MSME Delayed Payment: The 45-Day Rule, Interest and the Samadhaan Portal

Delayed payment is the single biggest cash-flow problem for small suppliers in India. Large buyers routinely stretch payment cycles to 90 or 120 days, treating their suppliers as an informal source of credit. The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) was written to stop exactly this, and its payment provisions give micro and small suppliers rights that an ordinary contract creditor does not have.

What Is the 45-Day Rule?

Under Section 15 of the MSMED Act, a buyer must pay a micro or small enterprise supplier on or before the date agreed in writing, and in no case later than 45 days from the day of acceptance or deemed acceptance of the goods or services. If there is no written agreement, payment is due before the appointed day, which is the day following 15 days from acceptance. Deemed acceptance arises when the buyer does not object in writing within 15 days of delivery. A contract term setting a longer credit period does not override the statutory ceiling.

How Much Interest Can a Supplier Claim?

Section 16 makes a buyer who delays liable to pay compound interest with monthly rests on the unpaid amount at three times the bank rate notified by the Reserve Bank of India. This rate applies notwithstanding any agreement between the parties to the contrary. For long-delayed invoices, the interest can become a significant share of the claim, which is why buyers prefer to settle once a reference is filed.

Who Can Claim?

The protection is limited to suppliers who are micro or small enterprises, and who hold registration under the Act, now through the Udyam portal. Three points trip up claims in practice:

• Medium enterprises are not covered by these payment provisions
• The Supreme Court has held that the supplier must be registered when the contract is entered into
• Pure trading businesses have been treated differently from manufacturers and service providers

A supplier that registered after supplying the goods may find that the earlier invoices fall outside the Act. Check the registration date against the invoice dates before filing.

How Do You File a Claim?

Section 18 allows a supplier to make a reference to the Micro and Small Enterprises Facilitation Council (MSEFC) set up by the State Government. Claims can be filed through the MSME Samadhaan portal, an online system launched in 2017 for delayed payment complaints. The process runs in stages:

• The supplier files the claim with the Council, with invoices, proof of delivery and statement of account
• The Council first attempts conciliation under the Arbitration and Conciliation Act
• If conciliation fails, the Council arbitrates, and the Act expects an award within 90 days
• The award is enforceable as a decree of a civil court

In Tamil Nadu, Facilitation Councils are set up by the State Government, and the supplier's location generally determines which Council has jurisdiction. Because the Act operates notwithstanding anything in any other law, the Supreme Court has held in Gujarat State Civil Supplies Corporation v. Mahakali Foods (2022) that these statutory provisions prevail over a private arbitration agreement, so a buyer cannot defeat a Council reference simply by pointing to an arbitration clause in the contract.

What Does a Buyer Have to Deposit to Challenge an Award?

Section 19 provides that a buyer who wants to set aside a decree, award or order of the Council must first deposit 75 percent of the amount awarded with the court. This pre-deposit requirement makes a challenge costly and discourages delay-driven appeals, and it is one of the strongest features of the Act from a supplier's perspective.

What Other Pressures Do Buyers Face?

Two other provisions give suppliers leverage. First, companies with outstanding dues to micro and small enterprises beyond 45 days must file a half-yearly return with the Ministry of Corporate Affairs, disclosing the amounts and reasons. Second, under Section 43B(h) of the Income Tax Act, which applies from the 2023-24 financial year, a buyer can claim a tax deduction for amounts payable to micro and small enterprises only in the year in which they are actually paid, if paid beyond the time allowed by the MSMED Act. Finance teams are therefore far more attentive to MSME dues than they used to be.

What Should a Supplier Do First?

Before going to the Council, put the buyer on notice, and keep good records: purchase orders, delivery proof, invoices, and any email in which the buyer accepted the goods or admitted the dues. A formal legal notice for recovery of money that cites the MSMED Act and claims statutory interest often brings a buyer to the table. If you are weighing the MSME route against a suit, our overview of recovering dues from a company that is not paying compares the options.

If you are a micro or small supplier with overdue invoices, or a buyer facing a Council reference, our Commercial Disputes practice can advise on the claim or the defence. You can request a consultation to get started.