By S&S Co. Advocates & Solicitors · Published 28 September 2026 · Informational content, not legal advice: see our disclaimer
Overview
A practical guide for an MSME supplier owed overdue payment by a buyer, and for buyers seeking to understand their exposure, covering the Section 15 payment deadline, the steep Section 16 compound-interest consequence for delay, and the MSEFC conciliation/arbitration route.
What You Need to Know
- Section 15 of the MSMED Act, 2006 requires a buyer to pay an MSME supplier within the period agreed, and in any event within 45 days from the date of acceptance or deemed acceptance of goods or services
- Section 16 imposes compound interest with monthly rests on delayed payment, calculated at three times the Bank Rate notified by the RBI: a materially higher rate than ordinary commercial interest, intended to deter delay
- The current RBI Bank Rate feeds directly into the applicable interest rate, so the effective statutory rate moves with RBI policy changes rather than being a fixed figure: suppliers and buyers should check the current Bank Rate before calculating exposure
- A supplier can file a reference with the Micro and Small Enterprise Facilitation Council (MSEFC), which first attempts conciliation and, failing that, refers the matter to arbitration, with a target of deciding the reference within 90 days
- Interest under Section 16 accrues automatically by operation of law once payment is delayed beyond the Section 15 period: it does not depend on the buyer having agreed to pay interest in the underlying contract
- Registration as a 'micro' or 'small' enterprise under the Udyam Registration framework is a precondition for a supplier to invoke these protections: a supplier that is not so registered at the time of the transaction cannot claim Section 15/16 protection retroactively for that transaction
Frequently Asked Questions
Within how many days must a buyer pay an MSME supplier?
Within the period agreed between the parties, and in any event within 45 days from the date of acceptance or deemed acceptance of the goods or services, under Section 15 of the MSMED Act, 2006.
Does the buyer have to agree to pay interest for Section 16 to apply?
No. Section 16's compound interest, at three times the RBI's notified Bank Rate, accrues automatically by operation of law once payment is delayed beyond the Section 15 period, regardless of what the underlying contract says.
What can a supplier do if a buyer simply refuses to pay?
The supplier can file a reference before the Micro and Small Enterprise Facilitation Council (MSEFC), which first attempts conciliation and, failing that, refers the dispute to arbitration, with a target of deciding the reference within 90 days.
References & Further Reading
This guide references the following statutes, rules and sources, cross-checked at the time of writing.
- Section 15's 45-day payment deadline and Section 16's compound interest at three times the RBI Bank Rate: confirmed via SCC Online Blog, LiveLaw law-firm articles and multiple MSME interest calculator tools at research time
- MSEFC conciliation-then-arbitration route with a 90-day target for deciding references: confirmed via multiple practitioner sources at research time
- Udyam registration as a precondition for invoking Section 15/16 protection: well-settled interpretation confirmed via multiple sources: verify against the current MSMED Act text and any 2026 amendment at drafting time
- See also our Commercial Litigation Notable Judgments and Legal Updates: Commercial Litigation archive.