In short. MSME limitation comes in two halves. In Sonali Power Equipments v. Maharashtra State Electricity Board (2025), the Supreme Court held that the Limitation Act, 1963 doesn't apply to conciliation before the MSME Facilitation Council, but does apply once the dispute moves to arbitration. So you can still take a claim older than three years to conciliation. If the buyer won't settle, though, the council can't award it. Count three years from each invoice's due date, hunt for signed acknowledgments and part payments, and don't sit on the file.
Is this your situation?
- You've gone through the ledger and some of the unpaid invoices to one buyer are two, even three, years old.
- A friend in the same trade swears the MSME council has no time limit at all. You're not sure he's right.
- The buyer's reply to the council has one line in bold: the claim is time-barred.
- The buyer did pay the principal, months late every time, and now you want just the interest.
- Their accounts team signed balance confirmations every March, and your dues show up in their MSME Form 1.
- You only got your Udyam registration last year and want to know how far back you can go.
- You're the buyer, and the reference you've been served includes bills from before the pandemic.
The short answer on MSME limitation
There is a time limit. It just doesn't apply at both stages. Every Section 18 reference under the MSMED Act, 2006 begins with conciliation and goes on to arbitration only if that fails. The Supreme Court, deciding Sonali Power Equipments Pvt Ltd v. Chairman, Maharashtra State Electricity Board on 17 July 2025, said the Limitation Act has no role in conciliation. Conciliation doesn't decide anything. It only tries to bring the two sides to a deal. Arbitration is another matter, since the tribunal actually adjudicates, so there the Act applies.
What does that mean for you as a supplier? A claim more than three years old can still be filed and taken up in conciliation, and if the buyer agrees to pay, that settlement is valid and enforceable. If the buyer refuses, the time-barred part can't be awarded in the arbitration that follows. Limitation doesn't wipe out your right to the money. It takes away the binding award.
For most delayed payment claims the period is three years. The real questions are when those three years start, what restarts them, and which date counts as you making the claim. We'll take them one by one.
The laws that set the time limit
Section 18(3), MSMED Act, 2006
Once conciliation fails, the council arbitrates or sends the dispute to an institution, and the Arbitration and Conciliation Act, 1996 applies as if there were an arbitration agreement under Section 7(1). That single line brings the whole of Part I of the Arbitration Act into the council's arbitration.
Section 43, Arbitration and Conciliation Act, 1996
The Limitation Act applies to arbitrations the same way it applies to court cases. Normally Section 2(4) of the Arbitration Act switches Section 43 off for statutory arbitrations. In Sonali Power, though, the Supreme Court read Section 18(3) of the MSMED Act as switching it back on for council arbitrations. Silpi Industries v. Kerala SRTC (2021) had already said the Limitation Act applies to them.
Articles 14, 15, 18, 55 and 113, Schedule to the Limitation Act, 1963
It's three years in each case. The price of goods sold and delivered falls under Article 14, or Article 15 where there was a fixed credit period. The price of work done is Article 18. Breach of contract is Article 55, and most other money claims land in Article 113. Each one runs from its own starting point, which is usually the day payment fell due.
Sections 18 and 19, Limitation Act, 1963
If the buyer signs a written acknowledgment of the debt, or makes a part payment, before the period runs out, a fresh three years starts from that date. That's how most older MSME claims stay alive.
Sections 15 and 16, MSMED Act, 2006
Under Section 15, payment is due on the date agreed in writing, and that can't be more than 45 days from acceptance or deemed acceptance. If nothing was agreed, it's due on the appointed day, the day after 15 days from acceptance. Section 16 then adds compound interest at three times the RBI bank rate from that date. Together they tell you when the money fell due. And that's where limitation usually starts.
