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Money Recovery and Debt Collection in India: Why is it so Difficult?

Issues with Money Recovery: Some of the most common problems with money recovery start from the very inception of the agreement with things like certainty of terms of the agreement, financial background of the parties entering into it, etc. Some of these, the more important and crucial ones are covered below so that the reader can understand and timely avoid these pitfalls.

Problems with Oral Contracts: The problems with Oral contracts is that they are not written down anywhere meaning, there is no paper trail to follow and prove its existence in the event of things going bad. The most basic thing a business owner can do is to avoid entering into oral agreements altogether. This strategy should be quite sound for most situations but what about those instances where the accepted trade practice is oral contracts? For such instances, the best thing to do, is to have witnesses who can attest the existence of such contracts in the event of a breach.

Faulty Written Agreements: One might think that shifting from Oral contracts to written ones might possibly solve all your woes but guess what? Written ones have even more problems. Unlike oral ones where if you can prove the existence of such an agreement, your job is done, but in written ones, that’s just the very beginning of the entire process.The problem mainly with written agreements is that many parties do not have the habit of asking questions about terms and conditions, and that a great majority of contracts are very poorly drafted. Many a times people enter into agreements which turn out to be null and void at the very beginning leading to cancellation of the entire thing and the person who lent the money is left with no recourse. Always ask as many questions as you can before signing something. If something sounds fishy, question it! If you feel something is vague, question it! Questioning something will not only clear your doubts but also keep the opposite party always on their toes and they’ll think twice before trying to cheat you.

Issues with Jurisdiction: Jurisdiction is critical because it tells you where you can or have to go to enforce a certain contract. If a contract is executed in Delhi that specifies the governing jurisdiction as the State of New York, in the event of a breach, almost never would the aggrieved be willing to go to New York to enforce it. As a standard practice, there is almost always going to be a pre-determined jurisdiction governing the agreement. You should look into this particular jurisdiction and adjudge whether it would be favorable for you in the event you need to enforce it. In the rare instances where jurisdiction is missing, law in general says, it shall be the jurisdiction of where the contract is being entered into.

Instances of Cheating: No matter how careful you are, sometimes, things just don’t work out. This may be attributed to two aspects namely (a) Being Acts of God and (b) Being Act of Cheating. For the former, there nothing as party to the contract you can do since it is something which is much beyond the scope of foreseeable outcomes. But, in case of the later scenario breaches can be attributed to the acts of the other party. Figuring something out on the face of it might be a bit difficult so the best thing as a contracting party a person can do is to look into the background of the other party to get a rough idea of the character of the other party and decide accordingly.

Bankruptcy of the Borrower: With cheating out of the way, there is another thing that may happen, i.e., Bankruptcy. Bankruptcy relates to the other party being completely unable to execute the contract due to a complete cash crunch and possible insolvency from his end.The best way to avoid such a scenario is to look into the balance sheets and financial statements of the other party at the point of signing. If things seem sketchy, it’s advisable to either not enter into the contract or to ask for Indemnifiers or Guarantors.

Issues with Corporates: The main problem with corporates is a lot of red-tapism, communication gaps and inefficient management. As a contracting party, a person can have two types of relationships with a corporate. The first being an investor relationship, the second a business relationship. For the former, although the SEBI Act, Securities Contract Regulation Act and the Companies Act lays down fixed timelines, the main problem is that the investor is not aware of his right at the time of signing the agreement The best way to know the rights an investor has is to either go through the SEBI website once or attend any of the SEBI camps aimed at increasing investor education so that the investor can assert his rights and take what is owed to him.For the later bit when there is a business relationship, red-tapism is the primary problem where the best thing to do as a contracting party is to establish a proper person of contact in the higher management and get things done through that person so that, there is minimum confusion and errors due to time lag and communication gaps.

Issues with the Slow Legal System: Let’s face it, the main reason why most business owners do not want to go through the entire court process is due to the painfully slow legal system. The remedy to this is to opt for alternative means in enforcing the contract such as through Legal Notices, F.I.Rs, and Complaining to regulator, etc., before heading to court. Finally, if nothing works, then only the person should head to court to have his matter sorted out. The most effective way to end court proceedings quickly is to go for summary proceedings under Order 37 of the Civil Procedure Code. Summary proceedings are all based on written statements from both parties without any unnecessary trial hearing and this drastically reduces the time lag from filing to judgment.

Expensive Arbitration: If there is an Arbitration clause in the agreement, a court will not entertain the suit. Then the only alternative the aggrieved has is to go for Arbitration. Although Arbitration is a much faster means than litigation, it is a much more costly affair than litigation. The best way to curb Arbitration expenses is to go for Institutionalized Arbitration since the institution have a fixed rate chart and the aggrieved has to pay only the amount which significantly reduces costs.

