Written by Manushri Sanjay Joshi
June 2026
Introduction
Our traditional commercial laws were written for a physical world. When the Sale of Goods Act was passed in 1930, business was simple and direct. Transactions happened face-to-face, where a buyer handed over cash and a seller handed over the goods. To protect business owners from being cheated, the Act created the concept of the “Unpaid Seller” giving merchants strong legal rights over their goods if a buyer failed to pay.
Today, the internet has completely changed how we shop. Modern retail is no longer a simple deal between two people. Instead, it involves a complex three-party network: the seller, the customer, and the online platform (like Amazon or Flipkart), along with digital payment gateways and independent delivery partners. Because the line between physical ownership and digital control is now blurred, our old legal definitions are under a lot of pressure. This article looks at how the rights of an unpaid seller work in the digital age, and whether our current laws can still protect online merchants when a payment fails.
The Legal Baseline: Who is an Unpaid Seller?
According to Section 45 of the Sale of Goods Act, 1930, a seller is considered “unpaid” if the full price of the goods has not been paid or tendered, or if a conditional payment (like a cheque) bounces.[1]
When a buyer defaults, the law gives the unpaid seller two main types of protections:
- Rights against the goods: This includes a lien (keeping possession of the goods), the right to stop the goods while they are being delivered, and a limited right to resell them (Sections 46–54).[2]
- Rights against the buyer personally: This includes the right to sue the buyer for the price of the goods or for damages (Sections 55–56).[3]
These protections work perfectly when you run a physical shop. However, when a transaction moves to an online storefront, enforcing these rights becomes highly complicated.
The E-Commerce Problem: Who Has the Goods?
In traditional commerce, the transaction is direct: Seller $\rightarrow$ Buyer. In e-commerce, a third party stands in the middle: Seller $\rightarrow$ Online Platform $\rightarrow$ Buyer. This setup creates major legal loopholes for an unpaid seller.
- The Problem with the Right of Lien
A seller’s “lien” is simply the right to hold onto the goods until payment is made (Section 47).[4] Crucially, you can only use a lien if you already have physical possession of the items.
Under modern online retail models (like Fulfillment by Amazon), sellers send their stock to the platform’s warehouse weeks before a customer even clicks “buy.” If a customer’s digital payment fails or is reversed due to fraud after the package leaves the warehouse, the seller is legally an “unpaid seller.” But physically, they cannot hold onto the goods because the items are in the platform’s warehouse, not their own. Since the platform operates under its own corporate contract and is not a direct agent of the seller, the seller loses the practical ability to use their lien.
- The Challenge of Stopping Goods in Transit
Section 50 of the Act allows an unpaid seller to stop goods during delivery if the buyer goes bankrupt or defaults.[5] According to the law, this right lasts until the package is actually delivered to the buyer.[6]
In the online world, delivery is handled by independent logistics companies that link their software directly with the e-commerce platform, not the individual merchant. If a payment fraud is discovered while the package is out for delivery, the seller cannot simply call the courier and tell them to turn around. The seller has to log a complaint through the platform’s automated help center. If there is a system delay and the courier delivers the package anyway, the seller’s right to stop the goods is gone forever. The merchant is left with only one option: launching an expensive, impractical lawsuit against an online shopper who might be using a fake profile.
The Platform as a Financial Gatekeeper
Current Indian regulations, like the Consumer Protection (E-Commerce) Rules, 2020, and the Information Technology Act, 2000, focus heavily on protecting consumers and shielding online platforms from liability.[7] Unfortunately, they say very little about protecting online sellers when payments go wrong.
When an online buyer pays for an item, the money does not go straight to the seller. It sits in a digital escrow account managed by banking regulations and the platform. If a buyer files a dispute—sometimes falsely claiming they received an empty box to get a fraudulent refund—the platform will often freeze the money or reverse the payment.
When this happens, the seller is legally “unpaid,” but their struggle is no longer with the buyer. Their problem is with the platform’s automated dispute systems. The Sale of Goods Act was never designed to handle a situation where a powerful digital middleman can intercept and freeze a seller’s hard-earned money.
Conclusion: Updating Our Laws for the Digital Age
The legal image of an “unpaid seller” needs to change. We can no longer just picture a merchant holding onto a wooden crate at a shipping dock. Today’s unpaid seller is a small business owner dealing with automated warehouses, digital payment loops, and complex delivery apps.
To keep things fair, our courts and lawmakers need to update how they interpret our existing laws. “Possession” under Section 47 should be expanded to include digital control. If a seller has the digital power to cancel a shipment or remotely deactivate an online product, the law should recognize this as a modern form of a possessory lien. Until our legal system matches the speed of modern technology, online sellers will continue to face unfair risks in the digital marketplace.
[1] The Sale of Goods Act, 1930, S 45, No. 3, Acts of Parliament, 1930 (India).
[2] Id. at S 46–54.
[3] Id. at S 55–56.
[4] The Sale of Goods Act, 1930, S 47.
[5] The Sale of Goods Act, 1930, S 50.
[6] The Sale of Goods Act, 1930, S 51.
[7] Consumer Protection (E-Commerce) Rules, 2020, Gazette of India, pt. II sec. 3(ii) (July 23, 2020); Information Technology Act, 2000, S 79, No. 21, Acts of Parliament, 2000 (India).
