In short. If a customer took delivery and won't pay, you're claiming the price of goods the buyer accepted. Prove delivery and acceptance and the law is firmly with you. Stop supplying on credit. Collect the signed delivery papers and GST records, answer any quality complaint in writing, then send a legal notice and go to the MSME Council, or to Section 12A mediation and a commercial suit. This guide is for manufacturers, traders and distributors. Move within days, not weeks. Both the buyer's objections and limitation turn on dates.
Is this your situation?
- The truck was unloaded, the challan got signed at the gate, and that was six weeks ago. No payment.
- They've already run your raw material through their line, or sold the stock on. Now it's "next month", or nothing.
- Nobody said a word at delivery. Weeks later, the goods are suddenly defective, short or late.
- Another consignment for the same buyer is sitting packed in your godown, or is already on a truck.
- You've thought about sending your own people to bring the goods back.
- The buyer's in another state, and all you have is a printed line on your invoice saying "subject to Delhi jurisdiction".
- You're a registered micro or small enterprise and the 45-day period has come and gone.
A customer took delivery and won't pay. What now?
Treat this as a claim for the price of goods the buyer has accepted. Your whole file rests on two things, delivery and acceptance. Under Section 55 of the Sale of Goods Act, 1930, once ownership has passed to the buyer and it wrongfully refuses to pay, the seller can sue for the price. And in an ordinary trade sale, ownership almost always passes on delivery. Three plain questions decide your case. Can you prove what was delivered? Can you prove the buyer accepted it? Did the buyer raise a genuine complaint in time?
The first few days after the buyer refuses to pay count for more than the next few months. That's when you stop supplying on credit, use whatever rights you have over goods still with you or in transit, get hold of the delivery papers before they scatter, and answer complaints in writing. Then comes the legal notice. After that, the MSME Facilitation Council if you're an eligible micro or small supplier. If you're not, Section 12A mediation and a commercial suit.
We're dealing here with goods already delivered. If you're the buyer, and you paid an advance for goods that never came, it's the other way round, and our guide on getting an advance back from a supplier who didn't deliver is the one to read.
The first 48 hours: what to stop, what to keep
Stop sending goods on credit. Customers who aren't paying rarely pay faster because more goods keep turning up. It sounds obvious. Yet we regularly meet suppliers who kept dispatching in the hope the relationship would carry the old bills, and ended up owed twice as much. If orders are pending, write to the buyer that further supplies will go against payment, or once the overdue invoices are cleared. Where earlier payments are overdue, that's a commercial call you're entitled to make. Put it in writing, so nobody can say later that you broke the contract.
Goods still in your godown? Section 47 of the Sale of Goods Act gives an unpaid seller in possession a lien. You can hold them until paid where the sale wasn't on credit, where the credit period has run out, or where the buyer has become insolvent. If the goods are with the transporter and the buyer has become insolvent, Section 50 lets you stop them in transit by notice to the carrier. These rights are narrow. They're real, though. And they disappear the moment the goods reach the buyer.
Then gather the papers. Delivery challans, lorry receipts, e-way bills and, more than anything, the buyer's signed and stamped acknowledgment of receipt. Advocate B.K. Singh often finds that the supplier's only proof of delivery is a challan signed by someone nameless at the buyer's gate, with no stamp. Before the dispute hardens, get the transporter's proof of delivery and look for the buyer's own goods receipt note or inward entry. Those carry far more weight than a gatekeeper's initials.
The Sale of Goods Act rules that settle these fights
Sections 41 and 42, Sale of Goods Act, 1930: examination and acceptance
The buyer gets a reasonable chance to examine the goods on delivery. It's treated as having accepted them when it says so, when it does something inconsistent with the seller still owning them (using, processing or reselling the goods), or when it keeps them beyond a reasonable time without telling the seller it rejects them.
Section 43: rejected goods
A buyer who rightfully refuses goods doesn't have to send them back. Telling the seller it rejects them is enough. Everything turns on the word rightfully, and the rejection has to be clear and on time.
Sections 45 to 54: the unpaid seller
Any seller not paid in full is an unpaid seller. While it still holds the goods, it has a lien over them (Section 47), and if the buyer becomes insolvent it can stop goods in transit (Section 50). Sometimes it can resell after notice (Section 54). Once the goods are delivered and accepted, all of this falls away. What's left is a claim for the price.
