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CS Professional · Arbitration, Mediation and Conciliation · Introduction to Conciliation and its Importance for MSMEs

Kaveri Textiles, a micro enterprise, supplied yarn to Orion Mills Ltd. Their written agreement says payment will be made 90 days after the day of acceptance of the goods. Under section 15 of the MSMED Act, 2006, what is the legal effect of this clause?

The 90-day clause contravenes section 15. Although parties may agree a payment date in writing, the proviso says the agreed period can in no case exceed forty-five days from the day of acceptance or deemed acceptance, so a 90-day credit period cannot stand.

  1. AIt is valid because the parties agreed to it in writing
  2. BIt is valid only if the supplier is a medium enterprise
  3. CIt contravenes the proviso, because a period agreed in writing can in no case exceed forty-five days from acceptance or deemed acceptanceCorrect
  4. DIt is valid if a Facilitation Council approves it later

Explanation

The proviso to section 15 states that in no case shall the period agreed in writing exceed forty-five days from the day of acceptance or deemed acceptance. A 90-day period therefore exceeds the permitted limit. Writing alone does not validate a longer period.

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