Unpaid Invoices Past 45 Days? Here's the Law Working in Your Favor as an MSME Registered Business.

Ask any small business owner what keeps them up at night, and delayed payments will almost always make the list. You've supplied the goods, rendered the service, raised the invoice — and then the wait begins. Weeks turn into months, follow-up calls turn into follow-up emails, and eventually many MSMEs simply write it off as the cost of doing business.

What often gets missed is that this isn't just a commercial inconvenience to be absorbed — it's a legal issue with a dedicated statutory framework built specifically to address it. The Micro, Small and Medium Enterprises Development Act, 2006 gives registered #MSMEs rights that go well beyond what an ordinary unpaid invoice under a commercial contract would carry.

The Payment Clock: Section 15 and Section 16

Section 15 of the #MSMED Act requires a buyer to make payment to a micro or small enterprise supplier on or before the date agreed in writing between the parties — and where there is no such agreement, within 15 days of acceptance of goods or services. Even where a payment date is agreed, the Act caps it: payment cannot be deferred beyond #45days from the date of acceptance, regardless of what the #contract says.

This is where Section 16 gives the provision real teeth. If the #buyer fails to pay within this window, the amount due doesn't just remain outstanding — it starts accruing compound interest with monthly rests, at three times the #bank rate notified by the #RBI. This is a significantly higher rate than what most #commercial contracts provide for, and it applies automatically by operation of #law, whether or not the underlying agreement between the parties mentions interest at all.

In practice, this changes the economics of delay considerably. A buyer who might otherwise treat a delayed payment as a low-cost way to manage #cash flow is, under the Act, accumulating a #liability that compounds monthly.

Recovering the Money: Sections 17 and 18

Knowing you're entitled to the principal amount plus interest is one thing — actually recovering it is another. This is where Sections 17 and 18 come in.

Section 17 simply restates the obligation: the buyer is liable to pay the amount along with the interest as provided under Section 16. Section 18 is the more consequential provision — it allows any party to a dispute over an amount due under the Act to make a reference to the Micro and Small Enterprise Facilitation Council ( #MSEFC ), a body constituted specifically to resolve such #disputes.

Once a reference is made, the Council either conducts conciliation itself or refers the matter to an institution or centre for #conciliation. If conciliation fails, the Council itself takes up the matter as an arbitrator, or refers it for #arbitration, under the provisions of the Arbitration and Conciliation Act, 1996. The resulting award is binding and enforceable as a #decree of a #civil #court — meaning an MSME supplier does not need to file a fresh civil suit to chase the money; it can move for execution of the award directly.

A Buyer's Options to Delay Are Deliberately Limited

The MSMED Act is drafted with an #awareness that buyers with deeper pockets often use the #appellate process itself as a #delay tactic. Section 19 addresses this directly: if a buyer wishes to challenge an #award or decree passed under Section 18 before any court, no such #application can even be entertained unless the buyer first deposits 75% of the amount awarded.

This pre-deposit requirement is a significant deterrent against frivolous appeals filed purely to buy time, and it shifts real financial pressure onto the buyer rather than leaving the MSME to fund years of litigation while its #money sits unpaid.

There is also a lesser-known but useful compliance angle: Section 22 requires companies to disclose, in their annual statement of accounts, the principal and interest amounts due to #micro and #small #enterprise #suppliers that remain #unpaid beyond the Section 15 timeline. This disclosure obligation, along with the 2023 amendment to Section 43B of the #Income Tax Act (which disallows the buyer's deduction for such expenditure until it is actually paid to the MSME supplier), has added real commercial pressure on buyers to clear MSME dues on time — pressure that didn't exist a few years ago.

The Takeaway

The MSMED Act was built on the recognition that small enterprises rarely have the leverage to enforce commercial terms against larger buyers on their own — so the law does some of that work for them, through statutory interest, a dedicated dispute resolution forum, and a deliberately steep barrier to appeal. The #remedy exists; the gap is usually awareness and follow-through. If your enterprise is registered under the MSME framework and is sitting on unpaid dues past the statutory timeline, it may be worth having a conversation about whether a Section 18 reference makes sense for your case.

Nenwani Law Associates | Indore | Corporate Law & MSME Recovery