Many of the rules and regulations regarding debt collection in India are more or less similar to the rules and regulations that exist in the United States, which are mostly designed to protect the debtor from unnecessary collection practices like harassment and threats towards debtors. The debt collection laws existing in India encourage the debt collection agents to always treat the debtors with courtesy and respect.
One of the major differences between collecting debts domestically and collecting in India is that the laws in India forbid an Indian from collecting a third-party debt from another Indian for a foreign debt. Any international debt collected in India has to be paid directly to the original creditor.
Another debt collection law existing in India is that a statute of limitations of three years is placed on any outstanding debt, thus eliminating the possibility of collecting debts older than three years. There is one exception, that is, any partial payment made to the creditor can extend the statute of limitations for another three years.
Among the most popular methods of business debt collection in India is by filing a Winding Up Petition against the debtor company. Put simply, this is basically asking a court to force the business to liquidate assets in order to repay an outstanding debt.
The enactment of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, in August 2016 is a significant move towards improving the situation. The Act amends the following laws:
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI”);
- Recovery of Debts due to Banks and Financial Institutions Act, 1993 (“RDDBF”);
- Indian Stamp Act, 1899 (“Stamp Act”); and
- Depositories Act, 1996 (“Depositories Act”).
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