HOW TO RECOUP YOUR MONEY AS PER INDIAN LEGAL SYSTEM
"THE QUEST OF A COMMON
MAN TO RECOUP THEIR MONEY IN THE INDIAN LEGAL SYSTEM”
Sidhant Malik, Advocate
Supreme Court of India
Mob:7011490440
OVERVIEW:
Although
"the law" might seem abstract and disconnected from daily life, it
actually underpins many of your everyday activities. Whether you're dealing
with a traffic ticket, seeking a replacement for a faulty toaster from a local
store, fulfilling jury duty, testifying in an accident case, challenging a road
widening project near your home, addressing issues like prayer in schools or
abortion, ensuring a will is executed, or filing an income tax return each
year, all of these situations are governed by the law. So, what exactly is the
law, and where does it originate?
WHAT IS LAW?
It is possible to describe law
as the body of official rules and regulations, generally found in
constitutions, legislation, judicial opinions, and the like, that is used to
govern a society and to control the behaviour of its members, so Law is a
formal mechanism of social control. Legal systems are particular ways of
establishing and maintaining social order.
RECOVERY
OF MONEY
The recovery of
money is a crucial aspect of any legal system, as it ensures the enforcement of
financial obligations and protects the rights of creditors. In the Indian
context, the legal system provides various mechanisms and laws to facilitate
the recovery of money, addressing the challenges associated with defaulting
debtors and non-performing assets. This article aims to analyze the Indian
legal system for the recovery of money, exploring the relevant laws, procedures,
and their effectiveness.
CHAPTER 1
CIVIL SUIT FOR RECOVERY OF MONEY
OVERVIEW
The civil suit for recovery of money is a legal recourse available to individuals or entities seeking to obtain the payment of a debt or the recovery of a specific sum of money owed to them. This chapter will provide an introduction to the civil suit process, outlining the key elements involved in initiating and pursuing a legal action for the recovery of money, including the relevant sections of law.
INTRODUCTION
TO CPC
Code of Civil Procedure, 1908 (hereinafter referred to as “CPC”) is a legal framework enacted to govern the administration of civil proceedings by means of laying the procedural law to be followed across the India. It aims at establishing uniform practice and procedures in civil cases throughout the country.
It is interesting to note here that unlike other legislations like Indian Evidence Act, 1872; Limitation Act, 1963, Hindu Marriage Act, 1955; The Court Fess Act, 1870, etc., the CPC is not followed by the term “Act” rather the title is preceded by the term “Code”. It is so because CPC is an amalgamation of various laws arranged in a way to prevent overlapping and hence, often times referred to as a “Collated Code”.
RELEVANT
SECTIONS
The following
sections of the Code of Civil Procedure, 1908 are relevant to civil suits for
recovery of money in India:
Ø Section 2(1)(c) of the CPC defines a "plaintiff" as any person who institutes a suit or other legal proceedings. In a civil suit for recovery of money, the person or entity owed the money will be the plaintiff.
Ø Section 2(1)(s) of the CPC defines a "defendant" as any person against whom a suit or legal proceeding is instituted. The person or entity alleged to owe the money will be the defendant in a civil suit for recovery of money.
Ø Section 9 of the CPC confers jurisdiction on civil courts to try all suits of a civil nature unless barred by any other law. This section establishes the authority of the civil court to hear and decide civil suits for recovery of money.
Ø Order VII of the CPC provides the rules and procedures for drafting and presenting a plaint, which is the document filed by the plaintiff to initiate a civil suit. The plaint must contain specific details, including the nature of the claim, the relief sought, and the amount of money being claimed.
Ø Order VIII of the CPC lays down the rules governing the written statement, which is the response filed by the defendant to the plaintiff's plaint. The written statement should address each allegation made in the plaint and state the defendant's defenses and counterclaims, if any.
Ø Order XXXVII of the CPC deals specifically with suits relating to recovery of money under a negotiable instrument, such as a promissory note or a bill of exchange. This order provides for a summary procedure, enabling a swift resolution of such cases.
