Key points
- Under Section 15, a buyer must pay a micro or small supplier within the agreed period, which cannot exceed 45 days from acceptance.
- Section 16 imposes compound interest with monthly rests at three times the RBI bank rate on delayed payments, whatever the contract says.
- The Facilitation Council first conciliates and then arbitrates; an appeal against the award requires the buyer to deposit 75% of the amount.
Step by step
- Check registration
The supplier must be registered as a micro or small enterprise on the Udyam portal at the time of supply. Medium enterprises are not covered by the delayed payment provisions. - Compute the claim
Identify invoices unpaid beyond 45 days from the date of acceptance or deemed acceptance, and calculate interest under Section 16 from the appointed day. - File the reference
File an application on the MSME Samadhaan portal with invoices, proof of delivery, correspondence and the interest computation, addressed to the Facilitation Council of the state where the supplier is located. - Conciliation
The Council or an institution it refers the matter to conducts conciliation. Many disputes settle here because the interest liability is severe. - Arbitration and award
If conciliation fails, the Council arbitrates under the Arbitration and Conciliation Act and passes an award, which is enforced as an arbitral award. The Act requires decision within 90 days, though practice varies.
Why the route is powerful
The interest rate is far above commercial rates and cannot be contracted out of. The buyer cannot rely on its own jurisdiction or arbitration clause to avoid the Council, and to appeal it must deposit 75% of the award. Buyers also cannot deduct the interest for income tax purposes until paid, and companies must disclose outstanding MSME dues in their accounts and in Form MSME-1.
Limits
Supplies made before Udyam registration are not covered. Genuine disputes about quality or quantity are decided in the arbitration. The Council's jurisdiction is decided by the supplier's location, which is an advantage for Delhi suppliers dealing with buyers elsewhere.
Frequently asked questions
Does an arbitration clause in my contract prevent a reference to the Council?
No. The Supreme Court in Silpi Industries v. Kerala SRTC (2021) held that the MSMED Act overrides the contractual arbitration clause.
Can I recover interest on old invoices?
Yes, subject to the Limitation Act; the Council applies the three-year limitation to the reference.
Related practice area: Debt Recovery
This article is for general information and does not constitute legal advice. Laws, rules and limitation periods change and depend on the facts; please take advice on your own situation before acting. Reading this article does not create a lawyer-client relationship with Akhtars Legalitarian.