Legal

MSME Samadhaan: the free legal route most MSMEs never use against late payers

If you're a registered Micro or Small enterprise, there's a government portal built specifically to recover overdue payments from customers — no court fees, no lawyer strictly required to start, and interest that compounds monthly at three times the RBI's bank rate. Almost nobody who qualifies actually uses it.

General guidance, not legal advice — confirm your Udyam registration status and the current process details before filing.

The legal basis: Sections 15-19 of the MSMED Act, 2006

The Micro, Small and Medium Enterprises Development Act, 2006 gives registered Micro and Small suppliers (not Medium) specific statutory protection against delayed payment from any buyer:

• Section 15 requires the buyer to pay within the agreed period, capped at 45 days from acceptance of goods or services — even if a longer term was agreed in writing.
• Section 16 — if payment is delayed beyond that, the buyer owes compound interest at three times the RBI's notified bank rate, with monthly rests, from the date payment was due until the date it's actually paid. This is a real penalty, not a symbolic one — it stacks up fast on a large overdue amount left unpaid for months.
• Section 17 makes this interest recoverable through the same mechanism as the principal — you're not just entitled to it, there's a specific process to actually get it.

How to actually file

1. Confirm your Udyam registration as Micro or Small — this is a prerequisite, and the buyer needs to have been informed of your registration (which is why putting your Udyam number on your invoices matters, beyond just being good practice).
2. Register and file on samadhaan.msme.gov.in, the MSME Samadhaan portal — you'll need the invoice details, the amount, the due date under the agreed or statutory terms, and your Udyam registration number.
3. The complaint goes to the Micro and Small Enterprise Facilitation Council (MSEFC) for the relevant state — every state has one, and it's specifically empowered to handle these disputes.
4. Conciliation first. The Council attempts to conciliate between you and the buyer, either itself or through an appointed institution or centre — often this alone is enough once a buyer sees a formal government complaint has actually been filed.
5. Arbitration if conciliation fails. Section 18 provides that if conciliation doesn't resolve it, the case moves to arbitration, treated as though there were an arbitration agreement between the parties under the Arbitration and Conciliation Act, 1996 — a real binding process, not just another round of talks.

Why so few businesses actually use this

Two practical reasons come up repeatedly. First, many suppliers don't realise their Udyam registration entitles them to this at all — it's framed in most people's minds as a registration for subsidy eligibility, not as a payment-recovery weapon. Second, there's a relationship concern: filing a formal complaint against a customer feels like a bigger step than a phone call, even when the law is squarely on the supplier's side. Both are worth weighing against the alternative — an invoice that just keeps ageing with no resolution in sight, and Section 16 interest that's accruing whether you file or not.

Before you file

Make sure this is genuinely a delayed payment and not a dispute — a buyer withholding payment over a real quality or delivery issue isn't the same situation as one simply not paying on time, and Samadhaan is built for the latter. See spotting a disputed invoice to tell the two apart before escalating. If it's a straightforward non-payment past the 45-day term with no dispute raised, Samadhaan is very likely worth the ten minutes it takes to file.

Next: Cheque bounce and recovery suits · Section 43B(h) explained · Spotting a disputed invoice