What the Supreme Court actually decided in Sonali Power
The facts were nothing unusual. Sonali Power Equipments supplied transformers to the Maharashtra State Electricity Board, and about Rs 2.7 crore stayed unpaid. The supplier went to the council in 2018, years after the supplies. The council wouldn't entertain the claim, calling it time-barred, and the Bombay High Court agreed. The Supreme Court partly allowed the appeal.
On arbitration, the High Court was right: limitation applies, and a time-barred claim can't be adjudicated. On conciliation, it was wrong. Section 18(2) conciliation is voluntary and meant to produce a settlement, so the Limitation Act stays out of it, and a supplier can still recover by settlement after the period has expired. One more point from the judgment. Whether the buyer's Section 22 disclosures in its accounts extend limitation depends on the facts of each case, the Court said.
Two things follow from this. A council can't refuse to register or conciliate a reference just because the invoices are old. That's the first. The second is less comfortable. An open door isn't a strong claim. In conciliation the buyer decides whether to pay, and it'll usually pay a time-barred amount only for reasons of its own: an accounting clean-up, a relationship it wants to keep, or the tax and disclosure pressures we come to below.
When the three years start on an MSME invoice
Normally from the due date. The invoice date doesn't matter for this, and neither does the date of your last reminder. If you're a micro or small supplier, Section 15 pins the due date down. Where the PO or contract allowed credit, the money's due when that credit ends, though Section 15 won't let any agreed credit run beyond 45 days from the day the buyer accepted the goods or services (or is deemed to have accepted them). With no written agreement on credit, it's due on the appointed day, meaning the day after 15 days from acceptance.
People underestimate acceptance. The explanation to Section 15 says that if the buyer doesn't object in writing within 15 days of delivery, it's treated as having accepted on the delivery date itself. Where it did object in writing and you then put the defect right, acceptance moves to the day the defect was removed. That's why a GRN, a challan with the buyer's stamp, or a completion certificate matters so much. Each one fixes the start of the clock.
And each invoice usually has its own clock. Say you've supplied one buyer steadily for two years. You don't have one claim. You have fifty or a hundred, each expiring on a different day. That's why the first page of any serious claim we prepare is an invoice-wise schedule with acceptance dates and due dates, and why the 45-day payment rule gets a post of its own.
Where the clock starts in everyday MSME situations
| Situation | When payment falls due | The three years usually run from |
|---|---|---|
| Goods delivered on 30-day credit in the PO, buyer raises no objection | 30 days after delivery (deemed accepted on delivery) | The 30th day after delivery |
| Goods delivered, PO says 90-day credit | Section 15 caps the agreed period at 45 days, so under the MSMED Act it's 45 days after acceptance. Whether the Limitation Act follows the contract date is arguable | Count from day 45, not day 90, to be safe |
| Goods delivered, nothing agreed in writing | The appointed day, 15 days after acceptance | That appointed day |
| Buyer objected in writing within 15 days and you fixed the defect | Worked out from the day the defect was removed | The due date calculated from that day |
| Services billed every month, client signs off each month | Within the agreed period, and never more than 45 days after sign-off | The due date of each invoice |
| Milestone contract, paid on certification | On certification, or on deemed acceptance if certification is held back with no written objection | Arguable. Plead both dates |
| Principal paid late, only the Section 16 interest left unpaid | Interest built up from the due date until the late payment | Safest to file within three years of each late payment |
Which date stops the clock: the Samadhaan filing or the start of arbitration?
Courts haven't fully answered this one, so assume the date that hurts you most. For an ordinary arbitration, Section 21 of the Arbitration Act fixes the start as the day the other side gets the request to refer the dispute, and limitation stops running then. With the council, the reference itself does the job of that request. The obvious reading is that limitation is tested on the day you made the reference. A buyer can still argue otherwise. Its line goes like this: only arbitration attracts limitation, so test the claim on the day the council took up arbitration after conciliation broke down. That might be many months after you filed.
