The Micro, Small and Medium Enterprises Development Act, 2006 was written to correct an imbalance: large buyers paying small suppliers late. Its tools are unusually strong, and many eligible enterprises never use them.
The 45-day ceiling
A buyer must pay within the agreed period, and that period cannot exceed 45 days from acceptance. Contract terms promising 90 or 120 days do not displace the statute.
Compound interest at three times the bank rate
Delayed payments carry compound interest, with monthly rests, at three times the bank rate notified by the Reserve Bank of India. Over a long delay, the interest can rival the principal.
The Facilitation Council and the 75% rule
Disputes can be referred to the Micro and Small Enterprises Facilitation Council, which conducts conciliation and, if that fails, arbitration. A buyer who wants to challenge the resulting award must first deposit 75% of the amount — a powerful deterrent to delay.
The supplier's Udyam registration, its timing and the documentation of acceptance are the points most often contested. They are best put in order before the notice is sent.
This note is general information, not legal advice. For advice on your own matter, see our MSME Disputes practice or contact the firm.
