Recovering Unpaid Dues: Questions and Answers

Get your papers in order and pin down your dates before you send a single letter. That means the purchase orders, invoices, delivery proof, e-way bills and ledger, plus every email or WhatsApp message in which the customer accepted the goods or promised to pay. Then work out when each invoice fell due. Each one has its own three-year limitation clock. When Advocate B.K. Singh opens a recovery file, he looks first for the last written acknowledgment or part payment, because that date can change everything. After that, send a firm written demand. And don't give that customer another rupee of credit.

Three things decide it: your contract, your documents, and who you are. Is there an arbitration clause? If so, expect the other side to ask the court to refer the dispute to arbitration, and plan around that from day one. A registered micro or small supplier has another door. It can approach the MSME Facilitation Council under Section 18 of the MSMED Act, 2006, and that route overrides a private arbitration clause. Where you hold a written contract, a cheque or an accepted bill, a summary suit is usually the better fit. Anything else goes as a regular commercial suit.

You can, and in most cases you should. Invoices that come out of one running account or one supply arrangement make up a single claim. Order II Rule 2 of the Code of Civil Procedure says the whole claim from one cause of action has to go into one suit, and whatever you leave out, you can't sue for later. So don't sue on the three biggest bills and hold the rest back for another day. It doesn't work. Prepare a reconciled statement showing every invoice, credit note and payment, and claim the net balance in a single recovery suit.

You can. A sole proprietorship isn't a separate legal person at all. It's just the trade name of the individual behind it. So you sue the owner in his own name, described as trading as the business, and once you have a decree it can be executed against his personal bank accounts and property as well as whatever stock the shop holds. Check the GST registration and the Udyam certificate to see who the proprietor really is. People get this wrong more often than you'd think. Sue only the trade name and you'll hit trouble at execution.

In most cases, yes. Section 25 of the Indian Partnership Act, 1932 makes every partner jointly and severally liable for the firm's acts done while he was a partner. Under Order XXX of the Code of Civil Procedure you can sue the firm in its own name and add the partners as defendants, which lets you execute the decree against their personal assets. An LLP is a different animal. Its partners generally aren't personally liable for the LLP's debts just because they're partners. There's more on partnership disputes here.

For bills from the period when he was a partner, usually yes. Leaving the firm doesn't erase what he owes third parties for things the firm did before he went. Dealings after he left are a separate question. Section 32(3) of the Partnership Act keeps a retired partner exposed until public notice of the retirement is given, with some exceptions. So check when he retired and whether a public notice was ever published. Then sort the invoices into before and after. Make him a defendant alongside the continuing partners.

Not automatically. The new company is a separate legal person, even if it has the same directors, the same address and the same customers. Courts will lift the corporate veil where the company form is a sham used to dodge creditors, say, where stock, assets or customers were shifted to the new entity for nothing. But you need proof. Look at MCA filings, GST records, shared bank accounts and money moved out of the old company. Without that kind of evidence, your claim stays against the old company, shell or not. Send what you've got to Advocate B.K. Singh's team through the contact page and we'll tell you whether a case can be built.

Often, yes. A guarantee under Section 126 of the Indian Contract Act, 1872 can be part of a credit application form. The clause has to be clear, though, and the director must have signed in his personal capacity, not just as authorised signatory beside the company seal. Unless the guarantee limits it, his liability is co-extensive with the company's. That lets you sue both of them together in one suit. Before you rely on it, look hard at the signature block. And check for any cap on the amount.

If you raised a tax invoice and paid that GST to the government, it should. The tax is part of the price the buyer agreed to pay, and you've already funded it out of your own pocket. Claim the full invoice value. Show TDS, credit notes and part payments separately so the net figure is easy to follow. There's a useful pressure point here too. Under the second proviso to Section 16(2) of the CGST Act, 2017, a buyer who hasn't paid within 180 days of the invoice date has to reverse the input tax credit it took. Buyers' accountants know this. Use it in settlement talks.

Generally not. GST law has no bad debt relief. Tax you paid on a genuine supply isn't refunded just because the buyer defaulted. A credit note under Section 34 of the CGST Act is meant for things like returned goods or a cut in the agreed value, not plain non-payment, so don't treat it as a way out. That's one more reason to chase the full invoice value, tax and all. If you do settle for less, ask your chartered accountant how to document the reduction. Interest you receive for late payment can attract GST as well.

Sort it out before you file, because the buyer will use any mismatch to attack your numbers. TDS that was properly deducted and deposited counts as payment to you. You can't claim it twice. Check your tax credit statement on the income tax portal. It's different if the buyer deducted TDS in its books but never deposited it. In substance that money is still unpaid, and you can claim it, with the portal statement as proof. Also watch for TDS shown against invoices you never raised. That's usually a sign of a deeper accounting dispute. Settle it early.

