Under Section 15 of the MSMED Act, 2006, a buyer must pay a micro or small supplier by the agreed date, which cannot exceed 45 days from acceptance; with no agreement, within 15 days. Late payment attracts compound interest with monthly rests at three times the RBI bank rate. Suppliers can file a case on the MSME Samadhaan portal before the state Facilitation Council.
Micro, Small and Medium Enterprises Development Act, 2006
Section 15Payment by agreed date, not exceeding 45 days from acceptance; 15 days if there is no agreement.
Micro, Small and Medium Enterprises Development Act, 2006
Sections 16, 22 and 23Compound interest at three times the RBI bank rate; disclosure in accounts; no tax deduction for that interest.
Micro, Small and Medium Enterprises Development Act, 2006
Sections 18 and 19Reference to the MSE Facilitation Council; 75% pre-deposit to challenge an award.
Income-tax Act, 1961
Section 43B(h)Deduction for payments to micro and small suppliers allowed only on payment within the MSMED Act limit.
The delayed-payment provisions in Chapter V protect micro and small enterprises registered under the Act (now through Udyam registration) that supply goods or services. Medium enterprises are not covered by these provisions. The Supreme Court has held that a supplier must have been registered when the supply was made to claim the benefit; registration obtained later does not reach back to earlier contracts.
Section 16 makes the buyer liable to pay compound interest with monthly rests at three times the bank rate notified by RBI, from the appointed day or the agreed date, notwithstanding any contrary agreement. Section 23 bars the buyer from deducting that interest as a business expense for income-tax purposes. Section 22 requires buyers that must have their accounts audited to disclose unpaid principal and interest due to micro and small suppliers.
MSME Samadhaan is the Ministry of MSME’s online portal for filing delayed-payment applications, which go to the Micro and Small Enterprises Facilitation Council (MSEFC) of the supplier’s state. Under Section 18, the Council first attempts conciliation and, if that fails, arbitrates or refers the dispute to arbitration, with the reference to be decided within 90 days. The Supreme Court has held that this route applies even if the contract has its own arbitration clause.
Companies that owe micro or small suppliers for more than 45 days must file the half-yearly MSME Form I return with the Registrar of Companies. Income-tax law also allows a buyer to deduct payments to micro and small suppliers only in the year they are actually paid within the MSMED Act time limit (introduced as Section 43B(h) of the Income-tax Act, 1961 from FY 2023-24). To challenge a Council award, the buyer must first deposit 75% of the awarded amount under Section 19.
A buyer must pay a micro or small supplier within the agreed period, which cannot exceed 45 days from acceptance of goods or services. If there is no written agreement, payment is due within 15 days.
No. The delayed-payment provisions in the MSMED Act protect micro and small enterprises only.
The Act requires the Facilitation Council to decide a reference within 90 days, but in practice timelines vary by state and caseload.
No. Section 16 applies notwithstanding anything in an agreement between buyer and supplier, so a clause waiving interest does not take away the statutory entitlement.
CaseDocker keeps contracts, signatures, stamp papers, notices and compliance deadlines in one place, with reminders before anything lapses.
