Choosing the Forum: Court, Tribunal, Arbitration or the Code

An Indian creditor with an overdue debt often has more than one forum to choose from, and the choice shapes the speed, the cost and the leverage of the whole recovery. The wrong forum can mean a rejected claim, a stalled case or an order that cannot be enforced. This note compares the principal forums and the questions that decide among them. It is general information, not advice on a particular claim.

The forums

• Civil or commercial court. A suit for recovery of money under the Code of Civil Procedure, 1908, or before a commercial court under the Commercial Courts Act, 2015 for a commercial dispute of the specified value. It is available for almost any money claim, and results in a decree that can be executed. A summary suit under Order XXXVII is faster where the claim rests on a written contract, a bill of exchange or a promissory note for a liquidated sum.
• Debts Recovery Tribunal. For banks and financial institutions, under the Recovery of Debts and Bankruptcy Act, 1993. The tribunal's jurisdiction applies to debts of twenty lakh rupees or more, a figure fixed by notification and open to change. Its certificate is enforced by a Recovery Officer.
• SARFAESI action. A secured creditor that is a bank or notified financial institution may enforce a security interest without going to court, after classifying the account as a non-performing asset and issuing a notice under Section 13(2). The Act does not apply to some loans, including those below a threshold related to the principal and interest, and agricultural land.
• Insolvency and Bankruptcy Code. An application to the National Company Law Tribunal under Section 7 (financial creditor), Section 9 (operational creditor) or Section 10 (corporate debtor), where the default is at least the notified minimum, currently one crore rupees.
• Criminal complaint for a dishonoured cheque. Section 138 of the Negotiable Instruments Act, 1881, which brings its own pressure and its own timetable.
• Arbitration. Where the contract has an arbitration clause, the claim goes to the tribunal, not the court.
• MSME Facilitation Council. A micro or small enterprise supplier may refer a delayed payment dispute to the Council under Section 18 of the MSME Development Act, 2006, which conciliates and may arbitrate.

Questions that decide the choice

1. Is there an arbitration clause? If so, a civil suit will be met with an application under Section 8 of the Arbitration Act, and the court will ordinarily refer the parties to arbitration. An MSME supplier may still use the Council.
2. Who is the creditor? Only banks and notified institutions may use the Recovery of Debts Act and SARFAESI. A trade creditor uses the court, arbitration or, in suitable cases, the Code.
3. Is the debt secured? A secured lender can enforce without court. An unsecured creditor cannot.
4. Is the debt disputed? A real dispute defeats an operational creditor's application under the Code. It also makes a summary suit more difficult. The documents need to speak for themselves.
5. What is the debtor? A company in distress may be in a position where the Code is the natural route. An individual or a firm with assets in a particular State points to a suit or a cheque complaint there.
6. What is the objective? Payment, security, or a decree. A creditor who wants a negotiated settlement may value the leverage of an early filing, while one who wants control of a failing company's future may prefer the Code.

Combining remedies

Remedies are not always exclusive. A cheque complaint may run alongside a civil suit, because they serve different purposes and the courts have permitted both. A secured lender may begin SARFAESI action and also file before the Debts Recovery Tribunal for the balance. What the creditor may not do is to use the Code merely as a method of recovery: Section 65 penalises the fraudulent or malicious initiation of the process, and the tribunals have refused applications that are an attempt to recover a disputed debt.

Jurisdiction

Within the chosen forum, the specific court must have territorial jurisdiction. For civil suits Sections 16 to 20 of the Code of Civil Procedure decide it by reference to the property, the defendant's residence or business, or where the cause of action arose. A contract may confer exclusive jurisdiction on one of several competent courts, and courts respect such clauses. For cheque complaints, Section 142(2) of the Negotiable Instruments Act links jurisdiction to the court where the payee's account is held.

The decision is best made before the first notice is sent, because the notice, the evidence and the limitation calendar all depend on it.