How to Recover Dues From a Buyer in Another State as an MSME

Can you recover from an out-of-state buyer without going there?

For most of the case, yes. The Micro, Small and Medium Enterprises Development Act, 2006 (the MSMED Act), which gives micro and small suppliers their own recovery route, was written with exactly this problem in view. A small unit in Sahibabad can't afford to chase a Chennai buyer through Chennai's courts. Parliament knew that. So Section 18(4) hands jurisdiction to the Micro and Small Enterprises Facilitation Council of the state where the supplier is located, and says this applies notwithstanding anything in any other law. Your buyer could be anywhere in India. You still start at the Council down the road, not a court at the other end of the country.

Think of it in three phases. Only the last one usually travels. First, you file with your own Council, and it hears the claim through conciliation and, if that fails, arbitration. Second, if the buyer wants to attack the award, it has to go to the courts that supervise your Council, and it has to deposit 75 percent of the amount before it's heard. Third, only if the buyer still won't pay do you go where its money is. That's normally its home state.

There are exceptions. None of this helps a medium enterprise. It may not help if you weren't registered when the contract was made and the buyer argues that successfully. And it's doubtful for a business that's mainly a trader. For those suppliers, the commercial suit we discuss further down is the main option.

The provisions that decide which Council hears an interstate claim

That 'courts at Mumbai only' clause in their purchase order

Before the Council, it doesn't carry the weight the buyer thinks. Big buyers put exclusive jurisdiction clauses in their purchase orders as a matter of habit, and some add an arbitration clause naming an institution in their own city. For years the High Courts couldn't agree on whether such a clause decided which court would hear a challenge to a Council award. Some decisions from Delhi, Bombay, Calcutta and Gujarat said the supplier's location was only the venue and sent challenges to the contractual seat. Others said Section 18(4) fixed the seat itself. It was a mess.

Harcharan Dass Gupta (2025) settled it, and the supplier won. The seat is wherever the supplier's Council sits. The courts with jurisdiction over that place hear petitions under Section 34 of the Arbitration and Conciliation Act, 1996, and other court applications tied to that arbitration. For a Ghaziabad supplier, that means the courts in Uttar Pradesh. For a Delhi supplier, it's the Commercial Court in Delhi, or above Rs 2 crore the Commercial Division of the Delhi High Court (a proposal to raise that limit is pending, so check the current figure).

Skip the Council, though, and the clause comes back to life. If a supplier files an ordinary civil suit, or a medium enterprise has no Council route at all, a court will usually enforce an exclusive jurisdiction clause that names a court which otherwise has jurisdiction. It's one of the less talked-about advantages of the Council route for interstate claims.

Getting the buyer's identity and addresses right

Before anything else, nail down exactly who the legal entity is. Out-of-state buyers often trade under a brand, order through a branch and pay from a group company. Look up the buyer's GSTIN on the GST portal. It shows the legal name and the principal place of business. If it's a company, check its registered office and directors on the Ministry of Corporate Affairs master data. File against 'ABC Retail, Pune branch' when you actually contracted with 'ABC Consumer Products Private Limited, Mumbai', and you're inviting months of objections.

Next, gather every address and contact you've got. The registered office. The plant or warehouse that took your goods. The purchase department's email, the accounts payable email, and the mobile number of whoever placed the orders. Councils send notices by email and post, and some will put a notice in a newspaper if the buyer keeps ignoring them. Give them more working addresses and you lose less time.

For interstate claims, Advocate B.K. Singh always sends the pre-filing demand notice to two places, the registered office and the plant that received the goods, plus an email to the person who signed the purchase orders. Why bother? Because distant buyers love to say later that the notice went to an address nobody checks. Once it's reached the people who actually dealt with you, that argument is dead, and quite often the first real reply follows.

Recovering from an interstate buyer, stage by stage

This is how it goes for a registered micro or small supplier using the Council. How long each stage takes depends on the state, and on how hard the buyer fights.

1. Check you qualify, and which unit supplied

   Compare your Udyam registration date and category with the contract date. If you have units in two states, work out which one made the supply and shows on the invoices and the Udyam record. The tricky cases are covered in our guide on which Council has jurisdiction.

2. Pin down who the buyer is and what it owns

   Write down its legal name, GSTIN, registered office and CIN. Then note whatever you know about its assets: the bank accounts it pays from, its plants, its big customers. You'll want all of this at the enforcement stage.

3. Send a demand notice

   Show principal and Section 16 interest separately, with an invoice sheet attached, and give 15 days. The reply, if there is one, usually tells you whether the buyer plans to dispute quality or just drag things out.

4. File the reference online

   File on the Ministry of MSME's online dispute resolution portal, against the buyer's exact legal name. Our guide on filing an MSME Samadhaan complaint online explains the form. The portal routes the reference to your Council on its own.

