Quick answer: how a micro or small enterprise recovers delayed payment
Under the MSMED Act, 2006, a buyer must pay a micro or small supplier by the agreed date, and never later than 45 days from accepting the goods or services. With no agreed date, the limit is 15 days. On delay, the buyer owes compound interest with monthly rests at three times the bank rate notified by the RBI. The supplier can refer the dispute to the Micro and Small Enterprises Facilitation Council (MSEFC) of its state, usually online through the MSME Samadhaan portal. The Council first tries conciliation and then decides it by arbitration. A buyer who wants to challenge the award must first deposit 75% of it. Medium enterprises and traders do not get these benefits.
Last reviewed: 2 November 2026. Written by Adv. Mridul Jindal, Law Chambers of Mridul Jindal, Indirapuram, Ghaziabad.
Who Can Use the MSMED Act Route
- Micro and small enterprises only: the delayed payment chapter protects a ‘supplier’, which means a micro or small enterprise. Medium enterprises are not covered.
- Manufacturers and service providers: retail and wholesale traders can register on Udyam, but the government has limited their benefit to priority sector lending.
- Registration: the supplier should hold Udyam registration. In Silpi Industries (2021) and Mahakali Foods (2022), the Supreme Court held that registration must exist before the contract. In January 2025, in NBCC (India) Ltd. v. State of West Bengal, a two-judge Bench referred this question to a larger Bench. Until it is decided, register before you contract, and we check the latest position for your claim.
What the Law Gives You
| Point | Law | Effect |
|---|---|---|
| Time to pay | Section 15 | Agreed date, but not more than 45 days from acceptance; 15 days if there is no agreement |
| Interest on delay | Section 16 | Compound interest with monthly rests at three times the RBI bank rate |
| Buyer’s liability | Section 17 | Principal plus Section 16 interest |
| Dispute to MSEFC | Section 18 | Conciliation, then arbitration by the Council or an institution it names; award within 90 days of reference |
| Challenge to award | Section 19 | Buyer must deposit 75% of the awarded amount before the court hears the challenge |
| Buyer’s tax deduction | Section 43B(h), Income-tax Act, 1961 (from 2023-24) | Deduction for dues to micro and small suppliers is postponed until actually paid if paid late |
The MSEFC and Samadhaan Process
- Demand: send a legal notice with invoices, acceptance proof and an interest calculation under Section 16.
- Reference: file before the MSEFC of the state where the supplier is located, online on the MSME Samadhaan portal, with invoices, purchase orders, delivery proof, ledger and Udyam certificate.
- Conciliation: the Council or an institution it names tries to settle the dispute.
- Arbitration: if conciliation fails, the Council arbitrates or refers it to an institution. In Mahakali Foods (2022), the Supreme Court held that this route applies even if the contract has its own arbitration clause.
- Award and execution: the award is enforced like a court decree. A challenge under Section 34 of the Arbitration Act needs the 75% deposit.
- Limitation: the Limitation Act applies. File within three years of the debt falling due, and act early.
Other Recovery Routes
- Insolvency: where the unpaid operational debt is ₹1 crore or more, a petition under Section 9 of the IBC can be considered.
- Summary suit: a suit under Order XXXVII CPC on invoices or written acknowledgements.
- Cheque bounce: if the buyer gave cheques that were dishonoured, a complaint under Section 138 of the NI Act.
- Commercial suit: before the Commercial Court where the claim is commercial and above the specified value.
Read more in our blog post on MSME delayed payment and the 45-day rule.
Unpaid by a Buyer?
Send us the purchase order, invoices, delivery proof, ledger and your Udyam certificate. We will calculate the interest and advise on the MSEFC route.
Frequently Asked Questions
Under Section 15 of the MSMED Act, a buyer must pay a micro or small supplier by the agreed date, which cannot exceed 45 days from acceptance. Without an agreement, payment is due in 15 days.
Compound interest with monthly rests at three times the bank rate notified by the RBI, from the date payment fell due (Section 16).
The Micro and Small Enterprises Facilitation Council set up by each state. It hears delayed payment disputes under Section 18, first by conciliation and then by arbitration.
No. The delayed payment chapter protects only micro and small enterprises.
The Supreme Court has said so in Silpi Industries and Mahakali Foods. In January 2025 a two-judge Bench referred the question to a larger Bench. Register before you contract, and check the current position before filing.
Yes. In Mahakali Foods (2022) the Supreme Court held that Section 18 of the MSMED Act overrides a private arbitration agreement.
Yes, under Section 34 of the Arbitration Act, but only after depositing 75% of the awarded amount under Section 19.
Yes. The Limitation Act applies, so claims should generally be filed within three years from when payment fell due.
Traders can register on Udyam, but their benefit is limited to priority sector lending. The delayed payment remedies are meant for manufacturers and service providers.
Legal basis
- Micro, Small and Medium Enterprises Development Act, 2006, Sections 2(n), 8, 15 to 19
- Silpi Industries v. Kerala State Road Transport Corporation (2021) 18 SCC 790, Supreme Court
- Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (2023) 6 SCC 401, Supreme Court
- NBCC (India) Ltd. v. State of West Bengal, 2025 INSC 54, Supreme Court (reference to larger Bench)
- Arbitration and Conciliation Act, 1996, Section 34
- Income-tax Act, 1961, Section 43B(h)
- Insolvency and Bankruptcy Code, 2016, Section 9
This page is general information, not legal advice for your case. Last reviewed 2 November 2026.
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