Neither Sonali Power nor the published commentary on it answers this head on. Until a court does, file the reference with a comfortable margin before your earliest invoice expires. Don't assume the months in conciliation will be excluded. And don't lean on Section 12A of the Commercial Courts Act either. It pauses limitation during pre-institution mediation for commercial suits, not council references.
Under the MSMED (Amendment) Act, 2026, mediation under the Mediation Act, 2023 takes the place of conciliation in Section 18, but only from whenever that part is notified. Limitation isn't touched. We hadn't seen a notification for the new Section 18 by late October 2026, so confirm where things stand before filing. Our post on when limitation applies to arbitration claims has the general rules.
Can a time-barred claim still go to the council?
For conciliation, yes. The filing is allowed, the council ought to register it and hear both sides, and the buyer is free to agree to pay. If it does, the settlement recorded at conciliation counts as an arbitral award under Section 74 of the Arbitration Act and is enforced like one. The Limitation Act never stops a debtor from voluntarily clearing an old debt.
What you lose is the power to make it pay. If conciliation fails, the council's arbitration has to throw out the time-barred invoices. So a reference built mostly on old invoices is really a negotiation held in front of a statutory body. Sometimes that's enough. A listed company or a PSU may prefer to settle an old, admitted liability that its auditors flag every year. A buyer that still needs your goods may settle to keep you supplying.
Other pressures work on the buyer outside the council room. Buyers whose accounts have to be audited must disclose, under Section 22 of the MSMED Act, the unpaid amounts and interest owed to micro and small suppliers. Companies also report these dues every half-year in MSME Form 1. And since the financial year 2023-24, Section 43B(h) of the Income-tax Act, 1961 has blocked the deduction for payments to micro and small enterprises made after the Section 15 period, until the payment is actually made (check the equivalent provision in the Income-tax Act, 2025 for later years). An old claim doesn't become enforceable because of any of this. But it's often why a buyer settles. We've written separately on MSME Form 1 and Section 43B(h), and on how MSME conciliation works at the sittings.
Which acknowledgments restart the clock
Section 18 of the Limitation Act sets the test. The acknowledgment has to be in writing, signed by the buyer or its authorised agent, made before the period runs out, and it must admit a liability that still exists. It doesn't need to state the exact figure. In our files, the papers that most often rescue an MSME claim are signed balance confirmations from the buyer's accounts team, emails from its finance head admitting the dues or asking for time, and settlement offers that accept the debt while quarrelling over interest.
Accounts and statutory returns are less certain. In Asset Reconstruction Company (India) Ltd v. Bishal Jaiswal (2021), the Supreme Court accepted that entries in a company's signed balance sheet can be an acknowledgment, depending on the wording and whether they're qualified. In Sonali Power it said Section 22 disclosures have to be looked at case by case. A plain note in the buyer's audited accounts showing your dues as outstanding may help. A note calling the amount disputed won't. MSME Form 1 filings sit publicly on the MCA portal, and they're useful evidence of what the buyer itself reported.
Part payments work the same way under Section 19 of the Limitation Act. The buyer has to make the payment towards the debt before the period expires, and there has to be written evidence of it, such as a bank transfer with a narration or a payment advice. A TDS entry by itself is weak. Deducting tax on an invoice isn't the same as admitting it's still unpaid.
Things that won't stop the clock
- Your own legal notice or reminders. However strongly worded, your letters don't extend time. Only the buyer's signed acknowledgment or part payment does that.
- Calls, meetings and promises. The purchase head telling you on the phone that payment will come next month gives you nothing you can use on limitation.
- Carrying on supplying. Fresh orders and fresh invoices don't bring the old ones back to life. A running ledger usually isn't a mutual account in the Article 1 sense, so every invoice keeps its own date.
- Complaining somewhere else. A grievance cell complaint, a ticket on the buyer's vendor portal or a letter to some ministry isn't a claim before a court or tribunal.
- Getting your Udyam registration. It may decide whether you can use the council at all. It doesn't move the dates your invoices fell due.
