Setting Up of Business, Industrial and Labour Laws · Micro, Small and Medium Enterprises

Delayed Payments to Micro and Small Enterprises under MSMED Act

Updated 11 October 2026 · Fact-checked

Under the MSMED Act, 2006, a buyer must pay a micro or small supplier by the agreed date, or before the appointed day if there is no written agreement. A written agreed period cannot exceed 45 days. On delay, the buyer owes compound interest with monthly rests at three times the RBI-notified bank rate (Section 16).

Understand Delayed Payments to Micro and Small Enterprises

Micro and small enterprises often wait months for payment from bigger buyers. That blocks their cash flow. Sections 15 to 17 of the MSMED Act, 2006 fix a time limit for payment and a penal rate of interest if the buyer is late.

Start with who is protected. The Act protects a supplier. A supplier is a micro or small enterprise that has filed a memorandum under Section 8(1). It also includes bodies like the National Small Industries Corporation, State small industries corporations, and companies, co-operative societies or trusts that sell goods or services produced by micro or small enterprises. A medium enterprise is not a supplier under this definition. A buyer is anyone who buys goods or receives services from a supplier for consideration.

Then the time limit. Section 15 says the buyer must pay on or before the date agreed in writing. If there is no written agreement, the buyer must pay before the appointed day. Even with a written agreement, the period cannot exceed 45 days from the day of acceptance or deemed acceptance.

The appointed day is the day after 15 days from the day of acceptance or deemed acceptance. The day of acceptance is the day of actual delivery of goods or rendering of services. If the buyer objects in writing within 15 days of delivery, the day of acceptance becomes the day the supplier removes the objection. If there is no written objection in 15 days, it is deemed acceptance, and the day is the day of actual delivery.

If the buyer fails to pay, Section 16 applies. It overrides any agreement and any other law. The buyer pays 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 Reserve Bank. Section 17 makes the buyer liable for the amount with this interest. Disputes go to the Facilitation Council under Section 18.

Key rules to remember

Appointed day: Appointed day = day after 15 days from the day of acceptance or deemed acceptance; Applies when there is no written agreement on the payment date (Section 2(b)).
Maximum agreed credit period: Written agreed period ≤ 45 days from the day of acceptance or deemed acceptance; Proviso to Section 15. Without a written agreement, the appointed day governs.
Interest start date: From the appointed day, or from the day immediately following the agreed date; Section 16.
Rate of interest: Rate = 3 × bank rate notified by RBI, compounded with monthly rests; Section 16. It applies despite any agreement or other law.
Disposal of reference: Reference to the Council to be decided within 90 days of making it; Section 18(5).
Annual accounts disclosure: Buyer with audited accounts must show unpaid principal and interest separately; Section 22. Interest is not allowed as a deduction under Section 23.

How to solve Delayed Payments to Micro and Small Enterprises questions

Use this order for any question on delayed payment to a micro or small supplier.

1Check the supplier. Is it a micro or small enterprise that has filed a memorandum under Section 8(1)? If not, the Act's protection does not apply.
2Fix the day of acceptance. Use the delivery day. If the buyer objected in writing within 15 days, use the day the supplier removed the objection.
3Find the due date. If there is a written agreement, use the agreed date, but cap it at 45 days from acceptance. If there is none, use the appointed day (acceptance plus 15 days, then the next day).
4Compare the actual payment date with the due date. If paid on time, no interest arises.
5State the interest: compound interest with monthly rests at three times the RBI bank rate, from the appointed day or the day after the agreed date (Section 16).
6Add the remedy: reference to the Facilitation Council under Section 18, with conciliation first, then arbitration, decided within 90 days.
7Conclude clearly with the buyer's liability, citing Sections 15, 16 and 17.

Quickest way: Three-check shortcut

When to use it: Use this for short problems or when you have little time.

Supplier check: micro or small, with memorandum filed.
Date check: written agreement means the agreed date, capped at 45 days. No agreement means the appointed day, which is 15 days after acceptance.
Interest check: three times bank rate, compounded monthly, from the day after the due date. Name Sections 15, 16 and 17.

