In short. Yes. If you're an MSME service provider and a client is sitting on your money, the Facilitation Council is open to you just as it is to a manufacturer. The MSMED Act, 2006 covers enterprises that render services, and Section 15 treats services and goods alike. You need to be a micro or small enterprise with Udyam registration, the client must have received your services, and the dues must be unpaid past the agreed date. IT firms, consultants, agencies and transporters use this route all the time. This week, check your Udyam certificate and contract dates. Then file on the Samadhaan portal.
Is this your situation?
- You run an IT, design, consulting, logistics, manpower or maintenance business, and a client hasn't paid for well over 45 days.
- Your CA, or someone at a trade body, told you the MSME Facilitation Council is only for factories.
- You've never actually looked at what your Udyam certificate says about your activity. It might say services. It might not.
- The client used your work for months, or signed it off, and discovered 'problems' only when the invoice fell due.
- Your contract gives the client 90 days to pay. Or it says you'll be paid when the client's own customer pays.
- There's an arbitration clause naming an arbitrator the client picked, in a city you'd have to fly to.
- Part of the job was supplying equipment, and the rest was installing it and keeping it running.
What the law says about MSME service provider delayed payment
Factories were never the only audience for the Micro, Small and Medium Enterprises Development Act, 2006 (the MSMED Act). Look at Section 2(e). A unit that makes or produces goods is an enterprise, and so is one that provides or renders any service or services. Section 2(d) makes anyone who receives services from a supplier for consideration a buyer, exactly like someone buying goods. The payment rule in Section 15 opens with "where any supplier supplies any goods or renders any services to any buyer". Services appear everywhere it counts.
So the answer is short. If you're registered as micro or small and a client is sitting on money for work you've done, Sections 15 to 18 work for you exactly as they would for a factory owner in Okhla. Payment is owed on the date you agreed. Whatever you agreed, it can't stretch past 45 days from acceptance. Where nothing was fixed in writing, the client gets 15 days. Pay late, and Section 16 adds compound interest, with monthly rests, at three times the bank rate the Reserve Bank of India notifies. Either of you can then take the dispute to the Micro and Small Enterprises Facilitation Council under Section 18.
The right is the same. The proof isn't. A manufacturer walks in with a delivery challan and a goods receipt note. A software developer, a manpower contractor or a marketing agency has to piece acceptance together from emails, timesheets, sign-off notes and evidence the client actually used the work. Most of what follows is about building that file. The rest deals with the few kinds of service contract where a client can honestly say the Act doesn't reach them.
Why do so many service firms think the Council is only for manufacturers?
Some of it is history. Until June 2020, Section 7 of the Act classified service enterprises differently from manufacturers, by investment in equipment, and the service limits were far lower. A consultancy running on a few laptops was obviously micro. But people linked the whole scheme with the District Industries Centre, factory sheds and the old Udyog Aadhaar memorandum. Plenty of accountants still call MSME benefits 'manufacturing benefits' out of habit.
Since 1 July 2020 one composite test has applied to manufacturing and service enterprises alike. It looks at investment in plant, machinery or equipment, and at annual turnover. Registration moved to the Udyam portal too, which is free and runs on PAN and GST data. A Ministry of MSME notification raised the thresholds again from 1 April 2025. Today a service firm and a factory with the same investment and turnover sit in the same category. Both can file on the MSME Samadhaan portal.
Traders cause the rest of the confusion. Retail and wholesale traders could register on Udyam from 2021, but only for priority sector lending, and they generally can't use the delayed payment chapter. That restriction belongs to trading alone. We cover it in our guide on whether a trader can use the MSME Facilitation Council. It doesn't touch a business that renders services.
