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MSME & COMMERCIAL LAW GUIDEMSME Delayed Payments: Recover Amounts Owed Under the MSMED Act
When a buyer fails to pay an MSME supplier on time, the Micro, Small and Medium Enterprise Development Act, 2006 gives the supplier statutory rights to recover the amount, interest and costs. This guide explains how to act.
The steps depend on the amount owed, the buyer type and whether you have tried to resolve the matter directly.
Gyanendra Singh·Advocate·High Court of Madhya Pradesh, Jabalpur·Published 12 Aug 2026
What Should a Business Do When an MSME Payment Is Delayed?
Confirm you are an MSME (see Who the MSMED Act Protects), check the statutory due date (normally 45 days from acceptance or deemed acceptance), and send the buyer a written reminder referencing the MSMED Act.
If the buyer does not pay, file a application on the MSME Samadhaan portal. For disputes up to the threshold prescribed by the Central Government, the MSME Online Dispute Resolution (ODR) portal offers a lighter, faster process.
Pending any reference under the Act, the buyer must deposit 75% of the amount claimed when challenging the application, and the appellate authority must dispose of the matter within 90 days.
Who the MSMED Act Protects
The Micro, Small and Medium Enterprise Development Act, 2006 (28 of 2006) protects micro, small and medium enterprises from delayed payments by their buyers. The benefits apply only to entities that are registered under the Udyam Registration system.
A "buyer" under the Act is a person who buys goods or receives services from a supplier against a contract and pays sixteen thousand rupees or more to the supplier. The buyer must also not be a person notified by the Central Government as not being a buyer. The buyer's right to dispute an MSMED claim is conditional on depositing 75% of the amount claimed.
Statutory Payment Terms for MSMEs
Under Section 16 of the MSMED Act, the buyer must pay the amount charged along with an interest equal to three times the bank rate notified by the Reserve Bank of India, compounded monthly. The buyer must make payment on or before the date specified in the contract, and in no case later than the maximum period (usually 45 days) from the date of acceptance of the goods or services.
Interest on Delayed Payment
Section 16(2) of the MSMED Act says the buyer must pay interest at three times the bank rate notified by the Reserve Bank of India, compounded monthly. The current bank rate is published on the Reserve Bank of India website; the Act requires three times that rate, so the exact percentage changes when the RBI changes the bank rate.
The interest is payable on the unpaid amount from the date the payment became due until the date the payment is made. It accrues on a monthly compounding basis, so unpaid interest is added to the amount on which interest continues to accrue.
How Interest Is Worked Out: An Illustrative Example
The example below is illustrative only. It assumes an RBI bank rate of 6.5% per year (three times = 19.5%) and a 60-day delay on a ₹500,000 invoice.
| Item | Amount |
|---|---|
| Invoice value | ₹500,000 |
| Interest rate (3 × RBI bank rate) | 19.5% p.a. |
| Interest for 60 days (monthly rests) | ≈ ₹16,000 |
Replace the bank rate with the RBI rate on the date your payment fell due. The RBI bank rate is available at rbi.org.in.
When a Payment Becomes Due
Payment becomes due when the goods are accepted, or deemed accepted, by the buyer, or when the service is received. Deemed acceptance arises when the buyer does not reject non-conforming goods in writing within a reasonable time after delivery. If no date is agreed in the contract, the payment must be made within the maximum period specified under the MSMED Act (read with the Interest on Delay in Payment and Supplementary Due Dates Rules).
MSME Samadhaan: Resolve Without a Court
The MSMED Act provides a simple, low-cost mechanism to recover delayed payment. An MSME can file an application online on the MSME Samadhaan portal for the principal amount, interest, and a minimum processing fee of 10% of the principal amount claimed (subject to a maximum cap).
The District Government of MSME and the buyer are given an opportunity to be heard, and the authority will try to bring about a settlement. If the buyer fails to deposit the amount, action may be taken under Section 28 of the MSMED Act, which includes declaring the buyer as defaulter and withholding further supplies.