Ø Section 34 of the CPC pertains to the power of the court to award interest on the amount claimed in a suit for recovery of money. The court may grant reasonable interest from the date of the suit until the amount is paid, according to the circumstances of the case.
Ø Section 35 of the CPC grants the court the discretion to award costs to the successful party in a civil suit. The court may order the losing party to pay the costs incurred by the winning party, including attorney's fees and other expenses.
INITIATING
THE LAWSUIT
To initiate a civil suit for recovery of money, the plaintiff must file a complaint or a similar pleading with the appropriate court. The complaint outlines the relevant facts of the case, the legal basis for the claim, and the relief sought. It is important to ensure that the complaint includes all necessary details and adheres to the procedural requirements of the jurisdiction. Order VII provides the format and contents of the plaint, including the necessary details to be included in the document. Order VIII outlines the procedure for filing a written statement by the defendant, admitting or denying the allegations made in the plaint.
PROCEDURAL STEPS
1. Drafting and filing the plaint: The plaintiff prepares a plaint containing relevant details and files it in the appropriate civil court.
2. Issuance of summons: The court issues summons to the defendant, notifying them of the lawsuit and the date of the hearing.
3. Written statement: The defendant files a written statement responding to the allegations made in the plaint.
4. Examination and cross-examination of parties: The court may conduct an examination and cross-examination of the plaintiff and defendant to gather evidence and ascertain the facts of the case.
5. Presentation of evidence: Both
parties have the opportunity to present evidence, including documents,
witnesses, or any other relevant materials, to support their claims or defences.
6. Arguments and final submissions: After the presentation of evidence, the plaintiff and defendant, or their respective legal representatives, present their arguments and make final submissions before the court.
7. Judgment: The court examines the
evidence, arguments, and legal provisions and delivers a judgment. The judgment
determines the rights and obligations of the parties and may include an order
for the recovery of the money owed.
8. Execution of the judgment: If the defendant fails to comply with the judgment voluntarily, the plaintiff can initiate the execution process. This involves seeking the court's assistance in enforcing the judgment and recovering the money owed through various means, such as attachment of property, garnishment of wages, or other available legal remedies. Order XXI provides the procedure for the execution of decrees, including the modes of execution, the powers of the court in executing the decree, and the remedies available to the claimant to recover the money owed.
RELEVANT
CASE LAWS
1.
M/s. Afcons Infrastructure Limited v.
Cherian Varkey Construction Co. (P) Ltd.[1]:
In this case, the Supreme Court held that in a civil suit for recovery of money, interest on the outstanding amount can be awarded from the date of the cause of action until the date of the decree. The court stated that the claimant is entitled to reasonable interest, which can be calculated based on the prevailing market rate.
2.
United Bank of India v. Satyawati Tondon[2]:
This
case discusses the limitation period for filing a recovery suit under Section
19 of the CPC. The Supreme Court held that the three-year limitation period for
filing a suit for recovery of money starts from the date on which the right to
sue accrues.
CHAPTER-2
ARBITRATION PROCEEDINGS FOR
RECOVERY OF MONEY
OVERVIEW
Arbitration is an alternative dispute resolution mechanism widely used in India for the resolution of commercial disputes, including those related to the recovery of money. This chapter provides an introduction to arbitration proceedings for the recovery of money in India, highlighting relevant sections of the law and a notable case.
LEGAL
FRAMEWORK
The primary legislation governing arbitration proceedings in India is the Arbitration and Conciliation Act, 1996 (the Act). The Act establishes the legal framework for conducting arbitration, including the enforcement of arbitral awards.
RELEVANT
SECTIONS
The following
sections of the Arbitration and Conciliation Act, 1996 are relevant to
arbitration proceedings for the recovery of money in India:
Section
7: Section 7 of
the Act defines the "arbitration agreement" as an agreement by the
parties to submit their disputes to arbitration. It sets out the essential
requirements for a valid arbitration agreement, including the mutual consent of
the parties.
