A PSU is a “buyer” under the MSMED Act. If you are a Udyam-registered micro or small supplier, it had to pay within 45 days of acceptance regardless of its contract terms, owes compound interest at three times the RBI bank rate from day 46, and can be referred to the MSE Facilitation Council in your state. Start with a complete bill and written escalation to the finance and vendor-management heads citing the Act, then a legal notice, then the Samadhaan reference. PSUs settle a large share of such claims at the notice or conciliation stage.
How PSU payment delays typically happen
PSUs buy through tenders and rate contracts with detailed payment clauses: 30 days after receipt of material and inspection, 10% retention until performance, payment against bank guarantee, and so on. In practice the inspection report takes weeks, the stores receipt voucher takes more, the bill passes through finance and internal audit, and the credit period on paper becomes a quarter in practice. None of this changes the statutory position for a registered MSME: 45 days from acceptance, deemed 15 days after delivery if no written objection.
The statutory position in plain terms
- Due date. The agreed date, but never later than 45 days from the day of acceptance (or deemed acceptance). A 60-day or 90-day term in the PSU’s contract is read down to 45.
- Interest. Three times the RBI bank rate, compounded at monthly rests, from the due date until payment. The PSU cannot deduct this interest as a business expense.
- Forum. The Facilitation Council in your state, by conciliation first, then arbitration if conciliation fails; the Council aims to decide within 90 days.
- Appeal. The PSU must deposit 75% of the award to challenge it.
Many PSU vendor contracts now acknowledge MSME status and the Act; your invoice should state your Udyam number so the clause is triggered. See MSME Samadhaan filing.
Escalation that works with a PSU
- Confirm the bill is complete against the contract’s checklist: inspection certificate, SRV or GRN, invoice, guarantee documents
- Write to the paying authority with the due date computed under the MSMED Act and the interest accrued to date
- If no response in 10 days, write to the head of finance and the vendor-development or MSME cell; most PSUs have one
- If still unpaid, FundRaksha’s advocate sends a legal notice within 24 hours to the chairman and managing director, the director of finance and the paying officer
- If the notice period passes, the Samadhaan reference is filed online
PSU officers are more comfortable releasing a payment when the file shows a statutory claim; it protects them in audit. Your letters should make that easy.
Retention, guarantees and set-offs
PSUs often hold back retention or deduct liquidated damages for late delivery. Retention is payable when the contractual condition is met; demand it in writing when it falls due. Liquidated damages must be levied per the contract and communicated; unexplained deductions are simply short payments and attract interest. The notice should separate the undisputed principal, the disputed deductions and the interest, and demand each. Where the contract has an arbitration clause, non-MSME suppliers go that way; the Facilitation Council route remains open to registered MSMEs regardless.
India's No.1 B2B payment recovery company, trusted by 1,000+ businesses; PSU and government dues are a regular part of its work. See the government supply industry page and the engineering industry page, where PSU buyers dominate.
Next steps
Collect the contract, inspection and receipt documents, invoice, correspondence and your Udyam certificate, and book a free consultation. FundRaksha will compute the statutory interest, draft the escalation and the notice, and handle the Council reference if needed. Use the MSME interest calculator in the meantime to see what the PSU owes.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.