1.1 Amicable Phase
Accounts Receivable India has a long history of success in the Indian market, collecting debt based on proven practices of negotiation . Our experience in amicable collection has allowed us to develop a series of effective methods, including keeping close contact with the debtor. This allows us to determine the difference between genuine financial distress and a series of excuses preventing the debt’s payment. Our field visits and face-to-face meetings with debtors allow us to deepen our commitment to our collections activities.
1.1.2 Local agent
Accounts Receivable India has local collections agents in many of the major cities in India and several neighboring countries. These local agents are able to conduct field visits to debtors’ homes or business locations, conducting face-to-face meetings if necessary. Our agents are also able to participate in skip trace services for higher levels of success.
The judicial system in India generally awards interest of 6 percent per annum unless otherwise agreed between our client and the debtor. Outside agreements between the creditor and debtor can specify interest amounts of greater or lesser value.
However, Indian debtors are not typically used to paying interest on their debts, especially during the amicable collections process. In recovery situations, therefore, interest is generally not recoverable while the process remains amicable.
1.1.4 Debt collection costs
Debtors in India typically do not pay collection costs during the amicable phase. Our clients are most typically responsible for these costs unless the collection proceeds through the courts.
According to India’s Limitation Act of 1963, the statute of limitations on a debt is three years from the date of the invoice. This gets extended for an additional three years if the debtor acknowledges the debt.
1.1.6 Accepted and most common payment methods
Payments by wire transfer or banker’s check are widely accepted.
1.1.7 Types of entities
Most business in India fall into one of the below categories:
Company owned by a single individual who has unlimited liability to pay debtors.
Governed by the Partnership Act of 1932, this type of business involves two or more people serving as partners, with a maximum of 20 such partners. Those partners have unlimited liabilities for the business.
Limited Liability Partnership (LLP):
Governed by the Limited Liability Partnership Act of 2008, partners in this business have limited liabilities for the business’ debt.
Private Limited Company:
This type of company is defined as a separate legal entity from its shareholders. It can be formed with a little as two members, and the liability of the company is equal to the unpaid value of its share capital.
Public Limited Company:
This type of company requires at least seven founding members. Its liability is limited to the unpaid value of its capital per shareholder.
1.1.8 Sources of information
Physical searches at the debtor’s physical location, public registers, and local sources of news — including from local courts — can be used.
1.2 Retention of title
Retention of title is used when a negative lien is retained and prohibits the debtor from disposing of machinery or goods that are pending payment. Restrictions are also placed on the creation of new charges involving acquisition of new machinery or other goods. In general, though, it is extremely difficult for creditors to reclaim ownership of goods that have already been delivered to a debtor. Thus, most suppliers demand advance payments rather than the use of credit or delayed installments.
1.3 Safeguarding measures
To safeguard a collection, Accounts Receivable India works to obtain an acknowledgement of the debt as well as a promise to pay either in full or in installments. A lien on supplied goods may also be pursued as a way to ensure payment. A bank guarantee may also be pursued.
1.4 Legal Procedures
Accounts Receivable India has experienced a high rate of success by using amicable recovery methods to acquire payment on a debt. There are some cases, however where legal action must be pursued instead so that a court can ensure payment via successful outcomes.
Indian legal proceedings can take a rather long time, and initiating such proceedings should depend on the facts of particular case. The process can begin immediately after the amicable collection process fails, and it requires no prior notification to the debtor. It is, however, required to issue a prior notification in the case of winding-up proceedings.
1.4.2 Legal System
India’s legal system is split into several tiers. The most powerful court in the country is the Supreme Court of India. Below that are 21 High Courts, each assigned to a specific state or geographic region. Below this level are District Courts and Magisterial Courts of Second Class.
1.4.3 Required documents
Before filing a legal action in order to recover a debt, Accounts Receivable India requires the following documentation in order to adequately prove the case:
- Power of Attorney document, signed and notarized by the client
- Sales contracts
- Purchase orders
- Pro forma and commercial invoices
- Bills of lading
- Account statements
- Relevant correspondence between the client and debtor
- Any other miscellaneous supporting documents as requested by our attorneys
1.4.4 Legal dunning procedure
A recovery proceeding is brought before the court and filed against a debtor in the jurisdiction of the court where the debtor’s physical address is located. The objective of this proceeding is to collect the debt, though this is often a protracted process in India and takes between four and eight years to fully finish. The creditor’s representative must appear before the court for a deposition, and this maybe required several times over the course of the trial. It should be noted that this type of legal procedure is far more expensive than a winding-up proceeding, and it requires a large court fee to be deposited before the court. Different courts charge different rates, and those rated are calculated based on the amount of the debt.
Creditors should keep in mind that all documents filed with the court must be original, not copies.
