Debt Recovery in India: Notice, Suit, MSME and IBC Routes
Unpaid invoices can be chased through six different routes. The wrong one burns months. The right choice depends on who owes you, how much, and whether you are a registered micro or small enterprise. We prepare the ledger, notice and case file. A practising advocate signs the notice and appears for you.
What it is
Debt recovery means getting back money that someone legally owes you: unpaid invoices, a loan you gave, an advance that was never adjusted. The first step is usually a legal notice. If that fails, you choose a forum, and that choice is where most recoveries go right or wrong.
There is no single debt recovery Act for businesses. The routes sit in the Code of Civil Procedure, the Commercial Courts Act, 2015, Chapter V of the MSMED Act, 2006, Section 138 of the Negotiable Instruments Act and the Insolvency and Bankruptcy Code, 2016. Debt Recovery Tribunals under the RDDBFI Act, 1993 are open only to banks and financial institutions.
Who it applies to
You supplied goods or services and were not paid
Traders, manufacturers, contractors and consultants with overdue invoices. A civil or commercial suit works for any amount, and the MSME route may add statutory interest.
You are a micro or small enterprise
If you hold Udyam registration, the delayed-payment provisions of the MSMED Act can give you a faster forum. See Udyam registration if you do not have one yet.
You hold a bounced cheque
A cheque returned unpaid has its own criminal remedy under Section 138 of the NI Act, with short deadlines. Our page on the cheque bounce notice covers it.
Why it matters
The clock runs against you
A suit for money must be filed within three years. A court that sees a late suit must dismiss it, even if the debtor never raises the point.
The route sets cost and speed
In practice, a notice is an inexpensive first step. A summary suit, a Facilitation Council reference or an NCLT application each moves on a different timetable.
Paperwork decides the outcome
Courts decide on records. Clean invoices, proof of delivery and written acknowledgments carry the case.
Documents required
Proof of the debt
- Invoices, purchase orders and the signed contract or quotation
- Delivery challans, e-way bills and receipts
- Ledger account and signed balance confirmations
Proof of demand
- Emails, WhatsApp messages and letters asking for payment
- Any promise to pay or part payment record
- Bank statements showing what was received
Proof of status
- GST and Udyam registration certificates
- PAN and MCA master data of the debtor
- Dishonoured cheques and bank return memos, if any
Choosing the right route
| Route | Best when | Key rule |
|---|---|---|
| Legal notice | Any unpaid dues, as a first step | Drafted for the advocate to sign |
| Cheque bounce, Section 138 | A cheque for a legally enforceable debt bounced | Notice within 30 days of the bank’s information; drawer gets 15 days |
| MSME delayed payment | You are a micro or small supplier with Udyam registration | Payment due within 45 days at most; interest at three times the bank rate, compounded monthly |
| Summary suit, Order XXXVII | Written contract or liquidated demand | Defendant needs leave to defend |
| Commercial suit | Commercial dispute above ₹3 lakh | Pre-institution mediation under Section 12A unless urgent relief is needed |
| IBC, Section 9 | Company debtor, default of ₹1 crore or more | Demand notice, then 10 days; rejected if a dispute already exists |
Banks and financial institutions have two more routes, the DRT for claims of ₹20 lakh and above and the SARFAESI Act for secured loans. A trade creditor cannot use either.
How it works
Reconcile the ledger and list every invoice
We match your books against the debtor’s confirmations and build an aged list of what is due, since when and on what paper. Picture a Faridabad auto-parts supplier with three unpaid invoices from a Gurugram buyer: the list shows which one is nearest to the three-year limit.
Pick the route
We check limitation, the debtor’s status (company, firm, individual, MSME) and the amount, then recommend the forum with your advocate. A Palwal fabricator whose Udyam registration predates the supply would likely start at the Facilitation Council. A client holding a signed contract and a clear invoice may go for a summary suit.
Send the legal notice
We draft it with the invoice schedule and interest claim. The advocate reviews, signs and sends it. See legal notice drafting.
