If you are stuck in such a situation, here is what to do.

Mr. Sameer runs a successful electronics wholesale business, “VoltMax Distributors,” in the city of Vidyanagar. On March 15th, he supplied a large consignment of smart televisions to “CineView Retailers,” a chain of stores owned by Mr. Rohan. The transaction was documented with proper GST invoices amounting to ₹25 lakhs, with a payment term of 30 days. However, more than 90 days have passed, and Mr. Rohan has not cleared the dues. Initially, he cited temporary cash flow issues, but now he has stopped responding to Mr. Sameer’s calls and emails. Mr. Sameer suspects that CineView Retailers is either on the verge of bankruptcy or Mr. Rohan never intended to pay, as he has heard similar stories from other suppliers.

Advice in such cases

When a buyer defaults on payment for goods supplied, it can severely impact your business’s cash flow and stability. It is a common commercial dispute, and Indian law provides several remedies to recover your rightful dues. The course of action depends on the amount due, the evidence you possess, and the financial health of the buyer’s entity.

• Attempt Amicable Resolution: Before initiating legal action, make a final attempt to communicate in writing, clearly stating the outstanding amount and a final deadline for payment. This communication can serve as evidence later.
• Send a Legal Notice: This is the first formal step. A strongly worded legal notice from a lawyer details the transaction, the default, and the legal consequences if the payment is not made within a specified period (usually 15 or 30 days). Often, this step alone can prompt the buyer to settle the dues.
• Initiate Civil Proceedings: If the notice is ignored, you can file a civil suit for recovery of money. For commercial transactions with clear documentation like invoices, a summary suit can be filed, which is a faster procedure.
• Consider Insolvency Proceedings: If the outstanding amount is significant and the buyer is a company or LLP, you can initiate insolvency proceedings against them under the Insolvency and Bankruptcy Code (IBC), 2016. The threat of losing control of their company often compels defaulters to pay.
• Criminal Complaint (with caution): If you can prove that the buyer had a dishonest intention to cheat you from the very beginning of the transaction, a criminal complaint for cheating can be filed. However, courts are generally reluctant to entertain such cases if they appear to be purely civil disputes over payment.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think

Applicable Sections of Law

The legal recourse for non-payment of dues primarily falls under civil and commercial laws, with criminal law being applicable only in specific circumstances.

• The Code of Civil Procedure, 1908: This governs the procedure for filing a civil recovery suit. Order 37 of the CPC allows for filing a ‘Summary Suit’ based on written contracts or invoices, which provides a faster adjudication process.
• The Commercial Courts Act, 2015: This act provides for streamlined and fast-track adjudication of commercial disputes of a specified value, ensuring quicker resolution than a regular civil suit.
• The Insolvency and Bankruptcy Code (IBC), 2016: A powerful tool for operational creditors (suppliers of goods/services). A creditor can file an application to initiate a Corporate Insolvency Resolution Process (CIRP) against a corporate debtor for a default of ₹1 crore or more.
• The Bharatiya Nyaya Sanhita, 2023 (BNS): Section 318 of the BNS deals with the offence of ‘Cheating’. To invoke this, it is crucial to establish that the buyer had a fraudulent or dishonest intention at the time of inducing you to deliver the goods. A mere subsequent failure to pay is not sufficient to constitute a criminal offence.

If you are the complainant

As the supplier (complainant/creditor), you need to act systematically to build a strong case for recovery.

• Organize all Documents: Collate every piece of paper related to the transaction. This includes the purchase order, GST invoices, delivery challans or proofs of delivery, transport receipts, and any written communication (emails, letters, WhatsApp chats) regarding the order and payment.
• Send a Formal Demand Notice: Have a lawyer draft and send a legal notice via registered post. This notice officially records your demand and gives the buyer a final opportunity to pay before you take the matter to court.
• Choose the Right Legal Forum: Based on the amount and nature of the dispute, your lawyer will advise the best course of action. This could be a summary suit in a civil court, a suit in a Commercial Court, or an application under the IBC before the National Company Law Tribunal (NCLT).
• File the Case: Your lawyer will draft the plaint (for a suit) or application (for IBC) and file it in the appropriate court or tribunal after paying the requisite court fees.
• Follow Through: Actively participate in the legal proceedings by providing necessary information and attending hearings as required by your lawyer.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think

If you are the victim

As the victim of non-payment, your goal is to recover your money as efficiently as possible. Here are the steps to focus on:

• Preserve Evidence: Do not delete any emails or messages exchanged with the buyer. Ensure all your invoices and delivery records are securely stored. This evidence is the foundation of your case.
• Act Promptly: The law prescribes a limitation period for filing recovery suits (generally three years from the date the payment becomes due). Delay can weaken your legal position.
• Seek Professional Guidance: The legal landscape can be complex. Engaging a lawyer who specializes in commercial litigation is crucial. They will navigate the procedures and represent your interests effectively.
• Be Prepared for the Process: Legal proceedings can take time. Be patient and cooperate fully with your legal counsel. A well-documented case has a high probability of success.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think

How the police behave in such cases

In most cases of non-payment for goods, the police will view the matter as a civil dispute, not a criminal one. When you approach a police station, they are likely to advise you to seek remedy in a civil court. They are reluctant to register a First Information Report (FIR) for cheating under Section 318 of the BNS unless there is clear, prima facie evidence of fraudulent intent from the very beginning. For instance, if the buyer provided a fake address, used a fake company identity, or has a history of cheating multiple suppliers in the same manner, the police might be more inclined to register a criminal case. However, in a standard business transaction that has gone sour, the police will direct you to the civil recovery process.

FAQs people normally have

What evidence is required?

To build a strong case for the recovery of your money, you will need solid documentary evidence. The more comprehensive your documentation, the higher your chances of success. Key evidence includes:

• GST Invoices: This is the primary document proving the sale and the amount due.
• Purchase Order: The order placed by the buyer serves as proof of the contract.
• Proof of Delivery: Signed delivery challans, courier receipts, or transport lorry receipts (LRs) are crucial to prove that the buyer received the goods.
• Account Ledgers: Your statement of accounts showing the outstanding balance against the buyer’s name.
• Communication Records: All emails, letters, and messages (like WhatsApp) where the buyer has acknowledged the debt or asked for more time to pay.
• Legal Notice: A copy of the legal notice sent to the buyer and the postal receipt as proof of dispatch.
• Bank Statements: To show that the payment for the specific invoice has not been received.

How long will the investigation take?

Since this is primarily a civil matter, the term ‘investigation’ as used in criminal cases does not apply. The duration of the legal process for recovery depends on the path you choose:

• Summary Suit (Order 37, CPC): This is the fastest civil procedure. If the buyer (defendant) cannot show a valid defense, a decree can be passed in your favor within 6-12 months.
• Regular Commercial Suit: If the case is contested, it can take longer. Under the Commercial Courts Act, the process is expedited, but it can still take anywhere from 2 to 4 years to get a final judgment, depending on the complexity and the court’s schedule.
• Insolvency Proceedings (IBC): The IBC mandates a strict timeline. The NCLT is required to decide on the admission or rejection of an application within 14 days. Once a company is admitted into insolvency, the entire resolution process is meant to be completed within 180 days (extendable to 330 days).

Advocate Sudhir Rao, Supreme Court of India