Section
9: Section 9 of
the Act empowers the parties to seek interim measures from the court before or
during arbitration proceedings. This section allows a party to apply for
various interim measures, including the preservation, custody, or sale of
property, securing the amount in dispute, or obtaining injunctions.
Section
17: Section 17
of the Act deals with the interim measures that an arbitral tribunal may grant
during the arbitration proceedings. It provides the tribunal with the authority
to order interim relief, such as the preservation, custody, or sale of
property, securing the amount in dispute, or granting injunctions.
Section
31: Section 31
of the Act governs the form and content of arbitral awards. It stipulates that
the arbitral award must be in writing and state the reasons upon which it is
based. The award must also specify the amount, if any, to be paid by one party
to another.
Section 34: Section 34 of the Act provides for the setting aside of arbitral awards. It sets out the limited grounds on which a party can challenge an arbitral award, such as the lack of a valid arbitration agreement, the violation of public policy, or the arbitral tribunal exceeding its jurisdiction.
PROCEDURAL
STEPS IN ARBITRATION PROCEEDINGS
Appointment of Arbitrator(s): The parties agree on the appointment of an arbitrator or a panel of arbitrators to adjudicate the dispute. If the parties fail to agree, the Act provides mechanisms for the appointment of arbitrators by the court or designated arbitral institutions.
Exchange of Written Submissions: The parties submit their written statements of claim and defense, setting out their respective positions and arguments regarding the recovery of money.
Conduct of Arbitration Proceedings: The arbitration proceedings are conducted according to the agreed-upon rules or procedures. The parties present their evidence, examine witnesses, and make oral arguments before the arbitral tribunal.
Arbitral Award: Upon completion of the proceedings, the arbitral tribunal issues an arbitral award. The award determines the rights and obligations of the parties, including the recovery of money owed.
Enforcement of the Award: Once the arbitral award is issued, either party can seek its enforcement in accordance with the provisions of the Act. The award can be enforced by filing an application before the appropriate court, which will examine the award's validity and enforceability.
Interest on the Award: The arbitral tribunal has the power to award interest on the outstanding amount, including pre-award and post-award interest. The interest rate and the period for which interest is awarded are determined by the tribunal based on the facts and circumstances of the case.
Challenging and Setting Aside an Award: There are limited grounds on which a party can challenge or seek to set aside an arbitral award. These include issues such as the validity of the arbitration agreement, procedural irregularities, lack of jurisdiction, or violations of public policy. The court has the authority to set aside or refuse enforcement of an arbitral award if any of these grounds are established.
Applicability of Limitation Act: The Limitation Act, 1963, prescribes a time limit within which a party can initiate legal proceedings. In the context of the recovery of money through arbitration, the Limitation Act is applicable, and a claimant must ensure that their claim is within the prescribed limitation period.
RELEVANT
CASE:
1. Oil & Natural Gas Corporation Ltd. v.
Western Geco International Ltd.[3]:
In this case, the
Supreme Court of India held that an arbitral award for the recovery of money
can be enforced as a decree of the court under the provisions of the
Arbitration and Conciliation Act, 1996. The court emphasized that the
enforcement of an arbitral award is binding and can be executed like a court
decree.
2. National Insurance Company Limited v.
Boghara Polyfab Pvt. Ltd.[4]:
In this case, the Supreme Court of India held that an award for recovery of money can be enforced as a decree of the court, and the award-holder can initiate execution proceedings for recovery.
3. Sundaram Finance Ltd. v. NEPC India Ltd.[5]:
The Bombay High Court held that a party seeking recovery of money through arbitration can also claim damages, in addition to the principal amount. The court clarified that the arbitral tribunal has the power to award damages as a remedy for the breach of contract or any other legal claim arising from the dispute.
