wages.
  • Damages to property: If a person's property is damaged by the negligence of another person, the person may be able to recover money damages. For example, if a person's car is damaged in a car accident caused by the negligence of another driver, the person may be able to recover money damages from the driver.

Where to File a Suit for Recovery of Money?

A suit for recovery of money can be filed in the District Court or the High Court, depending on the value of the suit.

If the value of the suit is up to ₹ 10 lakhs, it can be filed in the District Court. If the value of the suit for recovery of money is more than ₹ 10 lakhs, it can be filed in the High Court.

The territorial jurisdiction of the court will depend on the place where the cause of action arose. For example, if the defendant resides in Delhi and the contract that is the subject of the suit was executed in Delhi, then the suit can be filed in the District Court of Delhi.

To file a suit for recovery of money, the plaintiff must file a plaint with the court. The plaint must contain the following information:

  • The names and addresses of the plaintiff and the defendant.
  • The facts of the case.
  • The grounds for the plaintiff's claim.
  • The amount of money that the plaintiff is claiming.

Once the plaint is filed, the court will issue a summons to the defendant. The summons will require the defendant to appear in court on a specific date. If the defendant fails to appear in court, the court may pass a decree in favor of the plaintiff.

If the defendant appears in court, the court will begin the trial. The plaintiff and the defendant will have the opportunity to present their evidence and arguments. After the trial, the court will pass a judgment. If the court finds in favor of the plaintiff, the court will pass a decree ordering the defendant to pay the plaintiff the amount of money that is claimed.

Summary Suit for Recovery of Money

A summary suit is a type of civil suit that is filed in a lower court. It is a faster and simpler way to recover money than a regular civil suit. A summary suit can be filed to recover a debt, a liquidated demand, or a penalty.

To file a summary suit, you must first send a legal notice to the debtor demanding payment. You can file the summary suit if the debtor does not pay the debt after receiving the legal notice.

The summary suit process is relatively simple. You must file a plaint with the court, a document that sets out the facts of your case and your claim for money. The court will then issue a summons to the debtor, requiring them to appear.

If the debtor does not appear in court, the court may enter a default judgment against them. This means that the court will order the debtor to pay you the money you are owed.

Commercial Suit for Recovery of Money

A commercial suit is a type of civil suit that is filed in a higher court. It is a more complex and expensive way to recover money than a summary suit. A commercial suit can be filed for the recovery of a debt, a liquidated demand, or a penalty.

To file a commercial suit, you must first send a legal notice to the debtor demanding payment. If the debtor does not pay the debt after receiving the legal notice, you can then file the commercial suit.

The commercial suit process is more complex than the summary suit process. You will need to file a plaint with the court, which is a document that sets out the facts of your case and your claim for money. You will also need to serve the plaint on the debtor.

The court will then schedule a hearing for the case. At the hearing, the court will hear arguments from both sides and decide whether to enter a judgment in your favour.

Legal Actions That Can Be Taken Against Money Defaulter

There are a number of legal actions that can be taken against a money defaulter in India. These actions include:

  • Civil action: A civil action is a lawsuit that is filed to recover money or damages. In a civil action, the plaintiff (the person who is filing the lawsuit) must prove that the defendant (the person who is being sued) owes them money and that the defendant has breached the contract or duty that they owe to the plaintiff. If the plaintiff is successful in their lawsuit, the court may order the defendant to pay the plaintiff the amount of money that is owed, plus interest and costs.
  • Criminal action: A criminal action is a lawsuit that is filed by the government to prosecute a person for a crime. In a criminal action, the government must prove beyond a reasonable doubt that the defendant committed the crime. If the defendant is found guilty, the court may impose a fine, imprisonment, or both.
  • Debt collection: Debt collection is the process of recovering money from a debtor. Debt collectors may use a variety of methods to collect debts, such as sending letters and emails, making phone calls, and visiting the debtor's home or place of business. Debt collectors are not allowed to harass or intimidate debtors.
  • Negotiation: Negotiation is the process of discussing and talking to a debtor in order to come to an agreement on how the debt will be repaid. Negotiation can be a good way to resolve a debt dispute without having to go to court.

Suit for Recovery of Money Under CPC Format

The Code of Civil Procedure (CPC) is a set of laws that govern civil litigation in India. The CPC provides a format for filing a money suit under CPC. The format is as follows:

1. The plaint must be filed in the court of the lowest grade competent to try the suit.
2. The plaint must be written in the language of the court.
3.The plaint must contain the following details:

  • The names and addresses of the plaintiff and the defendant.
  • The cause of action.
  • The relief that the plaintiff is seeking.

4. The plaint must be signed by the plaintiff or their lawyer.

Where to File a Suit for Recovery of Money

The jurisdiction for filing a suit for recovery of money depends on several factors, including:

  • Place of Contract: Generally, you can file the suit in the court where the contract was signed or executed.
  • Place of Residence: You can also file the suit in the court where the defendant resides or carries on business.
  • Place of Cause of Action: Additionally, you can file the suit in the court where the debt arose or where the money is to be recovered.

