Is it legal to transfer debt recovery rights?




With the advent of economic growth in India, the companies have also taken on stringent policies to regulate their business for its proper and smooth functioning. Earlier there were a lot of relaxations regarding lending, borrowing, and sale/purchase on credit. But recently companies are focusing on chasing their bad debts to retract money back to their business. They are opting a lot of innovative methods to recover debts, one being the transfer of debt recovery rights.

What is transfer of debt recovery rights?

Debt transfer is a transfer of debt, and all the associated rights and obligations, from a creditor to a third party, often a debt collector. Debt assignment may occur with both individual debts and business debts. The company assigning the debt may do so in order to improve its liquidity and/or to reduce its risk exposure.

Illustration to explain transfer of Debt Recovery Rights

Well, let’s try to understand the concept of transfer of debt recovery rights through a simple illustration first. Consider A is a creditor and B is a debtor. B takes loan or purchases on credit note from A. A valuing the customer relationship agrees for the same and executes a contract which contains the clause of transfer of debt recovery rights. This clause comes into effect when B the debtor fails to comply with the contract and is unable to pay back to A. There can be ‘n’ number of reasons for this failure of payment, but A will somehow manage to recover his money from debtor B.

In order to recover money, A will delegate this responsibility to some organization C, which specializes in debt recovery. A does this to save his precious time and does not want to chase for his unpaid money himself so he transfers his right to C.

C the debt recovery company will purchase the debts of creditor A at a considerable price that means C will pay some lump sum amount to A, and this method is also known as buy-back of debts. Now C becomes the creditor and chases the debt amount from B, like his own debt along with the interest. This is called Transfer of debt recovery rights.

Does the law comply with transfer of recovery rights?

  • Yes, it is legal to transfer rights of debt recovery to third party. The company which is undergoing loss because of bad debts can sell its debts to a third party buys back its debts on an agreed amount.
  • Your original creditor should let you know when they sell your debt.
  • You’ll also get a letter from the new owner of the debt explaining who they are and that you need to pay them now.
  • The letter should include the name and usually the account number of the original creditor, so you can tell which debt it relates to. If you’re not sure, contact the debt purchaser to ask.
  • If you’ve been contacted by a debt collector, or if your original creditor has told you they intend to sell your debt, this is sign that you need to get debt advice.


Transfer of debt recovery rights is the commonly opted method to chase debtors for unpaid money by creditors. It is tedious and waste of time for them to personally approach every debtor for money hence they find it easier to outsource the hectic work while they can still concentrate on the bigger part of their business. Debt recovery is essential for progressive growth of the company hence various methods like transfer of debt recovery rights, litigation and etc are adopted.

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Disclaimer – the above summary is based on the personal interpretation of the revised regulations, which may differ person to person. Hence, the readers are expected to take expert opinion before placing reliance on this article.

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