MSME Delayed Payment Complaint to the MSEFC

What the MSMED Act gives a small supplier

Chapter V of the Micro, Small and Medium Enterprises Development Act, 2006 was written for a common problem: a large buyer holding back payment from a small supplier that cannot afford a long suit. It does three things. It caps the credit period at 45 days from acceptance (Section 15). It makes the buyer liable for compound interest at three times the RBI bank rate on any delay (Section 16). And it gives the supplier a statutory forum, the Facilitation Council, that combines conciliation and arbitration (Section 18), with a deposit condition that discourages a buyer from challenging the award just to delay (Section 19).

The interest provision is the real lever. On a debt that has been outstanding for a year or two, interest at three times the bank rate, compounded monthly, adds a substantial sum, and the buyer cannot contract out of it.

Filing the reference

The reference is filed online on the MSME Samadhaan portal, which routes it to the Council of the state where the supplier is located. For a Delhi supplier, that is the Delhi Council. The filing needs:

• the Udyam registration certificate;
• the purchase orders or contract, with any agreed credit period;
• each invoice, with proof of delivery and of acceptance, such as a goods receipt note, email or signed challan;
• a statement of account showing payments received and the balance; and
• any correspondence in which the buyer acknowledged the debt or raised a complaint.

We prepare a claim statement that separates principal and Section 16 interest invoice by invoice, because the Council and any later court will look at each invoice’s due date and limitation separately.

Conciliation, then arbitration

On receiving the reference, the Council either conducts conciliation itself or refers it to an institution, applying the conciliation provisions of the Arbitration and Conciliation Act, 1996. Many buyers settle at this stage once they see the interest calculation. If conciliation does not end the dispute, the Council takes the dispute up for arbitration itself or refers it to an institution, and the proceedings then follow the Arbitration and Conciliation Act as if there were an arbitration agreement.

The buyer can contest jurisdiction (for example, that the supplier was not a micro or small enterprise for the supplies in question), plead limitation, and file a counter-claim. Our arbitration team conducts these hearings with the same preparation as a private arbitration.

After the award

A buyer that wants to challenge the award must apply under Section 34 of the Arbitration and Conciliation Act and deposit 75 percent of the awarded amount first. The grounds for setting aside an award are narrow. If no challenge is filed, or it fails, the award is enforced as a decree of a civil court. Where the buyer is a company and the debt is undisputed after the award, insolvency proceedings before the NCLT may also be considered, subject to the minimum default threshold.

When the Council route is not the right one

Not every unpaid supplier should go to the Council. A medium enterprise is outside Section 18. Where registration came after the supplies, the question pending before the Supreme Court’s larger bench makes the claim uncertain. Where the claim is mainly for damages rather than unpaid price, or the buyer is outside India, a commercial suit or contractual arbitration may be better. Our guide to recovering unpaid invoices sets out the routes side by side.

For buyers receiving a Council notice

If your business has received notice of a reference, check at once whether the supplier was a micro or small enterprise when it supplied, the invoices’ dates against limitation, whether the goods were in fact accepted, and whether a counter-claim exists. The deposit condition means an adverse award is expensive to challenge, so the defence has to be made before the Council, not saved for later.

Speaking to us

Send the Udyam certificate, the purchase orders, invoices, delivery proofs and the statement of account. We tell you at the first meeting whether the Council route is open, what the interest claim comes to and what the buyer is likely to argue. Call or WhatsApp 99115 44811, or email manujalawyers@gmail.com.