Client not paying? We draft the recovery notice, with MSMED Act interest where it applies.
A legal notice for recovery of money is a written demand to a business customer who has not paid an invoice. It lists the invoices, states what is outstanding and what interest you claim, gives a date to pay, and says what you will do next. The Ministry of MSME's Samadhaan portal says a legal notice is not necessary before a supplier files a case with the Facilitation Council (FAQ 19). The notice is still worth sending. It fixes the amount, it can start interest running where your contract is silent, and it is the last written warning before you escalate.
Key takeaway
Settle two facts before you draft. First, are you a micro or small enterprise that was registered on Udyam on or before the date of the contract, supplying goods or services? If so, sections 15 and 16 of the MSMED Act give you compound interest at three times the RBI Bank Rate. If not, your interest comes from the contract, or from a notice under section 3 of the Interest Act, 1978. Second, count three years from the date your right to sue arose. Sending a notice does not extend that period.
Which route you are on
Your position
What the notice relies on
Interest
Micro or small enterprise, registered on Udyam on or before the contract date, supplying goods or services
Sections 15 and 16 of the MSMED Act, 2006, and a reference to the Facilitation Council under section 18 if the buyer does not pay
Compound interest with monthly rests at three times the RBI Bank Rate
Medium or large supplier, a supplier with no Udyam registration, a registration made after the supply, or a retail or wholesale trader
This article is general information, not legal advice. If you need advice for your specific situation, contact BuildWright directly.
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Your contract, the invoices and the general law of recovery
The contract rate if it sets one. Otherwise interest under section 3 of the Interest Act, 1978, from the date your notice names
When the MSMED Act applies
Section 2(n) defines a supplier as a micro or small enterprise that has filed a memorandum. A medium enterprise is outside it. Two further limits come from the Supreme Court and the Ministry. In Silpi Industries v. Kerala SRTC (2021) the Court held that the seller should have registered 'as on the date of entering into the contract', and that a later registration is prospective and covers only supplies made after it. Gujarat State Civil Supplies Corporation v. Mahakali Foods (2022) repeated the rule. The Ministry's office memorandum of 28 June 2024 says retail and wholesale traders registered on Udyam only for priority sector lending fall outside section 15.
A registration made after the order but before delivery is covered on one reading of those judgments and not on the other, so treat that case as open and get it checked before you rely on it. A registration made after delivery does not work for that invoice.
The 15-day and 45-day limits
Section 15 sets the due date. The buyer pays on or before the date agreed in writing or, where nothing was agreed in writing, before the 'appointed day'. The appointed day is the day after fifteen days from acceptance (section 2(b)). Acceptance is the day of delivery. If the buyer objects in writing within fifteen days of delivery, acceptance is the day you remove the objection. If there is no written objection in those fifteen days, acceptance is deemed to be the day of delivery.
A written agreement cannot push the due date past 45 days from acceptance. The proviso to section 15 says so in terms. If your contract gives 60 or 90 days, the 45-day limit governs, and the Ministry's own FAQ of 2012 says interest then runs from 45 days after acceptance.
The interest under section 16
Section 16 makes the buyer liable for compound interest with monthly rests, from the appointed day or from the day after the agreed date, at three times the bank rate notified by the RBI. It applies whatever the contract says. The RBI set the Bank Rate at 5.75% in its policy statement of 7 October 2026, which makes the rate 17.25% a year until the RBI changes it. The next meeting is 2 to 4 December 2026. At a constant 17.25%, ₹1,00,000 left unpaid for twelve whole months earns about ₹18,681 in interest. A real claim uses the rate in force when each month began, so work your own dates through the MSME payment calculator and read the interest explainer.
You can claim interest alone after the buyer pays the principal late. The Samadhaan FAQ answers yes (FAQ 20) and confirms the interest is calculated on a monthly compounding basis (FAQ 23).
Claiming it: the notice and the Council
Section 18(1) lets any party to a dispute about an amount due under section 17 make a reference to the Micro and Small Enterprises Facilitation Council. The Council conciliates and, if that fails, arbitrates. Your notice can say that you will make that reference if the buyer does not pay by the date you set.
The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 (Act 16 of 2026) leaves sections 15, 16 and 17 as they were. Its changes to section 18, the new section 18A and the substituted section 19 had no start date in the Gazette notification of 12 October 2026 (S.O. 5575(E)), and we found no later one as on 23 October 2026. Keep the notice to what sections 15, 16 and 18(1) say, and check the position again on the day you send it.
