Most unpaid suppliers think first of a legal notice and a civil suit. For a micro or small enterprise there is a separate statutory track under Chapter V of the Micro, Small and Medium Enterprises Development Act, 2006 (sections 15 to 24). It sets a payment deadline, attaches interest to late payment that a contract cannot reduce, and routes disputes to a state-level body, the Micro and Small Enterprises Facilitation Council (MSEFC). The MSME Samadhaan portal is the online door to that body.
None of this makes recovery automatic. It does change the starting position, and it is worth understanding before choosing a route.
Who can use it: micro and small suppliers only
The protection belongs to a "supplier" as the Act defines it — a micro or small enterprise that has registered (today, through Udyam registration). A medium enterprise can hold an Udyam certificate, but it is not a "supplier" for Chapter V and cannot bring a claim under it. The claim is made against a buyer who received goods or services from that supplier; the buyer does not itself need to be an MSME.
Registration timing matters. In Silpi Industries v. Kerala State Road Transport Corporation (2021) the Supreme Court indicated that a supplier should be registered when it enters into the contract to claim the Act's benefits for those supplies, and later decisions have followed that line. Where registration came after the contract or after some supplies, the position needs to be checked carefully against the dates.
The 45-day rule (section 15)
Section 15 requires the buyer to pay on or before the date agreed in writing with the supplier. The agreed period cannot exceed 45 days from the day of acceptance or deemed acceptance of the goods or services. If there is no written agreement on the payment date, the buyer must pay before the "appointed day", which is the day after 15 days from acceptance or deemed acceptance.
"Acceptance" has a working definition in the Act. Broadly, it is the day of actual delivery; if the buyer raises a written objection within 15 days of delivery, acceptance is the day the defect is removed. If no written objection is raised within those 15 days, acceptance is deemed to be the day of delivery. That is why delivery challans, acknowledgements and any objection letters are central evidence.
- Written credit period of 30 days → payment is due within 30 days of acceptance.
- Written credit period of 90 days → the statute caps it; for Chapter V purposes, payment falls due at 45 days.
- No written payment term → the 15-day default applies.
Interest at three times the bank rate (sections 16 and 17)
If the buyer does not pay in time, section 16 makes it liable to pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, from the agreed date or the appointed day. The section applies notwithstanding anything in the agreement, so a contract clause offering a lower rate, or no interest at all, does not displace it. Section 17 makes the buyer liable for the principal together with this interest.
Because the interest compounds monthly at a multiple of the bank rate, the figure grows quickly. It should be computed invoice by invoice for the correct period and the RBI rate applicable at the time, rather than estimated.
The reference to the MSEFC (section 18)
Under section 18, either party to a dispute about amounts due under section 17 may make a reference to the MSEFC. The process runs in two stages:
- Conciliation. The Council conducts conciliation itself or through an institution, applying the conciliation provisions of the Arbitration and Conciliation Act, 1996.
- Arbitration. If conciliation does not produce a settlement, the Council takes up the dispute for arbitration itself or refers it to an arbitral institution. The 1996 Act then applies as if there were an arbitration agreement between the parties.
The Council where the supplier is located has jurisdiction, which usually means the supplier proceeds in its home state even if the buyer is elsewhere. Section 18(5) states that a reference is to be decided within 90 days of being made; in practice, timelines vary between Councils and depend on how the matter is contested.
In Gujarat State Civil Supplies Corporation v. Mahakali Foods (2022), the Supreme Court held that Chapter V has an overriding effect, so a supplier can approach the MSEFC even where the contract contains a private arbitration clause. In Silpi Industries, the Court held that the Limitation Act applies to arbitration under section 18 and that a buyer may raise a counter-claim or set-off in those proceedings. A supplier with old invoices should therefore check limitation before relying on this route — see our guide on limitation for money recovery claims.
Challenging an award: the 75% pre-deposit (section 19)
A buyer who wants to challenge an MSEFC award (or a decree or order arising from the reference) must first deposit 75% of the amount awarded before the court will entertain the application. The court may direct that part of the deposit be paid to the supplier while the challenge is pending. This is one of the main practical differences from an ordinary arbitration, and it discourages challenges filed only to delay payment.
