How To · Money Recovery · Debt Default

How to Legally Recover Money from a Defaulting Debtor

Updated for 2026 · Claw Editorial

When someone who owes you money will not pay, India gives you several legal routes, and the right one depends on how the debt is proved, who the debtor is, and how much is owed. Most recoveries start with a formal legal notice, which often gets the money paid without a case. If that fails, your options include a summary suit on a written instrument, a cheque bounce case if a cheque was dishonoured, the Insolvency and Bankruptcy Code for a company or LLP that owes above the threshold, and MSME Samadhaan for a registered small enterprise chasing a buyer. This page explains each route, when it fits, the time limits, and what proof you need, so you pick the fastest path to your money rather than the slowest. It is general information for India, not legal advice. Last verified October 2026.

01Start with a legal notice

A legal notice is a formal written demand, usually through a lawyer, that states the amount, the basis of the debt, and a deadline to pay, with a warning of legal action. It is sent by registered post with acknowledgement due, and often by email too.

Many debtors pay once a notice arrives, because it signals you are serious. Even if it does not work, the notice is useful later: it fixes the demand, records the default, and is a required first step for some remedies such as a cheque bounce case. Keep the notice, the postal receipt and the acknowledgement.

02The summary suit

If the debt is on a written instrument, a promissory note, a bill of exchange, a written agreement, or a clear written acknowledgement of debt, you can file a summary suit under Order XXXVII of the Code of Civil Procedure.

• It is faster than an ordinary suit, because the debtor cannot defend as of right; they must seek the court leave to defend and show a genuine dispute.
• If the debtor has no real defence, the court can pass a quick decree for the amount.
• A money claim must generally be filed within three years of the default under the Limitation Act 1963.

For a plain debt without a written instrument, you file an ordinary money recovery suit, which is slower. This is why written records and acknowledgements matter so much.

03Cheque bounce under section 138

If the debtor gave you a cheque that bounced, section 138 of the Negotiable Instruments Act gives a strong, time-bound remedy:

• On dishonour, send a demand notice within 30 days of the bank return memo, asking for payment within 15 days.
• If the debtor does not pay within 15 days, file a complaint before the Magistrate within one month of that period ending.
• It is a criminal case and can lead to a fine up to twice the cheque amount or imprisonment, which pushes many debtors to settle.

A cheque bounce case and a civil recovery suit can run together, because one is criminal and the other is for the money. The section 138 process is unchanged under the current laws, but confirm the exact steps and timelines against the bare Act.

04The IBC route for companies

If the debtor is a company or an LLP and owes you above the threshold, the Insolvency and Bankruptcy Code 2016 is a powerful route, because it threatens the debtor entity itself:

• The minimum default to trigger the IBC is Rs 1 crore.
• An operational creditor, such as a supplier, sends a demand notice in the prescribed form, and if the debt is undisputed and unpaid, files before the National Company Law Tribunal (NCLT).
• Admission starts the corporate insolvency resolution process, which many debtors act hard to avoid, often paying before admission.

The IBC is not a plain recovery tool and should be used where the debt is genuinely undisputed, because a disputed debt will be rejected. For an individual debtor the IBC individual insolvency provisions are only partly in force, so for individuals the civil and cheque routes are usually the practical ones.

05MSME Samadhaan and other routes

Other routes fit specific situations:

• MSME Samadhaan: a registered micro or small enterprise with a delayed payment from a buyer can file on samadhaan.msme.gov.in, and the Micro and Small Enterprises Facilitation Council can order payment with interest.
• Arbitration: if your contract has an arbitration clause, the dispute goes to arbitration rather than a civil suit.
• Lok Adalat: for a settlement by consent, which is final and binding.
• DRT: banks and specified financial institutions recover above the threshold through the Debt Recovery Tribunal, a route not open to an ordinary creditor.

Match the route to who you are and how the debt arose. A small supplier chasing a buyer, for instance, is often better off with MSME Samadhaan than a civil suit.

06Pick the route and track it

Whichever route you pick, a summary suit or money suit in the civil court, a section 138 complaint before the Magistrate, an IBC petition before the NCLT, or an MSME or arbitration claim, it becomes a matter with a number, hearing dates and orders, and often a separate execution step to actually collect the money. Tracking it in one place keeps you on top of every date.

Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.

Once your case is filed, you can create a FREE Claw account and track the matter across the civil court, the Magistrate court or the NCLT that hears it, by case number, with hearing dates and orders as they are uploaded. Claw covers 9,102 courts, benches and forums, including the NCLT and NCLAT, so there is a real tracking home, and judgment search spans 30 crore+ judgments with Supreme Court decisions from 1950 and High Court decisions from 1990, so you and your lawyer can find how similar recovery matters were decided. Results return in under 5 seconds, and Claw does not train its AI models on your documents. A litigation search can also tell you whether a debtor is already being chased by others before you spend on recovery, which is a risk input, not a verdict, and not legal advice.

07Sources and further reading

• eCourts (civil and criminal case status): ecourts.gov.in
• Insolvency and Bankruptcy Board of India: ibbi.gov.in
• National Company Law Tribunal: nclt.gov.in
• MSME Samadhaan (delayed payment): samadhaan.msme.gov.in
• Claw: clawlaw.in

This page is general information for India, not legal advice. For your own matter, consult a lawyer on the best route.

08Frequently asked questions