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This article has been written by Ayush Tiwari, a student of Symbiosis Law School, Noida. This article aims to provide you with all the information regarding a legal notice for recovery of money which includes, its scope, how to file it, its correct procedure, and other formalities to be fulfilled in filing such notice. 

This article has been published by Sneha Mahawar.

Introduction

Sometimes disputes wind up in court, but you can notify the other party beforehand with legal notice that legal action will be taken against them in case the issue is not resolved at ground level. On several occasions, a person may consider taking legal action against someone or something as a result of some disagreements. Giving legal notice for money recovery is essential before pursuing any legal action against the other party. By delivering such notification, the party who was wronged makes sure that the demand notice was delivered to the party that provided the justification, but the money was not given to the aggrieved party. Additionally, the wronged party has a specific cause of action for a legal remedy because of the unpaid recovery of such money in court. One must include all the details that led to any such dispute in the legal notice. 

What is a legal notice

Sending a legal notice is an initial step in the legal process, and it can also be said that the foundation of practically all legal actions in India is a legal notice. Legal notices are professionally written documents that are sent by the aggrieved party, who might be a person or an entity. It is delivered to warn the receiver of anything that has harmed the sender as a result of the recipient’s actions or inactions. A legal notice lays forth the facts and alerts the receiver to a potential court case, which would be filed if the sender’s complaint goes unmet.

An individual or an entity may get a legal notice notifying them of the potential legal action that may be brought against them. The notice is issued with sufficient time for the party to reply. It acts as a final warning to the recipient and, if disregarded, might result in formal legal procedures.

When is one required to send a legal notice for recovery of money

When a person’s misconduct prevents the owed amount from being retrieved, serving a legal notice to the offending party is the first step in recovering the money.

The legal notice’s significance can also be inferred from the possibility that it will act as a warning to the receiver of the notice that might have, either deliberately or accidentally, caused a problem for the sender. Also, most cases are settled at the early stage of delivering a legal notice to recover money. However, if no decision is made, one can approach the court to pursue a legal remedy to retrieve the unpaid money. A legal notice must demonstrate that you have made a sincere effort to settle the conflict on your own behalf before you submit a complaint to the appropriate court.

Scope of legal notice for recovery of money

This applies to:

  • Every case involves promissory notes and bills of exchange.
  • The claims in which the plaintiff tries to recover money that has been paid to the defendant 
  • Such claims must be supported by evidence of a written agreement or legal provision.
  • A response to this order shall be filed with the Supreme Court, the civil court, or such other court as the Supreme Court may notify.

Documents needed for a legal notice for recovery of money

When preparing a legal notice for money recovery, these relevant documents must always be carefully examined:

  • Affidavit of evidence of money owed or loaned to a friend, relative, etc..
  • An employment contract that specifies the amount your company is to pay you in exchange for your service if money is to be recovered from the employer.
  • Additional supporting documentation that you might use to support your case in a dispute relating to the recovery of money.

The time period for filing a suit for the recovery of money

In India, there is only a three-year window in which one can file a civil recovery claim after the cause of action has arisen. A lawsuit filed after the statute of limitations has passed will not be considered. The grounds for obtaining the exemption must be indicated if the case is filed after the limitation period has passed.

Where should a suit for recovery of money be filed

The ‘jurisdiction’ for filing a lawsuit can be determined by considering the place or area from which the defaulter resides, as well as the pecuniary limit over which the Honourable Court may exercise its authority.

Territorial jurisdiction

The most important factor to consider when bringing a case against a defaulter is whether or not the defaulter is located within the court’s jurisdiction. The geographical parameters of a court’s power are clearly stated and listed under this form of jurisdiction. As a result, the Court is not permitted to assume or exercise any authority outside of its jurisdiction.

The following territorial jurisdictions are where a lawsuit may be brought in accordance with the ‘Code of Civil Procedure (CPC), 1908’:

  • where the defendant (the money defaulter) resides,
  • where the defendant operates a business or earns money,
  • where the action’s cause is found (completely or in part).

Pecuniary jurisdiction

The word ‘pecuniary’ has a financial connotation. This kind of jurisdiction aims to determine whether a court of law can hear cases involving that kind of money or quantity. For instance, the pecuniary jurisdiction of the civil courts of Delhi is up to 20 lakh rupees, and above that, it will come under the jurisdiction of the high court. Before beginning the process of bringing a case, the territorial jurisdiction must be considered first, then the pecuniary jurisdiction.

Statutes under which a case can be filed against the defaulter

The Code of Civil Procedure, 1908

The most common method of collecting money is to file a summary lawsuit, as required by Order 37 of the CPC. An important type of law in the hands of a prospective plaintiff who wishes to contest a civil suit is Order 37 of the CPC. The suit can be decreed in two steps in accordance with Order 37. One is in Rule 2(3) stage and the other is in Rule 2(6).

