How Much Interest Can I Claim on Unpaid Dues?

Three periods, three different rules

Interest in a recovery suit isn't one number. The law cuts it into three periods, and each stands on its own footing. First comes the stretch from the day the money fell due to the day you file. Then the time the suit is pending, from filing to decree. Last, the period after the decree until the defendant actually pays up. Clients often expect one rate. They get three.

For the first period you need a reason the defendant owes interest at all. That could be a rate agreed in the contract, a statute such as the MSMED Act or the Interest Act, 1978, or a settled trade practice between the two of you. Without any of them you may still get pre-suit interest, but you'll be arguing for it. The second and third periods are in the court's discretion under Section 34 of the Code of Civil Procedure, 1908 (CPC). In commercial matters that discretion is wider than most people assume.

So when a client sits down with Advocate B.K. Singh and asks how much interest they'll get, he doesn't start with the rate. He asks for the paper. What did the purchase order say about payment terms and late payment? The agreement, the invoice, the email chain? Those answers decide most of what follows.

The law behind interest on a recovery suit

Which rule applies to which period

If your contract or invoice names a rate

A rate in a signed agreement or an accepted purchase order is the best footing you can have. Say the buyer's own purchase order says late payments carry interest at 12 percent a year. It's very hard for that buyer to turn round later and claim it never agreed. Courts generally enforce such a rate for the pre-suit period. They often start from it for pendente lite interest too.

Printed terms on your invoices are weaker. Much weaker, sometimes. That line at the bottom of a GST invoice, interest at 18 percent after 30 days, is your statement. It isn't necessarily the buyer's agreement. Judges look at the whole relationship. Did the buyer keep accepting goods and invoices with that line on them, pay some late with interest, or never object over years of dealing? Then the term stands a fair chance. If you sent the invoices once, nobody acknowledged them, and the purchase order said something else, expect the court to go by the purchase order or fix a rate of its own.

Very high rates cause trouble. A clause charging 24 or 36 percent from the first day of delay can be read as a penalty under Section 74 of the Contract Act. You won't lose the claim over it. You may get a lower rate. Our practice is to plead the agreed rate and, in the alternative, ask the court to fix a reasonable commercial rate, so the whole claim doesn't hang on one number.

If nobody agreed anything about interest

Plenty of small businesses in Delhi run on phone calls and WhatsApp messages. There's no interest clause anywhere. You can still claim interest, but you have to give the court a legal hook to hang it on. For the pre-suit period, that hook is mostly the Interest Act, 1978. If the debt was payable on a fixed date under a written document (an invoice with a stated due date that the buyer accepted, for instance), the court can allow interest from that date. If not, interest runs from the date of your written demand. But only if the demand told the debtor interest would be claimed.

People miss that last part all the time. A polite email asking for payment, with no word about interest, may not start the clock at all. A proper recovery legal notice should state the principal, the rate you claim, the date it runs from, and that interest continues until payment. One extra sentence. It costs nothing. It can be worth months of interest later.

After filing, the missing clause matters less. Section 34 lets the court give a reasonable rate from the date of the suit, and in commercial cases courts commonly award interest even where the contract said nothing. Don't expect the high figure you'd hoped for, though. It'll usually be moderate. Something a bank would recognise.

MSME suppliers: three times the RBI bank rate

If you're a micro or small enterprise registered on the Udyam portal, the MSMED Act, 2006 changes things a good deal. Your buyer has to pay within the agreed period, which can't be more than 45 days from the day the goods or services were accepted, or within 15 days if nothing was agreed. Miss that, and Section 16 makes the buyer liable for compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. The bank rate was 5.5 percent for most of 2026 and went up to 5.75 percent after the RBI's policy of 7 October 2026. That puts the Section 16 rate at about 17.25 percent a year, before the monthly compounding kicks in. It moves with RBI policy, so check the current figure before you sit down with a calculator.

This interest overrides the contract. A buyer can't dodge it by printing a 90-day credit period on its purchase order. Medium enterprises don't get the benefit. And courts have generally held that it covers supplies made after you registered, not before. The date on your Udyam certificate matters as much as the dates on your invoices.

