Getting Paid: Understanding Effective Legal Remedies for Money Recovery in India

In the real world of business, it’s not uncommon to find yourself chasing payments. Whether it’s a bounced cheque, a client who keeps delaying your dues, or a breach of contract that’s left your invoice unpaid the financial hit can be frustrating, disruptive, and sometimes even business-threatening.

Unfortunately, this scenario is all too familiar for many individuals, startups, MSMEs, and even established companies across India. Delayed payments and defaults are more than just a nuisance they’re a legal issue that demands a strategic response.

The good news? Indian law offers a wide range of remedies to help you recover what you’re rightfully owed. But to be effective, you need more than just the law on your side you need to understand which legal remedy applies to your case, build a sound recovery strategy, and choose the right legal forum to take action.

Whether it’s sending a legal notice for a bounced cheque, initiating a recovery suit, invoking arbitration, or even pursuing insolvency proceedings — each remedy has its own process, timeline, and impact.

Illustrations:

Case 1: Cheque Dishonour by Distributor A seller supplied goods worth ₹10 lakhs to a distributor who issued post-dated cheques towards payment. Upon presentation, the cheques were dishonoured due to insufficient funds or payment being stopped.

Recommended Strategy:

Issue a legal notice within 30 days from the date of cheque dishonour. If the distributor fails to make payment within the statutory period of 15 days, initiate proceedings under Section 138 of the Negotiable Instruments Act, 1881.Simultaneously, a civil suit for recovery can be instituted. There is no conflict in pursuing both remedies, as one is criminal in nature (punitive) and the other is civil (monetary recovery), thereby increasing the overall pressure and chances of realisation.

Case 2: Delayed Payment to MSME

An MSME vendor provided fabrication services to a large corporation. As per the MSMED Act, 2006, payment is required within 15 days, or up to 45 days if specified by a written agreement. However, the payment was delayed beyond the statutory limit.

Recommended Strategy:

Initiate a claim before the MSME Facilitation Council for recovery along with compound interest. Concurrently, institute a summary civil suit or commence arbitration proceedings if the contract contains an arbitration clause. These remedies are distinct and complementary, thus enhancing the likelihood of timely recovery.

Case 3: Corporate Debtor Default (₹1 Crore and Above)

A logistics company rendered services worth ₹1.2 crores to a corporate entity, which defaulted on payment.

Recommended Strategy:

Serve a demand notice under Section 8 of the Insolvency and Bankruptcy Code (IBC), 2016. If no payment is made, initiate insolvency proceedings before the NCLT. Where fraudulent conduct or misrepresentation is evident, a criminal complaint under the Bharatiya Nyaya Sanhita (BNS) may also be filed. Additionally, if an arbitration clause exists, initiate arbitration for breach of contract. These proceedings, based on separate legal grounds—insolvency, arbitration, and criminal prosecution—may be pursued simultaneously to maximize pressure and recovery.

Case 4:

Fraud by Co-Founder or Business Partner

A co-founder misappropriated company funds through fabricated invoices and dummy vendor arrangements.

Recommended Strategy:

File a criminal complaint under the BNS for fraud, forgery, and criminal breach of trust. Simultaneously, initiate a civil suit to recover the diverted funds, along with a petition for interim relief to freeze the personal assets of the co-founder.Each legal route addresses distinct aspects—criminal liability, monetary recovery, and asset preservation—and collectively enhances the likelihood of justice and recovery.

Case 5:

Secured Loan Default by Borrower

A borrower defaulted on a secured loan of ₹10 crores despite multiple notices. The loan was backed by immovable property as collateral.

Recommended Strategy:

File a recovery application before the Debt Recovery Tribunal (DRT) under the RDDBFI Act, 1993. Parallelly, initiate action under the SARFAESI Act, 2002 to enforce security interest by taking possession of the mortgaged property without court intervention.The SARFAESI process complements DRT proceedings and enables lenders to recover dues efficiently by leveraging both judicial and non-judicial mechanisms. Note: Nature and extent of the litigation/cases will depend on the severity of each case, availability of the documents and amount involved How we assist you?

DUGAIN ADVISORS LLP helps clients recover their dues by using the right mix of civil, criminal, and statutory legal tools. By opting for the most effective route and parallel legal remedies where allowed, we ensure faster recovery, stronger legal pressure, and better chances of enforcement while minimizing risks and protecting long-term interests. Our goal is to get time-bound, practical results for businesses, MSMEs, lenders, and individuals while keeping litigation risks low and protecting legal interests.