Debt recovery is a pivotal component of commercial transactions, operations of financial institutions, and private lending transactions in India. With the evolving options and accessibility of credit, disputes over repayment have increased manyfold. Indian law provides multiple mechanisms to ensure fair, time-bound, and effective recovery of money or dues. 

Debt recovery refers to the legal process of recovering or claiming back the outstanding dues from a borrower or any party who has failed to repay the amount as per the agreed upon terms and conditions. The debt claim may arise out of-

• Personal loans
• Business loans
• Credit transactions
• Supply of goods or services
• Agreements, promissory notes, or invoices

Bank loans secured or unsecured

Step 1: Issue a Legal Notice

In India, the debt recovery process ordinarily commences with the issuance of a formal demand notice/legal notice to the debtor, calling upon them to clear the outstanding dues within a stipulated period. This notice serves as an opportunity for the debtor to amicably settle the matter before initiating legal proceedings in India. A well-structured legal notice generally contains the following essential components:

• Details of the parties:
  The notice should clearly identify the creditor and the debtor, along with their full names, addresses, contact details, and the nature of their relationship or prior dealings. This ensures there is no ambiguity regarding the parties involved. 
• Comprehensive details of the transaction:
  It outlines the background and context of the dispute, including the date and manner in which the funds were advanced, the agreed terms or conditions, any documentation executed between the parties, and the subsequent conduct of the debtor. Specific facts such as the amount due, the purpose of the loan or transaction, the agreed repayment schedule, and any communication exchanged are set out to establish a clear chain of events.
• Particulars of default and amount due:
  The notice specifies the exact sum that remains unpaid, the contractual or legal obligations that have been breached, and any interest or additional charges that have accrued. It also mentions the debtor’s failure to honour the agreed terms despite reminders or opportunities provided.
• Demand for repayment within a stipulated timeline:
  A clear and reasonable period is provided to the debtor for repayment which usually varies from 7 to 15 days from the date of receipt of the legal notice.  The notice also warns that failure to comply within the prescribed time may compel the creditor to initiate appropriate legal action, including civil or criminal proceedings, at the debtor’s sole risk as to costs and consequences.

Hence, if no reply or communication is received from the debtor within the stipulated timeline, the creditor may proceed with the next step. For commercial suits, it is mandatory to enter into pre institution mediation, however, in other forums, mediation is a choice and not a mandate.

Step 2: Negotiation or Mediation

Many debt-related disputes are often resolved well before they reach the courts. Where there is a scope for settlement, it is encouraged that the parties settle their disputes through open communication, negotiation, and mutually acceptable repayment plans. Creditors may agree to restructure the outstanding amount by extending timelines, levying interest, revising instalment schedules, or accepting part-payments from the debtor. Such approaches not only save time and legal costs but also help preserve relationship between the parties.

Additionally, Indian courts and tribunals increasingly encourage amicable settlement as a preferred mode of dispute resolution. Judicial forums routinely advise parties to explore mediation, pre-litigation conciliation, and other alternative mechanisms before pursuing full-fledged litigation. This policy shift is aimed at reducing the burden on courts, promoting quicker resolutions, and enabling both parties to arrive at practical solutions without the engaging into a formal trial.

In commercial transaction, keeping in view the mandate of Section 12A of the Commercial Courts Act 2015, it is incumbent upon the plaintiff to exhaust the remedy of pre-institution mediation stated therein before filing of the suit before the court. 

“Section 12A. Pre-Institution Mediation and Settlement-

 (1) A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government.

(2) The Central Government may, by notification, authorise the Authorities constituted under the Legal Services Authorities Act, 1987 (39 of 1987), for the purposes of pre-institution mediation.

(3) Notwithstanding anything contained in the Legal Services Authorities Act, 1987 (39 of 1987), the Authority authorised by the Central Government under sub-section (2) shall complete the process of mediation within a period of three months from the date of application made by the plaintiff under sub-section (1):

Provided that the period of mediation may be extended for a further period of two months with the consent of the parties.

Provided further that, the period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963 (36 of 1963). 

(4) If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator.

(5) The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996 (26 of 1996).

