If you are a registered micro or small enterprise and a buyer has not paid you for goods or services, the law gives you more than an ordinary creditor gets. Under the Micro, Small and Medium Enterprises Development Act, 2006, a buyer must pay within the agreed period, which cannot be longer than 45 days from acceptance. If it does not, it owes compound interest with monthly rests at three times the bank rate notified by the Reserve Bank. With the bank rate at 5.75% from 7 October 2026, that is 17.25% a year, compounded every month.
This page is for Udyam-registered micro and small manufacturers, traders supplying under their registration, and service providers. You can file your claim before the Micro and Small Enterprises Facilitation Council of your state. The council first tries to settle the dispute by conciliation and, if that fails, decides it as an arbitration, which the Act says should be done within 90 days of the reference. The council's process overrides any arbitration clause in your contract.
If the buyer wants to challenge the council's award in court, it must first deposit 75% of the amount. That rule alone brings many buyers to settle.
हिंदी में सारांश
अगर आप पंजीकृत सूकà¥à¤·à¥à¤® या लघॠउदà¥à¤¯à¤® हैं और ख़रीदार ने माल या सेवा का à¤à¥à¤—तान नहीं किया है, तो à¤à¤®à¤à¤¸à¤à¤®à¤ˆà¤¡à¥€ अधिनियम आपको विशेष सà¥à¤°à¤•à¥à¤·à¤¾ देता है। ख़रीदार को तय समय में à¤à¥à¤—तान करना होता है, जो सà¥à¤µà¥€à¤•à¥ƒà¤¤à¤¿ से 45 दिन से अधिक नहीं हो सकता। देरी पर रिज़रà¥à¤µ बैंक की बैंक दर के तीन गà¥à¤¨à¤¾ पर मासिक चकà¥à¤°à¤µà¥ƒà¤¦à¥à¤§à¤¿ बà¥à¤¯à¤¾à¤œ देना होता है। 7 अकà¥à¤Ÿà¥‚बर 2026 से बैंक दर 5.75% है, यानी सालाना 17.25%। आप अपने राजà¥à¤¯ की सूकà¥à¤·à¥à¤® और लघॠउदà¥à¤¯à¤® सà¥à¤µà¤¿à¤§à¤¾ परिषद (MSEFC) में दावा दायर कर सकते हैं, जो अब ऑनलाइन ओडीआर पोरà¥à¤Ÿà¤² पर होता है। अवॉरà¥à¤¡ को चà¥à¤¨à¥Œà¤¤à¥€ देने के लिठख़रीदार को 75% राशि जमा करनी होती है।
Is this your situation?
- Your business is registered on Udyam as a micro or small enterprise
- You supplied goods or services to a buyer who has not paid within 45 days
- The buyer accepted the goods or services without written objection within 15 days
- The buyer is in India (a company, firm, government body or individual business)
- You have invoices, delivery proof and purchase orders
- Your contract has an arbitration clause, but you would prefer the MSME council
- The dues are within three years, or the buyer has acknowledged them
Your rights as an MSME supplier
A payment deadline
The buyer must pay by the date agreed in writing, which cannot exceed 45 days from acceptance. If there is no agreement, within 15 days of acceptance (Section 15).
Deemed acceptance
If the buyer does not object in writing within 15 days of delivery, the goods or services are treated as accepted.
Compound interest
Compound interest with monthly rests at three times the RBI bank rate, from the day after payment was due (Section 16).
A statutory forum
The state Facilitation Council, which conciliates and then arbitrates (Section 18), overriding the contract's clause.
The 75% deposit rule
A buyer challenging the council's award must deposit 75% of it first (Section 19).
Tax pressure on buyers
Payments to micro and small enterprises made late are disallowed as a deduction until actually paid (Section 43B(h) of the 1961 Act, now Section 37(2)(g) of the Income-tax Act, 2025).
