Learn how MSME vendors can respond to cheque bounce, delayed payments, Section 138 proceedings and MSEFC remedies, with practical recovery guidance in India.
If your MSME business has already obtained purchase orders, raised invoices, delivery documents, account statements and a dishonoured cheque confirming the unpaid amount, you are in good stead. But there may be other legal options open to you too. For instance, you could potentially have a cause of action under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) depending on the facts of your situation.
Cheque bounce in an MSME supply deal involves two legally distinct issues:
Just because your cheque got dishonoured doesnât automatically give you a Section 138 penal action case on cheating slip hands. The facts surrounding the transaction for which the cheque was issued are very important. Your MSME registration and when it was obtained, the nature of the underlying liability, the documents you have in support of your claim and the various limitation periods involved would determine your course of action.
If you are a small business owner, the late payment should be more than just an accounting entry. The outstanding invoice from your buyer impacts your salaries, GST liabilities, supplies you pay, your working capital, and ability to take that next order.
While there is a specific statutory remedy available for delayed payments to qualifying micro and small businesses under Sections 15 to 24 of the MSMED Act. They cover late payments, specifying the buyerâs payment responsibility, payable statutory interest, recovery and reference to the Micro, Small and Enterprises Facilitation Council (âMSEFCâ).
Additionally, cheque dishonor is also actionable under Section 138 of the Negotiable Instruments Act, 18 81 if the statutory requirements are met. The Section further has provisions related to presumption, companyâs liability, taking cognizance, interim compensation and trial.
However, if you are a vendor doing business in Delhi NCR, Delhi, Ghaziabad, Noida, Greater Noida, Gurugram, Faridabad or any other commercial hub, the question is often no longer âShould I file a cheque bounce case?â The question should be which of the legally available remedies suits your documents, liability and recovery goal.
Primarily it revolves around evidence of a subsisting legally enforceable liability and the legal mechanism through which you can recover the same.
Letâs say a supplier sells goods worth ?8 lakh to a buyer. The buyer accepts the delivery, invoices are issued, the payment is overdue, and a cheque is given against the dues. The cheque bounces.
The supplier not only has a cheque to hold onto but also purchase orders, delivery challans, GST invoices, e-way documents, correspondence through email or WhatsApp, ledger entries and acknowledgments. This wider documentary evidence becomes critical if at all the purchaser later denies the existence of the underlying transaction.
Legal expert Advocate BK Singh suggests suppliers drill down into the entire transaction instead of looking at the cheque in isolation. âA bounced cheque may be the basis of your Section 138 proceeding. But the underlying invoices and supply ledger can help you look at the commercial claim as well.
Section 138 punishes the dishonour of a cheque for insufficiency of funds, or if it exceeds the amount arranged with the bank, upon fulfillment of prescribed statutory conditions. Section 139 has a rebuttable presumption in favour of the payee holder of cheque. Sections 141 and 142 deal with liability of company and cognizance respectively.
Notice ? response/ payment ? complaint within prescribed limitation from the date cause of action arises (subject to law relating to condonation of delay) is the statutory process. Section 142 further lays down limitations on the court-level and territorial jurisdiction for filing complaints under Section 138.
Given this, a supplier should maintain the original cheque, bank return memo, record of notice sent and its proof of service.
Sections 15 to 18 offer an alternate statutory regime for the recovery of delayed payments for eligible micro or small supplier companies.
Section 15 mandates payment by buyer within prescribed time and subject to statutory ceiling. Section 16 allows for payment of statutory interest. Section 17 lays down recovery of due amount. Section 18 allows reference to MSEFC.
This delayed-payment mechanism has been clarified by the MSME ministry to apply to micro and small enterprises who have valid Udyam Registration. The MSEFC machinery would be triggered through the prescribed mechanism.
The Supreme Court has held Section 18 to provide for special statutory dispute-resolution mechanism (conciliation first, arbitration if necessary). The Court has entertained disputes on status as supplier and prospective application of subsequent MSMED registration.
The takeaway from this discussion is clear: check MSME status & registration date before presuming applicability of MSMED Act to a past transaction.
One problem that is fairly common would affect suppliers like manufacturers, wholesalers, traders, contractors, services suppliers and other commercial suppliers who have slow paying customers.
You as a vendor could very well be in one of several scenarios. The buyer may have written you a cheque and suddenly become unreachable. The cheque may have bounced against you after submitting multiple invoices unbeknownst to the client. The buyer may also threaten you about the quality or quantity of goods only after receiving a legal notice from you.
