Debt recovery and debt collection are similar terms with one small but a very important distinction. The only difference is who is trying to retrieve a debt. A bad debt recovery is business debt from a loan, credit line, or accounts receivable that is recovered either in whole or in part after it has been written off or classified as a bad debt. Because it generally generates a loss when it is written off, a bad debt recovery usually produces income. In accounting, the bad debt recovery credits the allowance for bad debts or bad debt reserve categories and reduces the accounts receivable category in the books.
Modes of Recovery of Debt
There are various modes of recovery of debt.
Civil Procedure Code
Order 37 CPC is one of the best provisions in the hands of a proposed Plaintiff, wanting to institute a Civil Suit. Broadly it states as under:
Rule 1, Sub-Rule 2 makes it applicable to all suits upon bills of exchange, hundies and promissory notes or the ones in which a Plaintiff seeks only to recover a debt or liquidated demand in money payable on a written contract, an enactment, where the sum to be recovered is a fixed sum of money or in nature of any debt except penalty, a guarantee – in respect of a debt or liquidated demand.
Rule 2 requires an Order 37 Suit to contain among others, a specific averment that the Suit is filed under this Order and no relief which does not fall within the ambit of this Rule is claimed.
Under Order 37, there are two stages of getting the Suit decreed. One is at the stage of Rule 2(3) and the other is at the stage of Rule 2(6).
Rule 2(3) states the procedure for appearance of Defendant which is within 10 days from the service of the summons on him. After entering appearance, the Plaintiff serves on the Defendant summons for judgment within ten days from the date of service supported by an Affidavit; verifying the cause of action, amount claimed and that in his belief there is no defence to the suit.
Rule 2(6) states that in case the Defendant does not apply for a leave to defend, (a) the Plaintiff shall be entitled to judgment immediately or (b) the Court may direct the Defendant to give such security as it may deem fit. Sub-clause 7 states that in case sufficient cause is shown, the delay in entering an appearance or in applying for leave to defend the Suit may also be excused.
Rule 2(5) further states that the Defendant may within 10 days from service of such summons for judgment by Affidavit or otherwise disclose such facts as may be deemed sufficient to entitle him to defend, apply for leave to defend and it may be granted to him unconditionally or upon such terms as may appear to the Court to be just. Further, the proviso indicates that leave to defend shall not be refused unless the Court is satisfied that the facts disclosed do not indicate a substantial defence or that the defence is frivolous or vexatious.
Benefits of a Civil Summary Suit
The real benefit of an Order 37 Suit is that unless the Defendant is able to demonstrate that he has a substantial defence in his case, the Plaintiff is entitled to a judgment immediately. This in layman’s language means that the stages of filing a WS within 30 days and not later than 90 days, a rejoinder thereafter, admission/denial of documents, framing of issues by Court, leading evidence, cross-examination by parties, final arguments and then finally the judgment/decree, in an ordinary Civil Suit gets eliminated. So all that a Plaintiff has to show is that it is a case which falls within the ambit of Order 37. Once summons is issued, the ball is in the Court of the Defendant to show that he is entitled to a leave to defend, on grant of which the Order 37 Suit becomes an ordinary Civil Suit and the Defendant is then directed to file his WS within 30 days.
Insolvency and Bankruptcy Code
Under Insolvency and Bankruptcy Code (IBC) the Creditors (Financial Creditor as well as Operational Creditor) can initiate Insolvency Resolution Process for recovery of debts. The Debtor (defaulter) has to reply to Creditor within 10 days after receiving of notice from creditor. If debtor fails to reply/ fails to pay amount within 10 days then the creditor has right to initiate Corporate Insolvency Resolution Process. The Corporate Insolvency Insolvency Process can be initiated by creditor provided, prior approval is obtained from Adjudicating Authority. According to IBC time limit for completion of Insolvency Resolution Process is 180 days. It can be extended by 90 days but not more than that. The extension for time limit will be granted only once. The recovery of debt under this mode is less time consuming as the issue of recovery of debt is dealt by tribunal.
To consolidate and amend laws relating to the insolvency and bankruptcy
There is fixed time period for the process of resolution of insolvency under this code
It benefits the interest of all stakeholders by maximising the value of assets
Promotes entrepreneurship and makes credit available easily
Under this code there establishment of Insolvency and Bankruptcy Board of India (IBBI).
Persons Who May Initiate Corporate Insolvency Resolution Process
For Corporate (including LLP)
National Company Law Tribunal (NCLT)
National Company Law Appellate Tribunal (NCLAT)
Supreme Court of India.
For Others (individuals, firms)
Debt Recovery Tribunal (DRT)
Debt Recovery Appellate Tribunal (DRAT)
Supreme Court of India.
Company incorporated under Companies Act, 2013
Any company governed by any special act which is in force at that time upto the extent where provisions aren’t inconsistent with IBC, 2016.
Limited Liability Partnership established under Limited Liability Partnership Act, 2016.
Anybody Incorporated under any law for time being in force as the Central Government may, by notification specify in this behalf
Partnership Firm and Individuals.
These all in relation to their insolvency liquidation, voluntary liquidation or bankruptcy, as the case may be.