Who qualifies, and the registration question
The Act's delayed-payment chapter protects "suppliers", meaning micro and small enterprises that have filed a memorandum under Section 8, now the Udyam registration. Medium enterprises are not covered by the delayed-payment protections. Classification is by investment in plant and machinery or equipment and turnover. From 1 April 2025, a micro enterprise has investment up to ₹2.5 crore and turnover up to ₹10 crore, and a small enterprise up to ₹25 crore and ₹100 crore.
The MSMED (Amendment) Act, 2026, which received assent on 13 August 2026, made registration free and voluntary through a notified national digital platform, with effect from 15 October 2026. The benefits, including recourse to the Facilitation Council, depend on registration. So if you are not registered, register now; see Udyam registration.
A harder question is whether you can claim for supplies made before you registered. In Silpi Industries (2021) and Gujarat State Civil Supplies v Mahakali Foods (2022), the Supreme Court indicated that a party must be a supplier on the date of the contract to claim benefits. In NBCC (India) v State of West Bengal (January 2025), a two-judge bench took a broader view that registration is not a precondition to approaching the council, and referred the question of conflicting precedents to a larger bench. The law is therefore unsettled for pre-registration supplies. Claims for supplies made after registration stand on firm ground.
The courts have also differed on whether works contracts, such as construction contracts, fall within the Act. If your claim is for a works contract, take advice before choosing the council over arbitration or a suit.
How we recover MSME dues
Check eligibility and limitation
Udyam registration date, the date of each supply, acceptance, due date and any acknowledgement. Arbitration before the council is subject to the Limitation Act, generally three years from the due date.
Calculate the claim
Principal and compound interest at three times the bank rate, with monthly rests, invoice by invoice. See the MSME interest calculator.
Send a notice to the buyer
A notice citing Sections 15 and 16, the claim and the intention to approach the council. Many buyers pay at this point.
File before the Facilitation Council
Through the MSME ODR portal, which since October 2025 is the route for new delayed-payment cases, with invoices, POs and delivery proof. See MSME Samadhaan and ODR filing.
Conciliation
The council or an institution it nominates conducts conciliation, now commonly online. Settlement ends the case.
Arbitration
If conciliation fails, the council arbitrates or refers the case to an institution. We file the statement of claim and lead evidence. See MSEFC conciliation and arbitration.
Award and recovery
The award is enforceable as a decree. If the buyer challenges, it must deposit 75%. We oppose the challenge and seek release of the deposit.
Time and typical cost range
Our fees are agreed in writing at the start, stage by stage, and are not linked to the outcome.
| Stage | Usual time | Cost |
|---|---|---|
| Eligibility check and claim calculation | 2 to 5 days | Our fee |
| Notice to buyer | 15 days for reply | Our drafting fee |
| Filing on the ODR portal | 1 to 3 days | Nominal or no government fee |
| Conciliation | 1 to 3 months in practice | Nil or nominal |
| Arbitration by council | Act requires decision within 90 days of reference; often takes longer | Our fee |
| Buyer's Section 34 challenge | 1 to 3 years, after 75% deposit | Our fee |
Documents needed
Registration
- Udyam registration certificate, with the date of registration
- Earlier Udyog Aadhaar or EM-II, if any
- GST registration
Supplies
- Purchase orders or work orders
- Invoices with dates and payment terms
- Delivery challans, e-way bills, GRNs, completion certificates
Payment record
- Statement of account and ledger
- Bank statements showing payments received
- Emails or letters from the buyer about payment or complaints
Where MSME delayed payment cases go
| Supplier located in | Facilitation Council |
|---|---|
| Delhi | Delhi MSEFC, through the MSME ODR portal |
| Uttar Pradesh (Ghaziabad, Noida) | UP MSEFC (regional councils as notified), through the portal |
| Haryana (Gurugram, Faridabad) | Haryana MSEFC (regional councils as notified), through the portal |
| Any other state | That state's MSEFC |
| Challenge to council award | Court of the seat under Section 34, after 75% deposit |
| Writ against council orders | High Court, in limited cases |
The interest: why it changes everything
The interest under Section 16 is what makes the MSME route so effective. It is compound interest with monthly rests, at three times the bank rate notified by the RBI. The bank rate was 5.50% from April 2026 and 5.75% from 7 October 2026, so the multiplied rate has been 16.5% to 17.25% a year recently, compounded every month. Over two or three years, this can add more than half of the principal to the claim.