If the MSMED Act does not apply
Read the contract first. If it sets an interest rate for late payment, claim that rate. If it bars interest, claim none. If it says nothing, the Interest Act, 1978 applies. Under section 3(1)(b) a court may allow interest, at a rate not above the current rate of interest, from the date mentioned in a written notice given by the person claiming to the person liable that interest will be claimed, up to the date the suit is filed. So the notice should say in terms that you will claim interest on the unpaid sum, and name the date it runs from. The Act allows simple interest only (section 3(3)(c)).
A claim for goods sold or services supplied under an agreement is a commercial dispute (Commercial Courts Act, 2015, section 2(1)(c)(xviii)). If the money sought, with interest to the filing date, reaches the specified value, the suit goes to a Commercial Court. The Act sets that value at ₹3 lakh unless the Central Government notifies a higher figure, and we found no such notification. For such a suit the Supreme Court has declared pre-institution mediation under section 12A compulsory unless urgent interim relief is sought (Patil Automation v. Rakheja Engineers, 2022). Your notice can say that you will apply for mediation and then file a suit for recovery with interest and costs.
Limitation: the last date to sue
The period is three years under each of the articles below. A suit for the price of goods sold and delivered must be filed within three years of delivery where no credit period was fixed (Article 14), or within three years of the end of the credit period where one was fixed (Article 15). For work done at the customer's request with no time fixed for payment, the three years run from the day the work is done (Article 18). Work or services with an agreed payment date fit these articles less cleanly, and we handle that case on a call. Count from the day the article gives and leave that day out (section 12(1)).
A notice does not stop the clock. The Supreme Court has said a person cannot postpone the accrual of a cause of action by repeatedly writing letters or sending reminders (B and T AG v. Ministry of Defence, 2023, paragraph 37). That was an arbitration case, but the Court stated the principle generally. Two things do restart the three years. One is a written acknowledgement of the debt signed by the buyer before the period ends, even if it comes with a refusal to pay (section 18 of the Limitation Act). The other is a part payment before the period ends, where the payer's own handwriting or signed writing records the payment (section 19). The new period runs from the signature or the payment.
What the notice should contain
Your name and address, the buyer's name, and the address where the buyer will receive it. For an MSMED claim, your Udyam registration number and its date.
Each invoice: number, date, amount, what you supplied, the date of delivery or completion, and the payment term in the contract.
Every payment received, with its date, and the balance still unpaid.
The due date and how it is fixed: the date in your contract, or for an MSMED claim the date that section 15 produces.
The interest you claim and its basis: the contract rate, section 16 of the MSMED Act with a month-by-month working, or a section 3 Interest Act statement that names the start date.
A date by which to pay. We found no statute that fixes the number of days for a private demand, so choose a period that gives the buyer a fair chance and write the date out.
What you will do if they do not pay: a reference to the Facilitation Council under section 18 for an MSMED claim, or pre-institution mediation where it applies and then a suit for recovery with interest and costs.
Enclosures: the invoices, proof of delivery or acceptance, the contract or purchase order, your Udyam certificate for an MSMED claim, and the interest working.
Delivery
Send it by registered post, acknowledgement due, to the buyer's registered or business address, and email a copy. Keep the postal receipt, the tracking record and the acknowledgement card or printout. Whatever the buyer later says about receipt, your proof of posting and of delivery is what you will rely on.
A skeleton for the notice
This is a structure and the facts each part needs. It is not a drafted notice. Fill each part from your papers and check every figure against the invoices.
Part
What it holds
Heading
Notice for recovery of the amount due under the invoices listed. For an MSMED claim: Notice for payment under sections 15 and 16 of the Micro, Small and Medium Enterprises Development Act, 2006
Parties
Sender and buyer, with addresses. Udyam number and date for an MSMED claim
The supply
What you supplied, under which order or contract and invoice numbers, and the date the goods or services were delivered or accepted
The due date
The date the contract fixed, or the appointed day under section 15, and any 45-day cap that applies
The amount
Invoice total, payments received and the balance outstanding, in figures
The interest
The rate and its basis, the date it starts and the interest to the date of the notice. For a section 3 claim, the sentence that you will claim interest from a named date
The demand
Payment of the balance and interest by a stated date, with your payment details
The next step
The Council reference, or mediation and a suit, if the date passes
Signature and enclosures
The authorised signatory and the documents attached
The calculator page offers the filled notice as a pack: an MSMED demand notice with the month-by-month interest working for a covered supplier, and an unpaid-invoice demand notice for everyone else. The page on a client not paying an invoice shows which one fits you.
For a covered micro or small supplier, yes. The proviso to section 15 says the agreed period shall in no case exceed 45 days from acceptance. A medium or unregistered supplier is outside section 15 and works to the contract.
Note
Law and judgments read on 23 October 2026. The Bank Rate, and any commencement notification under the 2026 amendment, can change; check both on the day you send the notice.