For Indian businesses with Udyam Registration as Micro or Small enterprises supplying to larger buyers, there is a statutory recovery route most have never invoked: the MSEFC mechanism under Section 18 of the MSMED Act 2006, accessed through the MSME Samadhaan portal. Statutory interest at three times the RBI bank rate. Awards inside 90 days when invoked correctly.
- Supplier must be registered as Micro or Small under Udyam — Medium does not qualify under Section 15.
- Buyer can be any entity — proprietorship, partnership, company, LLP, government department.
- Payment must be overdue beyond the agreed credit period, or beyond 45 days if no period was agreed.
- Supplier must have raised a valid invoice that was accepted (expressly or by silence).
Section 16 of the MSMED Act: when a buyer fails to pay an MSE supplier within the agreed period (or 45 days), the buyer is liable to pay compound interest at three times the RBI bank rate, compounded monthly. With the bank rate around 6.75% in 2026, that's roughly 20.25% per annum, monthly compounded. For a ₹50 Lakhs invoice outstanding six months, that's not just principal — it's roughly ₹5.2 Lakhs of statutory interest sitting on top.
Statutory interest on ₹50L invoice (3× bank rate, monthly compounded)
Calculation: principal × (1 + r/12)^n, where r = 20.25% (3× current RBI bank rate of ~6.75%) and n = months overdue. Buyer is liable for this in addition to principal.
- 1Visit samadhaan.msme.gov.in and register with your Udyam ID.
- 2File a complaint with invoices, agreement (if any), proof of supply, and delivery acknowledgment.
- 3The state-level Micro and Small Enterprises Facilitation Council (MSEFC) takes it up.
- 4MSEFC first attempts mandatory conciliation under Section 18(2).
- 5If conciliation fails, arbitration begins automatically under Section 18(3).
- 6The award must come within 90 days of reference.
Effective FY 2023-24, Section 43B(h) of the Income Tax Act says delayed payments to MSEs are not deductible until actually paid. For corporate buyers, this is a year-end tax hit. The provision has materially shifted leverage — buyers now have a strong fiscal reason to clear MSE dues before March 31 each year. Well-timed Samadhaan filings in January-February routinely produce settlements in March.
- You are a Medium enterprise (turnover > ₹250 Cr under the 2022 revision) — outside Section 15.
- The underlying claim is disputed quality, not delayed payment.
- The buyer is already in CIRP/moratorium — IBC overrides.
- You have already initiated a civil suit on the same matter.
In our experience, well-documented Samadhaan filings settle in conciliation within 60-90 days, at principal in full, 50-70% of statutory interest, and direct payment with no further proceedings. The statutory interest threat is what makes the math work. Without it, buyers stall. With 20%+ compounding monthly, every month of delay costs the buyer measurably more than settling.
Section 22 MSMED requires buyers with audited accounts to disclose MSE dues delayed beyond 45 days in their financial statements. For listed buyers, this is a corporate governance disclosure. For private buyers, it surfaces in their tax filings. Verify the buyer's last annual report — a buyer who failed to disclose under Section 22 has both a compliance defect and a settlement motivation.