Micro, small or medium: where does your service business sit?
| Category (from 1 April 2025) | Investment in plant, machinery or equipment | Annual turnover | Can it go to the Facilitation Council? |
|---|---|---|---|
| Micro enterprise | Up to Rs 2.5 crore | Up to Rs 10 crore | Yes, if it's registered on Udyam |
| Small enterprise | Up to Rs 25 crore | Up to Rs 100 crore | Yes, if it's registered on Udyam |
| Medium enterprise | Up to Rs 125 crore | Up to Rs 500 crore | No. Chapter V protects micro and small suppliers only |
| Above the medium limits | Above Rs 125 crore | Above Rs 500 crore | No. Only the ordinary contract remedies |
How the limits work for a service company
Both tests apply together. Cross either one and you move up a category. Turnover here leaves out exports of goods or services, so an IT company with heavy export billing can stay small even when its total revenue is well past Rs 100 crore. Investment means the written down value of plant, machinery and equipment taken from the income tax return. For most service firms that's computers, servers, vehicles, office equipment and tools. Land, buildings, furniture and fittings don't count. The figures have been revised twice since 2020, so check the current ones on the Udyam portal before relying on them.
What matters for your claim is the category you held when the contract was made and the services were rendered. Take a growing firm that registered as micro in 2022 and became medium in 2026. It can still claim for invoices raised while it was micro or small. Invoices raised after it turned medium fall outside Chapter V. Udyam updates your classification from tax data every year on its own. Download the certificate history and keep it with your claim papers.
A note for founders running more than one entity. Classification is per enterprise, tied to the PAN. If your Delhi company billed the client but your Gurugram LLP did half the work, the claim belongs to whichever entity raised the invoice and holds the Udyam registration.
Service businesses we see at the Council most often
- IT and software firms. An IT company registered as an MSME is about the most common claimant there is. Development milestones, annual maintenance, cloud support and deployed manpower are all services, and email sign-offs or go-live dates usually prove acceptance.
- Digital marketing, advertising and design agencies. Campaign reports, approved creatives and platform dashboards show what you delivered and when. Each monthly retainer invoice runs on its own payment clock.
- Logistics and transport operators. Lorry receipts, proof of delivery and trip sheets prove the job. Each freight bill may be small, but over a year they pile up, and the Council can hear them all together against one client.
- Manpower, security and housekeeping contractors. Attendance registers countersigned by the client's site staff are your best evidence. Look out for deductions labelled 'penalty', because the client will defend those as set-off.
- Engineering, testing and technical consultants. Reports issued and accepted, inspection certificates and approved drawings make up the acceptance record. Clients often say the report wasn't good enough, so check whether any written objection came within 15 days.
- Maintenance and repair contractors. Service tickets the client closed, job cards and AMC visit reports carry the claim. If you supplied spare parts along with the service, read the part below on mixed contracts.
- Event, training and hospitality firms. Attendance lists, feedback forms and photos dated on the day turn out to be very useful, since the service is used up the moment you deliver it.
When does the 45-day clock start for a service?
Section 2(b) of the Act starts the clock on the day of acceptance or deemed acceptance. For services, the day of acceptance is the day you render them. If the client objects in writing within 15 days, acceptance moves to the day you remove the objection. Where no written objection comes within 15 days, acceptance is deemed to be the day of rendering. Whatever credit period you agreed, it can't run past 45 days from that day. Our separate guide on the 45-day payment rule for MSMEs works through the arithmetic.
Fitting services into this takes a little thought. A one-off job is easy, because the service is rendered the day you hand over the report or finish the work. A monthly retainer is a string of services, and each month's invoice has its own acceptance date at month end. Software projects with milestones usually accept each milestone separately, often by a user acceptance testing (UAT) sign-off. A support contract with service levels is rendered continuously. The clock for each billing period starts when that period closes.
Two words matter more than any others here. "In writing". A client who complained on a phone call, or whose project manager sent a WhatsApp voice note, hasn't objected in writing in any way that helps them. A client who emailed a detailed list of defects within 15 days has. In the service claims that come to Advocate B.K. Singh, the weak spot is nearly always this acceptance record. The work was obviously done. But nobody kept the email where the client said thanks, or the dashboard showing go-live. His advice is blunt. Export those records the week the dispute starts, before the client switches off your access to its systems and shared folders.