- Time spent in Section 12A mediation. That pause is for commercial suits. Council references don't get it.
How to check if your claim is still within time
We run this check on every delayed payment file before choosing between the council, a suit and a negotiated settlement. You can do most of it yourself.
Make an invoice-wise schedule
List each unpaid invoice with its date, the delivery or completion date, the date of acceptance and the agreed payment period. Work out the Section 15 due date for each. Use the buyer's goods receipt notes wherever you have them.
Mark the three-year date on each invoice
Add three years to every due date. Then sort the invoices into three groups: comfortably within time, expiring in the next six months, and already past three years.
Collect every acknowledgment and part payment
Go through emails, signed balance confirmations, letters asking for time, settlement offers and bank statements. Note who signed each one, and when. A confirmation signed by an accounts executive can be attacked. One signed or emailed by the finance head stands up better.
Check each reset came before expiry
An acknowledgment only saves invoices that were still alive on the day it was signed. Rework the three-year dates for each group from the latest valid acknowledgment or payment.
Look at the buyer's own disclosures
If the buyer's a company, pull its MSME Form 1 filings and the MSME note in its audited accounts. An unqualified disclosure of your dues can back up the claim, though courts will read the wording closely.
Decide what to claim, and where
Invoices safely within time can go to the council for conciliation and, if it comes to that, arbitration. Old invoices can go in for conciliation too, but plead the acknowledgments clearly. Don't let the weak invoices drag down the good ones.
Does the interest have a different time limit?
Section 16 interest isn't a separate debt that floats free of the principal. It's compound interest, with monthly rests, at three times the bank rate notified by the Reserve Bank of India, running from the due date until payment. If the principal on an invoice is time-barred in arbitration, the interest on it goes too.
The harder case is where the buyer did pay the principal, just late, and you now claim only the interest. It happens a lot. Suppliers keep supplying, accept late payments without a word for years, and only later hear about Section 16. Buyers say the interest claim arose on each invoice's due date. Suppliers say it crystallised when the late payment came in. No settled answer covers every case. So the safe course is to raise interest claims within three years of each late payment, and sooner if you can. How to work out the figure is in our post on calculating MSME delayed payment interest.
A contract clause waiving interest doesn't help the buyer, on limitation or anything else. Section 16 applies notwithstanding any agreement, and Section 24 gives Sections 15 to 23 overriding effect. Your silence while accepting late payments isn't a waiver in law. It does make your proof of the due dates matter more.
Registration date and limitation, side by side
Quite often two timing problems turn up together. One is registration: were you a registered micro or small enterprise on the day the contract was made? The Supreme Court said in Silpi Industries (2021), and again in Mahakali Foods (2022), that the Act helps only with supplies made after registration. Then, in NBCC (India) Ltd v. State of West Bengal (2025), a different bench held that lack of registration alone isn't a reason to throw out a reference, and referred the point to a larger bench. When we wrote this, that bench hadn't ruled. In October 2026 the Delhi High Court went with the NBCC view.
The second is limitation. A supplier who registered in 2024 and is claiming on invoices from 2021 may get hit with both objections at once. No registration at the time of supply. And the invoices are past three years anyway. Answer each one separately in your pleadings. If registration is disputed, your safest invoices are those for supplies after the registration date that are still inside three years. The registration side is covered properly in our post on whether a later Udyam registration still helps.
If you go to a civil court instead
The same three years apply to a commercial suit for the price. And the court has to dismiss a time-barred suit even if the buyer never raises it, because Section 3 of the Limitation Act says so. The real differences are procedural. A commercial suit of Rs 3 lakh and above needs Section 12A pre-institution mediation unless you're seeking urgent interim relief, and the time spent in that mediation is left out of limitation. A suit also means paying ad valorem court fee.