Common mistakes in Delayed Payments to Micro and Small Enterprises

Saying the appointed day is exactly 15 days after delivery.
Students skip the words 'the day following immediately after the expiry' of 15 days.
Fix: The appointed day is the day after the 15 days expire. Delivery on 1 March gives 16 March.
Allowing a written agreement of 60 or 90 days.
Students assume parties are free to agree any credit period.
Fix: The proviso to Section 15 caps any written agreed period at 45 days from acceptance or deemed acceptance.
Writing simple interest or a fixed percentage.
Students recall interest rules from other laws.
Fix: Write compound interest with monthly rests at three times the bank rate notified by RBI.
Applying the Act to every seller, including medium enterprises.
Students read 'MSME' as covering all three.
Fix: Section 2(n) defines supplier as a micro or small enterprise with a filed memorandum, plus the listed bodies.
Believing the contract can reduce the interest rate.
Students treat the rate as a matter of agreement.
Fix: Section 16 applies notwithstanding any agreement or any other law.
Forgetting the effect of a written objection on acceptance.
Students always count from delivery.
Fix: If the buyer objects in writing within 15 days, acceptance is the day the supplier removes the objection.

Worked examples

Example 1

Alpha Textiles, a small enterprise with a filed memorandum, delivers goods to Beta Ltd on 10 April. Beta raises no written objection. There is no written agreement on the payment date. By which date must Beta pay, and from when does interest run?

Show the solution

Alpha is a small enterprise with a memorandum, so it is a supplier under Section 2(n).
No written objection was made within 15 days, so there is deemed acceptance. The day of deemed acceptance is the delivery day, 10 April.
The 15 days run from 10 April and expire on 25 April.
The appointed day is the day following, which is 26 April.
Section 15 requires payment before the appointed day when there is no agreement. Under Section 16, interest runs from the appointed day, 26 April, if payment is not made.

Answer: Beta must pay before 26 April. If it fails, it owes compound interest with monthly rests at three times the RBI bank rate from 26 April (Sections 15 and 16).

Example 2

Gamma Services, a micro enterprise with a filed memorandum, supplies services to Delta Ltd. Their written agreement allows payment within 90 days of acceptance. Delta pays after 70 days. Does Gamma have a claim for interest?

Show the solution

Gamma is a micro enterprise with a memorandum, so it is a supplier.
The proviso to Section 15 says a written agreed period cannot exceed 45 days from acceptance or deemed acceptance.
The 90-day term therefore cannot be relied on beyond 45 days.
Payment after 70 days is later than the permitted 45 days, so Delta has failed to pay as Section 15 requires.
Section 16 applies despite any agreement. Interest is compound with monthly rests at three times the bank rate, from the day following the date permitted.
Gamma may make a reference to the Facilitation Council under Section 18.

Answer: Yes. The 90-day term is limited to 45 days, so Delta is liable for compound interest at three times the bank rate, with monthly rests, on the delayed amount (Sections 15, 16 and 17).

Exam tips

Write the section numbers: 15 for liability, 16 for interest, 17 for recovery, 18 for the Council, 22 for disclosure.
Always state both limits: the 15-day appointed day and the 45-day cap on written agreements.
In date problems, show each date as a separate line so the examiner can award marks for the working.
Check the supplier definition first; a medium enterprise or a supplier without a memorandum changes the answer.
End with a clear conclusion on liability and the remedy before the Facilitation Council.

Practice questions from Micro, Small and Medium Enterprises

Delayed Payments to Micro and Small Enterprises in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Delayed Payments to Micro and Small Enterprises: frequently asked questions

How many days does a buyer have to pay an MSME supplier?

If there is a written agreement, the buyer must pay by the agreed date, which cannot exceed 45 days from acceptance or deemed acceptance. If there is no agreement, payment is due before the appointed day, which is the day after 15 days from acceptance.

What is the interest rate on delayed payment under the MSMED Act?

The buyer pays compound interest with monthly rests at three times the bank rate notified by the Reserve Bank. This applies despite any agreement or other law (Section 16).

What is the appointed day?

It is the day following immediately after 15 days from the day of acceptance or deemed acceptance of the goods or services (Section 2(b)). It matters when there is no written agreement.

Where can a supplier complain about delayed payment?

Any party to the dispute can refer it to the Micro and Small Enterprises Facilitation Council under Section 18. The Council conciliates first, then arbitrates if conciliation fails, and the reference must be decided within 90 days.

What must a buyer disclose in its accounts about dues to suppliers?

A buyer whose accounts must be audited must show the unpaid principal and interest separately at year end, along with interest paid and interest accrued but unpaid (Section 22).