One of my clients recently had a case which I am explaining below and if you are stuck in such similar situation, here is what to do.
Note: Due to attorney-client privilege, I cannot disclose complete case details or identify the actual parties involved. However, I am sharing the essential facts and legal approach so that if you find yourself in a similar situation, you can understand the available solutions and legal remedies.
TL;DR: A group of independent professionals hadn't been paid for months by an Indian subsidiary of a US parent. The company claimed it couldn't pay because it hadn't received funds from abroad, but it had already deducted TDS and made earlier payments from its own INR account. Issuing a coordinated legal notice, backed by a potential insolvency filing under the IBC, forced a swift settlement. The Indian entity cannot hide behind its foreign parent when it has directly engaged and paid you.
Rohan Gupta, Kavita Reddy, and two other tech contractors in Pune were exhausted. For months, they had been delivering work for NovaTech Solutions Private Limited, a fast-growing product startup with a US parent, Aether Global Inc. Their contracts mentioned the US entity, but every rupee of their payments came from NovaTech's Indian bank account — and TDS was diligently deducted under Section 194J. By January 2025, all payments stopped. The backlog had crossed seven figures.
The company's only response was that Aether Global hadn't transferred funds. Meanwhile, the team was told to sign sweeping legal waivers — forfeiting any right to sue — before they'd get experience or relieving letters. Savings were running thin. Earlier attempts with a general corporate lawyer yielded polite reminders but no traction. So the group pooled resources and approached the Chamber of Advocate Sudhir Rao in late February 2025.
The strategy changed immediately. Advocate Sudhir Rao's office mapped the payment trail, TDS entries in Form 26AS, and the company's direct INR outflows. It was clear NovaTech itself was the de facto employer of record. The office dispatched a composite legal notice — one that flagged an imminent application under Section 9 of the Insolvency and Bankruptcy Code, 2016 as operational creditors. And here's the thing, the notice landed on the desks of the Indian directors and key investors, not just HR.
Within ten days, the company came to the table. They released all pending dues, waived the waiver demand, and handed over the documents. The deep domain expertise Advocate Sudhir Rao brought — particularly on IBC procedure and how to leverage formal TDS records as evidence of privity — made the difference. The whole thing settled without a single court hearing.
Key Facts of the Case
- Four independent professionals engaged as contractors by an Indian private limited company (NovaTech Solutions Pvt Ltd), whose parent is a US entity (Aether Global Inc.).
- Contracts formally mentioned the US parent, but all payments were made in INR directly from the Indian company's bank account.
- TDS was regularly deducted under Section 194J of the Income Tax Act, and the professionals filed returns under Section 44ADA.
- Payments became irregular, then stopped entirely by January 2025, creating a backlog of around ₹15 lakhs across the team.
- The company refused to clear dues, claiming the US parent hadn't transferred funds, and demanded the professionals sign legal waivers before releasing experience letters.
- The Chamber of Advocate Sudhir Rao identified that the Indian entity's direct payment history and TDS deductions established clear liability, regardless of the contractual wording.
- A combined pre-litigation notice under IBC changed the company's position, resulting in full payment within days.
The Direct Legal Answer
What is the most effective and practical legal route for a small team to force a settlement?
A consolidated legal notice sent by all affected professionals, followed by a potential application under Section 9 of the Insolvency and Bankruptcy Code, 2016 as operational creditors. When the notice is strategically addressed not just to the company but to its directors and key investors, the pressure to avoid insolvency proceedings often forces a quick resolution — just as it did here. Civil recovery suits are slower and more expensive. Make no mistake, the IBC route can be a powerful negotiation lever even before the filing.
Do we still qualify as operational creditors under Section 5(20) of the IBC even if we file taxes under Section 44ADA?
Yes. Operational creditor status under Section 5(20) hinges on a debt that arises from the provision of goods or services, not on the tax classification of the provider. The fact that TDS was deducted under Section 194J for technical services and that you file under Section 44ADA as independent professionals does not disqualify you; it actually reinforces that you rendered services for which payment is due. The unpaid fees are squarely an operational debt.
Does the Indian entity's defence that they are waiting on funds from their US parent hold any legal standing under Indian law?
