Recovering unpaid invoices: Section 138 cheque bounce vs summary suits vs IBC operational creditor—when to use which

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Written by Mokshi Vashisth

Recovering unpaid invoices in India, comparing three high-impact pathways—Section 138 cheque bounce (NI Act), civil summary suits (Order XXXVII CPC), and IBC operational creditor applications (Section 9)—with decision rules, timelines, costs, templates, and recent case law signals founders and finance teams can use in 2025.

Table of Contents

The quick answer

  • Use Section 138 when there is a dishonoured cheque and strong paper trail; it is a quasi-criminal pressure tool that can prompt fast settlements but does not itself grant a money decree. Civil or arbitration recovery still needed for execution.
  • Use Summary Suit (Order 37 CPC) when the debt is undisputed and evidenced by a written contract, invoices, or negotiable instruments; it yields a civil decree relatively quickly and is best for execution and interest recovery.
  • Use IBC Section 9 when the debtor is a company, default exceeds ₹1 lakh (practically ₹1 crore for corporate CIRP threshold in recent policy cycles), and there is no “pre-existing dispute”; it is a coercive insolvency lever to force payment or resolution, not a money recovery suit.

Pathway 1: Section 138 cheque bounce (Negotiable Instruments Act)

What it is: A criminal complaint route for dishonour of cheque due to insufficient funds/stop payment, subject to strict timelines and notice formalities. It creates prosecutorial pressure, including possible fine and imprisonment, often leading to negotiated payment.

When to use:

  • A cheque was issued against a legally enforceable debt/liability and is dishonoured.
  • There is a full compliance record: presentation within validity, bank memo, statutory notice within 30 days, and non-payment within 15 days of receipt.
  • A quick pressure tactic is needed alongside or prior to civil recovery.

Key timelines and steps:

  • Present cheque within 3 months of date; receive bank return memo. Send statutory demand notice within 30 days of memo; cause of action after 15 days if unpaid; file complaint within 1 month thereafter.
  • Proceedings can continue against directors/authorized signatories even when the company is under IBC moratorium; corporate debtor gets moratorium shield, but natural persons do not, per Supreme Court and HCs in 2024–25 clarifications.

Pros:

  • Strong settlement pressure; parallel to civil remedies; compounding is possible.
  • Directors/signatories remain exposed even during corporate moratorium (no automatic shield for natural persons).

Cons:

  • No direct money decree; requires separate civil suit or arbitration for enforceable recovery.
  • Strict technical compliance; any lapse in notice or delay can defeat the case.

Costs and duration:

  • Filing and counsel fees vary by city; many matters settle in 3–12 months; contested trials can take longer.

Tip:

  • Pair Section 138 with a Summary Suit/Arbitration for decree and with post-dated cheques or settlement MoU.

Pathway 2: Summary Suit under Order XXXVII CPC

What it is: A civil fast-track to a money decree for debts founded on written contracts, invoices acknowledged, bills of exchange, cheques, or promissory notes. Defendant must seek leave to defend by showing a substantial defense, or else decree follows.

When to use:

  • Clear documentary proof of debt and acknowledgment; little or no bona fide dispute on liability.
  • Need an executable decree with interest; suitable where arbitration clause is absent or not preferred.

Key mechanics:

  • File plaint expressly under Order 37; serve summons for appearance; if no appearance within 10 days, decree; if appearance, serve summons for judgment; defendant must disclose a substantial defense to get leave; else summary judgment.
  • Applicable to High Courts/city civil courts/specified courts; limitation generally 3 years from cause of action (invoice due date/acknowledgment).

Pros:

  • Faster decree than ordinary suits; good leverage plus executable outcome.
  • Interest and costs can be awarded; aligns with recovery KPIs.

Cons:

  • If debtor shows triable issues, matter converts to regular trial, extending time.
  • Not suited where documents are scant or liability genuinely disputed.

Costs and duration:

  • Filing plus ad valorem court fee; typical 6–18 months for undefended/weakly defended matters; longer if leave granted.

Tip:

  • Annex invoices, delivery proofs, email admissions, and any cheque/NEFT references; use a clean Order 37 format to avoid defects.

Pathway 3: IBC operational creditor (Section 9)

What it is: A corporate insolvency trigger for unpaid operational debt against a company; aims to either force payment/settlement or push the debtor into CIRP. Not a debt collection forum, but extremely coercive if no pre-existing dispute.

When to use:

  • Debtor is a corporate entity; operational debt default exceeds statutory threshold; documentation is strong; there is no “pre-existing dispute” before the Section 8 demand notice.
  • Strategic leverage is needed; debtor is solvent enough to pay to avoid CIRP, or creditor is ready for insolvency consequences.

Key mechanics:

  • Serve Section 8 demand notice with invoices and bank statements; wait 10 days; if no payment/dispute, file Section 9 with proof of default.
  • Adjudicating Authority admits only if default and no pre-existing dispute per Mobilox test; any credible prior dispute (emails, notices, arbitration) blocks admission.

Pros:

  • Highest pressure short of enforcement; can prompt swift settlements.
  • Time-bound adjudication; moratorium on debtor operations if admitted.

Cons:

  • Not a recovery suit; once admitted, creditor becomes part of CIRP waterfall; payments are uncertain/time-consuming.
  • Any pre-existing dispute defeats admission; small documentation gaps are fatal.