Try settlement or mediation
For a commercial suit without urgent relief, Section 12A mediation is mandatory anyway.
File the case
The advocate files the suit, application or complaint and appears at hearings. We assemble annexures, track dates and keep your records ready for each hearing.
Collect under the order
If you win, recovery continues through execution of the decree or award.
Timelines
Three years to sue
Article 113 gives three years for money suits with no specific period. Price of goods sold and delivered (Article 14) and money lent (Article 19) are also three years.
A written acknowledgment resets the clock
Under Section 18 of the Limitation Act, a signed written acknowledgment of the debt made before expiry starts a fresh period. Part payment does the same under Section 19.
Short windows on special routes
Cheque bounce: 30 days to send notice, 15 days for the drawer to pay, one month to complain. IBC: 10 days after the demand notice. MSME reference: decided within 90 days.
What happens if you wait too long
A late suit is dismissed
Section 3 of the Limitation Act obliges the court to dismiss a time-barred suit on its own. No amount of proof saves it.
A special remedy can lapse
The Section 138 route needs notice and complaint within fixed days. Miss either, and the criminal remedy is gone, leaving only the civil one.
A wrong route wastes time
An IBC application is rejected when the debtor already disputes the debt. Here is the catch: the months are gone before you learn that.
Frequently asked questions
How long do I have to file a recovery suit?
Three years in most business cases. Article 113 of the Limitation Act is the general rule, with Article 14 for goods sold and Article 19 for money lent. A signed, written acknowledgment of the debt, made before the period ends, starts a fresh three years under Section 18. A part payment does the same under Section 19.
Can I use the Debt Recovery Tribunal against a customer?
No. DRTs under the RDDBFI Act, 1993 hear claims by banks and financial institutions, for amounts of ₹20 lakh and above since the limit was doubled in September 2018. A trade creditor goes to a civil or commercial court, the MSME Facilitation Council or, for company debtors, the NCLT.
What is the MSME delayed-payment route?
A micro or small enterprise can refer an overdue buyer to the State MSE Facilitation Council. Section 15 of the MSMED Act makes payment due within the agreed time, never beyond 45 days. Section 16 adds interest at three times the bank rate, compounded monthly. Section 18 expects a decision within 90 days. The Supreme Court has held that Udyam registration must exist for the protection to apply, so register before you supply.
Is a legal notice mandatory before suing?
For a private debtor, a notice is not a legal requirement for an ordinary suit, but it is good practice and often settles the matter. It is mandatory under Section 138 of the NI Act and before suing the government under Section 80 of the CPC. In a commercial suit, pre-institution mediation under Section 12A is mandatory unless urgent relief is sought.
What is a summary suit?
It is a faster suit under Order XXXVII of the CPC for debts on bills of exchange, promissory notes and written contracts for a fixed sum. The defendant cannot simply file a defence. They must first obtain leave to defend.
Can I file under the IBC to recover my invoice?
Only against a company, only if the default is at least ₹1 crore, and only after a demand notice with 10 days to pay. If the company already disputes the debt, the application is rejected under Section 9. For smaller or disputed claims, a suit or the MSME route fits better.
Will Taxhint appear in court for me?
No. A practising advocate signs the notice and the pleadings and appears at hearings. We prepare the ledger reconciliation, notice draft, annexures and hearing calendar, and coordinate with the advocate so you deal with one team.
Which records strengthen an unpaid-invoice claim?
Signed contracts or purchase orders, invoices, proof of delivery, ledger confirmations and any message in which the buyer admits the dues. Your GST returns showing the invoice support the record too. We flag gaps early so you can collect missing confirmations while the buyer still responds.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
Government costs depend on the route. A suit carries a court fee set by each state’s court-fees law and based on the amount claimed. The Facilitation Council, Magistrate courts and NCLT have their own fee rules. We quote the exact figure for your route, and advocate fees are agreed separately with the advocate.
Ready to begin?
Share your oldest unpaid invoice and the debtor’s name, and we will tell you which route fits and how much time is left.