A new distributor wants 30 days’ credit on the first order. Six checks to run before you say yes.
Distributors and dealers are how most Indian brands reach the market, and unpaid distributor dues are how many of them lose money. The warning signs are often already on record.
Before giving credit to a distributor in India, check the legal entity and its owners for cheque bounce complaints, recovery suits, insolvency and fraud cases, verify GST and company records, take a security deposit, and set credit limits that grow with payment history. LegalCheck searches 35 crore+ court and tribunal records for a company or a person and links every finding to the case.
Your first 3 checks are free. The distributor is never contacted.
Last updated: 3 November 2026
Key takeaways
- Credit risk runs both ways. Listed companies have taken large distributors to court over overdue amounts, and distributors have been cheated by retailers further down the chain.
- Cheque bounce is the commonest signal. The eCourtsIndia index holds over 71 lakh records tagged under Section 138, more than 44 lakh of them pending.
- Fake distributorships are a separate fraud. If someone asks you for a fee to become a distributor of a famous brand, check the entity before you pay.
- Check the people, not just the firm. A partnership or proprietorship is only as good as the people behind it, and directors can be named in cheque cases against their company.
- Write the controls into the agreement: security deposit, advance or limited credit at first, interest on late payment, and the right to stop supply.
Every manufacturer, importer and brand that sells through a channel has the same problem. The distributor wants credit to grow. Credit given to the wrong distributor becomes a pile of post-dated cheques, a recovery suit and two years of hearings.
This guide sets out what can go wrong, what to check before appointing a distributor or extending credit, and how a court record check fits into the process. If you are on the other side, appointing a supplier rather than a distributor, our vendor legal check guide covers that.
What can go wrong with a distributor?
Three things: the distributor stops paying, the distributor is not who it says it is, or the chain below it collapses. All three are in recent court filings and police cases. Unless a court has ruled, the reports below describe allegations.
- A listed company and a long-time distributor. In a stock exchange filing on 30 October 2024, Symphony Ltd said it had filed a Section 138 complaint against a large modern-trade distributor and its officials over a “major overdue amount”, after dealing with it since 2013, according to the filing. Even an 11-year relationship is no guarantee.
- Electronics on credit, Mumbai, 2025. Police in Kandivali alleged that a trading firm took electronics worth Rs 1.54 crore on credit, paid Rs 36.77 lakh, and issued cheques that bounced; one partner was arrested, Lokmat Times reported.
- Stock that vanished, 2022. A stock audit at a Britannia carrying and forwarding agent allegedly found a shortfall of 62,419 boxes, and cheques of Rs 5.17 crore bounced, PTI reported.
- When the retailer fails, Gujarat, 2026. An FIR alleges that Osia Hyper Retail cheated 13 FMCG distributors of Rs 4.7 crore after payments stopped in 2025, with post-dated cheques that bounced, DeshGujarat reported. A distributor’s own customers can drag it down.
- The fake distributorship. In August 2026, Gujarat police said a man had lost Rs 2.53 crore to an Instagram-promoted distributorship offer and linked 34 complaints to the same racket, DeshGujarat reported.
A distributor that has bounced cheques on one brand will often bounce them on the next. The first brand’s lawyer has usually already filed the case.
What should you check before appointing a distributor?
Six checks, most of them free or cheap, done before the first credit order.
- The legal entity and GST. Take the legal name from the GST certificate, not the shop board, and confirm the GSTIN, status and registered address on the GST taxpayer search. For companies and LLPs, check the CIN or LLPIN on the MCA portal.
- The court record of the firm. Search the legal name for cheque bounce complaints, recovery suits, commercial disputes and insolvency. Our guide to finding all cases against a company shows how.
- The court record of the people. Run checks on the proprietor, every partner and the directors. Firms change names; people do not. A LegalCheck matches on a parent’s name and city and sets aside namesakes.
- Tribunal records. For larger distributors, look for NCLT insolvency petitions and bank recovery at the DRT. See our guides to NCLT case search and DRT case search.
