Debt Recovery in India: Legal Options for Creditors Under BNS, BNSS and NI Act

The Challenge of Debt Recovery in India

Debt recovery remains one of the most significant challenges facing businesses and financial institutions in India. Despite improvements in the legal framework, the recovery process can be complex, time-consuming, and resource-intensive. Understanding the available legal options and choosing the right strategy is essential for maximizing recovery outcomes.

Civil Recovery Through Courts

Filing a civil suit for recovery of money is the traditional remedy available to creditors. Under the Civil Procedure Code (CPC), creditors can file a summary suit under Order XXXVII for recovery of money based on written instruments (promissory notes, bills of exchange, etc.), which provides a faster procedure than regular suits. The limitation period for filing a money recovery suit is generally three years from the date the debt became due.

Criminal Remedies Under BNS

In cases involving cheque dishonour, Section 138 of the NI Act provides for criminal prosecution with imprisonment up to two years. Where the debt was incurred through cheating or fraud, Section 318 of the Bharatiya Nyaya Sanhita (BNS) provides for imprisonment up to seven years. For breach of trust situations, Section 316 BNS provides for imprisonment up to five years (or more for enhanced categories).

These criminal remedies serve a dual purpose: they create deterrence against default and provide a mechanism for recovery through the court’s power to order compensation.

SARFAESI and DRT for Banks and NBFCs

Banks and financial institutions have access to specialized recovery mechanisms including SARFAESI proceedings for enforcement of security interest without court intervention, DRT proceedings for adjudication and recovery of debts above ₹20 lakh, and IBC proceedings for resolution of corporate insolvency.

Arbitration and Mediation

Where the underlying agreement contains an arbitration clause, dispute resolution through arbitration can be faster and more efficient than court proceedings. The Arbitration and Conciliation Act, 1996 provides for enforcement of arbitral awards as decrees of civil courts. Mediation under the Mediation Act, 2023 offers another alternative for consensual resolution of debt disputes.

Choosing the Right Strategy

The optimal debt recovery strategy depends on the nature and amount of the debt, the available security, the debtor’s financial capacity and willingness to pay, the urgency of recovery, and cost considerations. A multi-pronged approach combining civil and criminal remedies is often most effective. Professional legal and financial advisory is essential for developing and executing an effective recovery strategy.