Can 90-day credit or pay-when-paid clauses keep you out of the Council?
Mostly, no. Section 15 caps any agreed credit at 45 days from acceptance, so a clause giving the client 90 or 120 days doesn't push back the date interest starts. Section 16 makes interest payable "notwithstanding anything contained in any agreement". And Section 24 gives Sections 15 to 23 overriding effect over other laws. A 'no interest on late payment' clause doesn't bind a registered micro or small supplier. Our guide on calculating MSME delayed payment interest goes into this further.
Pay-when-paid clauses turn up a lot in services, particularly for sub-contractors on a bigger client's project. A facility management firm in Noida might be told it gets paid once the developer's tenant pays the developer. The MSMED Act doesn't accept that as a reason to delay past 45 days from acceptance. The client may still argue the service wasn't complete until its own customer accepted it, though. It comes down to the scope document. Read it before you frame the claim.
Then there's the arbitration clause. Lots of service agreements name an arbitrator the client chose, or put the seat in Mumbai or Bengaluru. In Gujarat State Civil Supplies Corporation v. Mahakali Foods (2022), the Supreme Court held that Section 18 of the MSMED Act overrides a private arbitration agreement. A registered supplier can go to the Facilitation Council regardless. And a clause letting one side appoint the sole arbitrator is open to challenge anyway after the 2024 Constitution Bench decision on unilateral appointments.
Where services blur into works contracts and mixed supplies
This is where a services claim can genuinely come unstuck. A works contract mixes goods and labour in one package. Building something, wiring a factory, fitting out an office floor. In separate cases, the Delhi, Bombay and Allahabad High Courts (and others) have said a composite works contract isn't a supply of goods, and isn't a rendering of services either, in the MSMED Act's sense. If that's right, the Facilitation Council can't hear it. The Calcutta High Court disagrees and reads the Act generously, as beneficial legislation. The Supreme Court still hadn't resolved it by October 2026.
Lots of service firms are standing on that line and don't realise it. The IT vendor that sells the servers, sets them up and then looks after them. An HVAC contractor who brings in the units and commissions them. A signage agency that builds the boards and bolts them up on site. Whether it's a works contract or a set of separate supplies turns on the wording of the purchase order, the price split and the way the invoices were raised.
Advocate B.K. Singh's first request on any services file is the purchase order or work order. He looks at the invoice later. The scope wording decides whether a works contract defence is even available to the client. Say equipment, installation and annual maintenance are priced and invoiced separately. The maintenance and support bills then usually stand as plain services claims, whatever happens to the equipment portion. A single turnkey lump sum is another story. You'll face a jurisdiction objection, so prepare for it. Sometimes that means holding a commercial suit back as plan B.
Udyam registration: where service firms slip up
Three mistakes keep coming back. One is the activity itself. Years ago a consultant filling the form clicked the first box, so a design studio ended up registered as a manufacturer, with an NIC code (the national industrial classification code for the business) that has nothing to do with its work. Opposing counsel will notice. Correct the activity and NIC code on the Udyam portal today. It costs nothing.
Another is timing. Silpi Industries v. Kerala SRTC (2021) and Mahakali Foods both proceeded on the footing that you must be registered before the contract for it to be covered. A two-judge bench in NBCC (India) Ltd v. State of West Bengal (January 2025) wasn't convinced and referred the issue to a larger bench. Since then, some High Courts have gone with NBCC on their own facts, a Delhi High Court ruling reported in October 2026 among them. If you registered after you signed, the client will argue it until the larger bench speaks. Our guide on whether Udyam registration after the contract still helps sets out the options.
The last is the wrong entity. A freelancer or solo consultant can register as a proprietorship on a personal PAN, provided the bills went out in that same name. Suppose a designer invoiced personally for two years and only then set up a private limited company. Those older invoices stay with the individual. The company can't claim them.
