If your contract has an arbitration clause, a payment dispute is decided by an arbitrator rather than a court. The process: notice invoking arbitration, appointment of the arbitrator (by agreement, institution or court under Section 11), pleadings, hearing and award. The award is enforced like a court decree under Section 36 of the Arbitration and Conciliation Act. MSME suppliers can instead use the Facilitation Council, which itself arbitrates. FundRaksha handles the whole process on a success fee.
When arbitration is the right route
Arbitration applies when the contract says so. Typical clauses appear in vendor agreements with large companies, construction and works contracts, distribution agreements, SaaS and service MSAs, and franchise agreements. If your contract has one, a civil suit will usually be stayed and referred to arbitration, so it is better to start there deliberately.
Arbitration has real advantages for a creditor with a clean claim: a single decision-maker, flexible procedure, confidentiality, and an award that is hard to overturn. It also has a cost, since the parties pay the arbitrator, which is why the clause and the claim size are assessed together in the free consultation.
The arbitration process for a payment claim
- Notice of dispute and invocation. The advocate sends a notice within 24 hours demanding payment and, failing that, invoking arbitration and proposing an arbitrator, as the clause requires.
- Appointment. If the buyer agrees, the arbitrator is appointed. If the clause names an institution, it appoints. If the buyer does not cooperate, the advocate applies to the High Court under Section 11.
- Interim protection. Where there is a risk the buyer will dissipate assets, an application under Section 9 to the court, or Section 17 to the arbitrator, can secure the claim amount.
- Pleadings and evidence. Statement of claim with invoices, contract, delivery proofs and interest computation; the buyer's defence; documents and, if needed, witness statements.
- Hearing and award. Often decided on documents for a payment claim. The award includes principal, interest and costs.
- Enforcement. After the challenge period, the award is executed as a decree: bank attachment, receivables, property.
The MSME exception
If you are a Udyam-registered micro or small supplier, Section 18 of the MSMED Act gives you a statutory right to refer the dispute to the Facilitation Council, which conciliates and then arbitrates. Courts have held that this statutory route prevails over a private arbitration clause in the contract. The Council route has no arbitrator fee, carries interest at three times the RBI bank rate, and requires the buyer to deposit 75 percent of the award to appeal. For eligible suppliers it is almost always the better choice. See MSME Samadhaan filing.
Costs, timelines and FundRaksha's fee
| Item | Who pays | Note |
|---|---|---|
| Arbitrator's fee | Shared by parties, recoverable in the award | Scale fees under the Fourth Schedule apply to court-appointed arbitrators |
| Institutional fee (if any) | Shared | Depends on the institution named in the clause |
| Court fee for Section 9, 11 or enforcement | Client | Modest; quoted in advance |
| FundRaksha Legal | Client | 30% of the amount recovered; nothing upfront |
The Act sets a 12-month target for the award from completion of pleadings, extendable by six months by consent. Payment claims on documents are often resolved faster, and many settle once the arbitrator is appointed and the buyer's lawyer sees the record.
Start with a review of your contract
Send us the contract and the unpaid invoices through a free consultation. The advocate reads the dispute resolution clause, checks your MSME status, assesses the buyer's ability to pay and recommends arbitration, the Facilitation Council or a summary suit. Arbitration is common in construction, IT services and solar and renewables contracts; see those pages for sector detail. For the wider picture, read legal debt recovery.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.