Dispute resolution
A formal payment demand notice under Section 15 of the MSMED Act 2006, with compound interest calculated at three times the RBI bank rate. Sent to buyers who have not paid an MSME-registered supplier within the statutory window.
When a buyer has not paid your MSME-registered business within the statutory window, the MSMED Act 2006 gives you compound interest at three times the RBI bank rate and a direct route to the facilitation council. The demand notice is the first step.
The Micro, Small and Medium Enterprises Development Act, 2006 created a payment protection framework for MSME-registered suppliers. Section 15 sets the payment ceiling at 45 days from acceptance (or 15 days if there is no written agreement). Section 16 imposes compound interest at three times the RBI bank rate with monthly rests on every day of delay.
A formal payment demand notice puts the buyer on record that the statutory interest is running, and that a reference to the Micro and Small Enterprises Facilitation Council (MSEFC) under Section 18 will follow if payment is not made. Most buyers pay after receiving the notice because the interest accumulation and the MSEFC process are both enforceable.
Scope
Specifics
The Act applies when the supplier is registered under Udyam (the MSME registration portal at udyamregistration.gov.in). The buyer can be any entity: a private company, a government department, a public sector undertaking, or an individual. The only requirement is that the supplier holds a valid Udyam registration certificate at the time of the supply.
Section 15 of the MSMED Act sets two payment windows. If a written agreement exists between the buyer and the supplier, the payment date agreed in the contract applies, but it cannot exceed 45 days from the date of acceptance or deemed acceptance of the goods or services. If there is no written agreement, the payment is due within 15 days.
Section 16 prescribes compound interest at three times the bank rate notified by the Reserve Bank of India under Section 49 of the RBI Act, 1934. The current bank rate is 6.5% per annum, making the applicable interest rate 19.5% per annum. The interest is compounded with monthly rests, meaning it is calculated on the outstanding amount at the end of each month.
If the buyer does not pay within a reasonable period after receiving the notice, the supplier can file a reference with the Micro and Small Enterprises Facilitation Council (MSEFC) under Section 18. The Council must dispose of the reference within 90 days. The buyer cannot claim any deduction, including TDS, from the interest payable (Section 17). The interest is not deductible as a business expense for the buyer under the Income Tax Act (Section 23).
Process
Step 1 of 4
Share your invoice details
Upload the unpaid invoice, your Udyam registration, and the buyer's details.
Common mistakes founders make
Clarifications
No. The buyer can be any entity: a private company, a partnership, a government body, or an individual. The MSMED Act applies based on the supplier's registration, not the buyer's.
If there is no written agreement, Section 15 sets the default payment deadline at 15 days from the date of acceptance or deemed acceptance of the goods or services.
No. Section 17 explicitly prohibits the buyer from deducting any amount, including TDS, from the interest payable under Section 16.
You can file a reference with the Micro and Small Enterprises Facilitation Council (MSEFC) under Section 18. The Council operates at the district level and must dispose of the reference within 90 days.
A formal demand notice does not require a lawyer. However, if the matter proceeds to the MSEFC or beyond, legal representation is advisable.
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