Samadhaan vs Court Proceedings
Samadhaan is faster and cheaper than filing a civil suit, and the buyer is required to deposit 75% of the amount claimed before it can challenge the application before the appellate authority. However, Samadhaan does not create a breach of contract finding in a court.
| Feature | Samadhaan | Civil Court |
|---|---|---|
| Cost | Low (fee cap) | Court fees + lawyer fees |
| Speed | 90 days disposal target | Months to years |
| Enforcement | Authority order | Court decree |
MSME ODR Portal
The MSME Online Dispute Resolution portal, available at odr.msme.gov.in, is a lighter alternative for qualifying disputes. It is designed to settle the difference between the parties digitally, without a physical hearing, and to reduce the time and cost of resolution.
Eligibility and the monetary caps are set by the authorities issuing the portal. Check the ODR portal for the current threshold and procedure before filing.
How to File a Claim on Samadhaan
The Samadhaan application is filed online and does not require you to appear in person.
Documents Usually Needed
- Udyam Registration certificate
- Tax invoice and contract of sale
- Proof of delivery / service completion
- Evidence of the buyer's acceptance of the goods or services
- Copy of the written demand notice sent to the buyer
- Proof of payment or part-payment, if any
- Record of the delay (emails, WhatsApp, delivery notes)
Before You File: Notice to the Buyer
Send the buyer a written legal notice before filing. The notice should state the amount due, the date it became due, the rate of interest claimed, and a time to pay (usually 15–30 days) failing which proceedings will be commenced.
If the buyer replies asking you to "respond to a legal notice", see our separate guide how to respond to a legal notice. If you are the buyer receiving this guide, send the supplier full payment plus interest before any arbitration or litigation begins.
Settlement and Compromise
Samadhaan encourages settlement at every stage. A written settlement deed, signed by both parties, should specify the full and final amount accepted in full and final settlement of the claim. If the buyer fails to honour a settlement reached on the portal, the amount becomes immediately enforceable.
Consequences for the Buyer
Under Section 28 of the MSMED Act, a buyer declared as a wilful defaulter may be reported in directories maintained by the authorities and may be liable for publication as a defaulter. A buyer that does not cooperate with the Samadhaan process or that files a false challenge can also face costs and interest up to the date of payment.
Glossary of Terms Used in This Guide
Plain meanings used in this article (fuller definitions live in the legal glossary):
- MSME — Micro, Small or Medium Enterprise registered under the Udyam Registration system.
- Delayed Payment — Any amount not paid on or before the due date under the contract or the MSMED Act.
- Contract — The agreement between the supplier and the buyer, including the invoice and the terms of sale.
- Breach of Contract — Failure to perform an obligation under the contract, including non-payment of the amount due.
- Legal Notice — A written demand sent before starting legal proceedings.
- Arbitration — A private, binding method of resolving disputes.
- Mediation — A voluntary, assisted method of settling a dispute.
Checklist: Recover a Delayed MSME Payment
Keep this list as you move from a missed payment to recovery.
- ☐Confirm you hold a valid Udyam Registration certificate for your MSME.
- ☐Identify the invoice, the due date and the amount unpaid.
- ☐Check the contract for the agreed payment terms and the maximum period.
- ☐Send a written demand reminder to the buyer with the interest calculation.
- ☐If unpaid, send a legal notice giving a final time to pay.
- ☐Register on samadhaan.msme.gov.in and prepare the application.
- ☐Upload the invoice, contract, delivery proof and notice.
- ☐Track the application and reply promptly to authority notices.
- ☐If a settlement is offered, get it in writing and confirm the full and final amount.
- ☐If the buyer does not pay, enforce the authority's order or the court decree.
Common Mistakes
Filing a claim without a valid Udyam Registration, which means the MSMED Act does not apply.
Not sending a written demand notice first and jumping straight to the portal.
Claiming interest on a rate not tied to the RBI bank rate (three times the bank rate, compounded monthly).
Waiting too long and letting the civil limitation period expire before acting.
Accepting a partial payment without recording it as "without prejudice to the balance claimed".
Failing to keep documentary proof of delivery and acceptance.
Misstating the invoice value or inflating the claim beyond the actual amount due.