You can claim MSMED interest in a civil suit. Or you can use Section 18 and refer the dispute to the MSME Facilitation Council of the state where your unit is located. The Council tries conciliation first. If that fails, it arbitrates or sends the matter to arbitration. A buyer who wants to challenge the Council's award has to deposit 75 percent of the awarded amount first, which tends to concentrate minds. Which route suits you depends on the size of the claim, where the buyer is, and how fast you need an order. If your matter turns into an arbitral award that the buyer challenges, that fight carries on at arbitrationlawyer.in.

Interest while the case runs, and after the decree

Pendente lite interest is the court's call. Section 34 says it may award a reasonable rate on the principal sum adjudged. In business cases, courts often allow something close to the agreed rate if that rate was sensible, and a moderate commercial rate if it wasn't. There's no published table. The judge weighs the contract, how both sides behaved, whether the defendant had any real defence, and how long it's been sitting on your money.

Future interest, from the decree until payment, is capped at 6 percent a year in ordinary cases, but in a commercial transaction the court can go higher, up to the contract rate or what nationalised banks charge on commercial loans. This matters more than it looks. A defendant facing 6 percent simple interest on a decree has no reason to hurry. Make it 12 percent, or the MSME rate, and settling suddenly looks attractive.

So ask for both in the prayer clause of the plaint, in plain words: interest pendente lite and future interest, each at a stated rate, until realisation. Leave it out and the decree may say nothing. A silent decree is read as refusing interest it didn't grant. Fixing that afterwards is far harder than asking properly the first time.

Simple or compound, and interest on interest

Section 34 talks about interest on the principal sum. That means simple interest. The court won't compound pendente lite or future interest on its own. Compounding is allowed where the contract clearly provides for it, where a statute like the MSMED Act requires it, or in banking and lending relationships where it's accepted practice and the borrower signed up to it.

Pre-suit interest that you've already worked out and added to the claim on the filing date can become part of the principal sum adjudged. Some courts then allow interest on that whole figure. Is that fair? It depends on the case, and judges differ. Don't bank on it. Show principal and pre-suit interest as separate figures, so the court can go either way without redoing your sums.

Working out and claiming interest, step by step

This is the order we work in when we build the interest part of a money claim.

1. Put every unpaid invoice on one sheet

   Invoice number, date, amount, the payment term that applies, and the due date that results. For MSME suppliers, add the date of acceptance and the 15 or 45 day deadline. Get one due date wrong and the whole calculation is off.

2. Apply part payments the right way

   Sections 59 to 61 of the Contract Act decide which debt a payment goes against. If the buyer said which invoice it was paying, follow that. If it didn't, you can appropriate it yourself, usually against the oldest invoice. Your ledger has to show it the same way throughout.

3. Pin down where the rate comes from

   Write it down. The agreement, the purchase order, accepted invoice terms, the MSMED Act or the Interest Act. If two bases are available, run the stronger one as your main claim and keep the other as the alternative.

4. Calculate invoice by invoice

   Work out interest separately on each invoice, from its own due date to a fixed cut-off, usually the notice date or the date you plan to file. Simple interest is principal times rate times days, divided by 365. Keep the working. The defendant will check it, and so will the court.

5. Send a legal notice that claims interest

   State the principal, the rate, the date interest runs from, and that it continues until payment. That meets the written demand condition in the Interest Act. It also gives the defendant one last clear chance to pay.

6. Take the full figure into mediation

   Under Section 12A of the Commercial Courts Act, most money suits have to go through pre-institution mediation first. Put the whole claim, interest included, in the mediation application. Interest is usually the first thing traded away in a settlement. Decide beforehand how much of it you'll give up.

7. Plead it properly in the plaint

   Show principal and pre-suit interest separately, pay court fee on both, and pray for pendente lite and future interest at stated rates. Attach the interest calculation as a schedule. The judge shouldn't have to hunt for it.

Where the claim rests on a written contract, an invoice accepted in writing or a cheque, a summary suit under Order XXXVII can carry interest too. That Order covers debts payable with or without interest arising on a written contract.

Time and costs at each stage

Which court, and how interest can change that

Interest changes the value of your suit. Value decides the court. Section 12 of the Commercial Courts Act adds interest up to the filing date to the principal, so if you take a principal of Rs 2.7 lakh and pre-suit interest pushes the total past Rs 3 lakh, the dispute crosses the specified value and becomes a commercial suit, with strict timelines, a statement of truth and mandatory mediation. Our guide on which commercial court hears your case goes through the value rules properly.

