Introduction
Debt recovery presents a significant challenge for corporations across India, affecting sectors such as startups, software development, manufacturing, MSMEs, and even large multinational companies[i]. In 2024, Indian companies raised Rs 10.67 trillion ($124.81 billion) in corporate bonds, signalling the increasing debt market in the corporate sector[ii]. However, this increase has posed various challenges for corporate debt recovery[iii]. One major challenge in debt recovery is the insufficiency of frameworks, such as the Insolvency and Bankruptcy Code (IBC) and specialised courts, such as Debt Recovery Tribunals (DRTs), to handle debt recovery in a fast-tracked, cost-effective and resource-friendly manner.
These challenges lead to the employment of a Fractional General Counsel (‘Fractional GC’)[iv]. These provide legal counsel for day-to-day company operations without adding to the cost of a full-time legal team. Through Fractional GCs, startups obtain legal advice without paying for a full-time legal department. It offers an alternative to traditional litigation, which is known to be costly and time-consuming. This article examines the evolving role of Fractional GC in debt recovery matters, analysing how this model provides strategic advantages over traditional litigation while addressing the unique constraints faced by businesses across sectors.
Startups struggle to recover the debt owed to them and pay off the debt they owe[v]. In 2024, although many new startups emerged as success stories, many others closed down due to funding issues. One such example is Kenko Health, which faced liquidation due to unmanaged debts and the recovery of money[vi]. Startups typically lack in-house legal counsel and must hire third-party legal counsel[vii]. When it comes to debt recovery, startups often neglect it as an essential part of financial planning, given the profit-oriented nature of their businesses and the time and cost constraints they typically face[viii].
Debt recovery issues similarly affect all sectors of business, not just startups. Software companies have service-quality-based arrangements with customers that subsequently delay payments, claiming that not all deliverables have been completed. Within the manufacturing and MSME sectors, channel partners, and especially distributors, extensively default on payments and terminate contracts informally. Large businesses grapple with clients involved in multi-state litigation, cross-border dealings, and problematic, high-stakes relationships.
In most businesses, recovery is more of a structural problem than an enforcement one. It requires legal oversight, risk mitigation, and resources to handle costly litigation. The absence of efficient legal mechanisms necessitates the employment of proactive legal strategies. While traditional litigation courts, such as DRTs (Debt Recovery Tribunals) and Civil Courts, were used to efficiently handle debt recovery, they now face numerous inadequacies.
Challenges of Traditional Litigation
The Fractional GC Model
Fractional GCs address the above challenges and help companies access skilled legal advice without the cost of a traditional in-house or litigation team. Fractional GCs have evolved significantly, and studies show that these models will continue to grow in the near future[x]. Instead of hiring a full-time general counsel, businesses are now considering Fractional GCs, legal experts who work on an ongoing fee or contract basis[xi]. These advisors frequently assist several organisations, offering focused guidance precisely when needed.
Role of a Fractional GC in Debt Recovery
Proactive Management Strategy: Fractional GCs develops appropriately structured internal frameworks to ensure no legal matter is left unaddressed. These are diligent in everyday operations and implement proactive strategies to mitigate plausible risks. Proactive strategies entail performing all legal tasks to ensure that all aspects of the company’s legal governance are monitored and managed effectively. This is to ensure that such management becomes part of the organisation’s routine operations.
Tailored Contract Design: Poorly drafted agreements, vague terms, and incomplete clauses are the most common issues companies face when drafting contracts. Fractional GCs focus on redefining payment timelines, ensuring unambiguous contract structures, and clearly defining contract terms. To further mitigate the risk of disputes, Fractional GCs include contract terms tailored to the specific company’s needs rather than default templates that lead to unfulfilled expectations for the company and its clients. This includes well-defined dispute resolution frameworks, reinforced compliance clauses, and escalation procedures to pre-empt litigation. A well-designed contract is a primary tool for identifying and assessing risk to enable recovery.
Implementing Internal Checks and Balances to Prevent Disputes: Fractional GCs design and implement internal checks to ensure that all obligations are well-documented and legally enforceable. These include conducting due diligence, verifying all related documentation and conducting structured amendment processes where required. Such checks and balances enhance the organisation’s legal standing.
Negotiation and ADR-Driven Resolution: Preserving relationships between parties is essential in resolving disputes. This preservation is difficult when traditional court litigation takes place. Fractional GCs, therefore, prioritise Alternative Dispute Resolution (ADR) mechanisms instead. These include negotiating with defaulting clients, offering structured settlement proposals, mediating in requests to arbitrate or litigate, drafting repayment plans, and legally enforceable settlements while preserving the long-term relationship with clients. Most of the time, a well-managed negotiation closes much more quickly and at a lower cost than a legal proceeding.
Strategic Litigation Management: Similar to traditional legal counsel, Fractional GCs can offer strategies, legal support, and even in-court appearances at the same levels of effectiveness, and at a subsidised rate, for litigation services. When litigation is unavoidable, Fractional GCs evaluates whether the business goals and objectives will align with the company’s goals and objectives for the specific case. While proactively identifying ways to avoid litigation, Fractional GCs provide the same support that traditional legal counsel offers if litigation arises.
Cost and Time Efficiency: Fractional GC is significantly more economical than maintaining a traditional legal team or in-house counsel. It helps companies manage debt, take proactive steps to reduce risk, and resolve matters without protracted litigation, thereby keeping expenses under control. The real cost advantage comes from paying only for the specific hours or services required, instead of bearing the ongoing salaries and overheads of a full-time legal department.