Usually you can, unless the contract clearly lets the buyer deduct and the amount reflects a genuine loss. A liquidated damages clause doesn't let a buyer pick a number and keep it. Section 74 of the Indian Contract Act allows only reasonable compensation, capped at the agreed sum. Object in writing to every deduction the moment you spot it, and ask for the working. Don't wait. If you keep invoicing for months without a word, the buyer will say you accepted the cuts, and that argument sometimes lands. In your suit, claim the disputed deductions as a separate head.

Not the whole price, usually, and not at that stage. Section 42 of the Sale of Goods Act, 1930 treats a buyer as having accepted goods if he keeps them beyond a reasonable time without telling the seller he's rejecting them, or uses them as his own. Eight months of use is hard to explain away. Once he's accepted, his remedy is damages for breach of warranty, which he can set off against the price under Section 59. So ask some hard questions. Did he complain in writing? When? What loss can he actually prove? A complaint that first surfaces in reply to your legal notice won't carry much weight. See supply contract disputes.

Sometimes. The Sale of Goods Act gives an unpaid seller a lien over goods still in his possession under Section 47. Section 50 adds a right to stop goods in transit if the buyer has become insolvent. Insolvent here doesn't have to mean an NCLT case. It means the buyer has stopped paying his debts in the ordinary course. The right ends once the transporter delivers. So move fast, instruct the transporter in writing, and get advice before you do it. A wrongful stoppage can land you with a damages claim of your own.

Quite possibly. An advance paid towards the price is generally refundable if the deal collapses, after the supplier adjusts whatever loss he can actually prove. Only genuine earnest money can be forfeited when the buyer is at fault, and it has to be clearly called that and reasonable in amount. Even then, courts ask whether the forfeiture is really a penalty in disguise. Read the order and payment terms. Work out who actually broke the contract. Then demand the refund in writing, with a deadline. If he ignores you, it's a recovery claim with interest.

Possibly both, in the alternative. Your documents will decide. If the director signed a loan note or messaged you promising repayment in his own name, he's liable on that promise. If the company got the money, shows it in its books as an unsecured loan, or paid some of it back, the company's liable too. Plead both, state the facts honestly, and let the evidence sort out who owes what. It's common. Download the company's balance sheet from the MCA portal while you're at it, because a loan shown there can help on limitation as well.

Usually from the date the retention becomes payable under the contract, not from each bill's date. Most contracts release retention at the end of the defects liability or warranty period, or on a completion or performance certificate. The three-year period generally runs from that release date. What if the customer just sits on the certificate? Keep writing and asking for it. Those letters help fix the due date later. Read the clause wording carefully, and see our guide on limitation for recovery of money.

It helps, if you record it properly. Under Section 19 of the Limitation Act, 1963, a part payment made before limitation runs out starts a fresh period. But the payment should be acknowledged in a writing signed by the payer, or in his handwriting. Bank transfers with a clear narration help. So do emails confirming the payment and signed ledger confirmations. The real danger is drift. Small payments can keep you waiting for years while the debtor quietly moves assets. Pick a firm date. If the balance isn't cleared by then, file.

Only if your contract says so. Some contracts, especially in construction and subcontracting, carry a pay-when-paid or back-to-back clause that can postpone payment, and courts read those clauses strictly. Without one, your customer's deal with his own client isn't your problem in law. Your invoice falls due on its own terms. Reply quickly and reject the excuse, so his message isn't later read as a term you agreed to. And keep that message safe. It admits the debt.

Get it all in writing and keep a route back to the full claim. A safe settlement fixes the amount, the date of each instalment and how it'll be paid. It also needs a default clause: miss any instalment and the full original claim, with interest, falls due at once. Post-dated cheques for the instalments add pressure. If a suit is already pending, have the terms recorded before the court so you get a compromise decree you can execute. One more thing. Advocate B.K. Singh insists on proof that the debtor's signatory has authority, such as a board resolution.

Not necessarily. But you've taken a risk. The court will ask whether you accepted that payment as settling the whole claim. If you encashed it and said nothing, the debtor will argue you agreed to the lower figure. If you wrote back promptly, before banking it or right after, saying you took it only as part payment and the balance is still due, you're on much firmer ground. Do that today if you haven't. And never sign a no dues letter or discharge receipt to get a cheque released, unless you really mean to give up the rest.

Mostly, yes. In civil cases, Indian evidence law treats an admission as irrelevant where it's made on the express condition that evidence of it won't be given. That's why lawyers mark such letters without prejudice. The protection covers genuine attempts to settle. It doesn't cover ordinary demands. Keep your negotiation letters apart from your demand notices and mark them clearly. One trap to avoid: don't lean on a debtor's admission in a without prejudice letter as your only proof of the debt. Get a separate, open confirmation of the balance too.

