MSME Dues, Interest and Limitation: Questions and Answers

Three years, in most cases. The clock under the Limitation Act, 1963 starts on the day payment became due or the goods were delivered. A written acknowledgment of the debt, or a part payment, made before those three years end gives you a fresh three years. That's often what saves an old claim. Our note on the time limit to recover dues has more.

You can. The rate in your contract or invoice terms is the starting point, and if there isn't one, the court can award what it thinks reasonable under Section 34 of the CPC. Registered micro and small enterprises are better placed. They're entitled under the MSMED Act to compound interest at three times the RBI bank rate. Our guide on interest on recovery suits walks through the numbers.

Not if you're a registered micro or small supplier. Under Section 15 of the MSMED Act, 2006, the buyer has to pay on the date agreed in writing, and that date can't be set more than 45 days after it accepts your goods or services. A purchase order saying 90 days doesn't get around this. Nothing does. Once the 45 days pass, Section 16 interest starts running on its own, even if your invoice says nothing about interest. So hold on to the delivery challans and acceptance records. They fix the day the clock starts.

Within 15 days of acceptance. Where nothing in writing fixes the payment date, Section 15 says the buyer must pay before the "appointed day", and the Act's definition of that is the day after 15 days from acceptance or deemed acceptance. Plenty of small suppliers deal on verbal terms and think the law can't help them. It can. The shorter period actually works in their favour. Before you send a legal notice, go through your emails and WhatsApp chats, because the buyer may argue that a line like "60 days credit" was a written term. Even then, the 45-day cap still applies.

In most cases, on the day you deliver. The Act treats goods or services as accepted the day they're delivered or rendered, unless the buyer objects in writing within 15 days of delivery. If it does object, acceptance moves to the day you remove the objection, say by replacing a defective lot. A complaint that turns up months later won't reset the MSME clock. The buyer can still argue poor quality as a defence on merits, mind you. Keep the proof of delivery, and keep every written objection along with its date.

Three times the bank rate notified by the RBI, compounded with monthly rests. That's Section 16 of the MSMED Act. It runs from the day after the agreed date (or the appointed day) until the buyer's money actually reaches you. Monthly compounding adds up fast. Leave a bill unpaid for two or three years and the interest alone can reach a big slice of the principal. The bank rate isn't fixed; it moves with RBI policy. So check the rate for each period and build a month-by-month working sheet. Councils and courts will want to see it with your claim.

Generally, it doesn't. Section 16 applies "notwithstanding anything contained in any agreement" between buyer and supplier, and Section 24 gives Sections 15 to 23 overriding effect. A clause waiving interest, or pegging it at a lower rate, can't take away the statutory interest. Big buyers' standard purchase orders carry these terms all the time. A settlement signed after the dispute has arisen is a different thing. If you knowingly gave up interest in exchange for quick payment, that may bind you. Read any settlement letter slowly before you sign it.

Usually not. Retail and wholesale traders were let onto Udyam in 2021, but the benefit they got was limited to priority sector lending. The delayed payment protections don't extend to them; they're meant for micro and small manufacturers and service providers. If you're a distributor who only buys and resells, plan for an ordinary recovery suit, claiming contract interest or interest under Section 34 CPC. Not three times the bank rate. If your unit also does some manufacturing or job work, the activity shown on your certificate becomes important.

It does. Sections 15 and 16 cover goods or services supplied by a micro or small enterprise. For services, acceptance is usually the day the service is rendered, unless there's a written objection within 15 days. Monthly service bills fit this well, since each bill gets its own due date and its own interest running separately. Where suppliers usually slip is proof. Keep signed timesheets, completion emails or delivery reports. Buyers in IT and service contract disputes very often say the work was never accepted.

They do. There's no exemption for public buyers in the MSMED Act. A central or state department, a PSU or a municipal body buying from a micro or small enterprise is held to the 45-day limit and Section 16 interest exactly like a private company, and many Council references are against buyers of this kind. Be ready for more paperwork: measurement books, sanction notes, audit objections. And if you'd rather file a civil suit against the government itself instead of going to the Council, don't forget the two-month notice under Section 80 CPC.

That's the safe course, yes. Earlier Supreme Court rulings, including Silpi Industries v. Kerala SRTC (2021), linked MSME benefits to being registered when the contract was made. Then in NBCC (India) Ltd v. State of West Bengal (2025) the Supreme Court said those earlier rulings aren't binding on this point and sent the question to a larger bench. Until it's decided, expect buyers to raise the point in every late registration case. Registration is free. Get it done first and the argument simply disappears.

