Client Withholding Payment: Can They Terminate Our Contract Without Paying? How Would You Handle This?

Hi All, please guide me. One of my clients is not releasing our payment and is asking for contract termination. Please let me know if he can terminate our contract without payment. I need your help.

First of all, let us know what type of service/contract was agreed upon. A contract can be terminated without making payment if the contract/service is not as per the specifications/terms and conditions mentioned in the contract. Read the terms and conditions and the specifications, if any, as per the contract, and ask for an explanation for terminating the contract.

As rightly stated above, the contract can be terminated if the other party is not performing to satisfactory standards or not conforming to the laid-down time schedule. It is very rightly said that the nature of the contract matters in this case. If the termination of the contract by the other party also entails a loss to the management, the contract cannot be terminated at the whims of the other party. In such a situation as referred to above, in terms of the provisions of the contract, legal action can be taken against the party for not releasing the payment as well as the loss caused by it to the management.

Regards,
S.K. Johri

Questions for Contract Review

1.0 What was the contract for?
2.0 What were the agreed deliverables?
3.0 Have you performed as per the contract in terms of completeness, delivery date, and guaranteed performance?
4.0 Are both parties signatories to a common document?

If you have answers in your favor, then your case for payment is tenable.

Regards,
V. Raghunathan
Navi Mumbai

It depends on the terms and conditions of the agreement. If there is a default and when the same is a clause in the agreement, then it is possible to terminate. However, in this case, you are the person to receive the payment. If you have made the contract agreement, then you are the person to decide the termination of the agreement and not the other party. It is mutually agreed upon. Since the details are not clear from your statement, it is not possible to clearly advise you on this. One thing is clear: if the agreement is canceled, then the party will lose the ground of collecting the dues.

There is no termination clause and no arbitration clause mentioned. If there is a breach of contract, you can indeed take the party to a court of law. However, please consult with a lawyer beforehand to ensure all legalities are covered regarding the breach of contract.

Payment and Termination Clauses

Payment and termination will depend upon the payment and termination clauses in the agreement. In case there is any breach of the same, the aggrieved party may issue a notice for referring the dispute to arbitration. However, if there is no arbitration clause in the agreement, they can file a case before the civil court.

Kindly advise on how to take the right action if no condition of the contract has been violated and the principal employer avoids payment or delays the release of the legitimate amount due to the service provider.

Thank you.