A suit has nothing like council conciliation, where a stale claim can still be settled with a statutory body watching. The court's mediation centres and Lok Adalats come close. Check your contract for an arbitration clause. If there's one, expect the buyer to apply under Section 8 of the Arbitration Act to have the suit sent to arbitration, which leaves you choosing between the council and the arbitration the contract provides for. The commercialcourtlawyer.com guide on the time limit to recover unpaid dues covers limitation in recovery suits more broadly. Summary suits under Order XXXVII have their own guide, on the limitation period for a summary suit.
Time limits at each stage, and what they cost
| Stage | Time limit | Costs to plan for (lawyer fees not shown) |
|---|---|---|
| Filing the reference before the council | Within three years of each invoice's due date for anything you want awarded in arbitration. For conciliation alone, no limit | No ad valorem court fee. Check your state council's rules |
| Conciliation | No statutory limit on how old the claim is. Section 18(5) expects the reference decided in 90 days, which courts treat as directory | Nil, or very little, before the council itself |
| Arbitration by the council or an institution | Time-barred invoices can't be awarded | Institutional fees if the council sends the case to a centre |
| Buyer's challenge under Section 34 | Three months from getting the award, plus up to 30 days on sufficient cause | The buyer deposits 75 percent of the award under Section 19 |
| Appeal under Section 37 | 60 days in commercial disputes, under Section 13(1A) of the Commercial Courts Act, as held in Government of Maharashtra v. Borse Brothers (2021) | Court fee on the appeal |
| Commercial suit instead | Three years, with the Section 12A mediation time left out | Ad valorem court fee on the state's schedule. Check the current figure |
An invented example: a Ghaziabad fabricator's old invoices
Nothing here is real. Picture a sheet metal fabricator in Ghaziabad's Meerut Road industrial area, a registered micro enterprise since 2019, making enclosures for a Delhi electrical panel maker on 30-day credit. Going through its books in September 2026, it finds Rs 22 lakh outstanding on invoices dated April 2022 to March 2025, and roughly Rs 9 lakh of interest owed on bills the panel maker paid late.
Take the oldest bills first. Invoices raised from April to August 2022 were all due by September 2022, so their three years ended by September 2025. Luckily, the panel maker's finance head had emailed a reconciliation in June 2025 admitting Rs 19 lakh as outstanding, at a time when those invoices hadn't yet expired. For everything that email admits, the clock restarts in June 2025. Two small invoices from early 2022 were left out of the reconciliation. They died in 2025. The late payments that carry interest were made between 2023 and 2026, so most of the interest is still inside three years of those payments.
In October 2026 the fabricator files on Samadhaan for the whole amount, relying on the June 2025 email as its acknowledgment and setting out the two expired invoices on their own. The panel maker comes to conciliation offering the admitted principal in instalments with half the interest. The fabricator can accept, or it can press on to arbitration, where all but those two invoices are in time. Whichever it picks, it negotiates knowing precisely what it stands to lose.
Papers that show your claim is within time
- The purchase orders or contracts showing the agreed payment period, and any acceptance terms
- Invoices, plus the delivery challans, e-way bills and GRNs that show delivery and acceptance
- Any written objection the buyer sent within 15 days of delivery, and proof you fixed the defect
- Balance confirmations or reconciliation statements the buyer signed
- Emails or letters where the buyer admits the dues, asks for time, or offers a settlement
- Bank statements showing every part payment and late payment, with dates and narrations
- Copies of the buyer's MSME Form 1 filings and the MSME note in its audited accounts, if you can get them
- Your Udyam certificate with the original registration date on it
- An invoice-wise sheet: due date, three-year date, and the acknowledgment you're relying on for each
- A Section 63 certificate under the Bharatiya Sakshya Adhiniyam, 2023 for emails and electronic ledgers
How good claims end up time-barred
The most common way is waiting for the relationship to end before claiming. You keep a valued customer happy, take part payments, and file only once the orders dry up. By then the first year's invoices are gone. A signed balance confirmation every year is the simplest protection, and most buyers' accounts teams treat it as routine.
