How to Recover Unpaid Dues from a Client in India: Legal Notice, MSME Samadhaan and Courts

Start with paper, not pressure

Recovery is easier when the paperwork is clean. Make sure you have a signed contract or purchase order, delivery or acceptance proof, invoices and any email confirming the amount. Send a statement of account and reminders in writing, and record any acknowledgement of the debt by the client, because a written acknowledgement restarts the limitation period. Stop further supplies if the contract allows.

• Contract, purchase order or engagement email
• Invoices and delivery or acceptance proof
• Statement of account
• Emails or messages acknowledging the dues
• Udyam certificate (for MSME remedies)
• Cheque and bank return memo, if any

Send a legal notice

A lawyer's notice sets out the facts, the amount due with interest, the legal basis and a deadline, often 15 days, after which proceedings will follow. Many disputes settle at this stage. The notice also becomes evidence that you demanded payment before going to court or the MSME council.

Use MSME Samadhaan if you qualify

Under the MSMED Act, a buyer must pay a micro or small supplier by the agreed date, which cannot exceed 45 days from acceptance, or within 15 days if there is no agreement. If it does not, compound interest with monthly rests at three times the RBI bank rate is payable. The supplier can file a reference on the MSME Samadhaan portal to the state's Micro and Small Enterprises Facilitation Council, which first attempts conciliation and then arbitrates. A buyer wanting to challenge the award must deposit 75% of the awarded amount.

Courts have held that the supplier should have been registered as a micro or small enterprise when the contract was made, so obtain Udyam registration before signing major contracts. Medium enterprises cannot use these delayed payment provisions.

Court and other routes

Each route has different costs, speed and evidence needs. Choose based on the amount involved, the client's ability to pay and the documents you hold, and remember that routes can sometimes run in parallel.

Timeline

Limitation for most money claims is three years from the date payment fell due, extended by written acknowledgements or part payments. Do not let invoices age beyond a year without formal action. MSME Facilitation Councils are expected to decide within 90 days of the reference, though actual time varies by state.

Common mistakes

Waiting too long, relying on oral agreements, sending notices to the wrong legal entity and ignoring arbitration clauses are common errors. Registering on Udyam only after a dispute arises may also limit MSMED Act remedies.

Step by step

1. 1Reconcile the account

   Prepare a statement of account with invoices and payments.

2. 2Send reminders

   Request payment in writing and seek acknowledgement.

3. 3Check your options

   Confirm Udyam status, cheque, contract and arbitration clauses.

4. 4Issue legal notice

   Demand payment with interest and a deadline.

5. 5File on MSME Samadhaan

   Micro and small suppliers file a reference to the council.

6. 6Mediate or sue

   Go through pre-institution mediation, then file a commercial suit.

7. 7Enforce the award or decree

   Execute against the client's assets if unpaid.