Unpaid Seller’s Rights

An Unpaid Seller has multiple rights against the defaulting/insolvent buyer.

Who is an Unpaid Seller?

The meaning of an Unpaid Seller has been defined under Sec. 45 of Sale of Goods Act, 1930 of India. However, in simple language, we can explain an ‘unpaid seller’ to be a seller of the goods who has not been paid the full price of his goods.

What are the rights of an Unpaid Seller?

We can divide the Unpaid Seller’s rights under two major categories, namely,

  • Rights against the goods
  • Rights against the buyer

Let us briefly discuss each of the above heads as below.

Rights against the goods

An unpaid seller has rights against the goods for which he has not been paid in full. These rights are as below.

Right of lien over the goods – This right could be exercised by the seller when the buyer does not pay for goods or has become insolvent and the goods are under physical possession of the seller. Technically speaking, the right of the lien could be exercised when the property in goods (mostly understood as title/ownership) has been transferred to the buyer but the possession is still with the seller.

However, in the case of Suchetan Exports Pvt. Ltd. v/s Gupta Coal (India) Ltd. the Supreme Court of India opined that, where a contractual term specifically stipulates that the buyer retains his right of lien and title to the goods passes only upon full payment, the seller can claim his lien over the goods even after losing physical possession.

The right of stoppage of goods in transit – This right comes into effect when the seller has parted with the possession by delivering the goods to a carrier or any other person for the purpose of transmission of those goods to the buyer. Under this right, the seller can regain the possession of the goods so far as they are in transit and can retain them until fully paid for.

The right to stoppage in transit begins with the delivery of the goods to a carrier while ending on the delivery of such goods to the buyer.

Right to re-sell the goods – The unpaid seller can re-sell the goods after giving due notice about his intention to sell if the buyer does not pay within a reasonable time or within the time as set out in the notice. If the seller sells goods without giving such notice to the buyer, the seller cannot demand damages for the loss occurred due to lower price secured on subsequent sale; however, if any profit occurs, the original buyer is entitled to claim that extra profit earned from the seller.

Hence, it is advisable that the seller should give such notice to the buyer before re-selling the goods.

Rights against the buyer

Apart from the rights against the goods, an unpaid seller has rights against the buyer in person. The seller can sue the buyer for the price, damages and interest whenever these rights are available by statutes.

The seller can invoke his rights against the buyer when the buyer turns hostile by –

  1. non-accepting the delivery of the goods;
  2. not making the payment of the goods;
  3. repudiating the contract by not fulfilling his part.

Indian law does recognize the rights of an unpaid seller and provides for the effective measures to exercise them in order to secure the goods as well as the payment under the contract of sale. Having said above, one needs to bear in mind that a number of complex issues arise while exercising these rights by the seller. Some of such issues are contractual, statutory, executory, and relating to the conflict of international laws.

Though the above-said rights are made available to the shipper by the statute, most of the time, the terms mentioned in a B/L overrides them and the shipper (seller) do not often pay attention to what they have consented to by these terms. Terms and conditions mentioned on the back side of a B/L may be tiny in fonts but can prove fatal to your rights as a shipper, if not dealt with cleverly.

Note: Purpose of this article is to provide general guidance on the topic. Professional advice should be sought on case-specific issues.