In one sentence
Where a contract contains an arbitration clause, an unpaid-invoice dispute goes to arbitration rather than court; where it does not, pre-institution mediation is generally mandatory before a commercial suit above the specified value — and mediation is where a large share of commercial dues settle.
Key takeaways
- If the contract has an arbitration clause, an unpaid-invoice dispute usually goes to arbitration, not to court — and a suit filed in breach of the clause will be referred to arbitration anyway.
- Pre-institution mediation is generally mandatory before a commercial suit above the specified value, unless urgent interim relief is sought; it frequently produces the settlement.
- Arbitration is faster than a contested civil suit for a documented claim, but an award still has to be enforced.
- Read the contract before sending the notice. The dispute-resolution clause decides the forum, the seat, and sometimes the law.
Why the clause matters before anything else
Most supply and service contracts between medium and large businesses carry a dispute-resolution clause, and many carry an arbitration clause. If yours does, an unpaid-invoice dispute is an arbitrable dispute: a court asked to hear a suit on it will, on the debtor's application, refer the parties to arbitration under Section 8 of the Arbitration and Conciliation Act. Filing the wrong proceeding costs a year. So the assessment on Enforce begins with the contract.
Arbitration for unpaid dues
A notice invoking arbitration, the appointment of an arbitrator (by agreement, by an institution, or by the court under Section 11 if the parties cannot agree), pleadings, evidence, and an award — on a timetable the Act now requires to be tight. For a documented claim of a liquidated sum, arbitration is usually faster than a contested civil suit, and the arbitrator can award interest and costs. Two cautions: an award is not money — it must be enforced as a decree, and can be challenged under Section 34 on limited grounds; and a poorly drafted clause (no seat, an unworkable appointment mechanism) can add a court application before the arbitration even starts.
Interim relief while it runs
A creditor who fears the debtor will move assets can apply to court under Section 9 of the Arbitration Act for interim measures — including orders securing the amount in dispute — before or during the arbitration. Used early, this changes the negotiation as much as attachment before judgment does in a suit.
Mediation
Under the Commercial Courts Act, a commercial dispute above the specified value generally cannot be filed as a suit until the parties have attempted pre-institution mediation, unless urgent interim relief is sought. The Mediation Act, 2023 has since put institutional mediation on a statutory footing. In practice, mediation is where a large share of commercial dues settle: a structured negotiation with a date, a neutral, and both parties' decision-makers in the room, backed by the knowledge that the suit or the arbitration follows if it fails. A settlement agreement reached in mediation is enforceable.
When each recovers more
| Situation | Route | Why |
|---|---|---|
| Contract has an arbitration clause; claim documented | Notice → arbitration; Section 9 interim relief if assets may move | The clause decides; a suit would be referred anyway |
| Contract silent; claim above the specified value | Pre-institution mediation → commercial suit | Mediation is mandatory and often settles |
| Corporate debtor, undisputed debt above the IBC threshold | Section 9 IBC — regardless of an arbitration clause | Insolvency is not an arbitrable dispute; the lever is stronger |
| Debtor open to structured negotiation | Mediation first, whatever the contract says | Fastest cash, relationship intact |
The arbitration clause does not bar a Section 9 petition for an undisputed operational debt — but a genuine dispute that is already in arbitration will defeat one. Which is another reason the sequence, and the paperwork, matter. See the Section 9 guide.
If you are outside India
A foreign supplier owed by an Indian company has the same remedies as a domestic creditor, and needs a partner on the ground to run them. How collection and enforcement work for international suppliers — timelines, the Section 9 lever, foreign judgments and awards — is on Debt collection in India for international suppliers.
Sources and regulation
| Instrument | What it does | Source |
|---|---|---|
| Arbitration and Conciliation Act, 1996 — Sections 8, 9, 11, 29A, 34, 36 | Reference to arbitration; interim measures; appointment; time limits; challenge; enforcement of awards | indiacode.nic.in |
| Commercial Courts Act, 2015 — Section 12A | Pre-institution mediation for commercial disputes | indiacode.nic.in |
| Mediation Act, 2023 | Institutional mediation; enforceability of mediated settlement agreements | indiacode.nic.in |
| Insolvency and Bankruptcy Code — Section 9 | Operational creditor's petition; effect of a pre-existing dispute | ibbi.gov.in |
Thresholds, limitation periods and procedures change. This guide describes the position as generally understood at the time of writing and is not legal advice; confirm the current rule before acting.
If this is your situation: the contract has a dispute-resolution clause and you are not sure which route it sends you down.
How enforcement works