No. The Indian entity cannot use the non-receipt of funds from a foreign parent as a defence to avoid paying its own contractual dues. The obligation to pay flows from the engagement and the direct payment history. Indian contract law treats the Indian company as the paymaster when it has itself made all prior payments. It's that simple. Such a defence is commercially understandable but legally hollow.
If our lawyer sends formal legal notices directly to US board members or investors, can the company file valid defamation or counter-claims against us?
Sending a bona fide legal notice to directors or investors, even those based abroad, to assert a legitimate claim and propose settlement is not defamation. Defamation requires a false statement made with intent to harm reputation. A factual assertion of unpaid dues, backed by evidence, is protected communication. But it's critical that the notice be carefully drafted — aggressive language or unfounded allegations can invite a harassment claim. Advocate Sudhir Rao's office ensured the notice stuck to verifiable facts, keeping the counter-claim risk negligible.
Advice in Such Cases
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 to 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.
Don't wait until the company winds down or strips its assets. Speed matters. Also, pool resources with other unpaid professionals — a group demand carries more weight and reduces individual costs. This type of matter, sitting at the intersection of contract, tax records, and insolvency law, needs a practitioner who regularly handles operational creditor claims. General practitioners often overlook the IBC lever entirely, costing months of delay.
Applicable Sections of Law
- Section 5(20) and Section 9 of the Insolvency and Bankruptcy Code, 2016 — defining operational creditors and the process for initiating corporate insolvency resolution by them.
- Section 73 of the Indian Contract Act, 1872 — compensation for breach of contract where payment for services is withheld.
- Section 194J of the Income Tax Act, 1961 — TDS on technical services, which here created strong documentary evidence linking the Indian entity to the payment obligation.
- Order 38 Rules 1-5 of the Civil Procedure Code, 1908 — attachment before judgment, if you fear the company may dispose of assets.
Jurisdiction — Where to File the Case
For an IBC application under Section 9, jurisdiction lies with the National Company Law Tribunal (NCLT) bench where the registered office of the corporate debtor is located. That's Pune for NovaTech. If you choose a civil recovery suit instead, you file before the Civil Judge (Senior Division) or Commercial Court (if the claim exceeds the prescribed pecuniary limits and qualifies as a commercial dispute), in the place where the cause of action arose or where the defendant company has its registered office. Pecuniary jurisdiction depends on the total claim value. Choosing the wrong forum can delay everything, so it's one more reason to get quick legal advice on where to file.
Limitation Period
Under Article 55 of the Schedule to the Limitation Act, 1963, a suit for recovery of money on a contract runs for three years from the date the debt becomes due. For each missed payment, the clock starts separately. If you have been waiting since October 2024, you still have ample time — but don't let the dues age further. Missing the limitation period is fatal unless you can show sufficient cause for condonation of delay, which is rarely granted in commercial recovery claims. Acting now preserves your right to sue.
Interim Reliefs Available
If you file a civil suit, you can move under Order 38 CPC for attachment before judgment of the company's bank accounts or assets, provided you can show the defendant is attempting to defeat or delay execution. An order of status quo or an injunction against alienating specific assets under Order 39 CPC may also be sought. In IBC proceedings, once an application under Section 9 is admitted, a moratorium freezes all creditor actions and asset transfers. Interim relief, especially attachment before judgment, can paralyze a recalcitrant debtor's cash flow and force a quick settlement.
If You Are the Victim
- Stop working if payment cycles break irretrievably — do not compound the debt with more unpaid work.
- Gather all payment records, TDS certificates, Form 26AS, and email communications immediately.
- Connect with other affected professionals and act together; a unified front reduces costs and amplifies legal pressure.
- Don't sign any waiver or full-and-final settlement without independent legal review.
- Send a formal legal notice through an advocate who understands IBC and operational creditor claims.
Documents You Must Keep Ready
- Signed contracts or engagement letters (even if with the US entity).
- All invoices raised and payment confirmations from the Indian entity’s account.
- Bank statements showing INR credits from the company.
- Form 26AS and Annual Information Statement (AIS) reflecting TDS under Section 194J.
- Email threads, WhatsApp messages, and Slack logs where management acknowledges dues.
- Copies of experience or relieving letters (if any earlier version exists) and the waiver they asked you to sign.
- Details of directors, registered office address, and CIN of the Indian company from MCA records.
What Evidence Is Required?
