In India, a business can take legal action to recover unpaid payments from a vendor or business partner who has failed to clear outstanding dues despite repeated reminders. The appropriate remedy depends on the contract, invoices, amount outstanding, reason for non-payment, and whether the parties have agreed to arbitration or another dispute-resolution process.
1. What legal steps can a business take?
Send a formal payment demand or legal notice
The business can send a written demand specifying the unpaid amount, invoice numbers, payment due dates, and a deadline for payment. The notice should also refer to the relevant contract or purchase order and explain the legal remedies that may follow if payment is not made.
Keep a copy of the notice and proof of delivery.
File a civil or commercial recovery suit
If the vendor continues to refuse payment, the business may file a recovery suit before the appropriate court. Depending on the documents and nature of the debt, a summary suit under Order XXXVII of the Code of Civil Procedure may be possible. It is not available for every unpaid invoice or disputed claim.
Use arbitration if the contract provides for it
If the agreement contains a valid arbitration clause, the business may need to follow that dispute-resolution process rather than immediately filing an ordinary civil suit.
Consider remedies for eligible MSMEs
If the claimant is an eligible micro or small enterprise with the required registration, it may be able to approach the Micro and Small Enterprises Facilitation Council under the MSMED Act, 2006. The MSME delayed-payment framework provides specific remedies for qualifying claims, including applicable statutory interest. Eligibility and registration details should be checked before filing. 
2. What documents are needed?
A business should prepare a complete record of the transaction, including:
- Contract or purchase order: The agreed scope of work, price, payment terms, and conditions.
- Invoices: Copies of all unpaid invoices, including invoice numbers and due dates.
- Delivery or service records: Delivery challans, goods-received notes, completion certificates, or evidence that the services were provided.
- Account statement: A clear calculation of the total amount due after deducting payments, credit notes, or agreed adjustments.
- Payment records: Bank statements, receipts, and records of any part-payments.
- Written communications: Emails, WhatsApp messages, letters, and acknowledgments of the outstanding amount.
- Reminder and notice records: Copies of previous payment requests and proof of delivery.
- Business registration documents: Relevant company or business records and, where applicable, the Udyam registration certificate.
- Dispute-resolution documents: Any arbitration clause, settlement agreement, or written response explaining why payment has been withheld.
Electronic records should be preserved in their original form where possible. Avoid altering messages or creating documents after the fact.
3. What if the vendor disputes the payment?
The business should ask the vendor to identify the specific reason for withholding payment. For example, the vendor may allege defective goods, incomplete work, incorrect invoices, or a contractual disagreement.
Review the agreement and supporting records before responding. If only part of the invoice is disputed, seek payment of the undisputed amount where appropriate. A genuine contractual dispute may require a different approach from a situation in which the vendor simply ignores payment requests.
4. What if the vendor continues to ignore the business?
If repeated reminders and a formal demand fail, the business should consult a lawyer about the appropriate proceedings. The lawyer can review the contract, identify the correct forum, calculate the amount legally recoverable, and check the limitation period.
Many ordinary contractual money-recovery claims have a three-year limitation period, but the precise starting date and applicable rule depend on the transaction. A legal notice does not automatically extend this period.
Criminal proceedings are not normally justified by non-payment alone. They may be relevant if the evidence discloses an independent offence, such as cheating or forgery.
5. Practical suggestions for businesses
- Maintain a separate record for each unpaid invoice.
- Reconcile the accounts before making a formal demand.
- Keep all communication professional and in writing.
- Avoid repeatedly extending payment deadlines without a documented arrangement.
- Consider mediation or a written settlement if both parties are willing.
- Obtain legal advice early, especially where the amount is substantial or the limitation deadline is approaching.