Which Council hears you, and where do you file?
Your location decides it, not the client's. Section 18(4) sends the case to the Facilitation Council of the state where the supplier is. A Gurugram IT vendor with a Bengaluru client goes to the Haryana Council. A transporter in Ghaziabad owed money by a Delhi company goes to its own Uttar Pradesh Council. The 'exclusive jurisdiction of courts at the client's city' clause in your contract doesn't override this. Branch offices, changed addresses and other finer points are in our guide on which Council has jurisdiction.
Filing is online, on the Ministry of MSME's Samadhaan portal, which routes the reference to the correct Council. The Council sits at the state industries department or some other designated office. Many now take video hearings. After the Council (or an institution it appoints) makes an arbitral award, the courts take over for enforcement and challenges. For commercial disputes that means the district Commercial Court. In Delhi, if the value crosses its pecuniary limit, it's the Commercial Division of the Delhi High Court. And a client wanting to attack the award under Section 34 of the Arbitration and Conciliation Act, 1996 must first put down 75 percent of the award, as Section 19 of the MSMED Act requires.
There's a new law in the pipeline as well. The MSMED (Amendment) Act, 2026 was published on 13 August 2026. Under it, a mediation stage with a 90-day limit replaces Section 18 as it stands. A new Section 18A lets awards be recovered as arrears of land revenue. A fresh Section 19 releases at least half of the buyer's deposit to the supplier once a challenge has been pending more than six months. Reports put parts of the Act in force from 15 October 2026. By late October 2026, though, we hadn't found the new Sections 18, 18A and 19 notified. Check before filing.
Taking a delayed payment claim to the Council, step by step
This is roughly the order things happen in. If your records are in decent shape, you can typically file an MSME service provider delayed payment claim within two to three weeks of deciding to go ahead.
Make sure you qualify
Pull your Udyam certificate and the classification history. Were you micro or small when you did the work? Does the activity read services? Did the registered entity issue the invoices? You want a yes to all three.
Put the acceptance record together
Against every unpaid bill, note when the work was delivered and whether the client objected in writing inside 15 days. Save the emails, sign-offs, tickets, timesheets and dashboard screenshots into dated folders while you can still get at them.
Work out principal and interest
Set out invoices, part payments and TDS. Run Section 16 interest from each due date, at three times the bank rate with monthly compounding. Don't count deposited TDS as money still owed.
Send a demand notice
It isn't compulsory. We'd still send one. A brief notice quoting Sections 15 and 16 often brings in some money, or at least a written reply that reveals what the client is really unhappy about.
File the reference on MSME Samadhaan
Upload the contract or purchase order, invoices, ledger and proof of acceptance, and state the amount you're claiming. Our guide on drafting a reference to the Facilitation Council covers the statement of claim.
Go to conciliation
Section 18(2) has the Council attempt a settlement before anything else. Whoever attends should be able to say yes, and should know your floor, including how much interest you'd give up for quick money.
Arbitration and the award
No settlement means arbitration, by the Council itself or an institution it picks. Expect a defence from the client, maybe a counter claim. The award that follows is binding and is enforced the way a court decree is.
Enforce or defend the award
If the client still won't pay, execution goes to the competent court. A client that wants to challenge the award must deposit 75 percent of it up front. That deposit tends to make people very keen to settle.