Not under Section 80 of the Code of Civil Procedure. That two-month notice applies to suits against the Government, and against public officers for acts in their official capacity. A government company registered under the Companies Act, which is what most PSUs are, is a separate legal person. It isn't the Government for this purpose. A departmental buyer is different. A ministry or a state public works department does need the notice, unless the court allows urgent filing. Read the contract too. PSU contracts often carry arbitration clauses.

In the ordinary civil court, not the Commercial Court. The Commercial Courts Act covers only commercial disputes with a specified value of Rs 3 lakh and above, so a smaller claim goes before the civil judge of the right pecuniary level in a district where you're entitled to sue. Section 12A pre-institution mediation won't apply. Neither will the strict commercial deadlines for the written statement. You can still use the Order XXXVII summary procedure in ordinary courts if your claim qualifies. Check the current pecuniary limits first, and see which court hears your case.

When there's nothing to recover at the end of it. A decree against a company with no assets, a proprietor who's vanished, or a firm already in insolvency can cost you more than it brings back. So before you file, check the debtor's MCA filings and GST status, any property or bank accounts you know of, and whether other creditors are already suing. Small claims on weak papers are another poor bet. Advocate B.K. Singh will tell you plainly when a file is better settled, written off in the books, or watched until things improve for the debtor. Keep an eye on limitation meanwhile.

Only if there was real deceit from the start. Even then, it rarely gets your money back. Not paying a bill is a civil breach. It isn't cheating under Section 318 of the Bharatiya Nyaya Sanhita, 2023, unless the buyer never meant to pay when he placed the order and lied to get the goods. Courts regularly quash criminal cases that are really recovery disputes, and police often won't register them at all. A dishonoured cheque is a different story. A complaint under Section 138 of the Negotiable Instruments Act is a separate route, and a well-used one.

Be careful here. Publicly calling a named business a fraud or a defaulter can expose you to a civil defamation suit, or a criminal complaint under Section 356 of the Bharatiya Nyaya Sanhita, even when the dues are real. Truth is a defence. But you'd have to prove every word, and a defamation case hands the debtor a counter-attack that slows down your recovery. It's not worth it. Keep the pressure within legal channels: a demand notice, then a suit, and MSMED Act interest if you're a registered micro or small supplier.

You can hire someone to send reminders and follow up politely. But how they behave is your risk. Threats, abuse, turning up at the debtor's home or family, or taking goods by force can amount to criminal intimidation or extortion under the Bharatiya Nyaya Sanhita, and that gives the debtor a ready-made complaint against you. Judges don't think much of creditors who used muscle, either. A properly drafted legal notice followed by a suit is slower. It's also far safer.

You can, but insolvency isn't a debt collection tool. As an operational creditor, you'd first send a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016. If the debt stays unpaid and the default is Rs 1 crore or more, you can apply to the NCLT under Section 9. A genuine dispute that existed before your notice will sink the application. And if it's admitted, the company goes into a resolution process where operational creditors often get back very little. In practice, many debtors settle once a Section 8 notice lands. That's its real use.

Only through the insolvency process. Once the NCLT admits the case, the moratorium under Section 14 of the Insolvency and Bankruptcy Code halts suits, execution and other recovery action against the company. That includes any case you'd already filed. Lodge your claim with the interim resolution professional, with invoices and ledger, by the date given in the public announcement and in the form prescribed for operational creditors. Late claims run into trouble. What you finally get depends on the resolution plan or the liquidation. A claim against the company's personal guarantor, though, can generally still be pursued separately.

No. The Debts Recovery Tribunal under the Recovery of Debts and Bankruptcy Act, 1993 hears only claims by banks and notified financial institutions, and only for Rs 20 lakh and above. Suppliers, service providers and private individuals who lent money have to use the civil or commercial court or arbitration. Registered micro and small suppliers can also use the MSME Facilitation Council. If your dispute is with a bank over a loan, that's DRT territory. A private creditor can't file there, whatever the amount.

Not necessarily. A creditor aggrieved by the striking off can apply to the NCLT under Section 252(3) of the Companies Act, 2013 to have the company's name restored. You get twenty years from publication of the strike-off notice to do it. Once it's restored, the company exists again and you can sue or carry on your case. Section 248(7) also keeps alive the liability of the dissolved company's directors and officers, which can be enforced as if it had never been dissolved. Before you file anything, check the company's status on the MCA portal.

Yes, but only up to the value of what the family inherited. Legal heirs don't have to pay a dead proprietor's business debts out of their own money. You sue the heirs as his legal representatives. If a suit is already pending, bring them on record within 90 days of the death, which is the period the Limitation Act gives for substitution. Then find out what he left behind: business stock, bank balances, property. Watch for one pattern. If a son is now running the same business from the same premises, check what was transferred to him, and when.