4. McDermott International Inc. v. Burn
Standard Co. Ltd.[6]:
The Supreme Court
held that an arbitral award for the recovery of money can be challenged only
through the limited grounds specified under the Arbitration and Conciliation
Act, 1996. The court emphasized the finality of the arbitral award and stated
that challenges to the award should be limited to instances of a manifest
illegality or violation of public policy.
These cases
highlight important aspects of recovery of money in arbitration, including the
enforceability of arbitral awards, the power of the arbitral tribunal to award
interest and damages, and the limited grounds for challenging an arbitral
award. It is crucial to consult legal professionals and refer to the specific
facts and circumstances of each case for accurate interpretation and
application of the law in arbitration proceedings.
CHAPTER-3
COMMERCIAL COURTS ACT, 2015
OVERVIEW
The Commercial Courts Act, 2015 is a legislation in India that aims to expedite the resolution of commercial disputes, including those related to the recovery of money. This chapter provides an overview of the process of recovering money under the Commercial Courts Act, along with relevant sections and case laws. In 2018, the jurisdictional threshold for filing cases in commercial courts was increased to Rs. 3 crore (approx. USD 400,000). This was done to reduce the burden on commercial courts and ensure that only significant commercial disputes are litigated in these specialized forums.
LEGAL
FRAMEWORK
The Commercial Courts Act, 2015 governs the recovery of money in commercial disputes. It applies to commercial disputes above a specified value threshold, as determined by the Act. The Act provides a specialized framework for the expeditious resolution of commercial cases, including those involving the recovery of money.
RELEVANT
SECTIONS
The following sections of the Commercial Courts Act, 2015 are relevant to the recovery of money:
Section 2(1)(c): Section 2(1)(c) of the Commercial Courts Act defines a "commercial dispute" as a dispute arising out of commercial transactions, including the recovery of money owed under a commercial contract.
Section 7: Section 7 of the Commercial Courts Act provides for the establishment of commercial courts at the district level, as well as commercial divisions in the High Courts. These specialized courts have jurisdiction to hear and decide commercial disputes, including those related to the recovery of money.
Section 9: Section 9 of the Act empowers the commercial court to grant interim measures in aid of arbitration or pending the outcome of any proceedings. This section allows a party to apply for various interim measures, such as the preservation, custody, or sale of property, securing the amount in dispute, or obtaining injunctions.
Section 13: Section 13 of the Commercial Courts Act provides for the procedure of filing a commercial dispute. It sets out the requirements for drafting and filing a plaint, including the particulars of the claim, the relief sought, and the amount of money being claimed.
Section 16: Section
16 of the Act mandates the speedy disposal of commercial disputes. It requires
commercial courts to endeavor to decide the cases within a specific time frame,
ensuring a timely resolution for the recovery of money.
Section 21: Section 21 of the Commercial Courts Act allows for the filing of an appeal against the judgment or order passed by the commercial court. The appeal is to be filed before the relevant appellate forum, as prescribed by the Act.
KEY
PROVISIONS CONCERNING RECOVERY OF MONEY UNDER THE COMMERCIAL COURTS ACT
Jurisdiction
of Commercial Courts:
The Commercial
Courts Act provides for the establishment of commercial courts at the district
level and commercial divisions in High Courts. These courts have exclusive
jurisdiction over commercial disputes, including claims for the recovery of
money, above a specified threshold.
Fast-track
Procedure:
One of the significant features of the Commercial Courts Act is the adoption of a fast-track procedure for the expeditious disposal of commercial cases, including those seeking the recovery of money. The Act imposes strict timelines for various stages of the proceedings to ensure speedy resolution.
Pre-institution
Mediation and Settlement:
The Act emphasizes the promotion of pre-institution mediation for resolving commercial disputes, including claims for the recovery of money. Parties are encouraged to explore mediation as a means of settlement before initiating formal court proceedings. The Act provides for the referral of disputes to court-annexed mediation centers. The Commercial Courts Act encourages parties to explore ADR options for the recovery of money before initiating formal litigation.
