Justice Failing For “Entrepreneurs” In Recovery Of Money, Need Change

Economy is run by joint partnership between Laws and Business and if there is any non-performance by either Party i.e., Laws and or Business, there is no way of expecting any Economy to bloom. Businesses are performing their role but Laws are somehow failing to perform their role. There is no hidden fact that on an average a case specially Civil Suit takes around 3 years to close and then there is appeal to appeal to appeal and appeal and one wins the matter, then following another bunch of legal proceedings such as Execution of Decree and in that appeal to appeal. The aggrieved party as such lose the hope of claiming the money and this is where the economy is blocked due to non-payment taking the shelter under various laws and on that more confusing is the Judgement at all levels which is precedent.
There is no doubt that business runs on credit basis and hence recovering will be an issue at all the time and infact recovering is the biggest issue being faced by Entrepreneurs and this is where enactment of Insolvency and Bankruptcy Code came as a little help to market (not exactly as this has also throw the operational debtors and decree holders having no scope to claim). There is no doubt that Delayed Payment has been and is the biggest problem majority of the business entities are facing and there are very less companies who pay to its vendors in time. This delay in payment to Business Owners creates a huge financial problem as due to this the money is stuck and the Business Owners are not able to use the money for business growth and are stuck due to less finance and infact sometimes this money becomes claimable money and for this such business entities have to approach Court or Forum for recovery and in India to recover the money as such is big headache from legal point of view due to lengthy and more lengthy procedure and also a Litigation is a costly affair. One has to understand that in India Recovery of Money from business point of view is biggest problem and on that laws taking care of recovery of money is biggest headache. First let us understand the term “Recovery of Dues”. The term “Recovery of Dues” in commercial transactions means any dues which is not paid by the goods receiver/services Availer which he/she/they is/are legally liable to pay but does not pay for reasons not known to recipient and since no payment is made the process is taken to call for outstanding dues and this process of taking steps to recover outstanding dues is most of times and infact is termed as “Recovery of Dues”. The term “Recovery of Dues” basically also relates to the recovery proceedings taken by Banks, NBFC, Societies, etc but it may or not be the outcome of commercial transactions. Here, the Recovery of Dues is arising out of commercial transactions
Under Indian Laws, following are the modes of recovery:
  1. Criminal Summary Proceedings for Cheque Dishonour/Bouncing Cases under Section 138 to Section 145 of Negotiable Instrument Act, 1881 (As Amended)
  2. Summary Suit (Order 37) under Civil Procedure Code
  3. Regular Civil Suit under Civil Procedure Code
  4. Recovery Civil Proceedings under The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015
  5. Insolvency Petition under Insolvency and Bankruptcy Code (reading with Winding Up under Companies Act, 2013)
  6. MSME Arbitration under Micro Small Medium Enterprises (MSME) Act (Governed by Arbitration and Conciliation Act, 1996, as amended)
  7. Contractual Arbitration under Arbitration and Conciliation Act, 1996 and its Rules or Rules as chosen of any Institution which has their own methods of conducting Arbitration Proceedings.
  8. Private Criminal Proceedings under Criminal Procedure Code read with Indian Penal Code
The reading of above remedies gives us the feeling that there are various laws to tackle the recovery of money and out of all the best remedy today is MSME Recovery Forum which gives the guarantee of no limitation as all as the award holder being taken as secured creditor under Insolvency and Bankruptcy Code. However, the legal fact is that the aggrieved party has to avail the either of the legal remedy to claim their money back and on that the process takes around a year in any remedy and post that the biggest issue comes is there is no payment being made by the debtor even after the Decree. Firstly, with enactment of Insolvency and Bankruptcy Code, the whole purpose of availing the legal remedy system goes bad as even if they are won, they are not taken as secured creditor in the event the debtor goes insolvent and assuming they are not insolvent, then the only option left with aggrieved party is to file Execution of Decree, if debtor has not filed an appeal. The proceedings in Execution of Decree are not difficult but a huge complexity and never ending appeal to appeal and interlocutory orders. The biggest query for any Business owners ask to any lawyers is that “what is the law to punish such person who does not pay even after decree and that too has money”, the reply is we can only try legally which is too costly and this is where the recovery agents comes in picture and dalal who has made a good market by taking helps of their resources in government bodies and offices.
To make Business Owners feeling no hope to recover the money, in the case Kalidindi Rama Raju Vs Vijaya Bank (Nationalised) With … on 9 July, 2001 (Andhra High Court), the Court came to the conclusion that while ordering arrest and detention of judgment debtors the following principles have to be borne in mind:
  • Passing cryptic orders not based on reasons have to be avoided.
  • Courts are expected to be cautious while making order of arrest in execution of decree since it involves personal liberty.
  • Proper opportunity has to be given and necessary enquiry has to be made while making an order of arrest.
  • Courts may also examine whether other modes of recovery are available to the decree holder and is it necessary to order arrest for recovery of the amount and whether judgement debtors are wilfully and intentionally neglecting to discharge the decree debts and Courts may examine the relevant circumstances also in this regard.
  • Even while making an order of arrest in default of appearance of the judgment debtors Courts have to prima facie satisfy themselves on the material placed before them that an order of arrest can be made. Courts shall also fix the period for which the judgment debtors are to be kept in detention.
This Judgement will be used by the Defaulter to enjoy the law and avoid the payment and the only option left with the aggrieved party either to settle or to expend on legal costs or better to leave and move ahead. This Judgement from legal aspect is no doubt a good on individual right to liberty but it does shakes the confidence of Business Owners for getting into legal remedy to claim the money.
I have always been of the view that the time has to come to have following steps for recovery of money:
  • All recovery of money be either taken as MSME or Contractual Arbitration via institutional Arbitration upto Rs. 5 Crores and more that this shall go to Insolvency and Bankruptcy Code (if not disputed)
  • Recovery upto Rs. 5 Crores be not allowed for Insolvency and Bankruptcy Code and the defendant shall give the Bank Guarantee of claim amount so that there is a security and Plaintiff shall give Bank Guarantee on the interest part @ 18% on claim amount (in case Plaintiff loses the matter) and probable Arbitration costs. Moment the Award is passed, Bank Guarantee be waived off.
  • Appeal as usual
  • Decree Holder be given the right under COC under Insolvency and Bankruptcy Code
  • Non-Payment of money be taken as Criminal offence one Decree is passed and there is no appeal pending

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