Legal Notice Format for Recovery of Money

Format
Date: [Date of issue]       Place: [City, State]

To: [Recipient's Name] [Recipient's Address]

Subject: Legal Notice for Recovery of MoneyDear [Recipient's Name],

This Notice is served upon you by [Your Name], residing at [Your Address], acting in my own capacity [or on behalf of [Client Name], residing at [Client Address]], hereinafter referred to as ‘I’ or ‘My Client’

1. Background:
[Briefly describe the transaction or agreement that led to the debt, including dates, amounts, and relevant documents. Mention any attempts made to recover the debt amicably.]

2. Amount Due:
I hereby demand immediate payment of the total outstanding amount of [Amount in figures] ([Amount in words]), along with interest at [Interest rate]% per annum from [Date of due payment] until the date of realization.

3. Demand for Payment:
You are hereby directed to pay the said outstanding amount within [Number] days from the date of receipt of this Notice. Payment should be made through [Payment method] to [Account details].

4. Consequences of Non-Payment:
In the event of non-payment within the specified period, I, [Your Name] or [My Client], reserve the right to initiate legal proceedings against you in the competent court of law for the recovery of the said outstanding amount, interest, and legal costs. This may include but is not limited to:
  • Filing a lawsuit for debt recovery.
  • Applying for attachment of your property.
  • Initiating other legal actions as deemed necessary.

    5.Right to Reply:
    You have the right to reply to this Notice within [Number] days from the date of receipt. Your reply should be addressed to [Your Name] or [My Client] at the address mentioned above.

    6.Signature:
    [Your Signature] [Your Name] [Your Designation (if any)]
  • Debts Recovery Appellate Tribunals

    The Debts Recovery Appellate Tribunals (DRATs) are tribunals that hear appeals from the orders of the Debt Recovery Tribunals (DRTs). The DRTs are specialised courts that hear cases related to the recovery of debts.

    The DRATs were established under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The DRATs have jurisdiction to hear appeals from the orders of the DRTs in respect of all matters arising out of the Act, including the recovery of debts, interest, and costs.

    Defense Opportunity & Decision

    Defense Opportunity:

    The defendant has the right to:

    • Be served with a legal notice and a copy of the lawsuit.
    • File a written statement of defense within a specified time.
    • Raise defenses such as:
        Non-existence of debt
        Payment already made
        Breach of contract by the plaintiff
        Limitation period expired

    Decision:

    The court will consider the evidence and arguments presented by both parties. It will then deliver a judgment, either:

    • Awarding the plaintiff the money owed and possibly interest, costs, and other reliefs.
    • Dismissing the suit if the plaintiff's case cannot be proven.

    Why Choose Vakilsearch?

    Vakilsearch has expert lawyers who can draft a money recovery notice for debt settlement and debt collection with the help of a debt collection agency. Our experts can complete the process immediately and provide you with the first draft and help you with its iterations. Having a robust debt recovery agency can effectively help in debt recovery and immediate debt settlement.

    Legal Notice for Recovery of Money Draft FAQs

  • Re-evaluate your budget
  • Increase your savings
  • Save more for retirement
  • Investigate alternative investments
  • Establish a side business
  • Pay off your mortgage
  • Stay out of debt
  • Maintain your focus
  • Our advice is to prioritise debt repayment while trying to make small contributions to your savings. After you've paid off your debt, you can start saving more aggressively by making a contribution the full amount you were previously paying toward debt each month.
    Capitalising and paying off debt are two great uses for the extra money you might have. Capitalising makes sense if you can make more money on your savings than paying interest on your debts. Compensating off high-interest debt has the potential to provide a higher return on assets than most other debt.
    Investing makes perfect sense if you can receive more on your investment opportunities than you are paying in interest on your debts. Having paid off large debt is likely to yield a higher return on investment than just about any other.
  • Stop taking on new debts
  • Understand how much you owe
  • Make a budget
  • Reduce your spending
  • Find new ways to make money
  • Use the debt snowball or debt avalanche technique
  • Negotiate lower interest rates with your creditors
  • Investigate your debt relief options.
  • Investing and paying down debt are both excellent uses of any spare cash. Investing makes sense if you can earn more money from your investments than you are paying in interest on your debts. Paying off high-interest debt will almost certainly provide a better return on investment than almost any other.
    To recover the money, you can file a court summons against anyone. For example, you could send the intimation to a friend's dealer, bank, or other institution. When your sum is unpaid or not managed to recover from the person due to their misconduct, you must send a legal notice for recovery of money.
    A money recovery suit is an efficient and effective way to recoup a debt from the debtor. Suing a money defaulter is a civil solution for money recovery. A lawsuit is filed in a court of competent jurisdiction.
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