5. Join negotiation and conciliation online

   The buyer gets invited to settle, first on the portal and then before the Council. Most out-of-state buyers join by video. Get every offer in writing. Insist on payment dates.

6. Run the arbitration

   If conciliation fails, the Council arbitrates itself or sends the case to an institution. File your statement of claim with documents indexed. If the buyer stays away after proper notice, the Council can go ahead, but it still has to hold a real hearing and give a reasoned award.

7. Keep watch for a challenge in your state

   The buyer gets three months from receiving the award, plus up to 30 days more on sufficient cause, to file under Section 34, and it must deposit 75 percent first. Lodge a caveat in the court likely to hear it. That way you're told the moment it's filed.

8. Execute where the money sits

   No challenge, or a failed one? File execution in the court where the buyer's bank accounts, receivables or property are. Usually that's a court in the buyer's state.

Make one person in your business responsible for the portal, the Council's emails and the calendar, from start to finish. We've seen more interstate cases slip on a missed email than on any point of law.

Council hearings when the buyer is hundreds of kilometres away

These days, mostly online. Since mid-October 2025, new delayed payment references go on the Ministry of MSME's online dispute resolution portal, which handles notices, uploads and virtual sittings. The Delhi, Uttar Pradesh and Haryana Councils still fix some physical sittings, especially once it reaches arbitration. But an out-of-state buyer is usually allowed to join by video. That cuts both ways. The buyer can't ask for adjournments because of distance. Neither can you.

Don't treat a buyer who stays away as an easy win. In Jharkhand Urja Vikas Nigam v. State of Rajasthan (2021), the Supreme Court set aside a Council's order passed without proper arbitration proceedings after conciliation failed. The Council has to give notice, record that conciliation failed, actually conduct the arbitration and give a reasoned award. A careful award against a buyer that chose not to turn up is far harder to knock down than a two-page order passed in a hurry.

Keep an eye out for a counter-claim. A buyer can't start an independent claim of its own before a Council. The Delhi High Court said so in Uniseven Engineering v. MSEF Council (2023). Once you've made a reference, though, the buyer can raise a counter-claim inside it, say for short supply or delay penalties. Be ready to meet it in the same proceedings.

Where the buyer challenges the award, and the deposit it must make

In your state's courts. Not its own. Since the seat follows the supplier, a Section 34 petition against a Delhi Council award goes to the Commercial Court in Delhi or to the Delhi High Court, depending on value. A petition against an Uttar Pradesh Council award goes to the court with jurisdiction over that Council's area. If the buyer files at home instead, it should expect to be told it's in the wrong court.

Before its challenge can be heard, Section 19 of the MSMED Act makes the buyer deposit 75 percent of the awarded amount. The Supreme Court treated this as mandatory in Tirupati Steels v. Shubh Industrial Component (2022), while allowing instalments in a fit case. The court may also let you withdraw part of the deposit while the challenge is pending. And the buyer can't dodge all this with a writ petition. In India Glycols v. MSEFC (2023), the Supreme Court held that a writ can't be used to get round Section 34 and its deposit. There's more in our note on whether a buyer can challenge an MSME Council award.

With an out-of-state buyer, the deposit has a very practical upside. Money lying in a court in your own state is money you don't have to trace somewhere else.

Enforcing the award against assets in another state

Once the time for challenge has run out, or the challenge has failed, a Council award is enforced like a civil court decree under Section 36 of the Arbitration and Conciliation Act, 1996. In Sundaram Finance v. Abdul Samad (2018), the Supreme Court held that the award holder can file execution straight in the court where the debtor's assets are, anywhere in India. No transfer from the seat court is needed first. Against an interstate buyer, that saves you a whole round of paperwork.

From there, Order XXI of the Code of Civil Procedure takes over. You can attach bank accounts, get garnishee orders on money the buyer's customers owe it, attach and sell movable or immovable property, and in the right case have the buyer's officers examined about what it owns. Court fee on execution follows the schedule of the state you file in, so check the current figure. Our note on what happens after an MSME Council award covers this stage in general. For the court mechanics, commercialcourtlawyer.com has a longer page on execution of a decree.

You'll usually need a lawyer who appears in that court. We work with associate counsel in other states for exactly this, so your file, the strategy and the reporting stay in one place even when the hearing is in Pune or Chennai.

What an interstate claim costs in time and money

Papers to collect before you file against a distant buyer

Would a commercial suit work better against an out-of-state buyer?