Expensive Lawyers: Another big reason why people don’t go for Money recovery is because of the rates charged by their lawyers. The general trend is that, the aggrieved is exploited into paying much more than he should be due to his lawyer. The easiest way to remove such difficulties is to contact Legal aggregators and such services who maintain a database of qualified and cheap lawyers willing to quickly settle their matters.

Remedies to Such Issues

Once a contract has been breached, the first thing an aggrieved party should do is refer to the contract to check his available remedies. There are a lot of things a person as an aggrieved party can do once a contract has been breached, which are discussed here in brief and in detail at a later chapter in this guide.

Civil Remedies Available: In terms of civil remedies, there are a lot of things an aggrieved party can do ranging from very simple things like sending a legal notice to things like initiating a civil suit for damages or debts due. Civil suits take a tedious amount of time and should be resorted to only when the main relief the aggrieved is seeking is monetary in nature. For more serious consequences, without delay, the aggrieved should opt for criminal remedies.

Criminal Remedies Available: For seeking criminal remedies, the first thing to do is once the jurisdiction is established the agreement is to forthwith file an F.I.R with the local police station having jurisdiction over the matter and set things in motion. Once a sufficient amount of evidence has been gathered through police investigation, a criminal suit should be initiated for quick disposal of the matter.

Out of Court settlements: Finally, for high monetary value contracts, the best way is to settle differences and cut off loses through alternative dispute mechanisms such as Arbitration or Mediation. This is a method which is most effective against corporates as the matter can be resolved very expeditiously without furthering the loses they’d normally have to bear without having to resort to the tedious court process. For Out of Court settlements, the contract needs to specifically speak of Arbitration/ Mediation/ Conciliation or both parties need to agree to it. Without the presence of either, an aggrieved cannot go for this method of Debt recovery.

Laws Currently in Place

The purpose of this chapter is to acquaint the aggrieved with relevant statutory information that he should know in the event there is a breach. One thing to be kept in mind throughout this chapter is that, if the aggrieved is going for a civil suit before a court, he should go for a Summary Suit under Order 37 of the Civil Procedure Code as those are heard and disposed off in a much more expedited manner. This, will in the long term, not only save time but also money and face of both parties. The most relevant provisions of selected statutes that an aggrieved should be acquainted with are discussed herein below.

Contract Act, 1872: The Indian Contract Act, 1872 is the mother law in Debt recovery as all such matters originate from a Contract. There are a number of provisions of this particular statute to be kept in mind while going to file your file your suit before a court of law namely

Section 17: Fraud

Fraud” means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agents,1 with intent to deceive another party thereto his agent, or to induce him to enter into the contract:

the suggestion as a fact, of that which is not true, by one who does not believe it to be true
the active concealment of a fact by one having knowledge or belief of the fact
a promise made without any intention of performing it
any other act fitted to deceive
any such act or omission as the law specially declares to be fraudulent.

This section is applicable when there it is proven by some form of evidence that the breaching party planned to do so all along.

Section 18: Misrepresentation

Misrepresentation” means and includes –

The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true
Any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under him
Causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is subject of the agreement.

This section is applicable when there is a variation in the intended performance of the agreement due to a difference in the intention amongst the contracting parties.

How to Select a Trademark Class?

Before selecting the trademark class for trademark registration, the applicant can reduce the chances of rejection by following these points:

First, the applicant has to identify the nature of the product or business. In this, the applicant has to decide which kind of material or service they are using for their business.
Select the classes according to the nice classification. It has broad categories of trademark classes, which determine in which class your trademark will go.
The applicant can take professional advice, before selecting classes for trademark registration. They will help with choosing the right class and they can also explain the legal protection for the trademark.

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Conclusion

The applicant has to be very clear about the trademark class of goods and service classes, during the registration. The applicant can fill more than one class. It makes more clear about the business and helps to create a unique reputation in the market and their consumer’s minds.

Frequently Asked Questions (FAQs)

How many classes of goods are in a trademark?

According to the Nice classification, there are 45 classes. Class 1 to 34 is listed for the goods class and Class 35 to 45 is listed for the service class.

What is a Class 1 trademark

Trademark class 1 refers to the goods class. It includes all chemicals used in industry, horticulture, powders, adhesives used in industry, etc.

What is a class of goods and services?

Goods and services classes are the categories of the classification of the product or type of the business, which is very important during trademark registration.

How much does it cost to register a trademark in India?

The Govt cost to register a trademark is Rs 4500 in India.

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