The process for the defendant’s attendance is outlined in Rule 2(3) and must be completed within 10 days after the defendant is served with the summons. After making an appearance, the plaintiff serves the defendant a summons for judgment within ten days of the date of service, accompanied by an affidavit that verifies the nature of the claim, the amount sought, and the absence of any defences, in the plaintiff’s opinion.

According to Rule 2(6), if the defendant does not request permission to defend, either (a) the plaintiff will be granted an immediate judgment, or (b) the Court may order the defendant to provide such security as it might consider appropriate. According to sub-clause 7, if adequate justification is shown, the delay in making an appearance or in requesting leave to defend the case may also be excused.

Therefore, we may conclude that all a plaintiff needs to establish is that their case fits under the purview of Order 37. Once a summons has been issued, it is up to the defendant to establish his entitlement to his right to defend. If this is successful, the Order 37 suit converts into a regular civil suit, and the defendant is then instructed to submit his written statement within 30 days.

The Negotiable Instruments Act, 1881

When a cheque is drawn to fully or partially satisfy a debt or other obligation, and the bank disburses the cheque, Section 138 of the Negotiable Instruments Act, 1881, states the criminal and civil penalties associated with the dishonour of the cheque. In the event that the cheque is not honoured, the drawee’s bank will send a ‘Cheque Return Memo’ describing the cause of non-payment to the drawee’s bank.

The memo and the dishonoured cheque are subsequently given to the drawee by the bank of the drawee. If the drawee thinks the cheque will be honoured if provided a second time, he or she must submit it once again within 3 months of the cheque’s date. However, the drawee has the option to sue the drawer if the cheque bounces.

The purpose of Section 138 of the Act is to penalise the person who intentionally draws a cheque with no intention of cashing it and causes it to bounce. In the case of a dishonest drawer of a cheque, Section 138 of the Act also imposes criminal penalties in addition to civil liability.

The Indian Contract Act, 1872

Section 73 and Section 74 of The Indian Contract Act, 1872 may be used to seek compensation for loss or damage brought on by a breach of contract if a person commits fraud under Section 17, misrepresents under Section 18, or is unable to carry out his or her obligations because of a serious liquidity crisis and possible insolvency. The fundamental idea behind Section 73 of the Indian Contract Act is to evaluate a party’s contractual actions and/or inactions in order to determine the amount of compensation owed to the non-defaulting party as a result of the other party’s nonperformance in terms of putting the non-defaulting party in the same position financially as it would have been if the contract’s promise had been kept. As a consequence, the compensation usually corresponds to the expectation that follows from the fulfillment of the contractual promise.

The Indian Contract Act of 1872, however, qualifies the general principle by stating that in order to be eligible for damages, a loss or damage must have resulted from the breach in the ordinary course of events, or the parties should have been aware that such a loss or damage might occur later when they entered into the contract.

The Indian Penal Code, 1860

The Indian Penal Code (IPC), 1860, provides a variety of provisions that offer remedies to those whose money has been overdue for one reason or another.

The IPC has the following provisions that may be used in certain circumstances:

  • Cheating (Section 415): A person is responsible for cheating if they force another person to give any property to them by fraud or deception. The maximum penalty for cheating is a year in jail, a fine, or both.
  • Criminal Misappropriation (Section 403): When someone dishonestly uses another person’s property for their own use, it is considered a criminal misappropriation. The penalty is up to two years in jail, a fine, or both.
  • Criminal Breach of Trust: (Section 405): When someone dishonestly misappropriates or converts another person’s property for their own benefit, it is considered a criminal breach of trust. Criminal misappropriation and criminal breach of trust are the same, but in this case, the person is entrusted with the property.

The Companies Act, 2013

Under the Companies Act, 2013, a case may be filed if the defaulter is a company. Cases under this can take the form of class actions, in which a certain group of people sue on behalf of a particular class and file a case to recover debts owed to them, or they might include businesses where payments are owed as per a contract.

When a firm fails to distribute dividends to investors against the earnings, the investor may seek compensation by bringing a Section 127 contract enforcement case.

When a third party with a connection to the company complains to the Serious Fraud Investigation Office, Section 212 comes into play. This is another option for filing a petition for winding up.

When a creditor to a business is unable to collect their debts and there is a breach owing to the firm’s non-payment, the creditor may file a petition for winding up under Section 272.  In addition, a lawsuit may be initiated under Sections 447 and 451 to hold any office of the company accountable for fraud or unjustified property withholding.

