Introduction
Debt recovery is an important process in the financial management of individuals and businesses. In India, there are several modes of debt recovery available to creditors, which can be broadly categorized into non-judicial and judicial modes. Non-judicial modes include negotiation, debt settlement, debt consolidation, and sale of assets, while judicial modes include filing a suit, summary suits, and specialized laws such as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Each mode of debt recovery has its own advantages and disadvantages, and it is important for creditors to choose the most appropriate mode based on the specific circumstances of the case. This article will provide a detailed overview of each mode of debt recovery in India.
Debt recovery is an important aspect of financial management, both for individuals and businesses.
Modes of debt recovery in Indian Law
[I] Non-judicial Modes of Debt Recovery
Negotiation: This is the most common and simplest mode of debt recovery, which involves direct negotiations between the creditor and the debtor. The creditor can offer a repayment plan that suits the debtor’s financial situation, and the debtor can agree to pay back the debt in installments.
Debt Settlement: Debt settlement is another non-judicial mode of debt recovery. In this mode, the creditor and the debtor can reach a mutually acceptable settlement agreement, which usually involves a partial payment of the debt amount in exchange for the creditor waiving the remaining amount.
Debt Consolidation: Debt consolidation involves consolidating multiple debts into a single loan. This can help debtors to manage their debt better by reducing the number of payments they need to make and by reducing the interest rate on their debt.
Sale of Assets: In some cases, creditors may seize the assets of the debtor and sell them to recover the debt amount. However, this is a rare mode of debt recovery, and it is typically only used as a last resort.
[II] Judicial Modes of Debt Recovery
Filing a Suit: If the non-judicial modes of debt recovery fail, creditors can file a lawsuit against the debtor in a court of law. The creditor must prove the existence of the debt and the debtor’s failure to repay it. If the court finds in favor of the creditor, it may order the debtor to pay the debt amount.
Summary Suit:Summary suits can be filed by creditors if they have a written agreement or a promissory note with the debtor.
Recovery of Debts Due to Banks and Financial Institutions Act, 1993: This is a specialized law that provides banks and financial institutions with a faster and more efficient mode of debt recovery. Under this law, banks and financial institutions can file a case against the debtor in a Debt Recovery Tribunal (DRT) instead of a civil court.
Cases of Debt Recovery in India
There are numerous cases of debt recovery in India, involving individuals, businesses, banks, and financial institutions. Some of the notable cases of debt recovery in recent years include:
Vijay Mallya: Vijay Mallya, the former chairman of Kingfisher Airlines, was involved in a high-profile debt recovery case with several banks in India. Mallya fled to the UK in 2016, owing over Rs. 9,000 crore to banks, and is currently fighting extradition to India.
Nirav Modi: Nirav Modi, the fugitive diamond merchant, involved in a Rs. 14,000 crore fraud at Punjab National Bank. The bank initiated debt recovery proceedings against; Modi and his companies, and several of his assets, including a luxury yacht and a private jet, were seized by authorities.
Videocon Industries: Videocon Industries, a consumer electronics company, defaulted on its debt of over Rs. 20,000 crore to several banks. The company referred to the National Company Law Tribunal (NCLT) for debt resolution under the Insolvency and Bankruptcy Code.
Essar Steel: Essar Steel, a steel manufacturing company, was involved in a debt recovery case with; several banks, including State Bank of India and ICICI Bank. The case went to the NCLT for debt resolution, and the company eventually acquired by ArcelorMittal.
Amtek Auto: Amtek Auto, an auto component manufacturer, defaulted on its debt of over Rs. 12,000 crore to several banks. The company referred to the NCLT for debt resolution, and its assets eventually acquired by Liberty House Group.
These cases highlight the importance of debt recovery in India and the various modes available to creditors to recover their dues. It also highlights the need for effective debt management and regulation to avoid such cases in the future.
Conclusion
There are several modes of debt recovery available to creditors in India. While non-judicial modes such as negotiation and debt settlement are preferred, judicial modes such as filing a lawsuit and summary suits are also available if the debtor fails to repay the debt amount. It is important for creditors to choose the most appropriate mode of debt recovery based on the specific circumstances of the case.
Written by Priyanka Sharma
Third Year Law Student
JECRC University, Jaipur