MSME Samadhaan: the online filing route
MSME Samadhaan is the Government of India's portal for delayed-payment applications. A registered micro or small supplier files an application online, with invoice-level details, and the application is forwarded to the MSEFC with jurisdiction. The Council then issues notice to the buyer and the conciliation-then-arbitration process follows.
The portal is a filing channel, not a decision-maker. What matters is the file behind it: the purchase order or contract, invoices, delivery proof, acceptance or objection correspondence, ledger statements, and the Udyam certificate with its date.
The tax lever: section 43B(h)
From assessment year 2024–25, section 43B(h) of the Income-tax Act, 1961 allows a buyer to deduct a sum payable to a micro or small enterprise beyond the section 15 time limit only in the year it is actually paid. Unpaid overdue amounts at year-end can therefore increase the buyer's taxable income. A corresponding rule continues under the Income-tax Act, 2025, which applies from 1 April 2026; the buyer's tax adviser should confirm the current provision. Separately, section 23 of the MSMED Act says the section 16 interest is not deductible for the buyer, and section 22 requires certain buyers to disclose unpaid MSME dues in their annual accounts.
For a supplier, this is not a claim in itself, but it is useful context. Many corporate buyers now track MSME dues closely at year-end, and a polite, documented reminder that the supplier is a registered micro or small enterprise often moves an invoice up the payment queue.
MSEFC, civil suit or summary suit?
The MSEFC route is not the only option, and it is not always the best one. A summary suit under Order XXXVII CPC can suit a claim based on written contracts or invoices where the defence is weak. Where the buyer has issued a cheque that was dishonoured, the Section 138 timeline runs on its own strict deadlines in parallel. The choice depends on the supplier's registration status and dates, the size of the claim, the strength of the documents and the buyer's likely defences.
A short checklist before filing
- Confirm your Udyam registration, its date and your category (micro or small) at the time of the contract.
- List every unpaid invoice with its delivery date, acceptance date and any written objection.
- Identify the written payment term, if any, and apply the 45-day cap or 15-day default.
- Compute section 16 interest invoice by invoice.
- Check limitation for each invoice and any written acknowledgements from the buyer.
- Choose the route — MSEFC, civil suit or summary suit — on those facts, with an advocate's review.
Unpaid invoices and unsure which route fits?
Share your Udyam certificate, invoices and delivery proof — we organise the file and an advocate reviews the route before anything is filed.
See Money Recovery deskFAQs
Can a medium enterprise file on MSME Samadhaan?
Chapter V of the MSMED Act protects a supplier, which the Act defines as a micro or small enterprise. A medium enterprise can register on Udyam but generally cannot bring a delayed-payment claim before the MSEFC as a supplier. It would usually look at a civil or summary suit instead.
What if my contract allows 90 days for payment?
Section 15 caps the agreed payment period at 45 days from acceptance or deemed acceptance. For the purposes of the Act, payment falls due at 45 days, and statutory interest can run from then. How this plays out still depends on the documents and any dispute about the supply.
Does the MSEFC route work if the contract has an arbitration clause?
In Gujarat State Civil Supplies Corporation v. Mahakali Foods (2022), the Supreme Court held that the MSMED Act overrides a private arbitration agreement for disputes under section 18. A registered supplier can generally approach the MSEFC despite such a clause, subject to the facts and registration dates.
Is there a time limit for an MSEFC claim?
Yes. The Supreme Court has held that the Limitation Act applies to arbitration under section 18. Old invoices should be checked for limitation, including any written acknowledgements by the buyer, before a reference is made.
Related guides
- Limitation for money recovery claims — how long you have, and what can extend it.
- Order XXXVII summary suits — the civil fast track for documented debts.
- Section 138 timeline explained — when the buyer's cheque has bounced.
The desks this connects to: money recovery and civil dues, and cheque bounce under Section 138 where a payment cheque was dishonoured.
This guide is general and informational — not legal advice, not a solicitation, and no substitute for professional advice on your facts. Outcomes depend on facts, documents, forum, limitation and applicable law.