Section 16 applies "notwithstanding anything contained in any agreement", so a contract cannot reduce it. Councils and courts have differed on whether to apply the bank rate in force when payment fell due throughout, or to change it as the bank rate changes; the calculation method should be stated clearly in the claim.
Interest is also not deductible for the buyer under Section 23 for income tax purposes. With the separate disallowance of late payments under the Income-tax Act, delayed payment to an MSME costs the buyer far more than the interest itself. Buyers' finance teams know this, and a well-framed notice often gets results.
When the contract has an arbitration clause
Many purchase orders and contracts contain an arbitration clause. In Gujarat State Civil Supplies Corporation v Mahakali Foods (2022), a three-judge bench of the Supreme Court held that Chapter V of the MSMED Act overrides the Arbitration Act, and that a supplier can approach the Facilitation Council under Section 18 even where the contract has its own arbitration clause. The council's arbitration is treated as if under an arbitration agreement under Section 7 of the Arbitration Act. The Court also held that council members who conducted conciliation can act as arbitrators in the same case.
So a supplier can choose the council route even if the buyer insists on the contract's clause. Once a reference is made to the council, a later Section 11 petition by the buyer to appoint a different arbitrator under the contract will generally not succeed.
Laws that apply
Payment within the agreed period, not exceeding 45 days from acceptance; 15 days if nothing agreed.
Compound interest with monthly rests at three times the RBI bank rate.
Reference to the Facilitation Council; conciliation, then arbitration; 90-day target.
75% deposit for any application to set aside the council's award.
Late payments to micro and small enterprises deductible only when paid.
A component maker's claim with interest
Here's a made-up example. A Ghaziabad micro enterprise, registered on Udyam since 2021, supplied moulded parts worth ₹22 lakh to a Delhi appliance company in 2024. The purchase orders gave 45 days' credit. The company paid ₹7 lakh and then stopped, without ever raising a quality complaint.
We calculated the claim invoice by invoice, with compound interest at three times the bank rate, and sent a notice. The company replied offering to pay the principal in six instalments, with no interest. The enterprise filed on the MSME ODR portal before the UP council. Conciliation failed when the company insisted on waiving interest.
The council arbitrated and awarded the principal of ₹15 lakh with Section 16 interest of about ₹6.8 lakh up to the date of the award, with interest continuing until payment. The company considered a challenge but would have had to deposit about ₹16 lakh first. It paid the award in two instalments instead.
How we work
We are a litigation and advisory practice led by Advocate BK Singh, with offices in Dwarka (New Delhi) and Vaishali (Ghaziabad). This is what you can expect:
- Eligibility checked properly: registration dates and supply dates, invoice by invoice.
- Interest calculated correctly: compound, monthly rests, at the right bank rates.
- Portal filings handled: documents uploaded and tracked.
- Council hearings attended: conciliation and arbitration.
- Written fee terms: agreed stage by stage, never linked to the outcome.
Mistakes MSME suppliers make
- Not registering on Udyam before supplying
- Letting three years pass from the due date
- Accepting part payments with letters waiving interest
- Not keeping signed delivery proof
- Filing without a clear invoice-wise statement
- Ignoring the buyer's quality complaints raised at the time
What buyers usually argue, and how to answer
"The goods were defective." The Act gives the buyer 15 days from delivery to object in writing. After that, the goods are deemed accepted. A buyer that raised no written objection within that time, and kept using the goods, faces an uphill task. Keep your signed delivery receipts and any quality certificates.