Interim
Measures and Summary Judgment:
The Commercial Courts Act empowers the court to grant interim measures such as injunctions, attachment of assets, or appointment of receivers to secure the recovery of money during the pendency of the case. It also provides for the summary judgment procedure, allowing the court to dispose of a claim without a full trial if there is no genuine issue to be tried.
RELEVANT
CASE LAWS
The Commercial
Courts Act has been interpreted and applied in several case laws related to the
recovery of money. Some notable case laws include:
Power
Grid Corporation of India Limited v. Jyoti Structures Limited [7]
This case dealt with a claim for recovery of unpaid invoices and held that the Commercial Courts Act applies to matters relating to the recovery of money arising out of commercial contracts.
Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd.[8]
The Supreme Court observed that the Commercial Courts Act is intended to expedite the adjudication of commercial disputes, including those related to the recovery of money.
The Commercial
Courts Act provides a specialized legal framework for the recovery of money in
commercial disputes. With its provisions for establishing commercial courts,
the Act ensures the efficient and expeditious resolution of such disputes.
Sections such as 2(1)(c), 7, 9, 13, 16, and 21 are particularly relevant to the
recovery of money under the Act.
Through these provisions, parties can seek interim measures, file commercial disputes, and have their cases decided by specialized commercial courts. The Act emphasizes the speedy disposal of cases to ensure a timely resolution for the recovery of money.
Case laws such as
PTC India Financial Services Ltd. v. Biotor Industries Ltd. and IDBI
Trusteeship Services Ltd. v. Hubtown Ltd. demonstrate the application of the
Commercial Courts Act in recovering money owed. These cases highlight the
court's use of interim measures and its commitment to speedy disposal,
providing parties with effective remedies for the recovery of money.
By utilizing the
Commercial Courts Act's provisions and referring to relevant case laws, parties
involved in commercial disputes can navigate the legal process with clarity and
efficiency in their pursuit of recovering money owed.
CHAPTER-4
NEGOTIABLE INSTRUMENTS ACT, 1881
INTRODUCTION:
The Negotiable Instruments Act provides a comprehensive legal framework for the recovery of money through negotiable instruments, including promissory notes, bills of exchange, and cheques. This chapter explores the process of recovering money under the Act, encompassing relevant provisions and significant case laws that guide individuals and businesses in their pursuit of monetary recovery.
RELEVANT SECTIONS & PROCEDURAL STEPS
Notice
of Dishonor:
To initiate the
process of recovering money under the Negotiable Instruments Act, the first
step is to issue a notice of dishonor to the party responsible for payment. The
notice must be sent within a reasonable time after dishonor, stating the nature
of the dishonor and demanding payment within a specified period.
Relevant Provision: Section 93 of the Negotiable Instruments
Act, 1881.
Section 93 states that when a negotiable instrument is dishonored by non-acceptance or non-payment, the holder must give notice of dishonor to all parties whom the holder seeks to make liable. The notice must be given within a reasonable time after dishonor, and the holder may also require payment of the amount due along with any expenses incurred.
Presentment
for Payment:
To recover money
under the Negotiable Instruments Act, the negotiable instrument must be
properly presented for payment to the party liable for payment. Presentment
should be made within a reasonable time from the date of the instrument and
during business hours, unless the instrument states otherwise.
Relevant Provision: Section 64 of the Negotiable Instruments
Act, 1881.
Section 64 stipulates that when a promissory note or a bill of exchange is payable on demand, it must be presented for payment within a reasonable time after its issue. In the case of a cheque, it must be presented for payment within a reasonable time of its issue or the date mentioned on it.
Filing
a Suit:
If the party
responsible for payment fails to honor the negotiable instrument even after
notice and presentment, the next course of action is to file a civil suit for
recovery. The suit should be filed within the prescribed limitation period,
which is typically three years from the date of dishonor.
Relevant Provision: Section 118 of the Negotiable
Instruments Act, 1881.
Section 118
establishes that the holder of a negotiable instrument that has been dishonoured
must bring a suit for recovery within three years from the date of dishonor.