The second is hearing that Sonali Power allowed time-barred claims and deciding limitation doesn't matter at the council. It allowed them into conciliation. Nothing more. A supplier who files an old claim, turns down a reasonable settlement and then goes to arbitration may end up with an award for the recent invoices only.
Third, a reference that never explains why the claim is within time. When Advocate B.K. Singh reviews an MSME claim with older invoices, the acknowledgment that saves each invoice is shown in the schedule itself, right against that invoice. The council and the buyer see at once which document answers the limitation objection. Leave that to be argued later and you'll face the objection at every hearing.
The fourth is treating the buyer's TDS entries, or your own ledger, as an acknowledgment. The buyer hasn't signed either one as an admission of a live debt. They prove the supply. They don't prove time.
What to do this week about an old claim
Pull out the ledger for each slow payer, find the oldest unpaid invoice and work out its Section 15 due date. If that date is more than two and a half years back, act now. Ask the buyer for a signed balance confirmation, gather every email where it admitted the dues, and get ready to file. If it's already past three years, look for an acknowledgment or part payment made before expiry, then decide whether the claim is worth taking to conciliation for a negotiated payment.
Then think about time in the other sense. A reference filed today will still take months. We go through the stages in our post on how long an MSME Facilitation Council case takes.
If you'd like your invoice schedule and the buyer's acknowledgments checked for limitation before you file, or you want to know when the amended Section 18 comes into force, Advocate B.K. Singh's team is reachable through the contact page.
Frequently asked questions
What's the limitation period for an MSME claim before the council?
Three years for anything you want decided in the council's arbitration, usually counted from the date each invoice fell due. Conciliation has no limitation period, so older claims can be settled there if the buyer agrees. If conciliation fails, time-barred invoices can't be awarded.
Can the MSME council reject my application because the invoices are old?
Not at the conciliation stage. After Sonali Power Equipments (2025), the Limitation Act doesn't apply to conciliation, so the council should take up the reference. Limitation only becomes a defence once the dispute moves into arbitration.
Does a balance confirmation signed by the buyer extend the time limit?
Yes, if the buyer or its authorised person signed it before the three years ran out and it admits a liability. A fresh three years then starts from the date of signing. It can't bring back invoices that had already expired when it was signed.
Can a buyer agree to pay a time-barred MSME claim?
Yes. A time-barred debt is still a debt. What's lost is the remedy through adjudication. The buyer can settle it at conciliation, and a written, signed promise to pay a time-barred debt is itself enforceable under Section 25(3) of the Indian Contract Act, 1872.
Does the 45-day rule affect when limitation starts?
It does. Under Section 15 of the MSMED Act the agreed payment period can't go beyond 45 days from acceptance, and where nothing was agreed, payment is due 15 days after acceptance. The due date you get this way is usually where the three years begin.
Is there a separate time limit for claiming only interest on late payments?
The law isn't settled on when an interest-only claim accrues. Buyers say it runs from each invoice's due date. Suppliers say from the date of the late payment. To be safe, file within three years of each late payment.
Is limitation for the MSME council the same in Delhi, UP and Haryana?
Yes. The Limitation Act and the MSMED Act are central laws, so the periods don't change from state to state. What does change is which council hears you and how quickly it lists matters.
Did the MSMED Amendment Act 2026 change the limitation rules?
Not as far as we can see. It changes the council process, including mediation, timelines, jurisdiction and recovery, but it doesn't create a new limitation period. Check whether its Section 18 changes have been notified before you file.
Advocate B.K. Singh
Founder of B.K. Singh & Associates. MCA, LL.B., LL.M. More than twenty years in practice before the Supreme Court, the Delhi High Court, district and commercial courts in Delhi NCR, and tribunals.
This guide explains the law in general terms and is not legal advice. For advice on your own papers, contact the team.