Various instances where recovery of money arises

Recovery of money from employees

If an employee flees with the money, a civil investigation will be launched and a show-cause notice will be sent to the employee’s home address. If an employee doesn’t respond after receiving two or three of these letters, disciplinary action will be taken against them in accordance with the organisation’s normal procedures or service regulations. This is done in order to provide the employee with an opportunity to refute the accusation that he/she is running away. One can move forward with serving an employee with a legal notice for the purpose of recovering money if it is established that they have left your organisation. According to the law, if the employee doesn’t explain or defend himself, legal actions will be taken against him. The employer is entitled to get his money back from the employee upon establishing the employee’s wrongdoing.

Recovery of money from the employer

When an employer offers a position to an employee on a salary basis, the individual has an entitlement to provide notice for the recovery of unpaid wages if the company is not able to pay the salary. An employee is required to follow specific processes, such as filing a complaint with the Labour Commissioner. Additionally, they may file a case against the employer in accordance with the provisions of the Industrial Dispute Act, 1947 and the Payment of Wages Act, 1936, among other laws.

The employee may not have been covered by labour law in several situations. To seek financial restitution from the company, he may bring a summary suit in accordance with the terms of Order 37 of the Civil Procedure Code, 1908. A complaint may also be made under different provisions of the IPC and Section 447 of the Companies Act by an employee who loses or is denied pay due to the fraudulent activities of the company.

But for all of the reasons mentioned above, we should be aware that before pursuing any legal action, the employee must first write a legal notice to the employer or firm requesting the return of his lost earnings. The business has the same options as before, including accepting the legal notice’s content or responding in denial.

Recovery of money from tenants

When one provides property as rent, and the tenant does not at all pay rent. The property owner then has the right to recover the funds that the renter owes. According to the provisions of the lease or rental agreement, the landlord may serve legal notice to collect his money if the tenant is unable to pay the rent amount.

The landowner can also recover the rent by bringing a case for particular non-performance of the contract, which is controlled by the Specific Relief Act, 1963, and the Contract Act, 1872, as a means of recovering money from the tenant.

Recovery of money from dealers

In the business world, supply, demand, and the delivery chain all contribute to robust and prosperous company sectors and economies.

To manage business operations, this chain has been designed to use distribution and dealerships. As part of this procedure, the distributor and dealers provide deposits in the form of post-dated or advance cheques for assurance.

The cheques given by the parties occasionally bounce throughout this economic cycle because of a lack of funds, a stop payment, or for any other purpose. The cheque holder is then entitled to reclaim his money, and he may do so by sending a legal notice or a demand notice within 30 days of the date on which the bank provided the return memo for the bounced cheque. In furtherance, under Section 138 of the Negotiable Instruments Act, 1881, the drawee has 15 days to file a case against the drawer if delivering a legal notice to recover payment proves ineffective.

Money recovered from a friend

When you lend money to a friend or member of your family, you try to ensure a secure transaction. For security reasons, you create the loan agreement or the promissory note in this manner. And if they don’t fulfil it in accordance with the conditions of the contract, you can pursue them for the money you are owed.

You can issue a legal notice to reclaim the money for that process. If that is unsuccessful, you may file a money suit or a summary suit per Order 37 of the Civil Procedure Code, 1908.

Legal notice for the purpose of recovering loan

Due to the severe mess that loan defaulters are making in India’s economy, the government has recently taken drastic steps to recover the funds that have been distributed through debt.

The SARFAESI Act, also known as the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, was passed in 2002 with the specific goal of recovering the debt balance through a different judicial body.

Every state establishes the Debt Recovery Tribunal to handle debt-related matters, and the initial stage entails submitting a legal notice for debt recovery to banks or other financial organisations. The debt recovery tribunal actively participates in finding a solution to the debt recovery issue. All of these judicial authorities have worked independently to establish debt repayment methods.

Contents of a legal notice for recovery of money

The contents of a legal notice are:

  • The legal notice needs to be properly and specifically written on the advocate’s letterhead.
  • It should include the advocate’s address and phone number(s).
  • The legal notice must include the recipient’s name, address, and contact information as well as the date on which it was issued.
  • The client’s name and contact information should be included because the legal notice for the money recovery is coming from the client.
  • In the notice, it must be made clear how the other party’s action or inaction violated one’s rights and what remedy the individual is seeking as a result.
  • The message should be written in simple, understandable language.
  • In order for the opposing party to comprehend what transpired from his perspective, the legal notice’s content must be broken down into paragraphs.
  • The opposing party must be given a clear directive and a deadline.
  • Both the advocate and the sender must acknowledge the notice (along with the date).

How can a lawyer assist in creating a legal notice for recovery of money

It is suggested that one employs a lawyer since serving a legal notice is the initial stage of any case involving recovery. To prepare such legal notices, a lawyer is required due to their skills, expertise, and understanding. The lawyer will be able to gather crucial details for the clients and prepare the notification appropriately. He or she will make sure that one is taking the proper steps to pursue justice. All legal documents can be efficiently managed by a lawyer. Therefore, it is crucial to hire a knowledgeable lawyer to ensure that your legal notice for recovery is delivered appropriately, taking into account the potential litigation that may follow.

