How to Recover a Delayed MSME Payment Under Section 18 MSMED Act (Samadhaan / MSEFC)

A micro or small enterprise with a valid Udyam Registration can recover an unpaid invoice by filing a free online reference under Section 18 of the MSMED Act, 2006 on the MSME Samadhaan portal, which routes the dispute to the Micro & Small Enterprises Facilitation Council (MSEFC). Once the buyer is more than 45 days late, the Council attempts conciliation and, failing that, arbitrates the claim, and it can order the buyer to pay the principal plus compound interest at three times the RBI bank rate — and the whole process is meant to be decided within 90 days. There is no filing fee.

Section 18 of the MSMED Act lets an aggrieved micro or small supplier refer a delayed-payment dispute to the Facilitation Council for conciliation-then-arbitration, and that statutory reference overrides even a private arbitration clause in the contract.

This is one of the strongest recovery routes in Indian law because the interest is punitive, the buyer cannot contract out of it, and the resulting award is executable like a court decree. But it turns on three technical points that sink most claims — the timing of your Udyam registration, who counts as a "supplier," and the 75% deposit needed to challenge an award. This guide covers each, then the next questions every claimant asks: what it costs, how long it takes, what documents you need, what happens if the buyer challenges the award, and when you need an advocate.

Why this route matters: the scale of the problem

Delayed payments are the single biggest cash-flow killer for Indian small business. A February 2026 industry White Paper estimated roughly ₹8.1 lakh crore is locked up in MSME dues across the economy (Business Today, 27 Feb 2026). Chapter V of the MSMED Act (Sections 15–24) is Parliament's answer: a fast, low-cost, supplier-friendly recovery mechanism that most buyers still underestimate.

Step 1 — Confirm you qualify as a "supplier"

Only micro and small enterprises get the delayed-payment protection of Chapter V. The Act's definition of supplier in Section 2(n) covers micro and small units with an Udyam Registration; medium enterprises are not covered for delayed-payment claims and must fall back on a civil suit or the contract's arbitration clause.

Only a micro or small enterprise that held a valid Udyam Registration before it supplied the goods or services can invoke Section 18 — a medium enterprise, or a unit that registered after the supply, cannot.

The Udyam-timing trap (this fails more claims than anything else)

In M/s Silpi Industries v. Kerala State Road Transport Corporation (Supreme Court, 29 June 2021, indiankanoon.org/doc/134928159), the Court held that registration under the MSMED Act is prospective: to claim the benefit of Chapter V, the supplier must have been registered as on the date it entered the contract / made the supply. Register after you have already supplied and been stiffed, and the Council has no jurisdiction over that invoice. Practical takeaway: register on Udyam the day you start the business, not the day you decide to sue.

Step 2 — Check the 45-day clock (Section 15)

Under Section 15, the buyer must pay on or before the date agreed in writing; where there is no written agreement, payment is due within 15 days of acceptance; and in no case can the agreed period exceed 45 days from the day of acceptance or deemed acceptance of the goods/services. Any clause purporting to give the buyer longer than 45 days is void to that extent. Once the due date passes, your right to interest is automatic — you do not have to prove damages.

Step 3 — Understand the interest you are owed (Section 16)

Section 16 fixes the interest at three times the bank rate notified by the RBI, compounded with monthly rests — and it runs from the day immediately after the due date until the buyer actually pays.

Interest on a delayed MSME payment is compound interest, with monthly rests, at three times the RBI bank rate — it is statutory, non-negotiable, and cannot be waived by any term in the contract.

With the RBI bank rate around 5.5% in mid-2026, three times that is roughly 16.5% per year, compounded monthly — materially more than any ordinary contractual or civil-court interest, and it keeps compounding until payment. This is the leverage that makes buyers settle.

The hidden income-tax weapon: Section 43B(h)

Separately, Section 43B(h) of the Income-tax Act (in force from AY 2024-25) disallows the buyer from claiming the purchase as a deduction unless it actually pays a micro or small supplier within the MSMED time limit. A buyer who sits on your invoice past 45 days now faces a higher tax bill on top of the statutory interest — a point worth putting in your demand letter.

Step 4 — File the reference on the Samadhaan / ODR portal

You file against the buyer in the State/UT where your supplier unit is located. Practically, send a written demand/legal notice first — it both strengthens the record and sometimes triggers payment before you file.

Step 5 — The award, and how the buyer can (barely) challenge it

An MSEFC award has the same status as an arbitral award and is enforceable as a decree of a civil court. If the buyer does not pay, you execute it — typically by filing an execution petition under Order 21 CPC and attaching the buyer's property or bank accounts. (For the mechanics, forum and 12-year limitation, see our guide on how to file an execution petition for a money decree under Order 21 CPC.)