Papers a service business should pull together
The contract and the scope
- Your master services agreement, statement of work or purchase order
- Rate cards, change requests and any scope changes the client approved
- Work orders for each phase or site
- If there's no signed contract, the emails where terms were confirmed
Proof you did the work
- Timesheets, attendance registers or deployment lists the client countersigned
- UAT sign-offs, go-live emails and closed support tickets
- Reports you delivered and the client acknowledged, campaign dashboards, lorry receipts and proof of delivery
- Photos or logs carrying the date of the service
Where the money went (or didn't)
- Every invoice, with GST details
- Your ledger account for the client, plus the client's ledger if you've got it
- Bank statements showing part payments
- TDS certificates for tax deducted on your invoices
- Any balance confirmation the client signed
Registration and letters
- Udyam certificate and classification history
- Your payment reminders and whatever the client replied
- Any written objection on quality, and how you answered it
- A certificate under Section 63 of the Bharatiya Sakshya Adhiniyam for emails and other electronic records
How long it takes, and what to budget for
| Stage | Usual time (range) | Costs to plan for |
|---|---|---|
| Sorting papers and working out interest | 1 to 3 weeks | Staff time, with any professional fees fixed separately |
| Demand notice, then the wait for an answer | 15 to 30 days | Just drafting and courier or email costs |
| Filing on MSME Samadhaan | A day, if everything's ready | Most states charge nothing on the portal, but a few Councils have their own rules; check |
| Conciliation before the Council | 1 to 6 months, depending on how busy the Council is | Getting there (or a video link) and a decision-maker's day each time |
| Arbitration and award | 4 to 12 months once conciliation fails, sometimes more | Cheap if the Council arbitrates; an institution, if appointed, bills its own fees |
| Client's challenge under Section 34 | Months, and often more than a year, in court | Client must first deposit 75 percent of the award |
| Executing the award | 3 to 12 months, depending on what the client owns | Execution court fee under the state schedule; check today's rate |
Council or commercial suit: which suits a service firm?
For most MSME service provider delayed payment claims, anywhere from a few lakh to a few crore, the Council is the cheaper and more direct road. Interest at three times the bank rate gives the client a strong reason to settle, and the 75 percent deposit makes a challenge expensive. A commercial suit makes more sense in a narrower band of cases. Those are cases where the contract may well be treated as a works contract, or your registration date is open to serious attack. Or you need an urgent injunction too (say, to stop a client running unlicensed source code). Or your claim is mostly damages for wrongful termination, not invoices for work already done.
Software disputes often mix the two. Unpaid milestone invoices belong before the Council. A claim that the client copied your code, or kept using your platform after termination, is better brought as a suit. Our sister site explains the commercial court route on its page on IT contract disputes. If you want costs and timelines side by side, read our guide on whether the MSME Council or a commercial court is better for your dues.
Where service providers' claims usually go wrong
- No proof of acceptance. You did the work, but there's no dated record of it anywhere. Gather sign-offs and logs while you're still on speaking terms with the client.
- Dressing up damages as dues. The Council is there to recover amounts owed for services already rendered, with interest. Lost profit on the unfinished part of a cancelled contract doesn't sit well there, and it invites an objection.
- Getting TDS and GST wrong. Tax the client deducted at source and deposited counts as a payment to you. Claim it again as principal and you lose credibility at the very first hearing.
- Forgetting service-level set-off. If the contract has service level credits or penalties, expect the client to raise them as a counter claim, which the Supreme Court allowed in Council arbitration in Silpi Industries. Deal with them in your claim. Don't hope they'll be forgotten.
- Sitting on it too long. The Limitation Act applies at the arbitration stage. In Sonali Power Equipments v. Maharashtra State Electricity Distribution Co (2025), the Supreme Court held that a time-barred claim can still go to conciliation but can't be decided in arbitration. Read our note on the time limit for an MSME delayed payment claim before you let old invoices gather dust.
- Mixing up the client's entities. If two group companies of the client took services under one contract, name the right buyer for each invoice. Get it wrong and you've handed the client an easy technical objection.
An invented example: a Gurugram software firm and a Noida retailer
None of this is real. Picture a software shop of 14 people in Udyog Vihar, Gurugram, on Udyam since 2022 as a micro service enterprise. Its March 2024 statement of work is with an online furniture seller in Sector 63, Noida, for an order management system built over four milestones. Payment terms say 75 days. The retailer gets to appoint a sole arbitrator, seated in Noida. The first two milestones are paid, slowly but fully. The last two, billed in November 2024 and January 2025 and worth Rs 18.6 lakh together, never are. In April 2025 a newly hired CTO at the retailer emails that the system is full of bugs.
