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Recovery of Debt is one of the major issues faced in the Indian context. According to the Doing Business Report of the World Bank, India ranks 163rd in the parameter of ‘Enforcing Contracts’, (2020). Factors that generally impede debt recovery include lack of awareness about available options, and enforcement issues. This article shall be elaborating on modes in which one can effectually recover any debt given in India.

Debt Recovery Framework

The Parliament has promulgated the Recovery of Debts & Bankruptcy Act (1993), as an act that lays down provision for setting up of Tribunals, especially meant for the purpose of debts, which are payable to either banks, or financial institutions, and any other matter that may fall under the ambit. Further, Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest (SARFAESI) Act, 2002, aims to effectively monitor the reconstruction and securitization of assets, and promulgation of security interests, by way of enforcement.

India also has a functional and effective framework for Tribunals & Appellate Tribunals, and has berth for Debts Recovery Tribunals (DRTs) and Debts Recovery Appellate Tribunal (DRATs), which have been set up under the Recovery of Debts & Bankruptcy Act (1993), with the intent of facilitating and providing speedy adjudication and expeditious disposal of debt recovery, which is due to Banks as well as Financial Institutions. Headed by a Presiding Officer as well as a chairperson, India currently has 39 Debts Recovery Tribunals (DRTs) & 5 Debts Recovery Appellate Tribunal (DRATs) all over India. In the year of 2021-22, the Debts Recovery Tribunals (DRTs) & 5 Debts Recovery Appellate Tribunal (DRATs), combined, disposed off over one lakh ten thousand applications, with the amount involved exceeding a whooping four lakh forty three thousand crore. 

Another Legal Mechanism has been provided for under the Insolvency and Bankruptcy Code (2016) that primordially consolidated several concurrently existing laws pertaining to debt, as well as the recourse to be taken in case a person is unable to clear the debts he or her owes. For ease of disposal and general convenience, Insolvency and Bankruptcy Code has also divided the parties involved in a debt in a tripartite manner- The Financial Creditor (FC), the Operational Creditor (OC) & the Debtor. Based on the nature of debt, either the Financial Creditor (FC), or the Operational Creditor (OC) can proceed against him.

Methods of Debt Recovery

There are several methods to recover debt in India. Initiating legal proceedings is an effective way to recover the debt that may be accrued or pending against a person. The most commonly employed methods by persons are stated as follows-

  1. Filing a case under relevant provisions of the Indian Penal Code (1860)- This is a mode often used by the aggrieved party in certain demarcated instances wherein the person may file a case against the other or the debt holder under the provision of either Section 408 of the Indian Penal Code, Criminal Breach of Trust, Section 420, that provides for the punishment for cheating and false inducement in order to deliver property, Section 417 that is cheating or Section 426, providing for mischief under the Indian Penal Code.
  2. Institution of a summary suit under the Civil Procedure Code of 1908 under Order XXXVII can be preferred, which lays down provision for a creditor to initiate a summary suit. After the institution of the suit the veracity of the allegations labelled against the debtor are ascertained and in the absence of a defendant the court may proceeds without any party.
  3. Remedy under Code of Civil Procedure by way of filing suit of civil nature under Order 4.

The abovementioned cases can be filed under and with respect to the provisions contained under the Commercial Courts Act 2015, and in compliance with the appropriate jurisdiction of the relevant court.

  1. Remedy under Negotiable Instruments Act of 1881-

The provisions under the negotiable instruments act 1881 is the preferred mode of recovery when it comes to debts that arise from the issuance of Cheques or bills. Section 138 of the Negotiable Instruments act provide for dishonor of Cheque due to insufficiency of funds, and states that where a cheque bounces due insufficiency of funds, then the person can be proceeded against after providing a notice and an opportunity to finally repay. The section provides defined timelines for the recovery of debt by this mode, as well as penalties for non-compliance.

  1. Proceedings instituted under Arbitration and Conciliation Act of 1996-

This is the most commonly preferred method for recovery of accrued debts, which stem from a commercial agreements. However, the manner and mode of arbitrability of the matter depends upon various facts and circumstances that revolve around the case. One of the primordial issues that leaves big questions is the very legal viability of invoking arbitration in debt recovery, as arbitration is a cost intensive method for effecting recovery. 

In the case of Booz Allen v. SBI Home Finance Limited, the court held that matters which are categorized as right in personam as opposed to right inrem are arbitrable in nature. Specifically, in the case of Durga Trading Corporation v. Vidya Drolia, the court laid down a four fold test to determine arbitrability of a matter, and that when specific tribunals such as the Debts Recovery Tribunals (DRTs) and Debts Recovery Appellate Tribunal (DRATs) exist, it is not advisable to seek recourse in arbitration. It shows the legislative intent regarding the non-arbitrable nature of such disputes. 

  1. Application for Judgment under Order XII Rule 6 of the Code of Civil Procedure (1908) can be preferred in order to smoothen out any potential delays in the effective and speedy disposal of the case.
  2. Proceedings before National Company Law Tribunal (NCLT) & National Company Law Appellate Tribunal (NCLAT)- It is known that recovery proceedings are of extreme importance under the National Company Law Tribunal, when there is default in the payment of debt which is recoverable under the provisions of the Insolvency and Bankruptcy Code, 2016. The NCLT has provided for a time bound procedure for the acceptance and disposal of applications preferred before it.

Under this procedure, a demand notice is firstly issued by the creditor, either financial or operational creditor, as the case may be, followed by which if the amount in question is not received within 10 days, the aggrieved can file an application before the National Company Law Tribunal for recovery of the due amount. An appeal can be preferred against the decision of National Company Law Tribunal before the National Company Law Appellate Tribunal (NCLAT).


The laws governing debt recovery in India are currently a patchwork of different laws and forums, increasing the likelihood that procedures will be started in various venues for the same dispute in an effort to harass the debtor rather than trying to settle the debt in the most practical way. The Supreme Court’s decision in Vidya Drolia v. Durga Trading further complicated the situation by ruling that arbitration was not a viable option for recovering debts in many cases involving financial obligations held by banks and other financial organisations.

The establishment of DRTs and DRATs under the RDBI Act, which was intended to decrease the number of pending litigations, has resulted in an overabundance of cases for these tribunals. This also applied to the NCLT and NCLAT benches, which were both very overloaded. Along with their general lack of expertise, these factors prevent judges and technical members from giving each case the attention it deserves, exposing the core issues with tribunalization. In view of these concerns, a thorough analysis of India’s debt collection laws is required, as well as a clear strategy for resolving the practical issues that have arisen as a result of the patchwork of laws that are currently in place.

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