Want to know the legal procedure of getting back the money which you lend to your friend? Let us see how to get money back from friend legally. 

Using a promissory note to lend money

The loan given to a family member or a friend is usually unsecured as it is defined by loosely bound terms and conditions. A “promissory note” is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to a certain person, or to the bearer of the instrument. An example of promissory note is, I promise to pay B or order Rs. 500, I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for value received. I promise to pay B Rs. 500 seven days after my marriage with C.

A promissory note includes simple terms and conditions. It does not include specific clauses. It is a legitimate legal document as per Negotiable Instrument Act, 1881 and is accepted by the court in a case of dispute. Sample promissory note attached in Annexure 1

Using a loan Agreement to lend money

Loan agreement consists of multiple terms and conditions such as the purpose of loan, loan amount, loan interest rate, loan term, loan security and any such special terms and conditions as mentioned by the party to an agreement. You are reading Loan agreement makes the formulation of loan more formal. Parties can opt for various clauses rather than just a promise to repay the loan as it is in the promissory note.

A letter should be sent to the debtor containing important details and specifics. This should include information concerning the debt, for instance, how the debt was incurred, the original amount of the debt, when the last payment was made, and the current amount that is due to be paid back.

How to get money back from friend legally

Step1: When can you go for legal remedies

Court can be approached where a person lends money to his friend or relative as a debt subject to repayment by the borrower with or without interest when-

• The sum which is to be recovered is wholly a debt in a fixed amount and not any sort of penalty arising out of any other engagement.
• The debt given is contracted either through a promissory note or loan agreement as explained above.
• This remedy to get back your money from your friend or relative also applies to cases where a third party has given a guarantee on the money which you lent to your friend or relative.

Step2: Court where suit for recovering money can be filed

One can move to High Court, City Civil Court including Civil judge Junior Division court, Court of Metropolitan magistrate, also Court of small causes.

Step3: Ensuring there is no triable issue present

Where a lender of money wants to get his money back from his friend or family he can file a summary suit. How to file a summary suit will be explained later. It is important to ensure that there is no triable issue present, otherwise, leave will be denied.

Triable issue is present in the following cases-

• Where there is a dispute on the promissory note or loan agreement. Example, where there is a dispute between parties. Where a party refuses to accept the fact of borrowing the money.
• Where there is uncertainty on the amount which was given as debt.
• Where the facts are very complex which requires cross-examination of the person lending the money.

When you had given money on a promissory note to your friend for starting a business and friend refuses to return it afterward, in such cases you can recover your money under the procedure as explained here.

Step4 Filing a summary suit

A summary suit consists of two important declarations by the person filing it (here the person who gave the loan), namely

• A specific vow that the suit is filed under the order 37 of CPC, (Summary Suit)
• No relief which is beyond the ambit of the order is asked as a final relief ( Explained later).

Step5 Summoning the defaulter

• After drafting of the summary suit, next step is summoning the defaulter. Annex 2. The following document is required along with summons- a copy of the plaint along with all the annexures.
• After receiving the summon, the defaulter’s appearance is required in the court within 10 days of issuing of summons either personally or through an advocate.
• Defaulter has to file in court an address for service of notice on him.
• In the case where the defaulter does not show up, the allegation in the plaint will be deemed to be admitted by the defaulter naturally and the borrower will be asked to pay the money back with or without the interest as mentioned in their agreement.
• After appearing in the court as per above-mentioned procedure, it is the duty of the borrower to issue a notice to his friend or relative from whom he borrowed money stating that he made his appearance in the court. 
• After such notice, the lender will have to send another summon, including the amount of money given, date on which loan was given and other such details. The lender will have to mention that as per his belief there lies no defense to the suit.
• Then again, a reply to the summon must flow from the borrower’s side within 10 days, that either he accepts the allegation or there exists a defense from his side. It is up to the court to decide on the excuse and whether to allow such defence or not.

Step 6 Court look into these things while granting a leave to defence

• If the borrower satisfies the Court that he has a good defence to the claim on the basis of its merits. He gets a chance to present his case before the court.
• If the borrower has no defense or the defence set up is based on illusions or sham or are practically superficial, then the case will go in favour of the money lender.

Step 7 Where the borrower do not reply to summons or fails to appear before the court

In such cases, Court ordinarily notifies the borrower and provides him with some time to reply. After such notice by court, if the borrower further does not show up, the case goes to the lender. But if the borrower shows up, he has to file further affidavits explaining his cause.

Where the suit is about to get initiated in the civil court, the borrower is asked to deposit certain security before the beginning of any proceeding.

Non-repayment of loan might amount to a Criminal breach of trust

When a person entrusted with a property, dishonestly misappropriates or converts the property for his own use, he commits the crime of criminal breach of trust. Thus, when a person grants a certain amount as a loan to another, he entrusts that property to the borrower and when the borrower misappropriates with the money and does not repay it, in such cases borrower commits the crime of criminal breach of trust. Dishonesty is when, a person uses the entrusted property with an intention of causing wrongful gain to himself or wrongful loss to the owner of the said property. A careful examination is required before going for criminal reliefs as in the majority of the cases of non-repayment of loan, reliefs granted are civil in nature.

Conditions required for criminal breach of trust

• The accused must be vested with the loan amount.
• The accused must dishonestly convert the loan amount as his personal property forever.
• Dishonestly use or disposing of that property.

Non-repayment of loan might amount to Cheating

When a person dishonestly induces another person by deceiving him to either deliver any property to any person, including himself, or to make, alter or destroy the whole valuable security or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, he has committed the offence of cheating.

Non-repayment of loan by a friend will only amount to cheating if the following conditions are fulfilled

• In determining the question it has to be kept in mind that the distinction between mere breach of contract and the offense of cheating is a fine one.
• It depends upon the intention of the accused at the time of inducement which may be judged by his conduct.
• Mere non-repayment of loan cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction that is the time when the offence is said to have been committed.
• Therefore, it is the intention which is the gist of the offence.
• To hold a person guilty of cheating, it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise.
• His mere failure to repay the amount will not amount to cheating.
• If the intention to cheat has developed later on, the same cannot amount to cheating.

Cheating is punishable under Section 420 of the Indian Penal Code, 1860. The offender shall be punished with imprisonment, simple or rigorous, for a term extending up to seven years, and shall also be liable to pay fine.

Dishonest and fraudulent intention must be established to make the defaulter liable of a criminal offence, whether criminal breach of trust, or cheating. Failure to do so would leave the debtor with a recourse to approach a civil court only.

In a case where the defaulter has no intention to repay the debt but has agreed to the terms of repayment with a malicious intention to induce the debtor to part away from his property, he has committed the offence of cheating.

Within how much time can debt be recovered?

The period of limitation for a suit based on a promissory note payable on demand and not accompanied by any writing restraining or postponing the right to sue is three years from the date of the promissory note.  a promissory note in which no time for payment is fixed, the time begins to run from the date of the promissory note.

The period of limitation as three years for the suits for recovery of money lent under an agreement that it shall be payable on demand

Annexure 1

Sample Promissory note

I, Sri____________________________ S/o____________________________              promise to pay Sri_______________________ S/o Sri__________________________ or order, on demand, the sum of Rs________ (Rupees______________________________ only) with interest at the rate of _______ per mensem/ annum from the date of the loan taken, for value received/

Place :

Date: Signature

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