The buyer's only real challenge is a Section 34 Arbitration Act application to set the award aside — but Section 19 of the MSMED Act bars any court from entertaining that challenge unless the buyer first deposits 75% of the awarded amount. In Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (Unit 2), (2023) 6 SCC 401 (indiankanoon.org/doc/104582740), the Supreme Court confirmed both that a Section 18 reference overrides an independent arbitration agreement between the parties and that the 75% pre-deposit under Section 19 is mandatory before an award can be challenged. That deposit requirement is what makes frivolous challenges expensive and pushes buyers to settle.

A buyer cannot even file a challenge to an MSEFC award without first depositing 75% of the awarded sum in court under Section 19 of the MSMED Act.

MSEFC reference vs cheque case vs civil suit — which recovery route?

If the buyer gave you a cheque that bounced, a Section 138 Negotiable Instruments Act complaint runs in parallel and adds criminal pressure — see our guide on the Section 138 cheque-bounce procedure and time limits. If your contract has its own arbitration clause and you are a medium enterprise (outside Chapter V), you may instead need to invoke that clause and seek urgent protection under Section 9 of the Arbitration Act for interim relief. For a micro/small supplier, though, the MSEFC route is usually cheapest and hardest for the buyer to escape.

What it costs and how long it really takes

There is no government filing fee for a Samadhaan reference. Your only cost is documentation and, if you engage one, an advocate's fee. The statute says 90 days, but in practice councils are backlogged and many references take considerably longer to reach a hearing — the 90-day figure is a target, not a guarantee. Even so, it is faster and far cheaper than a civil recovery suit, which can run for years.

When you can do this yourself, and when to get an advocate

A clean claim — valid pre-supply Udyam, clear invoices, admitted delivery, no counter-dispute — can be filed on the portal without a lawyer. Get an advocate when the buyer raises a counter-claim on quality or short supply, when there is a rival arbitration clause, when the amount is large, or at the execution stage, where attaching property under Order 21 CPC is technical. A well-drafted reference that anticipates the buyer's defences (especially the Silpi registration-timing objection) is worth far more than a bare complaint.

Frequently Asked Questions

Do I need Udyam registration before the invoice date to file under Section 18?

Yes. In Silpi Industries v. KSRTC (2021), the Supreme Court held that MSMED registration is prospective, so you must have held a valid Udyam Registration on the date you entered the contract or made the supply. Supplies made before you registered do not get Chapter V protection, so register when you start the business, not when the dispute arises.

How much interest can I claim on a delayed MSME payment?

Under Section 16 of the MSMED Act, interest runs at three times the RBI bank rate, compounded with monthly rests, from the day after the due date until payment. At a mid-2026 bank rate near 5.5%, that is roughly 16.5% per year compounding monthly. The interest is statutory and cannot be waived or reduced by any clause in the contract.

Is there any fee to file a Samadhaan complaint?

No. Filing a delayed-payment reference on the MSME Samadhaan / ODR portal carries no government fee. Your only costs are assembling documents (Udyam certificate, invoices, purchase order, proof of delivery, statement of dues) and, optionally, an advocate for drafting or the execution stage. This makes it one of the cheapest recovery mechanisms available to small suppliers.

Can a buyer avoid the Facilitation Council by pointing to an arbitration clause in our contract?

No. In Gujarat State Civil Supplies Corporation v. Mahakali Foods (2023) 6 SCC 401, the Supreme Court held that a Section 18 reference to the MSEFC overrides an independent arbitration agreement between the parties. A micro or small supplier can go to the Council regardless of what the contract says about private arbitration.

What if the buyer refuses to pay even after the MSEFC award?

An MSEFC award is enforceable as a decree of a civil court. If the buyer still does not pay, you file an execution petition under Order 21 CPC to attach and sell the buyer's property or freeze bank accounts. To even challenge the award under Section 34, the buyer must first deposit 75% of the awarded amount in court under Section 19 of the MSMED Act.

Are medium enterprises covered for delayed-payment recovery?

No. The delayed-payment protection in Chapter V of the MSMED Act applies to suppliers who are micro or small enterprises. Medium enterprises are outside this mechanism and must rely on a civil suit or the contract's own arbitration clause to recover dues.

How Urava helps

Building a Section 18 reference means marrying the statute (Sections 15, 16, 18, 19), the current RBI bank rate, and the controlling case law — Silpi Industries on registration timing, Mahakali Foods on the arbitration override and the 75% deposit — into one clean, citation-backed document. Urava does exactly that: type your facts (or upload the invoices and purchase order, in English, Hindi or Malayalam) and get a court-ready, citation-verified research memo on your MSMED claim — with the interest computation, the registration-timing risk flagged, and the execution route mapped — in about ten minutes, on WhatsApp. Every citation is checked against primary sources, so you never file a hallucinated case. Start free with three researches at urava.app/register.