MSME Samadhaan Delay in India: 7 Points Both Sides Miss
The arithmetic nobody mentions in the room keeps running. Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006 carries compound interest on a delayed payment, with monthly rests, at three times the RBI bank rate. In July 2026 the bank rate is 5.50%. That works out to 16.50% per annum, compounding monthly, an effective yield close to 17.8%. On a principal of ₹10,00,000, three years of pendency adds roughly ₹6,35,000.
So the delay is not neutral. It moves money. It moves money towards the supplier and away from the buyer, quietly, every month, while both sides sit in the corridor believing nothing is happening.
Most parties in these references have never had the position explained to them. This article sets out seven points that decide outcomes and rarely surface at the hearing.
Why MSME Samadhaan delay happens when the statute allows ninety days
Section 18(5) of the MSMED Act, 2006 is short. Every reference to the Micro and Small Enterprises Facilitation Council shall be decided within ninety days of the reference. The Ministry of MSME repeats this on the Samadhaan portal. It also asks States to ensure Councils meet regularly and dispose of matters inside ninety days.
Pendency of two to three years is therefore not the design. It is a departure from it. However, the sub-section attaches no consequence to breach. The Council does not lose jurisdiction on day ninety-one. A late award is not void. In practice, the ninety days operates as a statutory yardstick rather than a self-executing deadline.
That still matters. A yardstick gives you something to point at. Some parties write to the Council quoting Section 18(5), record each adjournment, and build a dated record of non-listing. They are in a far better position than parties who simply attend and wait. The record is what makes expedition arguable later.
Waiting quietly for three years produces a three-year-old file. Waiting on the record produces the same file plus a documented case for expedition. The effort is nearly identical.
Key Takeaway: The ninety-day period in Section 18(5) will not enforce itself, so the party who documents the delay is the only party who can later use it.
What is your MSME claim actually worth?
Most suppliers plead the invoice value and treat interest as an afterthought. That is backwards. Under Section 16, interest is automatic and statutory. It runs from the appointed day. Section 15 fixes that day as the day after the agreed date, or the day after forty-five days from acceptance or deemed acceptance. No notice is needed and no demand is needed.
Section 17 then makes the buyer liable to pay the principal together with the Section 16 interest. Read together, Sections 15, 16 and 17 create an enforceable right to both. Furthermore, Section 24 gives Sections 15 to 23 overriding effect over any inconsistent law.
The consequence is that a supplier two years into a reference is typically owed far more than the sum written in the claim form. Consider the illustration below at the July 2026 bank rate.
Pendency | Principal | Total payable | Statutory interest |
1 year | ₹10,00,000 | ₹11,78,068 | ₹1,78,068 |
2 years | ₹10,00,000 | ₹13,87,845 | ₹3,87,845 |
3 years | ₹10,00,000 | ₹16,34,975 | ₹6,34,975 |
Two cautions apply. First, the bank rate moves. The calculation is therefore period-wise, not one flat rate across the whole span. Secondly, a written agreement may fix a period shorter than forty-five days. Interest then runs from that contractual date, which is earlier and therefore larger. Producing the agreement usually helps the supplier, and it is among the most overlooked documents in the file.
Key Takeaway: Interest under Section 16 is not a bonus added at the end, it is roughly two-thirds of what a three-year-old claim is worth.
What does the buyer actually risk by defending?
Buyers commonly treat an MSEFC reference as a slow nuisance that can be managed by attendance. Three provisions say otherwise.
Section 19 is the first. No court will entertain an application to set aside a Council decree, award or order unless the appellant, not being the supplier, deposits seventy-five per cent of the awarded amount.
So a buyer who loses and wants to challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996 must find three-quarters of the money first. That is a cash-flow event rather than a legal formality. It also arrives at the worst possible moment.
Section 23 is the second. Interest paid under Section 16 is not deductible in computing income. The disallowance is permanent, not deferred.
The third sits in tax law and has moved recently. Section 43B(h) of the Income-tax Act, 1961 was inserted by the Finance Act, 2023 and took effect from AY 2024-25. Where payment to a micro or small enterprise falls outside the Section 15 window, the deduction shifts to the year of actual payment.
That framework has since been rewritten. The Income-tax Act, 2025 came into force on 1 April 2026 and repealed the 1961 Act. Section 536 saves the earlier position for periods up to FY 2025-26. In substance, the actual-payment rule for MSE dues survives the renumbering.
For a buyer, the exposure is rarely one number. It is the principal, plus interest compounding at 16.50%, plus a deduction disallowed in the year it was expected, plus a 75% deposit to challenge the award. Provisioning for the invoice alone understates the position badly.
Key Takeaway: A buyer defending an MSEFC reference is exposed on four fronts at once, and only one of them is the invoice.
Can the Council hear your case at all?
This is the threshold question, and in a surprising number of references neither side has asked it.