A lawsuit is filed by the creditor before the court against the debtor with the sole objective of recovery any owed claim amount. A preliminary hearing is the first step in the process, after which the court will issue a notice to the debtor about the pending legal proceeding. The debtor then appears before the court and files a written reply concerning the lawsuit. An evidence stage then commences; the debtor and creditor must both be deposed before the court as part of this process. Arguments then proceed and, after they conclude, a judgment is issued in favor of the either the creditor or the debtor.
During a winding up proceeding, the judge issues a notice to the debtor after the preliminary hearing has finished. They are then able to file a reply. After all pleadings have completed, the judge hears arguments from both sides of the case and may appoint a liquidator. The court will then direct the notice to be published publicly in a local newspaper and invites creditors and shareholders of the company to either support or object to the winding up proceeding. After this hearing, the court passes the order. While this process is intended to “wind up” a debtor company, it’s often the case that the debtor pays the debt and invalidates the proceeding, ending things in favor of the creditor in an amicable fashion.
Any part involved in a legal proceeding who has been adversely impacted by the court’s decision can file an appeal against an order or judgment with an appellate court. The amount determined by the first court’s decision determines the amount of the appeal that can be requested. If the appeal is directed to the High Court, it must be filed within 90 days after the original decision and decree from a lower court. For courts other than the High Court, the appeal must be filed within a shorter deadline of 30 days.
The costs of legal proceedings in India vary on a case-by-case basis, making estimation virtually impossible. The following costs are part of the process:
- Court fees, which vary per court
- Attorney fees
- Processing serving of court documents to the debtor
- Drafting costs paid to attorneys
- Publication costs
- Miscellaneous expenses
1.4.8 Expected timeframe
Winding up proceedings take between two and four years. Recovery lawsuits last from between four years to a maximum of eight years.
1.4.9 Interest and costs in the legal phase
The judge will determine at his or her discretion whether or not interest will be awarded as part of the judgment amount. The same is true of other costs incurred by the creditor during the process. Debtors can be instructed by the court to pay both costs directly to the creditor.
The court’s decree can be enforced by delivering property to the creditor as specified in the decree itself. This is done by attachment and sale, or by sale without attachment. It can also be accomplished by the arrest and detention of the debtor in a civil prison, or in a different manner that best suits the needs of the creditor and meets the demands of the decree. A decree’s demands are executed by filing a petition for execution with the court. This must be done within 12 years from the date of the decree itself. This period lasts between two and four years.
Any entity seeking to recover costs via attachment of property must file an application stating a full inventory of the property to be attached. This application must contain a reasonable description of the property.
1.6 Insolvency Proceedings
India’s bankruptcy laws are more focused on a rehabilitation of the company’s debt rather than on discharging those debts and liquidating the entity entirely. To that end, the country’s professionals and legal staff look for ways to pay off debt, rehabilitate the company, and return it to a sound fiscal position.
The follow options exist in India for those companies pursuing insolvency or restructuring:
- Winding up proceedings or liquidation in accordance with the Companies Act of 1956
- Arrangement or compromise schemes under the same Companies Act of 1956
- Restructuring of debt-burdened companies whose losses exceed their net worth. This is governed by the Sick Industrial Companies Act of 1985
A winding up proceeding, also known as liquidation, seeks to satisfy a company’s debts by using its assets for distribution to creditors and members. This is typically done not for corporate rescue, but for corporate restructuring. Winding up proceedings are carried out by the courts; other insolvency efforts are overseen by the Board for Industrial and Financial Reconstruction.
1.6.3 Required documentation
Insolvency and restructuring proceedings require the following documentation to proceed:
- Power of Attorney, signed and notarized by the creditor
- Sales contractors
- Commercial and pro forma invoices
- Purchase orders
- Bills of lading
- Account statements
- Relevant correspondence between creditors and debtors
1.6.4 Expected timeframe and outcome
Winding up proceedings typically take between two and four years. Rehabilitation of a failing corporate entity generally takes longer, however, stretching to between four and five years. In more complex cases, this process can extend to as many as seven years.
As always, the duration and outcome of these proceedings depend on the company’s assets and the amount of its debts.
1.6.5 Limited Companies
Refer to section 1.6.2.
1.6.6 Unlimited Companies/individuals
The Provincial and Presidential Insolvency act regulates the insolvency proceedings for entities that have not been incorporated in India. This process is more prolonged than other proceedings.
1.7 Arbitration and Mediation
Arbitration begins if there is an arbitration clause between the debtor and the creditor. These procedures are similar to court proceedings, but they enjoy less stringent laws and regulations. These proceedings are legally binding. A claim is filed by the creditor, and the debtor is permitted to reply. After that reply, the case’s arbitrator will ask both parties to present evidence and witnesses to prove their side of the case. After hearing both sides, the arbitrator declares a decision and reward. It is then enforced against the debtor.
Mediation proceedings can also occur, allowing parties to resolve disputes amicably. An independent and unbiased mediator oversees this process and allows the parties to negotiate an agreeable settlement or resolution. Courts in India typically prefer to refer cases to the mediation process before proceeding with a lawsuit.To get started today, call us at321-710-3530 to speak with an associate