Sometimes. For some suppliers it's the only option. Section 20 of the Code of Civil Procedure lets you sue where the defendant resides or carries on business, or where the cause of action arises in whole or part, and for unpaid invoices that often includes the place where payment was due. But if the purchase order has an exclusive jurisdiction clause, courts will generally hold you to it, as long as the named court also had jurisdiction. The Supreme Court explained this in A.B.C. Laminart v. A.P. Agencies (1989) and Swastik Gases v. Indian Oil Corporation (2013). So a suit may well end up in the buyer's city.

A commercial suit comes with its own baggage. There's pre-institution mediation under Section 12A of the Commercial Courts Act, 2015, unless you need urgent interim relief. There's court fee on the claim, and a strict timetable for the written statement. What you get in return is attachment before judgment if assets are being moved, and the summary suit procedure where you have a written contract or an admitted debt. The court side is covered in the commercialcourtlawyer.com guide on filing a recovery suit against a debtor in another city.

Our view? If you're a registered micro or small supplier with clean papers, start at the Council. The main reason is simple: it stays in your state until enforcement. Our comparison of the MSME Council and the commercial court goes through the trade-offs in more detail.

The buyer has sued you in its home state. Now what?

It happens. You send a demand, and the buyer answers by filing a suit at home, asking for a declaration that nothing's due, or damages for bad goods or late delivery. That doesn't stop your Council reference. The buyer can't take the delayed payment dispute to its own state's Council, because Section 18 deals with amounts owed to a supplier. And its civil suit doesn't oust the Council's statutory jurisdiction over your claim.

You do still have to respond. Ignore a summons from a court in another state and you could end up with an ex parte decree against you. When a distant buyer files a suit like this, the first thing Advocate B.K. Singh checks is whether it claims anything the Council can't decide, damages far beyond the invoices for instance. If it does, both cases may run side by side, and the defence has to be planned for both. If the suit just repeats the buyer's answer to your invoices, there are usually grounds to ask that court not to go ahead with a duplicate dispute.

Keep both sets of papers consistent. Concede a figure in one forum and it'll be read out against you in the other.

Where MSMEs go wrong with buyers in other states

• Going after the brand instead of the company. File against a trade name or a branch office and you'll spend the first few months fighting identity objections.
• Taking the buyer's jurisdiction clause at face value. Lots of suppliers assume they have to go to the buyer's city. On the Council route, they don't.
• Filing from the wrong unit. If the Udyam record shows a different unit from the one that supplied, a jurisdiction objection is coming.
• Notices landing in an email inbox nobody opens anymore. Out-of-state cases run on email. Miss a notice and you can miss a sitting.
• Never writing down the buyer's bank details. The account it paid you from is often the first thing you attach in execution. Note it every time a part payment comes in.
• Letting it drift. Limitation applies at the arbitration stage, and distant buyers are good at stretching talks out for months. See the time limit for an MSME delayed payment claim.

How it changes with the kind of buyer

• A private or public limited company. The usual case. Its registered office decides where you serve notice and, if things go that far, which NCLT bench would hear an insolvency petition.
• A partnership firm or a proprietor. The Council route works just the same, and the partners or the proprietor can be personally liable for the firm's debts. The corporate insolvency process isn't available against them, though.
• A central public sector undertaking. Offices all over India, but one legal entity. Serve the office you contracted with and the registered office. You'll get a detailed defence and probably a challenge. See MSME claims against a government department or PSU.
• A department of another state's government. The Act binds it as a buyer. Execution against government money has its own procedure, so expect it to take longer at the end.
• The Indian arm of a foreign group. It usually has assets in India and a name to protect here. A clear demand with the interest worked out often gets its compliance team moving.

When insolvency or a negotiated deal makes more sense

Say the buyer is a company that owes you Rs 1 crore or more in undisputed principal and looks unable to pay its creditors generally. Then an insolvency petition before the NCLT bench for its registered office is worth a thought. That bench will usually be in the buyer's region, not yours. And remember what the process is. It's collective. It isn't a collection tool. Read when an MSME can go to insolvency instead of the Council before you choose it.

For smaller sums against a buyer far away, a settlement with firm dates and a consent award can be worth more than a full award you then have to enforce in another state. A settlement recorded in conciliation has the status of an arbitral award. If the buyer defaults, you enforce it the same way.

This week's to-do list

Run the buyer's GSTIN and company details and write down its exact legal name and registered office. Take out your Udyam certificate and make sure the unit and address on it match the unit that supplied. List the unpaid invoices with their delivery dates, and against each past payment note the bank account it came from. Then send a demand notice to the registered office, the plant that received the goods and your purchase contact, with the interest worked out and attached. Want the full picture of the Council process first? Read how the MSME Facilitation Council works.

If you'd like your papers looked at before you file against a buyer in another state, or want to hear when the 2026 amendments to the Council provisions come into force, get in touch with Advocate B.K. Singh's team through the contact page.