How to Recover Money in India When There Is No Written Loan Agreement
Friendly loans, which are amounts of money given to friends, family members, colleagues, neighbours or acquaintances, are extremely common in India. These loans are usually given based on trust, without written agreements or formal contracts. This trust works well until the borrower either delays repayment or completely refuses to return the money. At that point, most lenders panic because they believe an informal loan cannot be recovered legally.
That belief is not correct. Indian law recognises friendly loans as legally valid debts even when there is no written agreement. Courts across India handle such cases regularly and provide strong remedies to lenders.
Are Friendly Loans Without a Written Agreement Legally Enforceable in India
Yes, friendly loans are fully enforceable even without a written agreement.
In fact, courts have repeatedly held that:
- A loan does not require a formal document to be valid.
- Oral agreements are legally binding.
- A friendly loan is a legally enforceable debt.
What matters is the intention that the money must be repaid. If the borrower took money from you and promised to return it, then you have a legal right to recover that amount through a civil court.
Which Laws Apply When Someone Refuses to Return a Friendly Loan
Two major laws apply in these cases.
A. Civil Procedure Code 1908
This law allows you to file a Money Recovery Suit in a civil court if the borrower refuses to repay your loan. Through this suit you can claim:
- The principal amount
- Interest
- Cost of litigation
- Any additional charges, if they were agreed
Civil courts give the borrower a chance to respond, but if their defence is dishonest or inconsistent, the court can pass a decree quickly.
B. Limitation Act 1963
This law sets a strict time limit for filing a case.
A suit to recover a friendly loan must be filed within three years from the date the money became due.
If there was no specific repayment date, the three-year period starts from the date you first demanded repayment.
If you delay beyond three years, the court may dismiss your case as time-barred.
Therefore, time is extremely important in friendly loan disputes.
What You Should Do When Someone Refuses to Repay a Friendly Loan
Even if you do not have a written agreement, Indian law gives you a clear step-by-step remedy. Below is the process courts expect you to follow.
Step 1. Collect Evidence That the Loan Was Given
You do not need a written agreement. Any proof that money was given and repayment was expected is enough. The following items can be used as evidence:
- Bank transfer or digital payment proof such as UPI, NEFT, IMPS or screenshots
- WhatsApp chats mentioning the loan
- SMS messages
- Emails
- Audio recordings of conversations, if not secretly or illegally taken
- Witnesses present when the money was given
- Any acknowledgement of repayment
- Any message where the borrower admits that they owe you money
Under the Indian Evidence Act 1872 electronic records are admissible in court and treated as valid evidence. Even a small piece of evidence can be sufficient to prove that a friendly loan existed.
Step 2. Send a Legal Notice
The next step is to send a formal legal notice to the borrower. While the Civil Procedure Code does not make sending a notice mandatory for friendly loans, it is strongly recommended because it serves multiple purposes. A legal notice shows that you have made a genuine attempt to resolve the matter peacefully and provides a formal record of your demand for repayment. It also warns the borrower that legal action may follow if they fail to comply. Often, receiving a notice prompts the borrower to repay the money quickly. Typically, a notice gives the borrower seven to fifteen days to return the amount. It is important that a lawyer drafts the notice carefully, as it becomes part of the official court record if the matter proceeds to trial.
Step 3. File a Money Recovery Suit
If the borrower ignores your notice or refuses to repay, the next legal remedy is filing a Money Recovery Suit in a civil court.
Where can you file the case
You can file the suit in a civil court in the place:
- Where the borrower lives
- Where the loan transaction took place
- Where the lender lives in certain situations
Documents needed to file the case
- Copy of the legal notice
- Proof of money transfer
- Proof of conversations or acknowledgements
- Your affidavit
- Any other supporting evidence
What the court can order
- Repayment of the principal amount
- Payment of interest
- Litigation costs
- Additional compensation if justified
Step 4. Claim Interest Under Section 34 of the Civil Procedure Code
Even if interest was not discussed at the time of giving the loan, the court can award reasonable interest under Section 34 of the Civil Procedure Code.
The court may grant:
- Interest for the period before filing the case
- Interest during the pendency of the case
- Interest after the decree until the amount is fully paid
Interest is usually between six percent and twelve percent yearly, depending on the conduct of the borrower and the facts of the case.
Courts often award higher interest when:
- The borrower made false claims
- The borrower continuously delayed repayment
The borrower ignored the legal notice
Step 5. Start Execution Proceedings if the Borrower Still Refuses
Sometimes, even after the court orders repayment, the borrower still does not pay.
In such situations, you can begin Execution Proceedings under Order Twenty One of the Civil Procedure Code.
Through execution, the court can:
- Attach and sell the movable property of the borrower
- Attach and sell immovable property
- Freeze or seize bank accounts
- Garnish the salary of the borrower
- Seize business assets
- Order instalment-based payments
- Issue an arrest warrant in certain situations
Execution ensures that the court decree is enforced and cannot be ignored.
Can You File a Police Complaint for a Friendly Loan
In most cases, no. A friendly loan is a civil matter, so the police cannot intervene unless there is clear evidence of criminal intent from the beginning.
Only in specific situations can criminal cases be filed, such as:
- Cheating under Section 420 of the Indian Penal Code
- Criminal breach of trust under Section 406 of the Indian Penal Code
If the borrower simply refuses to repay due to financial problems, it is not a criminal offence. The correct remedy remains a civil suit.
How Do Courts View Friendly Loan Cases
Courts look at:
- Proof of the loan
- Proof of promises to repay
- Conduct of the borrower
- Whether the lender acted within the limitation period
- How the borrower responded to the legal notice
Courts understand that friendly loans are informal. They do not expect notarised agreements or detailed contracts.
They focus on probability, consistency and evidence. If the borrower gives false explanations or unsupported defences, courts often rule in favour of the lender quickly.
How to Protect Yourself When Giving Friendly Loans in the Future
To avoid disputes, consider following these simple practices:
- Always use bank transfers or digital payments
- Take a short written acknowledgement in a message or email
- Avoid large cash loans
Fix a clear repayment date - Use a simple loan agreement for larger amounts
- Avoid repeat loans without documentation
These small steps can save you significant trouble in the future.
Conclusion
If someone refuses to repay a friendly loan in India, even when there is no written agreement, you still have strong legal remedies.
Indian law recognises friendly loans as valid and enforceable. The Civil Procedure Code allows you to recover the money through a Money Recovery Suit, and the Limitation Act gives you three years to file your claim. Courts also have the power to award interest for delays.
The key steps are:
- Act promptly
- Collect evidence
- Send a legal notice
- File a Money Recovery Suit if necessary
In most cases, borrowers settle after receiving a notice or a court summons because the law is clear and strongly supports lenders who have given money in good faith.