What should a person do if they receive a legal notice

After receiving a notice, the following considerations should be made:

Reading the notice carefully: To fully comprehend the problem and issues brought up by the sender, it is crucial to carefully read the legal notice. One can start the talk if they believe there is a chance of reaching an amicable resolution to the conflict.

Coming into contact with an advocate: It is always essential to speak with a competent advocate.

Briefing the advocate: The next crucial step is to give your side of the story to him, outlining the relevant dates, details, and incidents so that he can compose a suitable response, thus, outlining your side to the sender.

Sending the response: After drafting a response to the notice, it is submitted through registered mail or courier, and the post office receipt is maintained. The advocate retains a copy of the legal notice and the response for use in future communications.

Format of a legal notice

Ref. No……… Dated [Date of the notice creation]

REGD.A.D.

LEGAL NOTICE

To,

[Name of the debtor]

Dear Sir,

Pursuant to the instructions from and on behalf of my client [name of the creditor], through its ___________, I do hereby serve you with the following Legal Notice: –

1- That my client is a [type of company] firm under the name and style of M/s [name of the creditor].

2- That my client is engaged in the business of [production/manufacture/supply/other nature of business] of the [product/service] etc.

3- That against your valid and confirmed order, my client did your job work from time to time on a credit basis, as you have a running credit account in the account books of my client operated in due course of business.

4- That my client-raised bills for each and every piece of work performed for payment, although you have acknowledged the receipt of such bills raised by my client.

5- That in spite of acknowledging the liability of payment of the principal balance of Rs. [principal balance]/- you have miserably failed to make payment of the said amount due to my client from you deliberately with mala fide intent. Hence, you are liable to pay the said principal balance amount of Rs. [principal balance]/- along with interest @ [interest rate]% p.a. from the date of due till the actual realisation of the said sum, as is generally and customarily prevailing in the trade usages, which comes to Rs. [total amount]/-

6- Thus you are liable to pay the total amount of Rs. [total amount]/- to my above-named client, and my above-named client is entitled to recover the same from you.

7- That my client requested you several times through telephonic messages and by sending a personal messenger to your office for the release of the said outstanding payment, but you have always been dilly delaying the same on one pretext or the other and so far have not paid even a single paisa out of the said outstanding undisputed amount.

I, therefore, through this Notice finally call upon you to pay my client Rs. [principal amount]/-. along with future interest @ [interest rate] % p.a. from the date of notice till actual realisation of the said amount, together with a notice fee of Rs. [notice fee]/- to my client either in cash or by demand draft or Cheque whichever mode suits you better, within clear 15 days from the date of receipt of this notice, failing which my client has given me clear instructions to file civil, criminal., suit for recovery and other Misc. proceedings against you in the competent court of law and in that event, you shall be fully responsible for the same.

A copy of this notice has been preserved in my office for record and future course of action.

([Signature of the advocate])

Conclusion

The most important action before initiating a lawsuit is issuing legal notices since it may result in a settlement outside of the courtrooms. A legal notice’s success is based on the lawyer’s writing abilities and the seriousness of the information included in it. Legal notice may pave the way for discussions between the parties, saving the parties the time and resources spent on court proceedings.

Frequently Asked Questions (FAQs)

Is legal notice necessary for a recovery action?

Yes, one must issue a legal notice in India before bringing a claim for the return of your money under the Indian Penal Code or a civil suit. A legal notice is used to inform people that criminal or civil charges will be brought against them.

What is the function of a legal notice?

A formal written notification between two parties is known as a ‘legal notice.’ The sender informs the receiver of his plan to file a lawsuit against the latter through a legal notice. A legal notice also aids in informing the recipient of the sender’s concerns.

What will happen if we ignore the legal notice?

The repercussions of not responding to a notice is not an offence per se, but one must provide the pertinent facts and defence arguments for the record. If no answer is sent and the sender files a case, the court may draw a negative conclusion against the defaulting party.

What format does a legal notification use?

Notices must always be sent in writing, clearly indicate the purpose for sending them, be signed by the relevant party or his authorised representative, be dated, and be directed to the person who will be affected by them.

What are your options if a relative owes you money?

It might be awkward to ask a friend or a member of your family for their money back, but sometimes you have to move quickly since it’s the last minute. Confronting them one-on-one and reminding them frequently should be the initial steps. You may always submit a legal notice if they still don’t pay you back and you want to take legal action.

What is the time restriction for bringing a lawsuit for money recovery?

The lawsuit may be brought within three years following the emergence of the cause of action. 

When someone owes you money, how do you file a case?

Under Order 37 of the CPC, which permits the lender to launch a civil suit, the lender may always seek to recover money owed to them by a defaulter through a promissory note or a loan agreement.

References


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