The director starts digging through the inbox. There it is, an October 2024 email from the retailer's product head signing off UAT on milestone three. Go-live happened in January 2025, and the shared dashboard still shows the orders flowing. No written complaint arrived within 15 days of either milestone. The ledger shows Rs 1.86 lakh of TDS deducted and deposited by the retailer, and that comes off the principal. The firm files on MSME Samadhaan. Since it sits in Gurugram, the Haryana Facilitation Council gets the case. Interest runs from 45 days after each acceptance. Not 75.
The retailer turns up at conciliation waving the Noida clause and the bug list. The Council points to Mahakali Foods on arbitration clauses and asks to see a written objection from within 15 days. There isn't one. Two hearings later they settle. Full principal in two instalments, some of the interest, and the firm fixes a short list of small issues under warranty. The director could have held out for all the interest. He didn't, because at the arbitration stage the retailer could have counter-claimed for defects, and the director preferred money he could count on. Take the preparation from this, not the outcome. Councils differ. Clients differ more.
What to do this week
Log in to the Udyam portal and download your certificate and classification history. Dig out the contract or purchase order and read how it describes the scope and the price. Then make a one-page list of unpaid invoices, showing the date you rendered each service, any written objection, part payments and TDS. Export the emails, sign-offs and logs that prove acceptance into a dated folder, noting who sent each one. Any invoice older than two and a half years? Treat that claim as urgent. Before filing, run through our list of the documents needed for an MSME delayed payment case.
If you'd like your contract, Udyam certificate and invoices looked over before you file, or want to know how recent court decisions bear on a services claim, send them to Advocate B.K. Singh's team through the contact page.
Frequently asked questions
Can a freelancer or one-person consultancy take a claim to the MSME Council?
Yes, as long as the freelancer is registered on Udyam as a proprietorship and the invoices went out in that name. The Act asks whether the supplier is a registered micro or small enterprise. Headcount doesn't come into it. Keep the registration and the billing name the same.
Do I need GST registration to put my service business on Udyam?
Udyam runs on PAN and GST data, and you'll need a GSTIN if GST law requires your business to register. A small service provider under the GST threshold can still register on PAN alone. Check the current requirement on the Udyam portal.
Can several unpaid monthly invoices from one client go into a single reference?
Yes. One reference can cover every unpaid invoice against the same buyer, with interest worked out invoice by invoice. Putting them in one schedule also helps the Council see the pattern of delay.
Can I claim interest on invoices the client has paid, but late?
Yes. Section 16 interest runs from the due date to the day the money actually arrived. So a late-paid invoice can still carry an interest claim even though the principal is cleared. You still have to bring it within limitation.
My client's a foreign company. Can I still go to the Facilitation Council?
The Act doesn't expressly shut out foreign buyers. But enforcing a Council award abroad brings practical and legal headaches. You're better placed if the client has assets in India, or an Indian subsidiary signed the contract with you. Take advice on the contract before filing.
Can the client bring up penalties for missed service levels before the Council?
Yes. At the arbitration stage the client can file a defence and a counter claim, including for service level credits or penalties under the contract. Answer them in your claim, with the service reports for each period.
Do I need a lawyer to file on the MSME Samadhaan portal?
No. Plenty of suppliers file on their own. A lawyer earns their keep on the interest working, the statement of claim and the hearings, once the client starts objecting on jurisdiction, works contracts or registration dates.
My Udyam certificate says manufacturing, but I mostly provide services. Is my claim dead?
Not necessarily. What the Act asks is that you be a registered micro or small enterprise. The mismatch does hand the client an argument, though, so update the activity and NIC code on the portal and be ready to explain the change.
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.