What is the limitation period for a money recovery suit?

Under Article 137 of the Limitation Act 1963 (residuary), the general limitation is 3 years. For suits on a promissory note, it is 3 years from the date the amount becomes due (Article 19). For suits on an account stated, it is 3 years from the date of the last admission (Article 1).

Can I dispute the amount claimed in the demand notice?

Yes. You should reply stating the correct amount (if different), providing documentary evidence of payments already made, adjustments, or counterclaims. Partial payment or part satisfaction is a valid defense.

What happens if I ignore a payment demand notice?

The sender may file a civil suit for recovery (under Order 37 CPC for summary suit if based on a written contract, bill of exchange, etc.), or initiate proceedings under the Insolvency and Bankruptcy Code 2016 if the amount exceeds Rs.1 crore. Ignoring the notice does not create any legal liability by itself, but may weaken your position in court.

Contract Act CPC Order 37

How to Respond to a Payment Demand Notice

A practical guide on responding to money recovery and payment demand notices. Understand your rights, possible defenses, and the legal procedures involved in debt recovery in India.

What is a Payment Demand Notice?

A payment demand notice is a formal legal communication from a creditor (or their advocate) demanding payment of an alleged debt. It typically serves as a precursor to filing a civil suit for recovery of money. While not mandatory in all cases, sending a demand notice is standard legal practice and may be required for certain proceedings.

The notice is governed by the Indian Contract Act, 1872 (for contractual obligations), Code of Civil Procedure, 1908 (Order 37 for summary suits), and potentially the Insolvency and Bankruptcy Code, 2016 (for amounts above Rs.1 crore).

Common Types of Demand Notices

Trade/Business Debt

Unpaid invoices for goods supplied or services rendered. Common in B2B disputes. Governed by Sale of Goods Act + Contract Act.

Loan Recovery

Personal or business loans with promissory note or loan agreement. Banks may proceed under SARFAESI Act or DRT Act.

Professional Fee Recovery

Unpaid fees of advocates, CAs, architects, or other professionals. Usually based on engagement letter or retainer agreement.

Statutory Demand (IBC)

Demand under Section 8 of IBC 2016 for operational debt exceeding Rs.1 crore. 10-day response window. Non-response can lead to insolvency proceedings.

How to Respond

1. Verify the claim — Check if the debt is genuine, the amount is correct, and the demanding party has standing. Review your records for invoices, receipts, and correspondence.

2. Check limitation — Has the 3-year limitation period expired? If so, the creditor cannot sue for recovery. Raising limitation as a defense can dispose of the matter entirely.

3. Identify your defense — Common defenses include: payment already made (with proof), dispute on quality/quantity of goods, counterclaim/set-off, contract was void/voidable, force majeure, or the debt is time-barred.

4. Draft a detailed reply — Address each allegation point by point. Attach supporting documents. State your position clearly — whether you deny the debt, admit partial liability, or propose a settlement.

5. For IBC demand (S.8) — You MUST reply within 10 days with notice of dispute and supporting documents, or pay the debt. This is critical as non-response can trigger Corporate Insolvency Resolution Process.

6. Send via RPAD — Always send by Registered Post AD to create a record. Keep a copy of the reply, all enclosures, and the postal receipt.

Key Defenses

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Limitation Expired — If more than 3 years have passed since the debt became due, the claim is time-barred (Articles 19, 55, 137 of Limitation Act).

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Payment Already Made — Produce receipts, bank statements, or acknowledgments showing the debt was paid.

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Counterclaim / Set-Off — If the creditor owes you money from another transaction, you can set off the amounts.

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Dispute on Quantum — If you owe a different amount than claimed, dispute with documentary proof.

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Contract Breach by Creditor — If the creditor failed to perform their obligations (defective goods, incomplete service), you may have grounds to withhold payment.

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