If you run a registered micro or small enterprise in India and a buyer has not paid you, the law is unusually strongly on your side. Under Section 15 of the MSMED Act 2006, the buyer must pay within 45 days. Miss that, and Section 16 makes them liable for compound interest at three times the RBI bank rate, compounded monthly. You file free on samadhaan.msme.gov.in, and the Council must decide within 90 days.
Why this matters
Delayed payment is the single biggest cause of death for small Indian businesses. A large buyer stretches a 30-day invoice to 180 days, the supplier's working capital dries up, and the supplier cannot afford the lawyer needed to chase a customer they still hope to keep.
Parliament wrote the Micro, Small and Medium Enterprises Development Act 2006 precisely to break that dynamic. The Act does three things ordinary contract law does not. It puts a hard statutory ceiling on credit periods that no contract can override. It attaches punitive compound interest automatically, without you needing to have negotiated it. And it forces a buyer who wants to fight to put 75% of the money on the table first.
Most small suppliers never use any of it, because nobody told them it exists.
Your rights when a buyer does not pay
1. The 45-day ceiling is not negotiable
Section 15 says the buyer must pay on or before the date agreed in writing, and in any event within 45 days from the day of acceptance of the goods or services. If there is no written agreement at all, the period is 15 days.
The critical point: a clause in your purchase order saying "payment in 90 days" or "payment on realisation from end customer" does not extend the 45-day ceiling. To the extent it tries to, it has no effect. Many suppliers wrongly believe they signed away this right.
"Acceptance" also has a specific meaning. If the buyer objects in writing to the goods within 15 days of delivery, acceptance runs from when that objection is resolved. If the buyer says nothing within 15 days, delivery is the date of acceptance — silence works in your favour.
2. Interest at three times the bank rate, compounded monthly
Section 16 is the provision that makes buyers settle. If payment is late, the buyer is liable to pay you compound interest, with monthly rests, at three times the bank rate notified by the Reserve Bank of India.
Two features matter:
- It is automatic. It applies by force of the statute. You do not need an interest clause, and the buyer's agreement is irrelevant.
- It compounds monthly, which on a long-delayed payment can approach the size of the principal.
A related provision, Section 22, requires buyers to disclose unpaid MSME dues and the interest payable on them in their annual accounts. Listed and audited buyers do not enjoy having that line item grow.
3. Income tax pressure on your buyer
Separately from the MSMED Act, income tax law now disallows a buyer's deduction for a payment to a micro or small enterprise unless it is actually paid within the Section 15 time limit. For a corporate buyer, delaying your invoice past 45 days therefore increases its taxable profit for that year. Reminding a buyer's finance team of this in writing is often more effective than a legal notice.
4. A free, dedicated forum
Section 18 lets you refer the dispute to the Micro and Small Enterprises Facilitation Council (MSEFC) in your state. The Council first attempts conciliation. If that fails, it either arbitrates itself or refers the matter to an arbitration centre, and the Arbitration and Conciliation Act 1996 applies as if the parties had signed an arbitration agreement.
Section 18(5) requires the reference to be completed within 90 days.
5. The 75% deposit rule
Section 19 is the sting in the tail. A buyer who wants to set aside the Council's decree, award or order in court must first deposit 75% of the awarded amount. This single provision removes almost all of the tactical value of appealing.
Step-by-step: how to file on Samadhaan
Step 1 — Confirm you were registered at the time of supply
This is the most common reason applications fail. Your Udyam registration must have been valid when you made the supply, not merely when you complain. Registering afterwards does not fix old invoices. Register at udyamregistration.gov.in before you begin supplying anyone.
Step 2 — Confirm you fall in the protected category
The delayed-payment provisions protect micro and small enterprises as suppliers. Medium enterprises do not get the same Section 15 to 18 protection on the supply side.
Step 3 — Assemble the paperwork
- Udyam registration certificate (showing the date)
- Purchase order or written agreement
- Invoices, with dates
- Proof of delivery — e-way bills, lorry receipts, delivery challans, signed acknowledgements, or for services, sign-off emails
- Ledger showing part-payments, if any
- Any written objection from the buyer, and your response
Step 4 — Send a written demand first
Not legally required, but valuable. A short letter stating the invoice numbers, the Section 15 due date, and that interest under Section 16 is accruing at three times the RBI bank rate, compounded monthly, settles a surprising number of matters. It also becomes evidence.
