Maxim was given three weeks to "pay up" or it would face a defamation suit, Khushboo told reporters. The actress has also ruled out an out-of-court settlement.
Khushboo's confrontation with Maxim has reached a point of no return with her rejection of the magazine's apology as "entirely inadequate".
"Damage has already been done to my image and reputation and it is irreparable and irreversible," she said.
Khushboo said no one from Maxim's publishers had come to meet her and her information was that they feared arrest in Tamil Nadu. "A mediator had come," a visibly charged Khushboo said. "If they don't pay up, let them face the court."
Scoffing at the suggestion that the morphing was a mistake, Khushboo pointed out that Maxim "also carried an obscene caption with the cover picture".
Questioning the sincerity behind its apology offer, she said: "Even the current issue of Maxim does not carry the promised apology."
Khushboo hinted that Maxim might face a second legal suit from her husband Sundar C., a well-known film personality.
The Maxim issue has eclipsed an earlier controversy involving Khushboo and her reported remarks on pre-marital sex and AIDS in a magazine interview, which were condemned by Tamil Nadu's political outfits.
Sundar has filed a criminal case against Maxim for not following an Indian law that makes it mandatory for every publication to have its editorial address in every copy.
Maxim's India edition only carried a marketing office address. "This delayed our communication to them as we had no addresses to write to and had to search for the editorial office," Khushboo said.
The Maxim-Khushboo tussle began in January, when the magazine carried the morphed picture in a page titled "Women you will never see in Maxim"
When Khushboo protested, the magazine said it was all in fun and that it would apologise.