Costs and duration:

  • NCLT filing fee, advocate and IRP costs; pre-admission 1–3 months on average; post-admission CIRP runs up to 330 days statutory outer limit.

Tip:

  • Before issuing Section 8, audit the trail for any dispute; if risk exists, prefer Order 37 or arbitration; reserve IBC for clean, undisputed claims.

Interplay and simultaneous actions

  • Section 138 vs IBC: Corporate debtor enjoys Section 14 moratorium if CIRP is admitted; Section 138 against the company halts, but prosecution of signatories/directors can continue; recent 2025 guidance reiterates this separation.
  • Parallel tracks: It is common to run Section 138 and Summary Suit/arbitration together; IBC is usually held in reserve due to Mobilox “pre-existing dispute” risk and its non-recovery nature.
  • Settlements: Any settlement during IBC pre-admission ends the threat; after admission, settlements require the CoC/tribunal route.

Decision matrix: when to use which

  • Dishonoured cheque + need pressure: File 138 now; send settlement proposal; prepare civil recovery in parallel.
  • Clean, undisputed invoices + solid contract: File Order 37 for decree; consider 138 if cheque exists; keep IBC as a last-resort threat letter.
  • Corporate debtor stonewalling + no pre-existing dispute + strategic leverage required: Issue IBC Section 8 notice; if no credible dispute, file Section 9; expect fast engagement.

Avoid IBC if:

  • Emails show quality disputes/credit notes pre-notice; any genuine controversy likely blocks admission under Mobilox.
  • You prefer direct execution of a decree; IBC does not grant money decrees.

Documentation checklist

For Section 138:

  • Original cheque, bank memo, statutory notice (within 30 days), proof of service, ledger confirming legally enforceable debt, and filing within limitation.

For Order 37:

  • Written contract/PO, invoices, delivery challans/GRNs, email admissions, payment ledger, interest clause; plaint expressly invoking Order 37.

For IBC Section 9:

  • Invoices, delivery/acceptance, bank statements showing default, Section 8 demand with proof of service, affidavit of no dispute, and certificate from financial institution if available.

Timelines and outcomes side-by-side

  • Section 138: Notice within 30 days; 15-day payment window; complaint within 1 month post-cause; settlement-driven; conviction risk creates leverage; no decree.
  • Order 37: Summons for appearance (10 days), then judgment summons; decree if no substantial defense; executable with interest; best for recovery certainty.
  • IBC: Section 8 notice (10 days), Section 9 admission only if no dispute; admits to CIRP with moratorium; high leverage; uncertain cash outcome post-admission.

Costs and ROI considerations

  • Section 138: Lower upfront legal costs; high leverage-to-cost ratio for settlements; duplicate spend if separate civil suit needed.
  • Order 37: Court fee (ad valorem) plus counsel; higher upfront than 138 but yields enforceable decree; interest recovery offsets cost.
  • IBC: Higher legal and potential IRP-related costs; best used to catalyze payment before admission; avoid if disputes exist.

Sample notices/templates

Section 138 statutory notice (core elements):

  • Cheque details, dishonour memo, legally enforceable liability narration, demand to pay within 15 days, reservation of rights to prosecute under Section 138 if unpaid.

Order 37 plaint snippet:

  • “This suit is filed under Order XXXVII CPC for recovery of ₹[amount] with interest @ [x]% p.a. on the basis of written contract dated [date] and invoices [list] duly acknowledged by the defendant.”

IBC Section 8 demand:

  • “We, as operational creditor, hereby demand payment of ₹[amount] for invoices [list], due since [dates]. If unpaid within 10 days, we shall file Section 9 application. No dispute has ever been raised regarding these invoices.”

Common pitfalls and how to avoid them

  • Section 138: Missing the 30-day notice window; wrong addressee; inability to prove service; cheque issued as security only (defense) without supporting ledger—cure with proper documentation.
  • Order 37: Failing to plead under Order 37 expressly; tacking on non-Order-37 reliefs; weak annexures—keep the plaint tight and documentary.
  • IBC: Issuing Section 8 despite prior email disputes; inadequate proof of delivery or bank certificate; using IBC as a substitute for recovery—audit disputes first.

Case law signals to watch

  • Mobilox v. Kirusa: Pre-existing dispute bars Section 9 admission; tribunals continue to apply this rigorously in 2025.
  • NI Act vs IBC moratorium: Courts reaffirm moratorium shields the corporate debtor but not directors/signatories; 2025 commentary and rulings clarify director exposure continues.

Practical recovery strategy for 2025

  • Stage 1: Demand stack—issue commercial demand; if cheque exists, send Section 138 notice; parallel Order 37 prep if documents are clean.
  • Stage 2: Litigation trigger—file 138 to create pressure; file Order 37 to secure decree; keep IBC Section 8 in reserve for undisputed, high-stakes corporate debtors.
  • Stage 3: Settlement/Execution—negotiate consent terms with secured PDCs/NEFT milestones; execute decree with attachment/garnishee if needed; avoid IBC admission unless strategic.

By aligning the remedy with evidence strength and business goals—pressure (Section 138), decree (Order 37), or insolvency leverage (IBC)—credit teams can cut DSO, improve recoveries, and avoid dead-end proceedings.

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