In one sentence
Under the MSMED Act a registered micro or small supplier must be paid within 45 days of acceptance, statutory compound interest accrues at three times the RBI bank rate on delay, and a delayed payment can be referred through the MSME Samadhaan portal to the state Facilitation Council for conciliation and arbitration.
Key takeaways
- A registered MSME supplier is entitled to payment within 45 days of acceptance, or within the agreed period if shorter; beyond that, compound interest at three times the RBI bank rate accrues by statute.
- MSME Samadhaan is the online portal through which a supplier refers a delayed payment to the state's Micro and Small Enterprise Facilitation Council.
- The Council conciliates first and arbitrates if conciliation fails; its award is enforceable, and a buyer challenging it must deposit 75% of the amount.
- The route works best on documented claims against functional buyers; it does not replace validation, follow-up, or the other instruments.
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What the MSMED Act gives a supplier
The Micro, Small and Medium Enterprises Development Act, 2006 does something no other Indian statute does for a trade creditor: it fixes the payment period by law. A buyer must pay a registered micro or small enterprise supplier within the period agreed in writing, which cannot exceed 45 days from the day the goods or services are accepted — or deemed accepted, 15 days after delivery if no objection is raised. If the buyer does not, interest runs automatically at three times the bank rate notified by the Reserve Bank, compounded monthly, and the buyer cannot deduct that interest for tax. The supplier must be registered on the Udyam portal at the time of supply.
MSME Samadhaan
The Ministry's online portal on which a supplier files an application for delayed payment against a buyer. The application, with invoices and proof, goes to the Micro and Small Enterprise Facilitation Council of the state where the supplier is located. The portal shows the status of every application and, usefully, lists buyers with pending applications against them — a transparency that itself moves some buyers to pay.
The Facilitation Council: conciliation, then arbitration
The Council first attempts conciliation between supplier and buyer. If that fails, it takes up the dispute for arbitration itself or refers it to an institution, under the Arbitration and Conciliation Act, and is required to decide within 90 days of the reference. The award is enforceable as a decree. A buyer that wants to challenge the award in court must first deposit 75% of the awarded amount — which is why buyers who are simply delaying usually settle at the conciliation stage.
What it does well, and what it does not
It works on a documented, undisputed supply to a functional buyer: the statutory interest and the deposit rule change the buyer's calculation quickly. It works less well where the buyer disputes acceptance or quality on the facts, where the buyer has ceased operating, or where the supplier was not registered at the time of supply. Councils vary in speed; some states run months behind the 90-day timetable. And it is one route among several: a cheque on file, a corporate buyer with an undisputed debt above the IBC threshold, or a contract with an arbitration clause may each point to a stronger instrument — see Enforce.
What a medium or large business should know
Two things. First, if you are a registered medium enterprise, the payment and interest provisions apply to micro and small suppliers, not to you as a supplier — check your Udyam category before relying on them. Second, if you are the buyer from MSME suppliers, your own delayed payments carry statutory interest, must be disclosed in your accounts, and can be referred against you; a receivables programme that fixes your own DSO should sit alongside a payables discipline that avoids becoming a Samadhaan respondent.
Before you file
Confirm registration at the time of supply, assemble the invoices, delivery and acceptance proof, and any correspondence; validate that the buyer is functional; send a demand referring to the Act and the interest accruing; and only then file. The demand notice guide covers the drafting; how Kenstone Capital runs recovery for smaller suppliers within a larger book is on Recover dues.
Sources and regulation
| Instrument | What it does | Source |
|---|---|---|
| MSMED Act, 2006 — Sections 15–16 | Payment within the agreed period or 45 days; compound interest at three times the bank rate | msme.gov.in |
| MSMED Act — Sections 17–19 | Reference to the Facilitation Council; conciliation and arbitration; 75% pre-deposit on challenge | msme.gov.in |
| MSME Samadhaan portal | Online filing of delayed-payment applications | samadhaan.msme.gov.in |
| Income-tax Act, 1961 — Section 43B(h) | Buyers' deduction for payments to MSMEs conditional on payment within the statutory period | incometaxindia.gov.in |
Thresholds, limitation periods and procedures change. This guide describes the position as generally understood at the time of writing and is not legal advice; confirm the current rule before acting.
If this is your situation: you are a smaller supplier owed by a larger buyer, or a buyer with MSME suppliers.
How recovery works