Overall Effective Redressal: Typically, lawyers who handle only litigation matters focus primarily on legal details and fail to grasp how a business operates or its future goals. Fractional GCs provide counsel on all issues related to debt recovery and capture the business goals, aligning legal strategy alongside the broader commercial goals of the company.
Cross-Jurisdictional and Cross-Border Recovery: For businesses with clients across borders, Fractional GCs streamline the enforceability of arbitration awards abroad, draft arbitration clauses that include international arbitration, and design cross-border settlement agreements. This includes limited use of courts in foreign jurisdictions, settlement agreements that incorporate international arbitration clauses, and collaboration with foreign counsel. Traditional legal services often fail to cover these areas.
The Importance of Debt Recovery Strategy
Several well-known companies in India have failed due to insufficient debt recovery strategies. With $33.5 million in capital, Stayzilla was once poised to become the largest homestay network in India, but it began to fail after failing to pay its vendors[xii]. This led to criminal allegations against the founder, ultimately resulting in the company’s shutdown. Kenko Health’s August 2024 shutdown exemplifies a complete failure of debt recovery on both sides[xiii]. The company faced insolvency proceedings from a debt fund over unpaid loans while dealing with unpaid employee salaries. Even larger corporations can be affected by debt mismanagement, as Vodafone Idea’s case highlights. Saddled with $14 billion in net debt and record losses, the company struggled to meet the Supreme Court’s timeline for repaying the debt[xiv]. The absence of proper debt restructuring strategies placed the company on the brink of insolvency. This forced a massive down-round, destroying shareholder value.
These cases demonstrate that such failures often stem not only from business model inadequacy but also from the absence of proactive legal and financial management. Therefore, employing efficient legal advisors for proactive debt management and risk assessment may help manage finances promptly and avoid the risk of shutdown.
Conclusion
Indian corporates are confronted with a critical phase in debt recovery. Lawsuits are effective but expensive and slow, damaging relationships, and are not conducive to how startups operate. Therefore, engaging a proactive, on-demand legal expert is a good approach to debt recovery.
Fractional GCs have culminated in the integration of legal reasoning across every phase of the client’s workflow, from drafting contracts to tracking receivables and assisting with legal matters. This particularly benefits companies that are still in the growth phase, short on funds, or seeking cost-effective, efficient measures to manage debt recovery. Looking at various case examples of failures due to monetary issues, debt recovery is an essential factor to consider when managing the company.
As companies continue to navigate efficient debt recovery, the necessity for Fractional GCs becomes indispensable. By offering a cost-effective, comprehensive and efficient strategy in dealing with debt recovery, Fractional GCs differs from traditional legal counsels in countless ways. This allows businesses to conserve finances and resources while preserving their critical relationships. Fractional GCs are more than just legal advisors. In a debt crisis, they play the role of a risk mitigator, ensuring business sustainability. In a corporate environment where profit-making is the order of the day, employment of a Fractional GC in managing debt moves from being merely beneficial to being essential.
References:
[i] Baiju V, “Inside India’s Debt Recovery System: What 60,000+ Cases Reveal” (Explore Probe42 Blog | Corporate Insights, AI Summaries, Compliance Updates, and More, October 31, 2025) accessed November 12, 2025
[ii] Reuters, “Indian Firms Raise Record Funds via Corporate Debt in 2024; to Rise Further” (Business Standard, December 30, 2024) accessed November 12, 2025
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[iv] Anderson KB, “Why Startups Should Consider Fractional General Counsel Services — Anderson Insights” (Anderson Insights, January 9, 2025) accessed October 29, 2025
[v] Goodman G, “What are Commercial Debt Collection Challenges for Startups?” (Payfor – Global Commercial Debt Collection, April 25, 2024) accessed October 29, 2025
[vi] “Start-Up Struggles: Key Indian Ventures That Shut Down in 2024” Outlook Business (December 27, 2024) accessed October 29, 2025
[vii] Dasaka K,“10 Legal Mistakes Made by Startups” (Times of India Blog, February 12, 2023) accessed October 29, 2025
[viii] Goodman G, “Understanding the Commercial Debt Collection Struggles Faced by Startups” (Payfor – Global Commercial Debt Collection, July 29, 2025) accessed October 29, 2025
[ix] Sudhir Rao, Advocate at Supreme Court of India, “Debt Recovery Tribunal Minimum Amount” (Sudhir Rao, Advocate at Supreme Court of India, April 18, 2025) accessed October 29, 2025
[x] Thomas D, “How Fractional GCs Are Reshaping Legal Leadership” (International Bar Association, September 11, 2025) accessed October 29, 2025
[xi] “Is There a Growing Need for the Fractional GC?” (December 26, 2023) accessed October 29, 2025
[xii] Singh L, “Failed Startups In India” (StartupTalky, November 26, 2024) accessed October 29, 2025
[xiii] Dasaka K, supra note 7
[xiv] Trivedi U, “Vodafone Idea Faces Collapse after SC Refuses to Give It More Time to Pay Dues” (theprint, February 14, 2020) accessed November 12, 2025
Gaurav Gupta is the Founder and Managing Partner at Bridge Counsels & Ananya Doshi, is a 5th Year Student at Symbiosis Law School, Pune.