"Our contract gave 90 days' credit." Section 15 caps the agreed period at 45 days from acceptance. A longer period in the contract does not bind the supplier for the purposes of the Act. Interest runs from day 46.
"You were not registered." Show your Udyam registration and its date, and the dates of the supplies. For supplies after registration, this argument should fail. For earlier supplies, the law is unsettled.
"The claim is time-barred." Show acknowledgements such as ledger confirmations, emails admitting the balance, TDS certificates, or part payments within three years. Remember that the buyer must disclose overdue MSME payments in its annual accounts under Section 22; the Supreme Court in Sonali Power (2025) said whether such disclosure extends limitation depends on the facts.
"We have a counter-claim." A buyer can raise a counter-claim before the council if it falls within the contract. Be ready to answer it on the evidence.
Government buyers, CPSEs and TReDS
Government departments, PSUs and statutory bodies are buyers under the Act like anyone else. Many MSME claims are against them, and councils regularly pass awards against public sector buyers.
The MSMED (Amendment) Act, 2026 adds a new Section 15A, in force from 15 October 2026. It requires every Central Public Sector Enterprise to route the settlement of invoices for procurement from MSMEs through a TReDS platform authorised by the Reserve Bank, in the manner prescribed. TReDS platforms let suppliers discount their accepted invoices with financiers and receive payment quickly, with the buyer paying the financier on the due date. A new Section 22A requires CPSEs and notified entities to disclose details of invoices routed through TReDS. The Central and State Governments can extend the TReDS requirement to other bodies by notification.
For MSME suppliers to CPSEs, this should mean faster payment on accepted invoices. It does not replace the council for disputed or rejected invoices, or for interest claims on past delays.
Combining the MSME route with others
The council is often the best route, but it can be combined with others. A supplier holding the buyer's dishonoured cheques can file a cheque bounce complaint alongside. A supplier owed ₹1 crore or more by a company that has no genuine dispute can consider an IBC demand notice, though the council's award, once obtained, is often a stronger foundation for that step. Where the buyer has assets that may disappear, a court can be asked for interim protection under Section 9 of the Arbitration Act in support of the council arbitration.
Medium enterprises, and micro or small suppliers who are not registered, do not have the council route for delayed payments. Their options are a legal notice, arbitration under the contract, or a commercial suit.
Frequently Asked Questions
Who can file a delayed payment claim?
A micro or small enterprise registered on Udyam, against a buyer that has not paid within the time allowed.
Can medium enterprises claim under these rules?
No. The delayed payment chapter protects micro and small enterprises only.
What is the maximum credit period allowed?
45 days from the day of acceptance or deemed acceptance. If nothing is agreed, 15 days.
What interest can I claim?
Compound interest with monthly rests at three times the bank rate notified by the RBI.
What is the bank rate now?
5.75% from 7 October 2026, so the multiplied rate is 17.25% a year. Earlier periods use the rate then in force.
Where do I file?
Before your state's Micro and Small Enterprises Facilitation Council, now through the MSME ODR portal.
Can I file even if my contract has an arbitration clause?
Yes. The Supreme Court held in Mahakali Foods (2022) that the council route overrides the contract's clause.
Is there a time limit?
Arbitration before the council is subject to the Limitation Act, generally three years. Conciliation can include older dues, as held in Sonali Power (2025).
What if I registered after making the supplies?
The law is unsettled; a larger bench has been asked to decide. Supplies after registration are on firm ground.
Can the buyer challenge the award?
Yes, under Section 34, but only after depositing 75% of the awarded amount.
Can I claim against a government department or PSU?
Yes. Government buyers are covered like any other buyer.
How long does it take?
The Act targets 90 days for the council's decision. In practice, many cases take several months.
Buyer not paying your MSME invoices?
Send us your Udyam certificate, invoices and ledger. We will calculate your claim with interest and file it before the council.
This page gives general information about arbitration and dispute law in India as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. Time limits, fees and court rules change, and the right step depends on your own contract, dates and documents, so take advice before acting.
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