Section 2(n) defines “supplier” by reference to a micro or small enterprise. A medium enterprise cannot use the delayed-payment machinery. Classification therefore decides access, and classification changed recently. Notification S.O. 1364(E) dated 21 March 2025 superseded the 2020 thresholds with effect from 1 April 2025. The current limits are:
Category | Investment | Turnover |
Micro | up to ₹2.5 crore | up to ₹10 crore |
Small | up to ₹25 crore | up to ₹100 crore |
Medium | up to ₹125 crore | up to ₹500 crore |
Both limits must be satisfied together, and exports are excluded from turnover. Because the ceilings rose, some enterprises that had graduated out of “small” are within it again for contracts from 1 April 2025. Others have grown past it without noticing.
Wholesale and retail traders are a separate trap. The Ministry of MSME brought traders within the MSME fold by Office Memorandum dated 2 July 2021. A further Office Memorandum dated 1 September 2021 then confined that benefit to priority sector lending. The delayed-payment provisions were not extended to them. [VERIFY: confirm both OM references before publication.]
Key Takeaway: Classification and trade category decide whether the Council has jurisdiction, and both are checked at the start of the matter or not at all.
Two Supreme Court references now hang over every pending MSEFC matter
This is the point almost nobody in the waiting room knows, and it is the most consequential in this article.
Is prior registration required?
In Silpi Industries v. Kerala State Road Transport Corporation, (2021) 18 SCC 790, the Supreme Court observed that a party must be registered under Section 8 as on the date of the contract to claim the benefit of the Act, and that later registration operates prospectively. Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., (2023) 6 SCC 401 followed that reasoning.
Then the position moved. NBCC (India) Ltd. v. State of West Bengal, 2025 INSC 54 was decided on 10 January 2025 by Narasimha and Pankaj Mithal, JJ. Section 18 speaks of “any party to a dispute”. That phrase, the Court held, is wider than “supplier” in Section 2(n), and Section 8 registration is discretionary rather than a precondition.
The Court took the view that Silpi and Mahakali Foods had not decided this question. It referred the issue to a Bench of three Judges for an authoritative pronouncement.
The reference is still awaiting listing. Until the larger Bench speaks, Silpi and Mahakali Foods remain binding on their terms, while NBCC sits alongside them.
Can the Council conciliate and then arbitrate, and can a writ lie?
M/s Tamil Nadu Cements Corporation Ltd. v. Micro and Small Enterprises Facilitation Council, 2025 INSC 91 was decided on 22 January 2025. A Bench headed by Sanjiv Khanna, CJI recorded reservations about India Glycols Ltd. v. MSEFC, Medchal–Malkajgiri, 2023 SCC OnLine SC 1852, which had barred writ petitions against Council orders.
The Court referred two questions to a Constitution Bench of five Judges. First, whether Article 226 is available against MSEFC orders, and in what circumstances. Secondly, whether Council members who conducted the conciliation may themselves sit as arbitrators, given Section 80 of the Arbitration and Conciliation Act, 1996.
That reference was still pending as at the date of writing. It matters because the second question goes to the validity of the procedure followed in most MSEFC matters, including the one in the corridor.
Notably, TANCEM arose from Tamil Nadu.
Every party sitting in an MSEFC reference is inside a process carrying two unresolved Supreme Court questions. One on who may invoke it. One on how it may be conducted. Neither side is told this at the hearing.
Key Takeaway: The MSEFC route is under active reconsideration at the Supreme Court on both entry and procedure, and the party who understands that has options the other does not.
An award is not money
Suppliers who win frequently discover that the award is paper. Section 36 of the Arbitration and Conciliation Act, 1996 makes an award enforceable as a decree of the court, so the next step is execution.
Here Sundaram Finance Ltd. v. Abdul Samad, (2018) 3 SCC 622, decided on 15 February 2018, is the most useful decision in this field. An award may be filed for execution directly before the court where the assets are situated. You need not first approach the court with jurisdiction over the arbitration and obtain a transfer of the decree.
Take a supplier in Chennai holding an award against a buyer whose plant and bank accounts sit in another State. For that supplier, the single proposition above is worth more than most of the file.
Key Takeaway: Execute where the money is, not where the Council sat. Sundaram Finance removed the transfer step entirely.
What changed in 2025 and 2026
Three developments are worth knowing even if your own reference predates them.
The MSME ODR Portal. On 27 June 2025, MSME Day, the President of India launched the Online Dispute Resolution Portal at odr.msme.gov.in. It was developed under the MSE Scheme on Online Dispute Resolution for Delayed Payments.
The portal runs in two tiers. The Pre-MSEFC tier is a voluntary, confidential, out-of-court digital negotiation, and either party may exit it. If it fails or either side opts out, the matter proceeds to the statutory MSEFC tier under the MSMED Act, 2006. New delayed-payment applications are now filed there rather than on Samadhaan. [VERIFY: confirm the exact cut-over date for new filings.]
Revised classification. Covered above at Point 3, and worth re-checking for every entity in the file, not just your own.
