Payment recovery provisions under MSME Act, 2006
Key Content of this article:
MSME delayed payment recovery: check eligibility first
Chapter V of the Micro, Small and Medium Enterprises Development Act, 2006 concerns delayed payments to qualifying micro and small enterprise suppliers. Being described as an MSME, obtaining a new registration or sending an invoice does not by itself establish that every claim falls within this route. Review the supplier status, registration history, supply dates and the transaction.
The old 2020 classification figures should not be read as the current thresholds. The official Udyam portal lists the following limits from 1 April 2025; investment and turnover conditions both apply.
| Category | Investment limit | Turnover limit |
|---|---|---|
| Micro | ₹2.5 crore | ₹10 crore |
| Small | ₹25 crore | ₹100 crore |
| Medium | ₹125 crore | ₹500 crore |
Classification is separate from the legal eligibility of a particular delayed-payment claim. For case assessment, see our MSME debt recovery service.
Section 2(b) of MSME Development Act, 2006:
“appointed day” means the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.
Explanation.-For the purposes of this clause,- (i) “the day of acceptance” means,-
the day of the actual delivery of goods or the rendering of services; or
where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;
(ii) “the day of deemed acceptance” means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;
Section 2(d) “buyer” means whoever buys any goods or receives any services from a supplier for consideration;
Who is a supplier for this remedy?
Section 2(n) defines supplier for the Act and Chapter V addresses micro and small enterprise payments. Check the relevant registration, activity and supply facts rather than assuming all medium enterprises or all traders qualify. Registration timing and case law can affect the analysis; a later registration should not be presented as automatically curing an earlier claim.
IMPORTANT CHAPTER V
DELAYED PAYMENTS TO MICRO AND SMALL ENTERPRISES
Section 15: payment period
Check the written payment agreement and the statutory acceptance or deemed-acceptance date. The agreed period cannot exceed 45 days from acceptance or deemed acceptance under the Act. If there is no qualifying written agreement, the appointed-day provisions need to be applied to the facts. Preserve delivery records, service acceptance and any written objections.
Section 16: delayed-payment interest
Where the statutory conditions apply, section 16 provides for compound interest with monthly rests at three times the RBI-notified bank rate. Reconcile invoices, part-payments, acceptance dates and the relevant rate periods before calculating a claim. This is not a fixed annual percentage that can be copied into every case.
Section 17: Recovery of amount due.
For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16.
Section 18: MSEFC reference and process
Review jurisdiction and eligibility, prepare the claim and supporting evidence, and follow the current official filing directions. Section 18 provides for a reference to the Micro and Small Enterprises Facilitation Council, conciliation and, where the statutory route requires it, arbitration. Filing an online application is not itself an award or payment order.
Check the official MSME Samadhaan portal and MSME ODR platform for the applicable route and instructions. Participation, notices, evidence, limitation and subsequent proceedings require a case-specific legal review. Statutory time provisions should not be marketed as a guaranteed recovery date.
Section 19: challenging an award or order
Section 19 includes a deposit condition for a qualifying application to set aside an award, decree or order by a party other than the supplier. The applicable forum, deadlines, deposit and grounds must be reviewed for the actual order and procedural law. Do not treat an informal portal grievance as equivalent to a final award.
Section 20: Establishment of MSME facilitation council
The State Government shall, by notification, establish one or more Micro and Small Enterprises Facilitation Councils, at such places, exercising such jurisdiction and for such areas, as may be specified in the notification.
Section 22: Requirement to separately specify unpaid amount with interest of MSME units in annual statement of accounts:
the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;
the amount of interest paid by the buyer in terms of section 16, along with the amount of the payment made to the supplier beyond the appointed day during each accounting year;
the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act;
the amount of interest accrued and remaining unpaid at the end of each accounting year; and
the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23.
Section 23: Interest not to be deductible from Income of supplier:
The interest paid by the buyer to supplier (MSME Unit) under this act is not allowable to deduction as expenses in computation of income of buyer under Income tax Act, 1961.
Section 24: Overriding effect
The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
Court jurisdiction: distinguish the proceeding
Section 28 concerns trial of offences under the Act. It should not be used as a general statement that every civil payment claim or award challenge must go to a Magistrate. MSEFC references, arbitration, award challenges and enforcement require their own jurisdiction and procedure checks.
Primary statutory reference: MSMED Act, 2006 on India Code. This article explains the framework; it does not determine the merits or limitation period of a particular claim.
Documents to prepare for a recovery review
- Udyam or other relevant registration records and registration dates.
- Purchase orders, contracts and written payment terms.
- Invoices, delivery challans and evidence of service acceptance or objections.
- Ledger, bank receipts, credit notes and part-payment reconciliation.
- Correspondence, notices and records of any existing dispute or proceedings.
Frequently asked questions
Can every MSME use the delayed-payment remedy?
No. Chapter V concerns qualifying micro and small suppliers. Enterprise classification, activity, registration history and transaction facts need review.
Will registering after an invoice guarantee eligibility?
No. Registration timing and the supply history require legal assessment. Do not assume a later registration automatically covers earlier transactions.
Is payment guaranteed within 90 days?
No recovery outcome or date can be guaranteed. The statutory framework, notices, parties’ participation, evidence and further proceedings affect an actual case.
How is the article different from LegalMan’s recovery service?
This article explains the process. The MSME recovery service page describes assistance to discuss within a written scope. Contact LegalMan for an initial case and document review.
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