Startup companies and family businesses alike could run into this predicament as well. Just because a customer is bigger than you doesnât mean that they will not delay payment. Often the large customer has more leverage while the small supplier is stuck with the immediate burden of positive cash-flow.
If you are looking for a cheque bounce lawyer in Delhi NCR, Ghaziabad, Noida, Gurugram, Mumbai, Bengaluru, Hyderabad or any other commercial city in India, your initial consultation should revolve around facts and timelines vs. expectations of outcome.
Typically, a file consists of:
Consulting a lawyer is helpful when the cheque cleared was issued for multiple invoices, goods are being returned/rejected by the buyer, more than one cheque has been issued, a security- cheque defence is likely to be raised by the drawer, drawer of the cheque is a company, the amount involved is significant or when the vendor wishes to initiate MSME delayed-payment proceedings as well as avail himself of other remedies.
Consideration should also be given to consulting a lawyer if the limitation period for sending the notice is running /has run into awkward date calculations.
Your lawyer will need to review the chronology before suggesting a course of action. Typically the best recovery mechanism is the one that is supported by the evidence that actually exists, as opposed to the remedy that may seem the most âeffectiveâ in the abstract.
When you approach Cheque Bounce Lawyer for help with a cheque dishonour dispute, we help with the recovery-oriented legal work and evaluation of documents supporting your claim. Advocate BK Singh first tries to understand the commercial transaction underlying the claim. That would typically involve analysis of the cheque, bank return memo, invoices, delivery documents, correspondence, account statements and response from the buyer.
For MSME supplier, this review would also include an evaluation of whether the delayed-payment mechanism under MSMED Act is applicable. Having understood the details of the transaction, the vendor is in a position to make an informed decision on legal notice, settlement, Section 138 proceeding, MSEFC proceeding or any other appropriate remedy for recovery of the dues.
Cheque Bounce Lawyer can also assist businesses located in Delhi NCR as well as elsewhere in India through online consultation, if the necessary documents are available in electronic form. The choice of forum and procedural route would depend on the specific facts of the transaction.
Ans. Potentially, yes. Subject to meeting the statutory requirements of Section 138, a vendor can initiate a cheque dishonour complaint. Cheque, underlying liability, dishonour, notice and limitation requirements should be analyzed.
Ans. Subject to the statutory requirements, an eligible micro or small enterprise may be able to use the delayed-payment mechanism under Sections 15â18 of the MSMED Act. Section 18 mentions reference to the MSEFC.
Ans. Not necessarily. A cheque bounce gives rise to a statutory legal consequence when the requirements of Section 138 are met, but the facts and evidence, pleadings, defence and procedure will drive the ultimate result.
Ans. Putting a label on the cheque does not necessarily dictate the legal result. The facts and circumstances of the issuance of the cheque and the nature of the underlying liability should be reviewed based on the transaction documents.
Ans. The applicable statutory definition of an MSME and eligibility requirements must be reviewed. Based on current information from the Ministry of MSME, a micro or small enterprise with a valid Udyam Registration is eligible to use the delayed- payment mechanism.
Ans. Yes. Section 18 refers the matter to conciliation first and provides for arbitration under the statutory mechanism if conciliation is not successful. Arbitration under Section 18 has been recognized by the Supreme Court.
Ans. While the cheque and bank return memo are important documents, the vendor should preserve invoices, purchase orders, proof of delivery, ledger records, payment history, correspondence, etc. that help establish the underlying liability.
Ans. Yes. A cheque issued by a company can result in a Section 138 action subject to meeting the statutory requirements. Section 141 specifically mentions offences committed by companies and personsâ liability in such cases.
Ans. The purchase order, invoices, delivery evidence, correspondence, inspection records, payment history, etc. should be reviewed to determine whether there is a quality dispute. A quality dispute does not necessarily resolve the Section 138 or MSMED issue in favour of the buyer.
Ans. Advocate BK Singh can review the documents related to the transaction, pinpoint the legal issues that may be present and advise the MSME vendor on possible routes for recovery and dispute resolution rather than suggesting a one-size-fits-all remedy.
If you receive a cheque from your customer that bounces you as a small supplier may find yourself in an awkward position. But the vendor is not restricted to only one remedy.
The provisions of NI Act and MSMED can work in entirely different spheres of law. Once the cheque, underlying liability, MSME eligibility, position in registration, documents, limitation and commercial goal are reviewed then an appropriate course of action can be decided.
At Advocate BK Singh and Cheque Bounce Lawyer we can go through your documents at the onset in Delhi NCR and India to ensure you do not make mistakes which are avoidable. We can help you understand your position and take a legally sound next step as per the bona fide facts.
Speak directly with Advocate BK Singh at LEGAL365.
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