Recovery From Debtors

There is no single answer, and the honest one is that the fastest route depends on who the debtor is, what documents exist and whether you are a registered micro or small enterprise. For a registered micro or small supplier, the MSMED route is usually both fastest and most valuable. For a written contract or a dishonoured cheque, a summary suit. For a company owing over a crore with no genuine dispute, the insolvency route creates the most pressure.

Section 15 of the MSMED Act requires a buyer to pay a micro or small supplier by the agreed date, and in any event within forty-five days of acceptance or deemed acceptance of the goods or services. An agreed credit period longer than forty-five days does not override it.

Section 16 provides compound interest with monthly rests at three times the bank rate notified by the Reserve Bank, from the appointed day. It applies regardless of what the contract says about interest, and on an old overdue invoice the interest can approach or exceed the principal.

Yes, and the timing matters more than most suppliers realise. The Supreme Court has held that a party not classified as a supplier under the Act on the date of the contract cannot claim its benefits for that contract — registration operates prospectively, for transactions entered into afterwards. Registering after the invoice goes unpaid does not retrospectively bring the supply within the Act.

No. In Gujarat State Civil Supplies Corporation v. Mahakali Foods the Supreme Court held that a reference to the Facilitation Council under Section 18 is maintainable despite an independent arbitration agreement — Chapter V of the MSMED Act overrides the Arbitration and Conciliation Act in this respect.

The Council first attempts conciliation under Section 18(2). If that fails, it either takes up the dispute as arbitration itself or refers it to an institution, and the Arbitration and Conciliation Act applies as though there were an arbitration agreement. The Council is directed to decide the reference within ninety days.

They can apply to set it aside, but Section 19 requires the buyer to deposit seventy-five per cent of the amount awarded before the application is entertained. That deposit requirement is the real commercial force of the MSMED route.

Yes, and it is often more persuasive than the interest. Under the Income-tax Act, 2025, Section 37(2)(g) carries forward the rule previously in Section 43B(h) of the 1961 Act: a payment to a micro or small enterprise outside the MSMED time limit is deductible only in the year it is actually paid. The buyer therefore loses the deduction in the year of the expense, and there is no relief for paying by the return due date.

For a commercial dispute of the specified value, Section 12A of the Commercial Courts Act requires the plaintiff to exhaust pre-institution mediation before instituting a suit, unless the suit contemplates urgent interim relief. The specified value is three lakh rupees and above, so most B2B receivables are caught.

Yes. In Patil Automation v. Rakheja Engineers the Supreme Court held Section 12A is mandatory, and that a suit filed in breach of it is liable to be rejected under Order VII Rule 11. This is not a formality that can be skipped.

Not by simply adding a prayer. In Yamini Manohar v. T.K.D. Keerthi the Supreme Court held there is no absolute right to bypass Section 12A by making a prayer for urgent interim relief; the court examines whether urgent relief is genuinely contemplated or whether the prayer is camouflage.

The authority is to complete the process within three months of the application, extendable by two months with the consent of the parties. It is conducted through the Legal Services Authority under the 2018 Rules.

Yes, and that is the underrated part of the process. A settlement arrived at under Section 12A has the same status and effect as an arbitral award on agreed terms, so it is enforceable as a decree rather than being merely another promise to pay.

Under Order XXXVII of the Code of Civil Procedure, for suits on bills of exchange, hundis and promissory notes, and for suits to recover a debt or liquidated demand arising on a written contract, an enactment, or a guarantee for a debt or liquidated demand. The advantage is that the defendant must obtain leave to defend, which they get only by raising a triable issue.

One crore rupees. Since the notification of 24 March 2020, the minimum amount of default for an application under Sections 7, 9 or 10 is one crore, and that threshold must be satisfied on the date the application is filed. Operational creditors cannot club separate claims to reach it.

No, and treating it as one is how applications get dismissed with costs. The Code is an insolvency resolution framework. Where it is used purely as recovery pressure against a solvent company, tribunals say so.

Under the Mobilox Innovations test, if the corporate debtor shows a plausible contention requiring further investigation — raised before the demand notice — the Section 9 application must be rejected. The defence need not be likely to succeed; it only has to be more than moonshine. This is why an unanswered quality complaint sitting in your inbox can defeat an otherwise clean claim.

Sections 7 and 9 apply to a corporate debtor — a company or an LLP. A proprietorship or an ordinary partnership is pursued through the civil, summary suit or arbitration route instead.

Only where the facts genuinely support it. A payment default is a civil matter. Criminal provisions require deception from the outset, or entrustment and dishonest conversion. Filing a criminal complaint over a commercial default invites a quashing petition and adverse observations, and it rarely accelerates payment.

Generally three years, but the starting point differs by claim — for goods sold and delivered it runs from the date of delivery where no credit period was agreed, and from the expiry of the credit period where one was. Check the applicable Article rather than assuming a single date.

Yes. Under Section 18 of the Limitation Act a written acknowledgement of liability signed before the period expires starts a fresh period, and under Section 19 a part payment does the same. A signed ledger confirmation obtained annually is the cheapest limitation management there is.

Considerably. It can establish the balance, acknowledge liability and restart limitation at the same time. Obtaining them as routine practice at year end is worth more than any amount of chasing later.

Often yes — under the Interest Act, from the date of a written demand, and the court has discretion to award interest pendente lite and on the decree. The MSMED position is different and far stronger. An unsupported interest figure in a demand weakens the whole claim, so compute it on a stated basis.

Assess it honestly before choosing a route. A genuine quality dispute closes the insolvency route, complicates the summary suit and is better dealt with through reconciliation or mediation. A dispute raised for the first time after your notice is a different matter, and the timing is the point.

Execution is a separate proceeding and often harder than obtaining the decree. It involves identifying assets, attachment, garnishee of bank accounts and receivables, and where appropriate examination of the judgment debtor about their means. Factor it into the decision at the start, not at the end.

Sending reminders for two years and then choosing a route in a hurry when limitation is near. By then the evidence has aged, the MSMED registration timing cannot be fixed, and the options have narrowed to the slowest one.