- References from other brands. Ask which companies they distribute for, and call two of them. Ask about payment days, not just sales.
- A written agreement. Security deposit, credit limit, interest on late payment, the right to stop supply and to take back unpaid stock. More on this below.
How do you read a distributor’s court record?
By role, case type and trend. A distributor that files many recovery suits against its own retailers may simply be good at collecting dues. One being sued by several brands is a different story.
| What you find | What it may mean | What to do |
|---|---|---|
| Section 138 complaints where the distributor is the accused | Cheques given to suppliers have bounced | Ask for the case details; start with advance payment or a small limit |
| Section 138 complaints filed by the distributor | It is chasing its own customers | Usually normal; ask about its collection cycle |
| Recovery or commercial suits by other brands | Unpaid dues to other principals | Treat as a serious warning; take a bank guarantee or walk away |
| NCLT insolvency petition | A creditor is pushing the firm toward insolvency | Do not extend credit until resolved |
| Cheating or criminal breach of trust against the owners | Allegations of fraud or misappropriation | Read the order; take legal advice |
| Nothing found | No matching case in the courts searched | Proceed with standard controls; it is not a credit rating |
Cheque cases are the most common finding by far. On 3 November 2026, the eCourtsIndia index held 71,74,299 records tagged under Section 138 of the Negotiable Instruments Act, 44,65,942 of them pending. Our guide to checking cheque bounce cases by name explains how to search and read them, and Section 141 of the same Act lets the people in charge of a company or firm be prosecuted along with it.
What controls should go into a distributor agreement?
Deposit, limits, interest and exit rights. These are business practices, not legal requirements, and your lawyer should draft the actual terms. One published distributor agreement from a listed food company, Bikaji Foods, shows the usual pattern, according to the document:
- a security deposit from the distributor towards timely payment;
- purchases against advance payment unless otherwise agreed;
- interest on late payment, and cheque dishonour charges borne by the distributor;
- the right to repossess unpaid stock and to withhold deliveries during a default;
- audit rights and confirmation of GST compliance;
- recovery from a bank guarantee or the security deposit.
A practical rule: start every new distributor on advance payment or a small limit, raise the limit only after a clean payment history, and re-run the court check before any large increase.
Does the MSME 45-day rule apply to distributors?
It protects micro and small suppliers, so it usually helps the distributor when it buys from a small manufacturer, not the brand that sells to the distributor. Under the MSMED Act, a buyer must pay a micro or small enterprise supplier within the agreed period, which cannot exceed 45 days from acceptance. Section 16 adds compound interest at three times the RBI bank rate on late payment, and disputes go to a state Micro and Small Enterprises Facilitation Council, which is meant to decide within 90 days, according to the MSME Samadhaan portal.
The volume is large. Micro and small enterprises filed 2,56,892 delayed-payment cases worth Rs 55,244 crore on Samadhaan up to December 2025, the government told the Rajya Sabha, KNN reported. The Finance Act 2023 added a tax angle too: under what was Section 43B(h) and is now Section 37(2)(g) of the Income-tax Act, 2025, a buyer cannot deduct dues to a micro or small supplier paid after the permitted period until they are actually paid. If you are a micro or small manufacturer, keep your Udyam registration current, since these protections are built around registered enterprises.
What this check does not mean
- A clean court record is not a credit rating. It does not show unpaid dues nobody has sued over.
- Litigation is not wrongdoing. Active businesses sue and get sued.
- Similar names are common. Match the address, GSTIN and owners before you act on a finding.
- It is not legal advice. Take a lawyer’s view on large contracts and on the agreement itself.
Check the distributor before you ship on credit
Your first 3 completed LegalChecks on the website are free. After that, each check costs Rs 100 plus a small AI usage charge, shown before you submit and charged only when the report is ready (as of November 2026). Check a firm or its owners in 1 to 3 minutes, with every finding linked to the court record.