After the expiration of this period, the right to recover the amount specified
in the instrument becomes time-barred.
Relevant Provisions:
Sections 30, 31, and 35 of the Negotiable
Instruments Act, 1881.
Section 30 states that the maker of a promissory note and the drawer of a bill of exchange or cheque are primarily liable for payment. Section 31 establishes that the liability of the endorser arises when the instrument is dishonoured, and subsequent parties may be held liable in the order of their endorsement. Section 35 provides that if the instrument is dishonoured, the holder may proceed against any party who is liable to him.
Dishonour
and Compensation:
In the event of
dishonor, the party entitled to receive payment can claim compensation for any
loss or damage suffered due to the dishonor. This compensation may include the
amount due under the instrument, interest, expenses incurred, and legal costs.
Section
119 of the Negotiable Instruments Act, 1881.
Section 119 empowers
the holder of a dishonoured negotiable instrument to claim compensation for any
loss or damage suffered due to the dishonor. This compensation may extend to
the amount due under the instrument, along with interest, expenses incurred in
noting, protest, or other requisite steps, and legal costs.
Section 138 of the Negotiable
Instruments Act, 1881 (often abbreviated as NI Act) in India deals with the
offense related to dishonour of a cheque.
Section 138 of the NI Act addresses the scenario where a cheque issued by a drawer (the person who writes the cheque) is dishonoured due to insufficient funds or if it exceeds the amount arranged for by the drawer. If a cheque is dishonoured, the drawer can be held liable for criminal prosecution under this section.
Timeline:
Cheque Dishonour:
Day 1 (Dishonour occurs)
Notice to Drawer: Within
30 days of dishonour
Payment by Drawer: Within
15 days of receiving notice
Filing Complaint: Within 1 month from the end of the 15-day payment period
RELEVANT
CASE LAWS:
M/s.
Accel Transmatic Ltd. v. M/s. S & S Industries and Enterprises Pvt. Ltd.[9]:
The Supreme Court clarified that a suit for recovery of money based on a dishonored negotiable instrument can be filed in a civil court, and it is not barred by the provisions of the Negotiable Instruments Act.
K.
Bhaskaran v. Sankaran Vaidhyan Balan[10]:
The Supreme Court held that the drawer of a dishonored cheque can be held liable for the recovery of the amount due under Section 138 of the Negotiable Instruments Act, provided certain conditions are met.
M/s.
Hindustan Agencies v. M/s. Habibullah Ahmad & Ors.[11]:
In this case, the Supreme Court of India clarified the scope of liability for recovery of money under the Negotiable Instruments Act. The court emphasized that the drawer of a dishonoured cheque is liable to pay the amount mentioned in the cheque to the payee, and the provisions of the Act can be used for recovery.
Recovering money
under the Negotiable Instruments Act requires adherence to the prescribed legal
procedures. By following the provisions of the Act, issuing proper notices,
presenting the instrument for payment within a reasonable time, and filing a
timely civil suit, individuals and businesses can pursue their rightful
monetary recovery.
In the Indian legal system, several other laws are
employed for the recovery of money and assets, including:
Ø The Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest (SARFAESI) Act, 2002,
Ø The Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006,
Ø The Insolvency and Bankruptcy Code (IBC), 2016, and
Ø The Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
These laws provide frameworks for addressing financial
disputes and recovering dues through various legal mechanisms.
CONCLUSION:
The Indian legal system for the recovery
of money involves various law as above mentioned. Legal system faces challenges
such as delays, procedural complexities, inadequate infrastructure, and lack of
coordination. However, through the adoption of measures to simplify procedures,
establish specialized tribunals, strengthen infrastructure, promote alternative
dispute resolution, provide training and capacity building, and create public
awareness, the efficiency of the system can be significantly improved. By
enhancing the efficiency of money recovery, the Indian legal system can better
protect the rights of creditors, expedite the resolution process, and
contribute to the overall economic development of the country.
Comments
Post a Comment