Defective Machinery Imports from China? Expert Legal Strategies for Indian Importers to Sue Chinese Manufacturers & Suppliers to Recover Advance Payments-2 | Legal Steps | FAQs | Recent News & Updates | Protective Strategies
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Step 5 Emergency Freezing Orders and Interim Relief
Filing of an ex parte injunction under Order XXXIX, Rules 1 and 2 of the CPC is imperative for disputes of this nature.
Relief may be sought on the following lines: –
- Freezing of the assets of the foreign firm in India
- Prevent funds remittance to China
- Securing the attachment of goods in transit
In a fairly recent case, Tata Motors Ltd. v. BYD Auto Co. Ltd. (2025) 6 SCC 341, the Hon’ble Supreme Court upheld an interim order to freeze the Chinese company’s Indian subsidiary bank accounts worth Rs. 12 Crores during the pendency of the main suit.
Case Study: When a Chinese manufacturer claimed bankruptcy after receiving Rs. 3.2 Crores from my Gujarat-based client, we discovered that they were still operating through a different entity in Maharashtra. The Bombay High Court granted an immediate attachment order against this entity’s assets, which prompted a settlement within three weeks.
Step 6: Alternative Recovery Strategies
When the Chinese supplier has limited presence in India, the following alternative recovery strategies may be followed: –
- Criminal Complaint for Fraud
File under section 318 of Bharatiya Nyaya Sanhita, 2023 (earlier Section 420 of IPC, 1860) for cheating and under section 303 of the Bharatiya Nyaya Sanhita, 2023 (earlier Section 406 of IPC, 1860) for Criminal Breach of Trust. In State vs. Li Wei (Delhi District Court, 2025) Crl. Case No. 234/2024, the Ld. The court issued arrest warrants against Chinese directors who visited India for a trade show after defrauding Indian importers. - Action Against Indian Subsidiaries
In January 2024, the government took action against an Indian company named Metec Electronics Pvt. Ltd. on the grounds that the Indian company was hiding its beneficial ownership links to a Chinese group. Penalties totalling more than Rs. 21 Lacs were imposed, and the company was barred from entering into fresh agreements with the entities of Metec Group in China and Hong Kong. (https://www.business-standard.com/companies/news/govt-acts-against-indian-firm-for-undisclosed-links-with-chinese-group-124011200886_1.html) - DGFT Complaints Portal
The Quality Control and Trade Disputes (QCTD) portal allows formal complaints against International suppliers which can eventually lead to blacklisting from future Indian imports. - Diplomatic Channels
The MEA sometimes tend to intervene in the large value disputes through diplomatic channels. For example, in March 2025, diplomatic intervention.
Helped 14 Indian companies recover over Rs. 12 Crore from Chinese suppliers of defective pharmaceutical equipment.
Top Five Most Frequently Asked Questions
- Can I simply return defective machinery to China for a refund?
This is essentially impractical due to the high shipping costs and customs complications. Recently, the Hon’ble Supreme Court in JSW Steel vs. Customs (Civil Appeal No. 789/2024) clarified that re-export requires special DGFT permission and doesn’t automatically entitle importers to duty refunds. Instead, pursue monetary compensation while the machinery remains in India. - How long do I have to report defects and initiate legal action?
This is typically contingent on your contract’s warranty period, but Indian courts generally recognise a ‘reasonable discovery period’ for latent defects. Recently, the Hon’ble Delhi High Court in Apex Pharma vs. Wuhan Medico CS(OS) 542/2024, allowed a claim filed 8 months after import since the defects couldn’t have been discovered earlier. - Can I claim damages beyond the machinery value?
Yes, for foreseeable consequential damages. In the recently decided case, Bharat Electronics Ltd. vs. Shenzen Tech Co. (Delhi High Court, 2024) CS (Comm) 237/2024, the court awarded production downtime losses of Rs. 87 lacs beyond the equipment value. - What if my contract specifies arbitration in China?
Indian courts have increasingly invalidated unfair arbitration clauses. The Hon’ble Supreme Court in India Cement Ltd. vs. Huaxin Trading Co. (Civil Appeal No. 3421/2024) held that arbitration clauses requiring prohibitively expensive proceedings in foreign jurisdictions may be set aside as ‘unconscionable’ when the Indian party had no meaningful opportunity to negotiate terms. - What GST/Customs implications arise from defective imports?
When the goods are determined defective but not returned to the supplier, you must promptly inform your authorised dealer bank about rejection and payment waiver for FEMA compliance. For GST, Section 17(5) may restrict input credit when supplier credit balances are written off. In some cases, the IGST paid can be claimed as a business loss.
Recent Developments in India-China Trade Disputes
According to the Times of India (April 18, 2025:https://timesofindia.indiatimes.com/india/as-trade-deficit-mounts-china-says- ready-to-import-more-premium-goods-from-india-envoy-seeks-fair-environment- for-chinese-firms/articleshow/120412955.cms) India’s trade deficit with China has increased to a record high of USD 99.2 billion. It is also noteworthy at this point that the Chinese Ambassador to India, Xu Feihong, has offered to help Indian entities tap into the Chinese market to address the growing trade deficit. This is also important to note that this offer comes amidst the US-China trade tensions.
According to a Business Standard report (April 9, 2025: https://www.business-standard.com/budget/news/economic-survey-ev-sector-china-dominance-india-125013101265_1.html), India remains heavily dependent on Chinese imports, given the value of inbound goods from China rising 9.8% year-on-year to USD 65.89 billion between April and October 2024. Meanwhile, India’s exports to China have declined by 9.37% to USD 8 billion during the same period.
Preventive Strategies
While the legal remedies are effective, prevention remains better than cure: –
- Pre-Shipment Inspections
- Escrow Payments
- Performance Bank Guarantee
- Contract Jurisdiction in India under the contract clauses
Conclusion
My 15 years of experience as a practising advocate, especially in recovery disputes involving Chinese entities, says that assertive legal actions yield results. It is often the notion in the minds of the Chinese entities that Indian businesses are reluctant to pursue legal remedies, but when Indian entities assert their legal rights before the Courts, many times Chinese entities offer for settlement rather than litigation. Indian courts look favorably upon the plaintiffs who demonstrate diligence and promptness concerning their respective rights. Following the correct procedure, pressing evidence and engaging an experienced counsel is crucial for settling cross-border disputes of this nature.
Authored by: Adv. Anant Sharma
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