Yes, it can. Section 18(4) gives jurisdiction to the Facilitation Council where the supplier is located, wherever in India the buyer happens to be. A Ghaziabad unit goes to the Council for its area in Uttar Pradesh. A Dwarka unit goes to the Delhi Council. It makes no difference that the buyer sits in Mumbai or Chennai, and a purchase order clause naming the buyer's city won't override the section. Filing is usually online, through the Ministry of MSME's Samadhaan portal, but check the current route for your state.

You can. Going to the Council under Section 18 is optional, and Section 17 already makes the buyer liable for the amount along with Section 16 interest. So you may file a commercial suit, or a summary suit if the claim rests on a written contract, and plead MSMED interest with your Udyam certificate and an interest working attached. Some suppliers pick the court because they need attachment before judgment or an injunction. The Council can't give either. Section 12A mediation applies on the suit route, unless you're seeking urgent relief.

Conciliation comes first. Under Section 18(2), the Council does it itself or through an institution, applying the conciliation provisions of the Arbitration and Conciliation Act, 1996. The buyer is asked to reply, and both sides are nudged towards a settlement. It's here that a lot of buyers pay, once they see the interest figure written down. Bring your invoices, delivery proof, ledger, Udyam certificate and the interest calculation. If the buyer doesn't turn up, or the talks go nowhere, the matter moves on to arbitration.

No. The same Council carries on. Under Section 18(3) it either arbitrates the dispute itself or hands it to an institution, and the Arbitration Act applies just as if the parties had signed an arbitration agreement. You'll file a statement of claim. The buyer files its defence. Then comes the award. Section 18(5) sets 90 days for deciding a reference, though it's usually longer in practice. The award's enforced like a decree. Our guide on the MSME Council versus DIAC puts the two routes side by side.

It can. In Silpi Industries v. Kerala SRTC (2021) the Supreme Court said a buyer's counter claim and set-off are maintainable in arbitration under Section 18. You'll likely face deductions for delay, rejected goods or liquidated damages. That's why delivery notes, acceptance records and correspondence count for as much as the invoices do. When Advocate B.K. Singh prepares a Council claim, he writes down the counter claims the buyer is likely to bring and keeps the answering documents ready from the very first day.

Partly. The Supreme Court held in Sonali Power Equipments v. Chairman, MSEB (2025) that the Limitation Act doesn't apply to conciliation under Section 18(2), so a time-barred claim can still be taken up for settlement talks. Limitation does apply at the arbitration stage, though. If talks fail, a time-barred claim can't be awarded, and a buyer who knows that has little reason to settle. Before you file, check your dates and look for any acknowledgment or part payment. Our guide on limitation for money claims explains how.

Sometimes. But it won't waive the deposit. Section 19 stops a court from hearing a challenge to a Council award unless the buyer first deposits 75 percent of the amount awarded, and the Supreme Court held that deposit mandatory in Tirupati Steels v. Shubh Industrial Component (2022). Some High Courts have allowed instalments on the facts of particular cases. You've got three months from receiving the award to file a Section 34 challenge. So start arranging the money the day the award lands on your desk.

Yes, the court can release part of it to you. The proviso to Section 19 lets the court direct that such percentage of the deposit as it thinks reasonable be paid to the supplier, usually on conditions like security or an undertaking to refund if the award is set aside. Ask early. Your first reply to the challenge is the right place. A supplier who's waited years for payment can often draw working capital out of that deposit long before the challenge is decided.

Income tax. Since the 2023-24 financial year, Section 43B(h) of the Income-tax Act, 1961 has said that if a buyer pays a micro or small enterprise after the Section 15 time limit, it can claim the expense only in the year the money actually goes out. The new Income-tax Act, 2025 carries a similar rule, but check the current provision. And Section 23 of the MSMED Act says the interest itself can't be deducted, ever. Mention this in your follow-up letter. Finance teams don't ignore it.

Check its public filings. Under Section 22 of the MSMED Act, a buyer whose accounts are audited has to disclose, in its annual accounts, unpaid amounts and interest due to micro and small suppliers. Companies also file a half-yearly MSME return with the Registrar of Companies for payments outstanding beyond 45 days. They're downloadable from the MCA portal, and they can work as admissions of the debt. A balance sheet note that lists your dues may help you on limitation too.

It can try. Sometimes it works. The Explanation to Section 74 of the Contract Act says a stipulation for increased interest from the date of default may be a penalty, and the court then awards only reasonable compensation. A rate that's written into a signed contract, and that's common in your trade, has a better chance of standing than a figure printed only at the bottom of your invoices. Commercial courts often land on a rate close to bank lending rates. MSME interest is a different story. Its rate comes from the statute, not your invoice. Our guide on interest in recovery suits goes further.