In Delhi, commercial suits valued up to Rs 2 crore go to the District Judge (Commercial Court) at the district complexes: Tis Hazari, Saket, Karkardooma, Rohini, Dwarka and Patiala House. Above Rs 2 crore, it's the Commercial Division of the Delhi High Court. Check the current limit before you file, because there's been talk of raising the district court limit since late 2025. A big interest component can carry a claim over that line, and then it's a different court altogether.

In Uttar Pradesh and Haryana, commercial suits go to the court designated as Commercial Court for the district, such as those for Ghaziabad, Gautam Buddh Nagar, Gurugram and Faridabad. As for territory, you file where the defendant lives or works for gain, or where the cause of action arose. In an unpaid invoice case that often includes the place where payment was due. Many contracts have an exclusive jurisdiction clause. If it names a court that would otherwise have jurisdiction, courts usually hold the parties to it.

Papers that prove your interest claim

How this plays out for different businesses

• Goods suppliers and manufacturers. You'll be relying on purchase orders, invoices and delivery proof. The strongest interest claims we see come from a purchase order the buyer issued itself, with a late-payment clause in it. Or from MSMED registration.
• Service firms, agencies and IT vendors. The fight is often over when the service was accepted, because that date starts the clock. Sign-off emails, completion certificates, and no complaints within the contract period all help fix it.
• Lenders and businesses that gave advances. You really need a loan agreement or a letter recording the rate. Without one you're down to the Interest Act and the court's discretion. If you lend as a regular business, state money-lending laws may apply, so check whether you need a registration or face a rate cap. Our page on recovering a loan given to another business covers this.
• Startups. Young companies often work on loose terms with big clients and feel awkward claiming interest at all. If you hold an Udyam registration, the MSMED Act protects you whatever the client's paperwork says. A polite but clear interest claim often gets the payment moving.
• MSMEs. Check your registration date against your supply dates, and keep acceptance records carefully. Three times the bank rate is real pressure on a buyer. But only if you can show when it started.
• Large companies. Your contracts usually have detailed interest and dispute clauses. The rate is rarely the issue. The question is whether an arbitration clause takes the whole dispute out of the civil court.

Where interest claims usually go wrong

• Interest worked out on the total, not invoice by invoice. Invoices fall due on different dates. One figure from the oldest date overstates the claim and hands the other side an easy objection.
• No mention of interest in the legal notice. Without a written demand that mentions interest, an Interest Act claim can lose months.
• No court fee on pre-suit interest. Interest up to filing counts towards valuation. Undervalue it and you'll face an objection, or an order to make up the shortfall.
• A prayer clause that's silent on interest. If the plaint doesn't ask for pendente lite and future interest, the decree may not give them.
• A penal rate as the only basis. If the court finds the rate penal and there's no alternative plea, you can end up below what a reasonable rate would've given you.
• Limitation forgotten. Interest follows the principal. A time-barred principal means time-barred interest. Our guide on the time limit for recovering unpaid dues explains the three-year rule and how an acknowledgment restarts it.

The tax angle, briefly

Under GST law, interest received for delayed payment of a supply is generally treated as part of the value of that supply. So if you invoice it or receive it, talk to your accountant about the GST and the timing. Interest a court awards on a decree is usually viewed differently. It turns on the facts, though, so get advice before you raise any interest invoice.

Buyers have an extra worry. From the 2023-24 financial year, income tax law doesn't let a buyer deduct amounts owed to micro and small enterprises until it actually pays, if it pays after the MSMED deadline. And MSMED interest itself isn't deductible. A lot of larger buyers now clear MSME vendors faster because of it. A polite mention in your notice can help.

What to do this week

Get the purchase orders, invoices, delivery proof, ledger and bank statements into one folder, and fix the due date of every unpaid invoice. See whether any document records an agreed rate. Check that your Udyam registration came before the supplies. Then calculate interest invoice by invoice up to today. Keep the working.

Next, send a legal notice claiming principal and interest and saying that interest continues until payment. If the buyer still won't pay, you're looking at Section 12A mediation and then a money recovery suit in the right court. When a file reaches Advocate B.K. Singh, the interest schedule is usually what he checks hardest. It's the first thing the other side goes after.

If you'd like your invoices, ledger and interest sheet looked at before you send a notice or file, send them to Advocate B.K. Singh's team through our contact page.