- Primary: Bank statements showing direct INR credits from the Indian entity — this defeats any privity-of-contract defence.
- TDS certificates and Form 26AS — treated as admission of payment liability.
- Written communication where the company blames the US parent for non-payment — this is an acknowledgment of dues.
- Contracts, even with the US entity, to establish the service scope.
- Attendance records, project deliverables, and code commits — prove work was done.
- Secondary: Witness statements from fellow contractors, corroborating the non-payment.
- Keep everything digital and back it up; paper trails win these cases.
How Courts Typically Approach Such Cases
When presented with systematic TDS deduction and a chain of INR payments, courts generally view the Indian entity as the real contracting counterparty. The tribunal or civil court won't be charmed by the "parent hasn't paid us" line. NCLT benches, in particular, treat technical fee arrears as operational debt and admit applications if the debt is undisputed and exceeds the threshold. But courts also expect you to have exhausted a notice period. That's precisely why a well-drafted demand notice under IBC — with a copy to the company's board and investors — works: it shows you're serious and leaves the debtor with no procedural excuse.
Timeline of Legal Process
- Demand notice under Section 8 IBC (or legal notice) — immediate, with 10 days to respond.
- If unsatisfied, file Section 9 application before NCLT — 1-2 weeks to prepare and submit.
- NCLT admission review — 14 days from filing; if admitted, moratorium begins and Interim Resolution Professional appointed.
- Alternatively, a civil suit: plaint filing, summons, written statement in 30-90 days, evidence stages, arguments — may take 1.5–3 years for final decree.
- Settlement pressure is highest right after the notice or just before the first NCLT hearing. That's your window.
Understanding the Costs
The total cost of a matter like this varies significantly from one case to the next — it depends on the complexity of the dispute, the forum involved, the number of hearings, and the specific facts of your situation. There is no single fixed figure that applies to everyone.
A professional advocate can give you an accurate estimate only after reviewing all your facts and documents in a consultation.
Can the Matter Be Settled Out of Court?
Yes, and most such cases do settle. A pre-litigation mediation or even a strongly worded lawyer’s notice can bring the company to the table. If the matter reaches court, the judge may refer the dispute to mediation or Lok Adalat under Section 89 CPC. Since this is a commercial money recovery, it is not a compoundable criminal offence; it is purely civil. A formal compromise deed, detailing full payment, release of documents, and withdrawal of any potential claims, can be executed and presented to the court if a suit has already been filed. Settlement almost always makes sense — it saves time, money, and business relationships.
Common Mistakes People Make
- Continuing to work for months without pay on empty promises — this enlarges the debt and weakens your bargaining position.
- Signing a full-and-final waiver or settlement document on a low-ball offer without legal review.
- Not downloading or preserving TDS records, Form 26AS, and bank statements in a panic.
- Filing individual complaints in small instalments, missing the opportunity to pool claims and increase pressure.
- Engaging a lawyer without specific experience in IBC-driven recovery or operational creditor strategy — the notice isn't just a letter, it's a tactical instrument; an unfocused notice can ruin the leverage.
- Ignoring limitation — waiting too long and losing the legal right to sue.
FAQs People Normally Have
My contract says "US parent." Can the Indian subsidiary just walk away?
No. If the Indian entity made all payments, deducted TDS, and directed your work, it is estopped from arguing it isn't liable. Courts look at the substance, not the paper.
We are IT contractors. Do we need to prove supervision and control to claim?
Not for an IBC operational-debt claim. You only need to show that a service was provided and that payment is due. The tax treatment under Section 194J actually strengthens your case.
What if the company shuts its Indian office before we sue?
File an application for attachment before judgment immediately. You can also move the NCLT; once a petition is admitted, asset stripping stops.
Can the company’s investors also be pressured to pay?
Investors aren't directly liable, but receiving a factual legal notice often prompts them to press management to settle and avoid public insolvency proceedings that would damage their investment.
Will the lawyers’ fees eat up most of our recovery?
Not if you act as a group. Costs are shared, and early settlement avoids litigation expenses entirely. The chamber's strategy in this case secured recovery without a single hearing, keeping the cost-to-recovery ratio very low.
This article is general legal information, not legal advice. Consult a qualified advocate about your specific situation.
Advocate Sudhir Rao, Supreme Court of India