Future interest under Section 34 CPC, at whatever rate the court fixes. The usual ceiling is 6 percent a year. Where the debt came out of a commercial transaction, though, the court can go higher: up to the contract rate or, if there isn't one, the rate nationalised banks charge on commercial lending. Ask for it in the plaint. Ask again in final arguments. If the decree says nothing, Section 34(2) treats future interest as refused and you can't file a separate suit for it. That hurts badly at the execution stage.

Bill by bill, in most cases. Where goods are sold on credit, Articles 14 and 15 of the Limitation Act give you three years from delivery or from the day the agreed credit period ends, separately for each invoice. Article 1 is the running-account rule. It counts three years from the close of the year in which the last entry was made, but only for a mutual, open and current account where each side has demands against the other. A plain sales ledger doesn't usually qualify. There, only the buyer owes and only the buyer pays. Start with your oldest unpaid bills. They're the ones at risk.

It can. Section 19 of the Limitation Act gives a fresh three years from the date of a part payment made before the period runs out, provided the payment is acknowledged in the payer's handwriting or in a writing the payer signed. A cheque usually satisfies this. Courts have often accepted bank transfer records too. A payment made once the debt is already time-barred won't revive it, though. And look at how the buyer appropriated the money: if it named a recent invoice, the older bills may not be saved.

Usually, if it's signed and the person signing had authority. Section 18 needs an acknowledgment in writing, signed by the debtor or its authorised agent, before limitation expires. A balance confirmation on company letterhead generally works. So does one from the accounts head's official email. A note from a junior clerk is much easier to attack. At year end, address your confirmation request to the CFO or the accounts head, and keep the reply with its full email headers.

Possibly. The Supreme Court held in Asset Reconstruction Company v. Bishal Jaiswal (2021) that a debt shown in a company's balance sheet can count as an acknowledgment under Section 18. It depends on the wording and on any auditor's notes. Each signed balance sheet that shows your dues may give you a fresh three years from the date it was signed. Download the filed financial statements from the MCA portal and read the trade payables schedule. Is there a note calling the amount disputed? That weakens the argument.

Section 18 won't help. It only counts acknowledgments made while limitation is still running. But there's another door: Section 25(3) of the Contract Act. A written, signed promise to pay a time-barred debt is enforceable as a fresh contract. A message saying "we will pay the balance of Rs 6 lakh by December" can be sued on. "Balance as per your ledger" probably isn't enough. Everything turns on the exact words, so keep the original message and the sender's details.

Often it is. The Explanation to Section 18 says an acknowledgment may be enough even if it leaves out the exact amount, says payment isn't due yet, refuses to pay, or claims a set-off. What's needed is an admission that a liability still exists. A letter saying "we accept the dues but will pay after adjusting rejected goods" can still restart time. When Advocate B.K. Singh goes through a recovery file, he reads letters like this line by line. A grudging admission is often the only thing keeping an old claim alive.

Hardly ever, at this point. The Supreme Court's COVID orders excluded the period from 15 March 2020 to 28 February 2022 from limitation, and allowed at least 90 days from 1 March 2022 for claims that would have expired inside that window. For an ordinary three-year money claim, that extra time ran out around February 2025 in most cases. A claim in late 2026 that leans on those orders alone is usually time-barred. It isn't, though, where a later acknowledgment or part payment restarted the clock.

Yes. Section 3 of the Limitation Act doesn't leave it to the defendant. It tells the court to dismiss a suit filed late even if nobody raises limitation as a defence. The plaint itself has to show the suit is within time: the due dates, any acknowledgment or part payment, and time excluded for Section 12A mediation. A defendant who doesn't show up can still walk away on limitation. That surprises a lot of clients. Our page on the money recovery suit sets out what the plaint should cover.

Not if you acted in good faith and with due diligence. Section 14 of the Limitation Act leaves out the time spent pursuing a case in a court without jurisdiction, say a suit filed in Delhi that belonged in Gurugram. Once the plaint is returned, you refile in the right court and the earlier period isn't counted. It won't rescue a case that was dropped for lack of evidence. Better still, check which court hears your claim before you file anything.

Start with who the supplier is. Pull up the Udyam certificate and check its date and category, see whether the supplier's only a trader, and test each bill for limitation at the arbitration stage. After that, look at the delivery and acceptance records and any written objections you raised within 15 days. They decide the day interest began. Then put together your own claims for a counter claim. Advocate B.K. Singh's team can go through the reference papers before the first hearing; you'll find them on the contact page.