The tax framework. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, and the MSE actual-payment rule carries forward. [VERIFY: confirm the precise section and sub-clause in the 2025 Act against the CBDT concordance before citing a number.]
Key Takeaway: The route into an MSME payment dispute in 2026 is not the route most pending references came in through.
What about disputes the Council cannot touch?
The Facilitation Council is a narrow door. It opens for a micro or small enterprise, on a delayed payment, against a buyer. It stays shut for the medium enterprise. It stays shut for the trader on delayed payment. It stays shut on a defective-supply counterclaim brought on its own, and on the buyer’s own receivables from its customers.
Those disputes go to the Commercial Courts Act, 2015. The threshold is far lower than most business owners assume. The Specified Value under Section 2(1)(i) is not less than ₹3,00,000. Act 28 of 2018 reduced it from ₹1 crore with effect from 3 May 2018. Ordinary supply and recovery disputes qualify.
Three features drive the timeline:
- Section 12Arequires pre-institution mediation where no urgent interim relief is contemplated. In Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd., (2022) 10 SCC 1, decided on 17 August 2022, the Supreme Court held this to be mandatory. A suit filed in breach must be rejected under Order VII Rule 11, even suo motu, prospectively from August 2022. The mediation window is three months, extendable by two with consent, and that time is excluded from limitation.
- The 120-day wall.The proviso to Order VIII Rule 1 CPC, as amended for commercial suits, caps the written statement at 120 days from service of summons. In SCG Contracts (India) Pvt. Ltd. v. K.S. Chamankar Infrastructure Pvt. Ltd., (2019) 12 SCC 210, the Supreme Court held that the right to file stands forfeited thereafter. A defendant who sleeps loses the defence, not merely a date.
- Order XIII-Apermits summary judgment without recorded evidence where the defence has no real prospect of success. For a documented supply-and-invoice claim, this is the provision that answers “why should this take three years”.
None of this rescues a reference already pending before the Council. It matters for the next dispute, for the entity that cannot use Section 18, and for the buyer chasing its own debtors. [INTERNAL LINK: commercial debt recovery practice]
Key Takeaway: The commercial courts route opens at ₹3 lakh and carries a 120-day defence wall and a summary judgment provision, which is why it behaves differently from the Council.
Practical roadmap
Status and access
1.Fix your status on the date of the contract
Micro, small, medium or trader — tested against S.O. 1364(E) for contracts from 1 April 2025, and the 2020 thresholds for earlier contracts. Classification decides whether the Council has jurisdiction at all.
2. Confirm your Udyam registration and its date
Note the pending NBCC reference before assuming the answer either way — the Supreme Court has not yet settled whether prior Section 8 registration gates Section 18 access.
Claim computation
3. Identify the appointed day under Section 15
Locate the written agreement — it usually moves the date earlier than forty-five days from acceptance. An earlier appointed day means more interest.
4. Recompute the claim under Section 16 period-wise
Use the RBI bank rate applicable to each period — not one flat rate across the whole span. At the July 2026 rate of 5.50%, statutory interest runs at 16.50% p.a. compounding monthly.
5.Provision for all four exposures together (buyer)
Use the RBI bank rate applicable to each period — not one flat rate across the whole span. At the July 2026 rate of 5.50%, statutory interest runs at 16.50% p.a. compounding monthly.
Procedure and record
6.Put the delay on the record
Write to the Council citing Section 18(5). Diary every adjournment and non-listing with dates. A party that documents delay is the only party who can later use it to argue expedition.
7.Raise jurisdictional objections at the threshold
A jurisdictional challenge raised late looks tactical. If you have one on classification, on the nature of the dispute, or on the trader exclusion it goes in at the first hearing.
Award and execution
8.Read your award before you celebrate it
Check the reasoning, the interest computation, and the appointed day used. Errors in the award are the basis for challenge — or correction — and they are more common than parties assume.
9.Trace assets, then file for execution where they are
Per Sundaram Finance Ltd. v. Abdul Samad (2018) 3 SCC 622, an award can be filed directly for execution in the court where the buyer's assets sit — no transfer of decree required from the seat of arbitration.
Future disputes and strategy
10.Audit your own receivables
Nearly every buyer in an MSEFC reference is someone else's unpaid creditor. The Commercial Courts Act, 2015 opens at ₹3,00,000 specified value — check whether your own debtors are within reach.
11. Route future disputes deliberately
MSEFC, commercial court, or contract-based arbitration is a decision — not a default. The route chosen at contract stage determines timelines, costs, and what summary procedures are available.
12. Watch the two Supreme Court references
NBCC India Ltd. (three-Judge Bench) — whether Section 8 registration gates Section 18. TANCEM (Constitution Bench, five Judges) — whether writ lies against Council orders and whether a conciliator may arbitrate. Both outcomes change the calculus for pending matters.
Adv.Shunmugapriya
About the Author
Written by Adv.Shunmugapriya Kanagasabai, Principal Associate - Unimarks Legal
Enrolled with the Bar Council of Tamil Nadu & Puducherry. Last reviewed: July 2026.
