The MSMED Act, 2006 classifies enterprises as micro, small or medium, sets up the National Board and the state Facilitation Councils, and in Sections 15 to 24 lays down the delayed-payment regime: payment within the agreed period (maximum 45 days), compound interest at three times the RBI bank rate on delay, a dispute route through the Facilitation Council and disclosure duties for buyers.
How the Act works in India
Classification is by investment in plant and machinery or equipment and by turnover, with the thresholds notified by the central government (revised most recently with effect from 1 April 2025). Registration is through the Udyam portal. Once a supplier is a registered micro or small enterprise, every buyer that accepts its goods or services falls under Chapter V automatically; no contract clause is needed and none can override it.
| Section | What it does |
|---|---|
| 15 | Buyer must pay by the agreed date, capped at 45 days from acceptance or deemed acceptance |
| 16 | Compound interest at three times the bank rate, monthly rests, from the appointed day |
| 17 | Buyer liable to pay the principal and this interest |
| 18 | Reference to the Facilitation Council; conciliation, then arbitration; 90-day target |
| 19 | 75% deposit before any application to set aside the award |
| 22, 23 | Disclosure in audited accounts; interest not deductible as a business expense |
Why it matters for getting paid
The Act turns a late payment from a commercial inconvenience into a legal liability with a price tag that rises every month. A legal notice that cites Sections 15 and 16 and attaches the interest computation changes the conversation with a buyer's finance team, because the buyer's auditors and tax officers will also see the dues through Section 22 disclosure and Section 43B(h).
How FundRaksha uses it
Every FundRaksha case begins with a check of the supplier's Udyam status, because it decides the route. For registered micro and small suppliers the advocate's notice relies on the Act, and if payment does not follow, the matter goes to MSME Samadhaan. Of the 1,000+ businesses FundRaksha has onboarded, a large share are MSME manufacturers and service providers. The free consultation covers whether the Act applies to you.
Worked example (hypothetical)
A small Ludhiana hosiery unit delivers ₹4,00,000 of goods on 10 April with a written 60-day credit term. Under Section 15 the term is read down to 45 days, so payment is due on 25 May. The buyer pays on 25 November, six months late. Assuming a bank rate of 6.5% (19.5% a year, 1.625% a month), interest is about ₹40,600 (₹4,00,000 × (1.01625^6 − 1)). The supplier can claim that interest even though the buyer has now paid the principal, because Section 17 makes the interest a separate liability.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.