Ignoring buyer disputes and not engaging with the authority notices.
Assuming Samadhaan will recover interest automatically (interest must be claimed explicitly).
Treating the Samadhaan recommendation as a court decree without verifying the outcome.
Related Guides
Guides on closely related topics that are currently published:
Frequently Asked Questions
1. What is the MSMED Act?
The Micro, Small and Medium Enterprise Development Act, 2006 is a Central law that protects MSMEs from delayed payments by buyers. Its key promise: a buyer must pay the invoice amount on or before the date agreed, or at most within the maximum period from the date of acceptance of goods or services, along with three-times-the-RBI-bank-rate interest.
2. Does the MSMED Act apply to me?
Only if your enterprise is registered under the Udyam Registration system. An unregistered entity is not an MSME for the purposes of the Act and cannot use the Samadhaan or ODR mechanisms. Check your registration at udyamregistration.gov.in.
3. How many days does a buyer have to pay?
Whatever period is agreed in the contract, subject to a maximum of 45 days from the date of acceptance (or deemed acceptance) of the goods or services. If the contract is silent, the maximum period applies by default.
4. What interest is payable on a delayed payment?
Three times the bank rate notified by the Reserve Bank of India, compounded monthly, on the unpaid amount from the due date until payment. Because the rate changes with the RBI bank rate, confirm the current bank rate on rbi.org.in and multiply by three.
5. Do I need to send a legal notice before filing?
A written demand notice is the practical first step, and you must attach it to your Samadhaan application. It should state the amount due, the due date, the interest claimed and a final time to pay. If the buyer pays after the notice, no further action is needed.
6. How do I file on the Samadhaan portal?
Register at samadhaan.msme.gov.in using your Udyam number, fill the application form, and upload the invoice, contract, proof of delivery and your demand notice. The portal guides you through the fee, which is a small percentage of the principal with a statutory cap.
7. Is Samadhaan mandatory before approaching court?
No. Samadhaan is optional. You may file a civil suit directly. Samadhaan is recommended because it is faster and cheaper, and because a buyer that challenges the application must first deposit 75% of the amount claimed.
8. What happens if the buyer disputes my claim?
The buyer can file a written objection. Before the appellate authority hears the objection, the buyer must deposit 75% of the amount claimed in the application. The authority must then dispose of the matter within 90 days.
9. Is there a faster alternative to Samadhaan?
Yes. For qualifying disputes, the MSME Online Dispute Resolution portal at odr.msme.gov.in aims to settle the difference digitally and without a physical hearing. Check the portal for the current monetary threshold and procedure.
10. Can I recover the interest through Samadhaan?
Yes. State the interest (three-times-the-RBI-bank-rate, compounded monthly) as part of the claim when you apply. The authority will include it in the amount it orders the buyer to pay.
11. How long does a Samadhaan application take?
By law, the concerned authority should dispose of the application within 90 days of filing. The clock stops only for the time the buyer takes to file a written objection.
12. What if the buyer does not pay even after an order?
The authority may report the buyer as a wilful defaulter and can issue a direction for recovery. If needed, you can use the order as evidence in a civil court to execute the decree and attach the buyer's property.
13. Should I accept a partial payment?
Only if you record in writing that the partial payment is "without prejudice to the balance and interest claimed". Without that wording, a court may treat the whole claim as settled or waived to the extent paid.
14. Where can I get help?
Our practice handles MSME payment matters under Section MSME Legal Services. You can also contact us for a review of your invoice, contract and Udyam registration.
Sources
Micro, Small and Medium Enterprise Development Act, 2006 — indiacode.nic.in · MSME Samadhaan Portal — samadhaan.msme.gov.in · MSME ODR Portal — odr.msme.gov.in · Udyam Registration — udyamregistration.gov.in · Reserve Bank of India (bank rate) — rbi.org.in
Disclaimer: This guide explains the law in general terms and is not tailored to your specific facts. It is not legal advice and does not create an attorney-client relationship. The interest rate and limits mentioned here are illustrative; verify the current RBI bank rate and any Central Government thresholds directly from the linked authorities before acting.