Sections 55, 56 and 61: suit for price, damages and interest
The seller can sue for the price where ownership has passed, or where the price was payable on a fixed day whether or not the goods were delivered. If the buyer wrongfully refuses to accept the goods at all, you claim damages instead. Interest can be claimed under the contract, or as the court allows.
Section 2(b) and Sections 15 to 18, MSMED Act, 2006
For micro and small suppliers, the buyer has to object to the goods in writing within 15 days of delivery. If it doesn't, the delivery date counts as the date of acceptance. Payment is due within the agreed period, which can't exceed 45 days from acceptance. After that, compound interest at three times the RBI bank rate kicks in, and the supplier can go to the MSME Facilitation Council.
Did the buyer accept the goods? Everything hangs on that
Acceptance is the hinge of every goods-delivered-not-paid case. Section 42 says a buyer accepts goods by saying so, by behaving as owner, or by holding on to them too long without rejecting them. Unpacked the cartons? Fed the raw material into production? Sold the goods on, or just sat on them for two months without a word? In almost every case that's acceptance. From then on, a defect gets the buyer a reduction in price or damages. It doesn't get it the right to refuse payment altogether.
Use the buyer's own paperwork to prove acceptance wherever you can. Its goods receipt note, its quality inspection report, an entry in its inward register, its invoice for selling your goods onwards, a debit note it raised for a small shortage (which accepts the rest), its input tax credit claim on your invoice. All useful. An email asking for the next consignment, or for changes in the next batch, shows acceptance too.
Micro and small suppliers get a cleaner rule under the MSMED Act. Unless the buyer objected in writing within 15 days of delivery, the day of delivery is the day of acceptance. The 45-day payment period runs from there. A quality complaint first heard on day 60 doesn't reset anything.
When the buyer won't pay over quality, shortage or delay
A quality complaint is the commonest excuse, and it needs a careful reply, not an angry one. Ask in writing for specifics. Which consignment? Which items, what defect, how many units, and what has the buyer done with them? Offer a joint inspection, or a test at an independent laboratory you name. Keep your own dispatch inspection reports, batch records and photographs to hand. Buyers with a real complaint engage. One using quality as cover usually goes vague, and stays vague for as long as you let it.
If part of a consignment really was bad, deal with that part on its own. Accept a fair debit note for the defective units where it's justified, and demand the rest. Courts don't like buyers who hold back the whole payment over a small defect. They also notice suppliers who ignored complaints. So answer every complaint, even the weak ones, in writing and within days.
Shortage claims are fought with weighbridge slips, packing lists and a lorry receipt showing the weight or count. Delay claims depend on whether time was of the essence under the contract, and whether the buyer took late deliveries without protest. If the supply contract itself is in dispute, our page on supply contract and sale of goods disputes deals with the wider questions.
Can you take the goods back?
Not by yourself, no. Once goods are delivered, ownership has usually passed to the buyer. Walk into its premises and remove them without consent, and you and your staff could face a criminal complaint. That's true even if your invoice says the goods stay yours until paid. An Indian court won't let you enforce that by self-help. Reserving the right of disposal under Section 25 of the Sale of Goods Act, or a properly drafted retention of title clause, may give you arguments later in a suit or an insolvency. It doesn't give you licence to go and collect.
A negotiated return is a different matter. Say the buyer genuinely can't pay and your goods are lying unused in its store. Agree in writing that you'll take them back at a fixed value, issue a credit note for exactly that value, and demand whatever is left. That's often sensible. When the goods come back, have both sides sign a joint note of the quantity and the condition.
If the goods have been processed or resold, return isn't an option. Your claim is for the price, full stop. That's no weakness. A buyer that sold your goods on has shown, by its own act, that it accepted them.
GST and tax records as proof of delivery and the debt
Tax records are often the strongest independent evidence a supplier has. They were made at the time, and the buyer can't easily disown them. The e-way bill shows the goods moving, with vehicle details. The e-invoice registration number shows the invoice was reported. Your GSTR-1 shows you declared the supply, and the invoice then shows up in the buyer's auto-drafted input tax credit statement. If the buyer claimed credit on your invoice, it treated the supply as received.
There's a practical lever here as well. Under the second proviso to Section 16(2) of the Central Goods and Services Tax Act, 2017, a buyer that hasn't paid its supplier within 180 days of the invoice date has to reverse the input tax credit it took. It gets the credit back only on paying. Mention this calmly in your notice. It tends to reach the buyer's finance team faster than any threat.
