MSME Delayed Payment Recovery Under the MSMED Act, 2006: The 45-Day Rule, Interest and the Samadhaan Route

When a buyer sits on your invoice for months, the instinct is to file a civil suit and wait years. For a registered micro or small enterprise there is a faster, cheaper route that most suppliers never use. MSME delayed payment recovery under the Micro, Small and Medium Enterprises Development Act, 2006 gives a supplier a statutory right to payment within a fixed period, compound interest at a punitive rate if the buyer defaults, and a dedicated conciliation-then-arbitration forum that is meant to decide the matter within ninety days. This guide explains how the mechanism works, section by section, and how a supplier actually uses it to chase a buyer who will not pay. If your dispute is better suited to court, compare this with our guide on the money recovery suit in India.

Key takeaway: A registered micro or small enterprise can file a delayed-payment claim on the MSME Samadhaan portal. The Micro and Small Enterprises Facilitation Council first attempts conciliation and, if that fails, takes up the same dispute as arbitration. A buyer who wants to challenge the resulting award in court must first deposit 75% of the awarded amount.

Who can use the MSME delayed payment recovery route

The delayed-payment provisions in Chapter V of the MSMED Act protect a "supplier", which the Act defines as a micro or small enterprise that holds a registration (today, an Udyam registration). Two points decide eligibility. First, you must have been a registered micro or small enterprise, and it is the enterprise's registered status that matters, not the buyer's. Second, the claim must be for goods actually supplied or services actually rendered, for which payment is overdue. A medium enterprise does not get the benefit of this specific recovery mechanism, so check your registration category before you file. If your registration was obtained only after the default, expect the buyer to raise it, so keep the certificate and its date ready.

The 45-day payment rule: Section 15

Section 15 fixes when the buyer must pay. Where the supplier and buyer have agreed a payment date in writing, the buyer must pay on or before that date. Where there is no written agreement, the buyer must pay before the "appointed day", which the Act defines as the day immediately following fifteen days from the date the buyer accepted the goods or services. The rule that gives the section its teeth is in the proviso: the credit period agreed in writing can never exceed forty-five days from the day of acceptance or deemed acceptance. A contract clause that promises payment in ninety or one hundred and twenty days does not override this; for the purpose of the Act, the ceiling is forty-five days.

Common mistake: assuming a long credit period written into the purchase order defeats the claim. It does not. Section 15 caps the enforceable credit period at forty-five days regardless of what the paperwork says, and interest starts running from the day payment was due.

Interest at three times the bank rate: Section 16

Section 16 is the reason buyers settle. If the buyer fails to pay by the date fixed under Section 15, the buyer becomes liable to pay compound interest, with monthly rests, at three times the bank rate notified by the Reserve Bank of India. This liability arises notwithstanding anything in the contract or any other law, so the parties cannot contract out of it. Two features make the figure large. The rate is three times the bank rate notified by the RBI, and the interest compounds monthly rather than simply. Over a delay of a year or more, the interest component can approach or exceed the principal, which is exactly the pressure the statute intends to create. Section 17, read with these provisions, makes the buyer liable to pay the amount due together with that interest.

There is a second lever that has sharpened since 2023. Under the Income Tax Act, a buyer who does not pay a micro or small enterprise within the time limit set by Section 15 of the MSMED Act cannot claim that expense as a deduction until the year the payment is actually made. For a buyer running a business, a delayed deduction is a real cash cost, and it has pushed many buyers to clear MSME dues before the financial year closes. Even before you reach a forum, a demand that reminds the buyer of both the Section 16 interest and this tax consequence often does the work on its own.

The MSME Samadhaan portal and the Facilitation Council: Section 18

Section 18 is the enforcement engine. Any party to a dispute over an amount due under Section 17 may refer it to the Micro and Small Enterprises Facilitation Council (MSEFC). In practice, the supplier files the reference online through the MSME Samadhaan portal run by the Ministry of MSME. What follows has two stages built into the same section:

• Conciliation first. On receiving the reference, the Council either conducts conciliation itself or refers it to an alternative dispute resolution institution. The conciliation is governed by sections 65 to 81 of the Arbitration and Conciliation Act, 1996.
• Arbitration if conciliation fails. If conciliation does not produce a settlement and is terminated, the Council either takes up the dispute as arbitration itself or refers it to an institution. From that point the Arbitration and Conciliation Act, 1996 applies as if the arbitration were held under an arbitration agreement, even though the parties never signed one.

The Council can hear a dispute where the supplier is located within its jurisdiction even if the buyer sits in another state. And Section 18(5) sets a target: the reference is to be decided within ninety days from the date it is made. Delays happen in practice, but the statutory clock is far shorter than a civil suit.

The 75% pre-deposit to challenge an award: Section 19

Section 19 protects the supplier from the usual tactic of appealing simply to buy time. If a buyer wants a court to set aside the decree, award or order made by the Council or its referred institution, the court cannot even entertain the application unless the buyer deposits 75% of the awarded amount. The court may direct that a part of that deposit be released to the supplier while the challenge is pending. This front-loaded deposit is a heavy disincentive to a hopeless appeal, and it is one of the strongest reasons to prefer the MSEFC route where you qualify for it.

MSEFC route or a civil suit: which to choose

The Samadhaan route is not always the answer. It is powerful for a clean claim: goods delivered, services rendered, invoice unpaid, and your registration in order. Where the buyer raises a genuine dispute about quality, quantity or a counterclaim, the arbitration can become as contested as any other proceeding. For a straightforward debt backed by a written contract or an acknowledged invoice, a summary suit may still be quicker to a decree, and we cover that in our guide to the Order 37 CPC summary suit. Either way, a well-drafted demand sent first often resolves the matter without any forum at all; see our legal notice format guide.

In my practice, the delayed-payment claims that move fastest are the boring ones. The supplier kept the purchase order, the delivery challans and the acknowledged invoices, and the registration was done before the supply, not scrambled together after the default. Where clients get stuck is registering the enterprise only after the dispute erupts and then arguing about status, or filing on the portal with a vague claim and no documents attached. The forum is quick, but it still decides on the paper in front of it, so the file has to be complete on day one.

Practical step-by-step for a supplier chasing a buyer

1. Confirm your registration. Make sure the enterprise held a valid Udyam registration as a micro or small enterprise. Keep the certificate and its date ready.
2. Assemble the file. Purchase order or contract, delivery proof, invoices, the ledger showing the outstanding amount, and any emails acknowledging the dues.
3. Send a demand. A clear written notice recording the principal, the due date and the interest running under Section 16 often triggers payment.
4. File on Samadhaan. Register on the MSME Samadhaan portal and file the reference to the Council with your documents uploaded legibly.
5. Attend conciliation. Engage seriously; a settlement here is the quickest exit.
6. Proceed to arbitration. If conciliation fails, the Council arbitrates and can pass an award for the principal and the Section 16 interest.
7. Enforce. If the buyer challenges the award, the 75% pre-deposit under Section 19 applies; if not, execute the award like a decree.

For a company that regularly supplies larger buyers, the more durable fix is on the front end: getting registration, invoicing and credit terms right so that a default triggers the statute cleanly. That is the kind of preventive work our corporate and commercial law practice sets up for suppliers.

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