Money recovery

An unpaid debt can be pursued in India by a criminal complaint when a cheque has been dishonoured, by a summary suit for a liquidated sum, by an ordinary or commercial suit, and, once there is a decree, by execution. Each has its own clock. Disputes about the underlying contract are dealt with on the page on civil disputes, and recovery by a bank or financial institution through the Debts Recovery Tribunal on the page on banking and debt recovery.

Dishonour of a cheque under section 138

Section 138 of the Negotiable Instruments Act, 1881 makes it an offence when a cheque drawn on an account for the discharge, wholly or partly, of a legally enforceable debt or other liability is returned unpaid because the funds are insufficient or the amount exceeds what the account arrangement allows. The punishment is imprisonment of up to two years, a fine of up to twice the amount of the cheque, or both.

The offence is complete only if every step in the proviso is taken in time.

• The cheque must be presented to the bank within six months of its date or within its validity, whichever is earlier. Since 1 April 2012 the Reserve Bank has directed banks not to pay a cheque presented more than three months after its date.
• The payee or holder in due course must give the drawer a written notice demanding payment within thirty days of receiving information from the bank that the cheque was returned unpaid.
• The drawer then has fifteen days from receipt of the notice to pay.
• If the drawer does not pay, the complaint must be made within one month from the day the fifteen days end, under section 142(1)(b). A court may take cognizance after that month if the complainant shows sufficient cause for the delay.

Cognizance is taken only on a written complaint by the payee or holder in due course, and no court below a Judicial Magistrate of the first class can try the case. Since the amendment of 2015, section 142(2) places the case where the payee's bank branch is, if the cheque was delivered for collection through an account, and otherwise where the drawer's branch is. Section 143 directs summary trial, with sentence limited to one year on conviction in such a trial, and asks that the case be concluded as far as possible within six months of the complaint. The procedure is that of summary and summons trials, which the Bharatiya Nagarik Suraksha Sanhita, 2023 now carries in place of the Code of Criminal Procedure, 1973.

Presumptions, interim compensation and appeal

Sections 118 and 139 raise presumptions in favour of the holder that the cheque was issued for consideration and in discharge of a debt or liability, unless the contrary is proved. A defence therefore usually goes to rebutting the presumption, to the existence of a legally enforceable debt, or to a missed step in the proviso.

Section 143A allows the court to order the drawer to pay interim compensation of up to twenty per cent of the amount of the cheque, once a plea of not guilty is entered in a summary trial or summons case, or on framing of charge in any other case. The section says "may", so the order is not automatic. Payment falls due within sixty days of the order, extendable by up to thirty days for sufficient cause. If the drawer is acquitted, the complainant must repay the sum with interest at the bank rate. Section 148 allows the appellate court, in an appeal against conviction, to order the appellant to deposit at least twenty per cent of the fine or compensation awarded, in addition to any interim compensation paid. The offence is compoundable under section 147.

Summary suits under Order XXXVII

Order XXXVII of the Code of Civil Procedure, 1908 offers a faster civil route for suits on bills of exchange, hundis and promissory notes, and for suits to recover a debt or liquidated demand on a written contract, an enactment or a guarantee. A dishonoured cheque is a bill of exchange, so the holder may sue on it civilly, and a complaint under section 138 and a civil suit on the same cheque are separate proceedings.

The defendant has no automatic right to defend. After service of summons, the defendant must enter appearance within ten days. On a summons for judgment, the defendant has ten days to apply for leave to defend, supported by an affidavit that discloses facts showing a defence. The court can grant leave unconditionally, refuse it, or grant it on conditions such as payment into court or furnishing security. If leave is refused, or the defendant does not apply, the plaintiff is entitled to a decree.

Commercial suits and pre-institution mediation

A money claim that is a commercial dispute under section 2(1)(c) of the Commercial Courts Act, 2015, and is of a specified value of not less than three lakh rupees, goes before a Commercial Court, not the ordinary civil court. The procedure is stricter than the ordinary Code, with fixed timelines for pleadings, a statement of truth, disclosure of documents with the plaint, and summary judgment under Order XIII-A where a claim has no real prospect of succeeding.

Section 12A bars a commercial suit that does not contemplate urgent interim relief unless the plaintiff has first exhausted pre-institution mediation under the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018. The mediation is conducted by the Legal Services Authority authorised for the purpose. It must be completed within three months from the plaintiff's application, extendable by two months with the consent of the parties, and the time spent is excluded when limitation is computed.

A suit is generally brought within three years under the Limitation Act, 1963, counted from when the right to sue accrues; a written acknowledgment of the debt can renew the period.

Execution of a decree

A decree for money is an entitlement, not payment. Execution is by application under Order XXI of the Code, and section 51 lists the modes: delivery of specific property, attachment and sale of property, arrest and detention in civil prison, and the appointment of a receiver. A bank account is attached by a garnishee order, and section 60 exempts certain property from attachment. For a money decree, detention in civil prison needs reasons recorded under the proviso to section 51: that the judgment debtor is likely to abscond or has dishonestly disposed of property, has or has had since the decree the means to pay and has refused or neglected to, or owes the sum in a fiduciary capacity. Inability to pay is not a ground. The period for executing a decree is twelve years under the Limitation Act, 1963.

What the law does not allow

A complaint after the clock has run. Section 138 is not made out if the notice or the complaint is late, unless the court accepts sufficient cause for a late complaint.

A debt that is not legally enforceable. The Explanation to section 138 confines it to a legally enforceable debt or other liability.

Detention for not being able to pay. Civil prison is not available against a judgment debtor who simply lacks the means.