Recovery Of Debts

Recovery of Debts as per MSME Act, Civil suit and Negotiable instrument Act

Recovering debts can be a challenging process, but fortunately, Indian law provides several legal avenues to pursue debt recovery. Understanding the key mechanisms under the Negotiable Instruments Act, Civil Suit, and the Micro, Small, and Medium Enterprises Development (MSME) Act can significantly aid creditors in their efforts. Here are the key legal ways for debt recovery in India:

Negotiable Instruments Act:

The Negotiable Instruments Act, 1881, is a crucial legislation governing negotiable instruments such as promissory notes, bills of exchange, and cheques. Under this act, if a cheque is dishonored by the debtor’s bank due to insufficient funds or other reasons, the creditor can initiate legal action.
The process involves issuing a legal notice to the debtor within 30 days of the dishonored cheque. If the payment is not made within 15 days of receiving the notice, the creditor can file a criminal complaint under Section 138 of the Negotiable Instruments Act. This provision ensures that the debtor faces penalties, including imprisonment and a fine, upon conviction.

Civil Suit:

Filing a civil suit is a common method for debt recovery in India. It involves initiating legal proceedings in the appropriate civil court to obtain a decree against the debtor. The creditor must present evidence, such as contracts, invoices, or agreements, to substantiate the debt claim.
Once the court grants a decree in favor of the creditor, the debtor becomes legally obligated to pay the outstanding debt. If the debtor fails to comply with the court’s order, the creditor can seek enforcement through various methods, such as attachment of assets or salary garnishment.


The Micro, Small, and Medium Enterprises Development (MSME) Act, 2006, provides a specialized mechanism for debt recovery concerning MSMEs. Under this act, an MSME can initiate proceedings for the recovery of unpaid dues from a buyer through a fast-track process.
The creditor can file an application before the Micro and Small Enterprises Facilitation Council (MSEFC) to recover the outstanding amount. The MSEFC is responsible for settling disputes arising from delayed payments to MSMEs. Upon verifying the claim, the MSEFC can issue a recovery certificate, which has the same effect as a decree of a civil court. The debtor is then legally bound to pay the debt.

It is crucial for creditors to understand the specific provisions and requirements under each of these acts. Seeking guidance from a qualified legal professional or law firm experienced in debt recovery can ensure compliance with the relevant legal procedures and maximize the chances of successful debt recovery.