First check the entity’s legal status on the MCA portal (for a company or LLP) and GST portal. “Shut down” often means the business stopped trading but the company still exists, in which case the normal remedies apply and the directors can be pursued under Section 138 if cheques bounced. If the company is struck off, a creditor can apply for restoration. If it is in insolvency, you file a claim as an operational creditor. Proprietors and partners are personally liable regardless of “closing” the firm.
Step 1: find out what “shut down” actually means
| What you find | What it means for you |
|---|---|
| Proprietorship or partnership closed | The individuals remain fully liable; pursue them personally |
| Company “Active” on MCA, just not trading | Normal remedies apply; directors liable under s.141 if cheques bounced |
| Company “Strike off” or “Struck off” | Apply to the NCLT for restoration as a creditor, then proceed; directors remain answerable for bounced cheques |
| Company under CIRP or liquidation (IBC) | File your claim with the resolution professional or liquidator as an operational creditor by the deadline |
| GST registration cancelled, company status active | Business stopped, entity exists; proceed as normal |
The GST portal shows registration status and the legal name; the MCA portal shows company status, directors and any charge or insolvency filings.
Proprietors and partners cannot “close” their way out
Most small buyers in India are proprietorships or partnerships. A proprietor is the business; the debt is their personal debt and follows them to their next venture, their house and their bank accounts. Partners are jointly and severally liable for the firm’s debts incurred while they were partners. A legal notice goes to the individuals at their residential addresses, and a decree can be executed against personal assets. The notice is sent by FundRaksha within ${PROOF.noticeHours} hours; see how to recover money from a company for entity-by-entity routes.
Companies: directors and bounced cheques
A private limited company limits the shareholders’ liability for trade debts, which is why directors feel safe closing one and opening another. Two things cut through that. First, if the company issued cheques that bounced, Section 141 makes the persons in charge of its affairs personally liable in the Section 138 complaint, and the complaint survives the company ceasing business. Second, directors who diverted assets or incurred debts knowing the company could not pay can face claims for fraudulent trading. If you hold bounced cheques, see cheque bounced, what to do and act within the 30-day window.
Struck-off companies and restoration
Companies that stop filing returns are struck off the register by the Registrar. A creditor who is prejudiced can apply to the NCLT to restore the company so that the debt can be pursued and the company’s assets reached. Directors of a struck-off company remain liable for the obligations incurred, and the strike-off does not discharge debts. Whether restoration is worth it depends on the amount and what assets the company had; an advocate will tell you honestly.
Insolvency: file your claim in time
If the buyer is in a corporate insolvency resolution process, you cannot sue it separately; you file your claim with the resolution professional as an operational creditor, with invoices and proof, within the time announced in the public notice. Late claims may be admitted at the professional’s discretion but do not count on it. Recovery depends on the plan, but filing costs little and preserves your rights.
India's No.1 B2B payment recovery company, trusted by 1,000+ businesses. A free consultation with FundRaksha starts with a status check on the buyer so you know which of these routes is open. See also buyer changed company name if the same people are trading under a new name.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.