Breach of Contract Between Businesses in Delhi: Non-Payment for Goods Delivered

In the fast-paced world of business transactions, trust and contractual obligations play a crucial role in ensuring smooth operations. However, one of the most common disputes faced by businesses in Delhi is non-payment for goods delivered. When a buyer refuses to pay despite receiving the goods, it can lead to financial distress for suppliers, legal battles, and loss of business credibility.

In this article, we will explore different types of full non-payment disputes, real-world implications, and legal remedies available under Indian law.

Understanding Full Non-Payment Disputes

A breach of contract due to non-payment can take several forms. Below are some of the most frequent issues faced by suppliers and vendors in Delhi.

1. Buyer Refuses Payment Despite Receiving Goods

One of the most frustrating situations for a supplier is when the buyer acknowledges receipt of goods but refuses to make the payment. Common reasons cited include:

• False claims that the order was canceled or modified after dispatch.
• Unilateral changes in payment terms by the buyer.
• Buyers taking delivery but delaying payment indefinitely with false assurances.

Legal Precedent: In Union of India v. Raman Iron Foundry (1974 AIR 1265), the Supreme Court held that a breach of contract due to non-payment can be challenged in civil courts, and the seller has the right to claim compensation for damages.

2. Fraudulent Transactions

Some buyers place orders, take delivery of goods, and later become untraceable. This is a growing concern in Delhi, especially in industries dealing with high-value goods like electronics, textiles, and machinery. Common fraudulent practices include:

• Fake purchase orders created by shell companies.
• Buyers operating from rented offices, which they vacate after taking delivery.
• Companies placing bulk orders before shutting down operations.

Legal Precedent: In K.K. Modi v. K.N. Modi (1998 SCC (3) 573), the Supreme Court recognized that fraudulent misrepresentation in a business contract can be a valid ground for criminal proceedings in addition to civil recovery suits.

3. Buyer Disputes Invoice Validity

Some buyers exploit invoice disputes as a tactic to delay or deny payments. Common excuses include:

• Claiming discrepancies in the pricing or quantity of goods received.
• Denying that the person who placed the order was authorized.
• Disputing tax invoices, especially GST compliance issues.

Legal Precedent: In Bharat Petroleum Corporation Ltd. v. Great Eastern Shipping Co. Ltd. (2008 AIR SC 357), the court ruled that mere disputes over invoices do not absolve the buyer from making timely payments as per contractual obligations.

4. Alleged Contract Termination

A buyer may falsely claim that the contract was terminated before delivery, using it as an excuse to avoid payment. This tactic is often seen in industries with long-term contracts, such as manufacturing, wholesale supply, and infrastructure. Common scenarios include:

• The buyer backdating a contract cancellation letter.
• Citing force majeure (such as COVID-19) as an excuse for non-payment.
• Claiming dissatisfaction with the goods after already accepting and using them.

Legal Precedent: In ONGC v. Saw Pipes Ltd. (2003 (5) SCC 705), the Supreme Court emphasized that unless a contract is terminated as per its terms, a party cannot refuse payment after accepting performance.

5. Shell Company Fraud

Many businesses in Delhi fall victim to buyers operating through shell companies—entities with no real assets or operational history. These buyers:

• Provide false company details and shut down operations after delivery.
• Register with fake addresses and non-existent directors.
• Use fraudulent vendor onboarding processes to procure goods without intent to pay.

Legal Precedent: In Delhi Cloth & General Mills Co. Ltd. v. Union of India (1983 AIR 937), the court ruled that a company engaging in fraudulent business practices can be held liable for criminal fraud, in addition to breach of contract claims.

Legal Remedies Available in Delhi

If a business faces a full non-payment dispute, there are several legal remedies available:

1. Issuing a Legal Notice

Under the Indian Contract Act, 1872, the supplier can send a legal notice demanding payment before initiating litigation. This often prompts the buyer to settle the dispute without going to court.

2. Filing a Summary Suit (Order 37 CPC)

If there is a clear contract and invoice proof, the supplier can file a summary suit under Order 37 of the Code of Civil Procedure (CPC), 1908. This ensures a faster resolution without the need for a full trial.

3. Arbitration & Mediation

If the contract has an arbitration clause, the dispute can be referred to arbitration under the Arbitration and Conciliation Act, 1996. Mediation is also encouraged under the Commercial Courts Act, 2015, for faster settlements.

4. Criminal Action for Fraud

In cases of fraud, the supplier can file a criminal complaint under Sections 406 & 420 of the IPC (cheating and criminal breach of trust). This adds pressure on the buyer to clear outstanding dues.

5. Initiating Insolvency Proceedings (IBC, 2016)

If the defaulting company owes more than ?1 crore, the supplier can file a case with the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC), 2016, to recover dues.

Conclusion

Non-payment for goods delivered is a serious issue that can cripple businesses. However, Delhi-based businesses can take proactive legal steps to recover their dues efficiently. Whether through civil suits, arbitration, or insolvency proceedings, suppliers have multiple legal avenues to fight back against defaulters.

If you are facing a contractual dispute related to non-payment, seeking legal advice at the earliest can prevent financial losses and ensure swift recovery.