TDS entries work much the same way. If the buyer deducted tax at source on its purchases from you, the entries in your Form 26AS or annual information statement show it accepted the purchase. In goods files Advocate B.K. Singh has the buyer's GST and TDS entries printed early. A buyer who later says it never got the goods has usually told the tax department the opposite already.
From the legal notice to a suit for the price
With the documents in order, have an advocate send a legal notice. It should list each invoice with its delivery proof, deal briefly with whatever complaint the buyer has raised, claim interest at the contract or invoice rate (or under the MSMED Act if you qualify), and give around fifteen days. Send it by speed post and email to the registered office and to the people you actually dealt with.
Still nothing? Once the claim crosses Rs 3 lakh it counts as a commercial dispute, and Section 12A of the Commercial Courts Act, 2015 makes you try pre-institution mediation first. The one exception is a case that genuinely needs urgent interim relief. If mediation goes nowhere, the suit for the price follows, with every document disclosed under Order XI CPC. With a signed purchase order or written contract and tidy delivery proof, a summary suit under Order XXXVII CPC is often on the cards. If the buyer's quality objections have substance, we'd go the regular suit way. Our unpaid invoice recovery page explains how we decide.
Get the interest claim right. Section 34 CPC lets the court award interest, and in commercial matters it can go above 6 percent, though ordinarily not past the contract rate or the rate banks lend at. Our guide on how much interest you can claim on unpaid dues walks through the sums. And if the buyer looks to be selling off stock or machinery to dodge payment, ask your lawyer about attachment before judgment under Order XXXVIII Rule 5.
Micro or small supplier? The 45-day rule and the Council
Udyam registration as a micro or small enterprise changes the arithmetic of the whole dispute. Under the MSMED Act, 2006 your buyer has to pay within whatever period you agreed in writing. That period is capped at 45 days from acceptance or deemed acceptance. With no agreement at all, it's 15 days. Miss the deadline and Section 16 interest starts running at three times the bank rate, compounded monthly, and no clause in the contract can switch it off. For worked dates, see the arbitrationlawyer.in guide on the 45-day payment rule for MSMEs.
You can take the dispute to the MSME Facilitation Council for the state your unit is in, usually through the MSME Samadhaan portal. The Council tries conciliation, then arbitrates. In Mahakali Foods (2022) the Supreme Court held that this route overrides a private arbitration clause. And a buyer who wants to challenge the Council's award has to deposit 75 percent of it first, under Section 19.
Two warnings. First, make sure your Udyam registration came before the purchase order. Buyers object when it didn't, and the law on that point isn't fully settled. Second, look at your registration category. If you're registered as a trader, the eligibility of traders for these delayed payment remedies is disputed. Take advice before you count on it.
Getting paid for delivered goods, in order
Stop credit, hold what you still have
Tell the buyer in writing that further supplies will be against payment. Hold any goods still with you. If the buyer is insolvent, think about stopping goods in transit by notice to the carrier.
Gather proof of delivery and acceptance
Challans, lorry receipts, e-way bills, signed receipts, the transporter's proof of delivery. From the buyer's side, any goods receipt note, inspection report or record of onward sale.
Reply to complaints in writing
Ask for specifics and offer inspection or testing. Accept fair debit notes for genuinely defective units, and demand the balance.
Reconcile and check limitation
Make an invoice-wise statement matched to the ledger and bank receipts. Limitation is generally three years from delivery or from the end of the credit period. Note any acknowledgment or part payment.
Send the legal notice
Claim the price and interest, with 15 days to pay. Mention the GST input tax credit position if it helps.
Pick the forum
An eligible micro or small supplier refers the dispute to the MSME Council. Everyone else applies for Section 12A mediation.
File the suit for the price
If mediation fails, file a summary or regular commercial suit with every document and the Section 63 certificate for electronic records. Ask for attachment before judgment if the buyer is getting rid of assets.
