MSMED Act

What it means

The MSMED Act, 2006 is the main Indian law for micro, small and medium enterprises. Chapter V, Sections 15 to 24, deals with delayed payments to micro and small enterprises.

In outline, the chapter says:

• A buyer must pay a micro or small supplier by the date agreed in writing, which cannot be more than 45 days from acceptance of the goods or services. With no written agreement, payment is due within 15 days (Section 15). For example, goods delivered and accepted on 1 August with no agreement should be paid by 16 August; interest runs from 17 August.
• If the buyer pays late, it owes compound interest with monthly rests at three times the RBI bank rate (Section 16), whatever the contract says.
• The supplier can refer the dispute to the Micro and Small Enterprises Facilitation Council (Section 18), today by filing on the MSME ODR portal, which replaced MSME Samadhaan for new applications. The parties cannot contract out of this route (Mahakali Foods, Supreme Court, 2022).
• A buyer who challenges a Council award in court must first deposit 75% of the amount (Section 19).
• Interest paid under the Act is not allowed as a tax deduction to the buyer (Section 23).

Who is covered

Only micro and small enterprises are protected as suppliers; medium enterprises are not (NBCC v. State of West Bengal, Supreme Court, 2025). Ministry of MSME Office Memoranda of 2 July 2021 and 1 September 2021 exclude Udyam-registered retail and wholesale traders from the delayed-payment provisions, and Councils reject them in practice, although courts have not finally tested this. Distributors and wholesalers can still use written credit terms, contractual interest clauses, demand letters and civil suits.

Whether Udyam Registration taken after a supply counts is unsettled, because the Supreme Court referred the question to a larger bench in January 2025. The safe course is to register before you sell.

Recent changes

The MSMED (Amendment) Act, 2026 requires central public sector enterprises to settle micro and small suppliers' invoices through TReDS, from 15 October 2026. It also sets new 90-day dispute timelines, but those changes were enacted and not yet in force as of November 2026.

Why it matters for getting paid

The Act turns a late payment from a favour into a legal obligation with a cost. Most buyers do not want interest claims or a Council case, so a polite reminder that mentions the Act often works. Related tax pressure comes from Section 43B(h), now section 37(2)(g) of the Income-tax Act, 2025.

Estimate the interest with the MSME interest calculator and read the full MSMED Act delayed payments guide.