The Delayed Payment Problem Facing MSMEs

Delayed payments from buyers remain one of the most critical challenges faced by micro and small enterprises in India. When large buyers withhold or delay payments beyond agreed timelines, it severely impacts the working capital and operational viability of smaller suppliers. To address this systemic problem, the government established a legal framework and an online mechanism for resolution.

Legal Framework: MSMED Act Sections 15 to 24

The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, contains specific provisions under Sections 15 to 24 to protect MSMEs from delayed payments:

  • Section 15: Mandates that the buyer must make payment to the MSME supplier on or before the agreed date, or within 45 days of acceptance of goods or services if no date is agreed upon.
  • Section 16: Provides that the buyer is liable to pay compound interest at three times the bank rate notified by the Reserve Bank of India on the outstanding amount from the appointed day.
  • Section 17: Establishes that references for disputes related to delayed payments shall be made to the Micro and Small Enterprise Facilitation Council (MSEFC).
  • Section 18: Outlines the constitution and functioning of the MSEFC, including its powers to act as an arbitrator or conciliator.
  • Sections 19 to 24: Cover procedures for appeal, deposit requirements, and other procedural aspects of dispute resolution.

What Is the MSEFC?

The Micro and Small Enterprise Facilitation Council (MSEFC) is a body constituted by each state government to resolve delayed payment disputes. These councils have the authority to act as both an arbitration and conciliation forum for disputes between MSME suppliers and their buyers.

Every state and union territory in India is required to establish an MSEFC. The council typically comprises representatives from the state government, industry associations, banks, and MSME development bodies.

Who Can File a Case on MSME Samadhaan?

The MSME Samadhaan portal is an online mechanism for filing delayed payment cases with the MSEFC. Eligibility to file a case requires the following:

  • The applicant must be a micro or small enterprise (medium enterprises were not originally covered, though recent amendments have expanded coverage).
  • The enterprise must hold a valid Udyog Aadhar Memorandum (UAM) or Udyam Registration at the time of the transaction.
  • The goods or services must have been supplied to the buyer under a valid agreement or purchase order.
  • The payment must be overdue beyond 45 days from the date of acceptance or the agreed payment date.

How to File a Case on the Samadhaan Portal

The MSME Samadhaan portal provides a straightforward process for filing delayed payment applications:

  1. Visit the MSME Samadhaan portal at samadhaan.msme.gov.in.
  2. Register as an enterprise using your Udyog Aadhar or Udyam Registration Number.
  3. Log in and select the option to file a new case.
  4. Enter the buyer details including name, address, and contact information.
  5. Provide details of the supply, including invoice numbers, dates, amounts, and payment terms.
  6. Upload supporting documents such as invoices, purchase orders, delivery receipts, and communication records.
  7. Submit the application for processing by the relevant state MSEFC.

Process After Filing the Application

Once a delayed payment application is submitted on the Samadhaan portal, the following process unfolds:

Initial Action Within 15 Days

The concerned MSEFC is required to examine the application and initiate action within 15 days of receiving the reference. This includes verifying the details submitted by the applicant and assessing whether the case falls within its jurisdiction.

Intimation to the Buyer

The council issues a notice to the buyer, informing them about the delayed payment complaint and requesting their response. The buyer is given an opportunity to present their version of the facts.

Mutual Settlement Option

Before proceeding to formal arbitration, the MSEFC encourages both parties to explore mutual settlement through conciliation. If both the supplier and buyer agree on a resolution, the matter is settled through a conciliation agreement without the need for further proceedings.

Hearing and Evidence

If mutual settlement is not achieved, the council conducts formal hearings where both parties present their arguments and evidence. The MSEFC examines invoices, contracts, delivery records, and payment history to determine the facts of the case.

Decision and Award

After hearing both parties, the MSEFC issues a decision. If the claim is upheld, the buyer is directed to pay the outstanding amount along with compound interest. The council may also award costs incurred by the supplier in pursuing the case.

Salient Features of the Delayed Payment Resolution Mechanism

Compound Interest at Three Times the Bank Rate

Under Section 16 of the MSMED Act, the buyer is liable to pay compound interest at three times the bank rate notified by RBI. This provision serves as a strong deterrent against delayed payments and compensates the supplier for the financial loss suffered due to delayed receipt of funds.

90-Day Resolution Timeline

The MSEFC is mandated to dispose of delayed payment cases within 90 days from the date of reference. This time-bound resolution process ensures that MSMEs do not have to endure prolonged legal proceedings to recover their legitimate dues.

75% Deposit Requirement for Appeals

If the buyer wishes to appeal against the MSEFC decision, they are required to deposit 75% of the awarded amount with the court before the appeal can be entertained. This provision prevents frivolous appeals and ensures that the supplier receives at least a substantial portion of the dues even if the buyer challenges the decision.

No Requirement for Lawyers

The MSEFC proceedings are designed to be simple and accessible. MSMEs can represent themselves without the need for legal counsel, reducing the cost of dispute resolution.

Why Udyog Aadhar or Udyam Registration Is Essential

Having a valid Udyog Aadhar or Udyam Registration is a prerequisite for filing cases on the Samadhaan portal. Without this registration, micro and small enterprises cannot access the delayed payment resolution mechanism provided under the MSMED Act. This makes registration not just a compliance requirement but a critical tool for protecting business interests.

The MSME Samadhaan portal empowers small businesses to enforce their right to timely payment. With legal backing under the MSMED Act and a time-bound resolution process, MSMEs now have an effective mechanism to address delayed payment problems without expensive litigation.