Step 5 — File on the Samadhaan portal
Go to samadhaan.msme.gov.in, log in with your Udyam number, and file the application. It is free. You will enter the buyer's details, invoice-wise amounts and dates, and upload your documents. The application is routed to the MSEFC of the state where your enterprise is located.
Step 6 — Attend conciliation
The Council will call both sides. Come with a clear invoice-wise statement showing principal and computed interest. Many buyers settle here once the interest figure is on paper.
Step 7 — Arbitration, award, and recovery
If conciliation fails, the matter proceeds to arbitration and ends in an award. An award is enforceable as a decree of court. If the buyer does not pay, you execute it. If the buyer goes to court to challenge it, they must deposit 75% first.
What if things go wrong
The buyer claims the goods were defective. Their objection had to be in writing within 15 days of delivery to shift the acceptance date. Produce your delivery proof and point to the absence of any timely written complaint.
The buyer is a government department or PSU. The MSMED Act applies to them too. Government buyers are also required to report MSME dues, and Samadhaan tracks departmental defaults.
The Council is slow. Section 18(5) gives you the 90-day standard to cite in writing when asking for a hearing date. Escalate to the State MSME Commissioner or Director of Industries, and record the delay on the portal.
You have already filed a civil suit. Speak to a lawyer before also going to Samadhaan. Running two parallel proceedings on the same debt creates complications.
The buyer has become insolvent. The MSMED route will not help against a company already in insolvency proceedings. Move quickly to file your claim in that process instead.
Your invoices are very old. The MSMED route does not extend the general three-year limitation period for recovering a debt. Do not sit on invoices for years.
Documents and resources you need
- Udyam registration certificate — valid as at the date of supply
- Purchase order or written agreement
- Invoices and delivery proof
- Ledger of part-payments
- Interest computation, invoice by invoice
- MSME Samadhaan portal: samadhaan.msme.gov.in (free filing)
- Udyam registration: udyamregistration.gov.in
- Ministry of MSME: msme.gov.in
- RBI bank rate (for the Section 16 calculation): rbi.org.in
Common myths
"My contract says 90 days, so I have to wait." You do not. The 45-day ceiling in Section 15 overrides a longer contractual credit period.
"I need a lawyer and court fees to start." You need neither to file on Samadhaan. It is free and designed for the supplier to file directly.
"Claiming interest will destroy the relationship." Possibly — but you can raise the claim and simultaneously offer to waive interest on prompt settlement of principal. Many suppliers use the statutory interest purely as leverage.
"Registering as an MSME now will cover my old invoices." It will not. Registration must predate the supply.
"The buyer will just appeal and I will wait years." Section 19 requires a 75% deposit before any challenge is entertained.
The law behind this
| Legal provision | What it covers |
|---|---|
| MSMED Act, 2006 — Section 15 | Buyer must pay by the agreed date, and within 45 days of acceptance in any case (15 days if no written agreement) |
| MSMED Act, 2006 — Section 16 | Compound interest with monthly rests at three times the RBI bank rate, automatically |
| MSMED Act, 2006 — Section 17 | Buyer's liability for the amount plus interest |
| MSMED Act, 2006 — Section 18 | Reference to the MSEFC; conciliation then arbitration; completion within 90 days |
| MSMED Act, 2006 — Section 19 | Buyer must deposit 75% of the award before challenging it in court |
| MSMED Act, 2006 — Section 22 | Buyer must disclose unpaid MSME dues and interest in its annual accounts |
| Arbitration and Conciliation Act, 1996 | Applies to the MSEFC arbitration as if there were an arbitration agreement |
Frequently asked questions
How many days does a buyer have to pay an MSME? The agreed date, and in any case 45 days from acceptance of the goods or services. Where there is no written agreement, 15 days. A contract cannot lawfully extend the 45-day ceiling.
What interest can I claim? Compound interest with monthly rests at three times the RBI bank rate, under Section 16. It applies automatically and cannot be negotiated away.
Does filing cost anything? No. Filing on samadhaan.msme.gov.in is free and needs no lawyer, though professional help is worth it if the buyer disputes the supply itself.
Do I need to have been registered before the supply? Yes. This is the most common reason claims fail. Register on udyamregistration.gov.in before you start supplying.
How long does the Council take? Section 18(5) requires completion within 90 days of the reference. Busier states often exceed this, but it is the standard you can press for.
Can the buyer appeal to delay payment? Only after depositing 75% of the award, under Section 19. That requirement removes most of the incentive to appeal for delay alone.