How long it takes and what it costs
| Stage | Usual time | Government and other costs (lawyer's fee not included) |
|---|---|---|
| Stopping supplies and gathering papers | 1 to 2 weeks | Whatever the transporter charges for copies of proof of delivery |
| Legal notice | 2 to 4 weeks, counting the reply period | Just postage |
| Section 12A mediation | Up to 3 months, plus 2 months if both agree | Rs 1,000 application fee, plus a one-time mediation fee by claim slab that both sides share. Check the current schedule |
| MSME Council reference | The statute expects an award in 90 days. In practice it's often 6 months to over a year | Usually nothing, or a nominal fee. Ask your state Council |
| Summary suit for the price | Roughly 6 to 18 months where leave to defend is refused or made conditional | Ad valorem court fee under the state schedule, plus process fee |
| Regular suit with a quality fight | Roughly 18 months to 3 years, sometimes longer | Court fee as above, plus testing or local commissioner costs if the court orders inspection |
| Execution | Months, sometimes a year or more | Process and attachment expenses |
Papers that prove you delivered and weren't paid
The order
- The purchase order or signed contract, or the email or chat where they accepted your quote
- Your price list, the payment terms, the credit period and any interest clause
Dispatch and delivery
- Tax invoices with their e-invoice registration numbers
- Delivery challans, packing lists and weighbridge slips
- Lorry receipts, e-way bills and the transporter's proof of delivery
- The buyer's signed and stamped receipt, or its goods receipt note
Acceptance and the account
- The buyer's inspection reports, inward entries or onward sale records, if you can get them
- Emails asking for more consignments or changes to the next batch
- Your ledger for the buyer, bank statements, and debit and credit notes
- GSTR-1 entries and TDS entries showing the buyer booked the purchase
The dispute
- Every complaint from the buyer with its date, and your written reply
- Your own dispatch inspection reports, batch records, photos and test certificates
- Reminders, the legal notice, proof it was served, and their reply
- Your Udyam certificate with its date, if you're claiming under the MSMED Act
Where to file when the buyer's in another city
Where can you sue? Section 20 CPC offers the buyer's own town, meaning where it resides or carries on business, and any place where the cause of action arose in whole or in part. For goods, the cause of action can arise where the deal was struck, where delivery happened and where the money was to be paid. Take a Delhi manufacturer that sold ex-works from its own factory, with payment due into its Delhi bank account. Even against a buyer in Jaipur or Ludhiana, it may have good grounds to file in Delhi. Our guide on where to file when the debtor is in another city runs through the factors.
Plenty of invoices carry a printed line: subject to Delhi jurisdiction. In A.B.C. Laminart v. A.P. Agencies (1989) the Supreme Court held that parties can pick one of several courts that already have jurisdiction, but can't hand jurisdiction to a court that has none. And a line printed only on your invoice, never signed by the buyer, can be attacked as not part of the contract at all. Don't lean on it alone.
Once you know the place, the value tells you the court. In Delhi, commercial suits up to Rs 2 crore go to the District Judge (Commercial Court), and bigger ones to the Commercial Division of the Delhi High Court. Check the current limit. In Gautam Buddh Nagar, Ghaziabad, Gurugram and Faridabad, the court designated as the district's Commercial Court hears them. An MSME Council reference goes in your own state, wherever the buyer happens to be.
Where suppliers go wrong after delivery
- Sending more goods to get the old dues cleared. The unpaid balance grows. So does the buyer's grip on you.
- Brushing off a quality complaint because it smells like an excuse. Leave it unanswered and it becomes the centre of the buyer's defence.
- Taking returns back informally. If nobody signs a note of quantity, condition and value, you'll end up in a second dispute about what actually came back.
- Trusting the gatekeeper's signature. Get the transporter's proof of delivery and the buyer's receipt note while you still can.
- Pulling goods out of the buyer's premises. Self-help can get a police complaint filed against you, even when the debt is perfectly genuine.
- Giving credit notes mid-negotiation with no settlement signed. They shrink your claim, and they read like admissions.
- Leaving it too long. Three years run from delivery or from the end of the credit period. In a long account, the oldest invoices can expire before anyone notices.
An invented example: corrugated boxes and a late complaint
All of this is invented. Picture a small corrugated box unit in Noida Phase II, on Udyam as a micro enterprise. Its customer is a snack maker in Sonipat that buys printed cartons on 30 days' credit. In four months the unit sends eleven consignments, Rs 16.8 lakh in all. Three get paid for. After that, silence. The supplier's accounts team finally gets the purchase manager on the phone, and hears for the first time that the boxes in two consignments were weak and split in the warehouse.