You need a free eCourtsIndia account to run a check. Sales and credit teams onboarding many distributors can run the same report through the LegalCheck API. Running checks at volume? Business plans are ₹99 per check, or ₹33 with a subscription.
Sources and method
- Court record count: eCourtsIndia index via the eCourts MCP, read 3 November 2026: records tagged Negotiable Instruments Act Section 138 (71,74,299; 44,65,942 pending). Tags count records, not distinct disputes.
- Symphony Ltd stock exchange intimation, 30 October 2024; Lokmat Times, 3 June 2025 (Kandivali); PTI via Free Press Journal, 31 August 2022 (Britannia C&F agent); DeshGujarat, 8 July 2026 (Osia Hyper Retail) and 12 August 2026 (distributorship scam). All read 3 November 2026. News reports describe allegations.
- MSME Samadhaan portal (MSEFC page); KNN India, 17 March 2026, on a Rajya Sabha reply; Rajya Sabha Unstarred Question 242, 21 July 2026, on Section 43B(h) and Section 37(2)(g) of the Income-tax Act, 2025, as reproduced by TaxGuru.
- Bikaji Foods published distributor agreement (undated PDF), clauses 3.2, 5.2 to 5.4, 6.9, 8 and 10.10.
- LegalCheck web price and inputs from ecourtsindia.com/legalcheck, read 3 November 2026; case count (35.3 crore cases) from the eCourtsIndia homepage, read 3 November 2026.
Frequently asked questions
How do I verify a distributor before appointment?
Confirm the legal entity and GSTIN on the GST portal, check company or LLP records on MCA, search court records for the firm and its owners, ask for references from other brands, and sign a written agreement with a security deposit and credit limit. A LegalCheck covers the court record for the firm or a person in one report.
What documents should a distributor provide?
GST certificate, PAN, proof of business address, partnership deed or incorporation documents, ID of the proprietor, partners or directors, bank details, a list of brands it distributes, and references. Use the legal name from these documents for the court check.
How do I check if a dealer has court cases?
Search the legal name and the owners’ names on a national court record search such as the eCourtsIndia litigant search, or run a LegalCheck on the firm and each owner. Look for cheque bounce complaints, recovery suits, insolvency petitions and fraud cases, and check whether the dealer was the accused or the complainant.
Is a security deposit from a distributor legal?
Yes. A security deposit towards timely payment is a common commercial term in distributor agreements, along with interest on late payment and the right to stop supply. Have a lawyer draft the clause and record how and when it is refunded.
What happens if a distributor’s cheque bounces?
You can send a written demand within 30 days of the bank’s return memo, and if the amount is not paid within 15 days, file a complaint under Section 138 of the Negotiable Instruments Act within the following month. Partners or directors in charge can be prosecuted along with the firm under Section 141.
How much credit should I give a new distributor?
There is no legal rule. A common practice is to start on advance payment or a small limit, raise it only after a clean payment history, and re-check court records before large increases. Secure larger limits with a deposit or bank guarantee.
What is the 45-day MSME payment rule?
Under the MSMED Act, a buyer must pay a registered micro or small enterprise supplier within the agreed period, which cannot exceed 45 days from acceptance, or pay compound interest at three times the RBI bank rate. It protects small suppliers, so it applies when the buyer owes an MSE.
How do I verify a distributor’s GST number?
Enter the GSTIN on the public taxpayer search on the GST portal and check the legal name, status, registration date and address. Make sure the legal name matches the agreement and invoices.
Important: LegalCheck is a court-record matching report based on public records and probabilistic identity matching. It is not an identity certificate, FIR search, police clearance certificate or legal advice. A match is not proof of wrongdoing. Verify identity, read the case and give the person an opportunity to explain before acting. Use reports only for a lawful purpose and keep them confidential. News reports cited here describe allegations unless a court has ruled; the people named are presumed innocent until proven guilty. eCourtsIndia is a private legal-technology platform and is not affiliated with any court or the Government of India. This article is general information and is not legal or financial advice.
Credit is trust with a due date. Check before you extend it.