Step 3: Choosing the right forum to file debt recovery case in India

In case mediation fails whether in a dispute arising out of a commercial transaction or otherwise, the creditor must proceed with filing of the appropriate suit depending on the borrower, type of debt, and evidence available. Either of the following routes can be opted for-

• Civil Suit for Recovery

A civil suit being governed by the procedure laid down in the Code of Civil Procedure (CPC) can be filed when the creditor seeks recovery of money based on contracts, invoices, loan agreements, promissory notes, or other documentary proof. This route is suitable for cases involving detailed evidence, disputed facts, or where the debtor is an individual or partnership concern. The suit can be filed before the appropriate civil court depending on the pecuniary and territorial jurisdiction. The creditor may also seek interest, costs, and interim reliefs such as attachment before judgment.

• Summary Suit (Order XXXVII, CPC)

For debts supported by written contracts, bills of exchange, promissory notes, or acknowledgements, creditors may opt for a summary suit, which is designed for speedier recovery. Unlike ordinary suits, the defendant does not have the automatic right to defend and must first seek leave to defend by disclosing a valid defence. If the defence is weak, sham, moonshine or illusory, the  courts may proceed to pass a decree in favour of the creditor/plaintiff, making this one of the most efficient civil remedies for established debts.

• Commercial Courts

Commercial suits are cases filed under the Commercial Courts Act, 2015 for resolving commercial disputes, including recovery of unpaid debts, invoices, loans, and business dues. They serve as an effective debt-recovery mechanism because they follow strict timelines, mandatory disclosure of documents, limited adjournments, and provide faster remedies such as pre-institution mediation and summary judgment. These features ensure quicker adjudication compared to traditional civil suits, enabling creditors to obtain a decree efficiently and pursue execution for actual recovery of the outstanding amount

• SARFAESI Proceedings (for Banks and Financial Institutions)

Banks and notified financial institutions can invoke the SARFAESI Act, 2002 when the borrower defaults and the account is classified as an NPA. This allows them to enforce secured assets without court intervention by issuing a demand notice under Section 13(2), taking possession of collateral, and auctioning it for recovery. This mechanism is particularly useful for secured loans, as it provides a relatively faster and more powerful remedy compared to traditional litigation.

• Insolvency Proceedings under the IBC (for Corporate Borrowers)

In cases involving corporate debtors (Company), creditors may initiate insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. Operational and financial creditors can trigger the Corporate Insolvency Resolution Process (CIRP) by issuing a demand notice and, upon non-payment, filing an application before the National Company Law Tribunal. The debtor’s management may be suspended, and the company is placed under a resolution professional to attempt revival, failing which, liquidation may follow. This route is especially effective in cases of substantial unpaid debts and persistent defaults.

After having obtained a decree by the creditor in his/her favour, the debtor may still not be compliant of the court orders/judgement. In such an eventuality, the creditor may file for execution of the decree in question

After obtaining a decree for money recovery, the creditor must initiate execution proceedings under Order XXI of the CPC to actually enforce the decree/to realise the amount forming part of the decree. A decree does not automatically lead to payment; the court must be moved through an Execution Petition. The court then may issue notice to the debtor if the execution petition is filed within 2 years from the date of decree and shall issue a notice to the debtor if the execution is filed after the lapse of 2 years. The court would then proceed to enforce the decree if payment is not made voluntarily.

An execution can be filed:

• In the court that passed the decree, or
• In another court where the debtor lives or has assets subject to fulfilment of the procedural mandate.

Time Limit

Creditors have 12 years from when the decree becomes enforceable to file for execution.

In India, the limitation period for filing a civil suit for recovery of debt is generally three years from the date on which the amount becomes due and payable, as prescribed under the Limitation Act, 1963. This period may, however, be extended if the debtor provides a written acknowledgement of liability or makes a part-payment towards the outstanding amount before expiry of the original limitation period, in which case a fresh period of three years begins from the date of such acknowledgement or payment. 

It is therefore essential for the creditors to act swiftly for their debt claims and maintain a proper records of the documents to ensure that their claim remains legally enforceable.

Debt recovery in India has evolved into a structured and multifaceted system. With specialized tribunals, strong enforcement laws like SARFAESI, and the time-bound insolvency framework under the IBC, lenders now have more effective mechanisms than ever before. While challenges remain, a combination of preventive safeguards, prompt action, and legal strategy can ensure efficient recovery. Ultimately, both lenders and borrowers benefit from a fair and transparent debt recovery framework that strengthens trust and stability in financial transactions.