The packaging unit stops dispatching and keeps the twelfth consignment, already packed, in its godown. It pulls together the lorry receipts and e-way bills and asks the transporter for the signed proofs of delivery, which turn out to carry the buyer's stamp. It spots two more things. The buyer claimed input tax credit on all eleven invoices. And no written complaint came within 15 days of any delivery. The unit writes asking for batch numbers and photos of the split boxes, and offers a joint inspection.
Photos come through of about 400 damaged boxes, all from one consignment. The supplier accepts a debit note for them, roughly Rs 38,000, and sends a legal notice for the remaining Rs 12.3 lakh with interest under the MSMED Act. The notice points to three things: the deemed acceptance, the input tax credit the buyer claimed, and the 180-day reversal rule. When the deadline lapses, the unit files a reference with the Uttar Pradesh MSME Facilitation Council covering Gautam Buddh Nagar. The buyer pays the principal before the conciliation meeting and starts haggling over interest.
Being tough isn't what moved this one. The unit answered the complaint honestly, split the small real problem off from the big unpaid balance, and let the buyer's own tax records do the arguing.
What to do this week
Cut off credit to this buyer today, and keep back anything still in your godown. Pull the delivery papers together, the transporter's proof of delivery included, and take printouts of the buyer's GST and TDS entries. Make a list of invoices with delivery dates. Is the oldest one getting near three years? Write back on every complaint the buyer has raised, however thin. After that comes the legal notice, and a decision between the MSME Council and Section 12A mediation. Two things will help you prepare: our unpaid invoice recovery page and our checklist of documents for a recovery suit.
If you'd like your delivery papers looked at before you act, or want to hear when the law on recovery and MSME payments changes, contact Advocate B.K. Singh through our contact page.
Frequently asked questions
Can a buyer refuse to pay after accepting the goods?
Not lawfully. Once a buyer has accepted goods, by saying so, by using or reselling them, or by keeping them without rejecting them in reasonable time, it has to pay the price. A genuine defect gets it a price reduction or damages. It doesn't get it the right to hold back the whole amount.
How long does a buyer have to reject goods after delivery?
A reasonable time, under the Sale of Goods Act, and what's reasonable depends on the goods and the trade. For micro and small suppliers, the MSMED Act treats the delivery date as the acceptance date unless the buyer objects in writing within 15 days. Either way, the rejection has to be clearly communicated to the seller.
What's the time limit to sue for the price of delivered goods?
Generally three years under the Limitation Act, 1963. It runs from delivery where no credit period was fixed, or from the end of the credit period where one was. A signed written acknowledgment of the debt, or a part payment, before the period ends gives you a fresh three years.
Can I stop goods already on their way to a buyer who hasn't paid?
Only in limited cases. Section 50 of the Sale of Goods Act lets an unpaid seller stop goods in transit, by notice to the carrier, if the buyer has become insolvent. If the goods are still with you and payment is overdue, you can hold them under the seller's lien.
Is a delivery challan signed by the buyer's staff enough proof?
It helps, more so with a stamp and a name. It's much stronger alongside the lorry receipt, the e-way bill, the transporter's proof of delivery and any goods receipt note from the buyer. And the buyer's own GST input tax credit claim on your invoice is strong evidence it received the supply.
The buyer paid part of the invoice. Can I still sue for the rest?
Yes. A part payment doesn't settle the balance unless you agreed to take it in full settlement. If the buyer's part payment appears in writing, it also restarts limitation under Section 19 of the Limitation Act. Don't cash a cheque marked full and final without writing back to reserve your rights.
Does GST law help me get paid by a buyer who's delaying?
Indirectly, yes. Under the second proviso to Section 16(2) of the CGST Act, a buyer that doesn't pay within 180 days of the invoice must reverse the input tax credit it claimed, and can re-claim it only after paying. Mention it in your notice. It often gets the finance team moving.
Can I file a police complaint against a buyer who took the goods and didn't pay?
It rarely helps. Not paying for goods is ordinarily a civil dispute. Cheating under Section 318 of the Bharatiya Nyaya Sanhita needs dishonest intention from the start, like a buyer who ordered with no plan to pay. If cheques bounced, a complaint under Section 138 of the Negotiable Instruments Act is available.
Advocate B.K. Singh
Founder of B.K. Singh & Associates. MCA, LL.B., LL.M. More than twenty years in practice before the Supreme Court, the Delhi High Court, district and commercial courts in Delhi NCR, and tribunals.
This guide explains the law in general terms and is not legal advice. For advice on your own papers, contact the team.