Delayed payment by a buyer to a micro or small business in India — MSMED Act sections 15–18, 45-day rule, interest at 3× RBI bank rate, MSME Samadhaan and the Facilitation Council (MSEFC), Udyam registration (2026)
Plain map for micro and small suppliers (and buyers) when a bill for goods or services is not paid on time: the 45-day outer limit under Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006; compound interest with monthly rests at three times the RBI-notified bank rate under Section 16; the Section 18 reference to the State Micro and Small Enterprises Facilitation Council (conciliation, then arbitration) and the MSME Samadhaan portal; why Udyam registration timing matters; the 75% pre-deposit rule for a buyer who challenges an award (Section 19); and what to keep ready. Educational only — not legal advice; Adhiwakta does not file Samadhaan applications or contact buyers or councils.
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Who this law protects — and who it does not
Chapter V (sections 15–24) of the MSMED Act, 2006 protects a supplier who is a registered micro or small enterprise (Udyam registration, earlier Udyog Aadhaar / EM-II) and who supplied goods or rendered services to a buyer. It does not protect a medium enterprise, a supplier that is not registered, or a buyer’s claim against its own supplier. Registration timing matters: the Supreme Court (Gujarat State Civil Supplies Corporation v. Mahakali Foods, 2022) has held that a supplier must be a registered micro or small enterprise on the date the contract is made; registration taken afterwards helps only for later supplies, not for earlier contracts. Check the date on your Udyam certificate against the date of the purchase order or agreement.
The payment rule — Section 15 and the 45-day ceiling
The buyer must pay on or before the date agreed in writing, or, if there is no written agreement, before the ‘appointed day’ — the day after fifteen days from the day of acceptance or deemed acceptance of the goods or services. Even where the contract says longer, the agreed period cannot exceed 45 days from acceptance or deemed acceptance. A ‘90-day credit’ clause in a purchase order does not override this ceiling. Disputing quality is not an automatic pause: the statute works from acceptance or deemed acceptance, so keep delivery challans, acceptance emails and rejection notices (with dates).
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Write in Hindi or English · general guidance, not legal advice
Interest — Section 16 (3× bank rate, compounded monthly)
If payment is delayed beyond the appointed or agreed day, the buyer is liable to pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, notwithstanding anything in the contract or any other law. The Council is not supposed to award a different rate. Section 17 makes the buyer liable for the principal and this interest. The Delhi High Court (Indian Highways Management Co. v. Sowil, 2021) has treated Sections 15–17 as substantive rights independent of Section 18, but practices on how courts apply them differ — do not assume any particular interest figure without checking the current RBI bank rate and the dates.
Where to complain — Samadhaan and the MSEFC (Section 18)
Any party to a dispute about an amount due can make a reference to the Micro and Small Enterprises Facilitation Council (MSEFC) of the State or Union Territory (the Director of Industries chairs it; each State has its own councils, offices and forms). You can file online on the central MSME Samadhaan portal (samadhaan.msme.gov.in) with your Udyam number, invoices, buyer details and the amount, or directly with your State council. The Council first attempts conciliation. If that fails it may itself arbitrate or refer the matter to an institution or centre providing arbitration; the Arbitration and Conciliation Act, 1996 then applies as if there were an arbitration agreement. Section 18 applies even where the contract has an arbitration clause pointing elsewhere (Mahakali Foods, 2022). Section 18(5) says every reference should be decided within 90 days — that is a statutory target, not a promise about how fast any council will actually decide.
Challenging the award — Section 19 pre-deposit
An award or decree of the Council can be challenged in court (an application under Section 34 of the Arbitration and Conciliation Act). Under Section 19, if the party challenging is not the supplier, the court will not entertain the application unless that party has deposited 75% of the awarded amount (in the manner the court directs). The supplier is not required to make this deposit. The matter can still continue after the award, so the Samadhaan route is not ‘court-free’ and recovery is not guaranteed.
Before you file — practical steps
(1) Collect the Udyam certificate, purchase order / contract, invoices, delivery proof and acceptance. (2) Send a clear written payment reminder or demand giving dates and the amount, and keep proof of delivery. (3) Work out the unpaid principal and the dates from which interest runs (agreed date, or appointed day, subject to the 45-day ceiling). (4) File on Samadhaan or with the State MSEFC. (5) Keep dates for hearings and conciliation. Limitation: arbitration under Section 18(3) is subject to the Limitation Act (the Supreme Court has said so), so do not wait for years.
If you are the buyer
Check whether the supplier was a registered micro or small enterprise at the time of the contract; whether goods or services were actually accepted; whether the claimed days and interest are correct; and what the written contract said on payment. Under the Income-tax Act (Section 43B(h), for amounts payable to micro and small enterprises from financial year 2023-24), a deduction for such payables is allowed only on actual payment, and within the Section 15 time limits for the year — so unpaid MSME dues can have a tax effect. Companies that owe MSME dues beyond 45 days also have to report them in the MCA MSME-1 return. Check current rules with your accountant.
State differences to expect
The Act is central, but councils are State bodies: names of offices, online forms, filing fees, hearing practice and how quickly meetings are held differ by State and even by council. Some States run more than one council. Always read your State’s industries department page for the current procedure.
What this guide is not
It is not advice on whether you will recover money, how much interest a particular council will award, or how a pending dispute will turn out; it does not replace reading the Act and your contract.
How Adhiwakta can help
We do not file Samadhaan applications, draft your claim for filing, or contact buyers or councils on your behalf. Adhiwakta is a facilitation platform, not a law firm. We do not file cases, appear before any authority, or promise any result. Use Ask Adhiwakta to describe your situation for general guidance from an independent advocate, or start with the AI helper to organise your facts and papers. Educational only — not formal legal advice.
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Frequently asked questions
- What is the maximum credit period I can give to a micro or small supplier?
- Under Section 15 of the MSMED Act, 2006 the payment must be made by the agreed written date, and that agreed period cannot be more than 45 days from acceptance or deemed acceptance. If there is no written agreement, payment is due before the appointed day, which follows 15 days from acceptance.
- What interest applies on delayed payment to a micro or small enterprise?
- Section 16 provides compound interest with monthly rests at three times the bank rate notified by the RBI, notwithstanding a contract term. Check the current RBI bank rate and the dates before calculating.
- Where do I file a delayed-payment complaint?
- Through the MSME Samadhaan portal (samadhaan.msme.gov.in) or directly with your State’s Micro and Small Enterprises Facilitation Council (MSEFC) under Section 18. The Council first attempts conciliation and then arbitration; the statute says a reference should be decided within 90 days, which is a target, not a guarantee.
- Does my Udyam registration date matter?
- Yes. The Supreme Court (Mahakali Foods, 2022) held that the supplier must be registered as a micro or small enterprise on the date of the contract; later registration helps only for later supplies.
- What if the buyer wants to challenge the MSEFC award?
- Under Section 19 a buyer who challenges the award in court must first deposit 75% of the awarded amount. The supplier is not required to do so.
- Does Adhiwakta file my Samadhaan application?
- No. Adhiwakta does not file applications or contact buyers or councils. Use Ask Adhiwakta or the AI helper for general educational guidance only.
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