MSME Delayed Payment Facilitation Scheme (MSME Samadhaan)
Sections 15 – 19, MSMED Act 2006The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) establishes a robust statutory dispute resolution and penal interest mechanism to ensure prompt liquidity and payment protection for MSME suppliers against defaulting buyers.
| Statutory Provision | Section Reference | Statutory Mandate & Buyer Liabilities |
|---|---|---|
| Maximum Payment Window | Section 15 | Buyer must pay on or before agreed date, which in no circumstance can exceed 45 days from acceptance of goods/services. |
| Compound Penal Interest | Section 16 | Failure to pay within 45 days triggers liability to pay monthly compounding interest at 3 times the RBI Bank Rate. |
| MSEFC Statutory Reference | Section 18 | Disputes referred to Micro and Small Enterprises Facilitation Council; mandatory conciliation followed by statutory arbitration. |
| Mandatory 75% Pre-Deposit | Section 19 | No Court can entertain any appeal or challenge to an MSEFC award unless the buyer deposits 75% of the awarded amount. |
Supreme Court Landmark Jurisprudence on MSMED Delayed Payments
Binding PrecedentsThe Supreme Court of India has delivered authoritative rulings establishing the scope and overriding power of the MSMED Act:
- Pre-Existing Registration Prerequisite: In Silpi Industries v. Kerala State Road Transport Corporation (2021) 18 SCC 790, the Supreme Court held that the supplier must hold a valid Udyam registration on or before the date of entering into the contract of supply to claim Chapter V statutory benefits.
- Statutory Arbitration Overrides Agreement: In Gujarat State Civil Supplies Corp. v. Mahakali Foods Pvt. Ltd. (2023) 6 SCC 401, the Supreme Court ruled that Section 18 MSMED Act statutory arbitration strictly supersedes and overrides any independent contractual arbitration clause agreed between the parties.
- No Waiver of 75% Pre-Deposit: In Tirupati Steels v. Shubh Industrial Component (2022) 7 SCC 429, the Supreme Court ruled that the Section 19 requirement of 75% pre-deposit is mandatory and cannot be relaxed or waived under Section 34 of the Arbitration Act.
MSME Samadhaan Portal Procedure & Tax Disallowance
Section 23 & Section 24 MSMED ActIncome Tax Disallowance (Section 23): Notwithstanding anything contained in the Income-tax Act, 1961, the amount of penal interest paid or payable under Section 16 is strictly non-deductible from the buyer's income when computing taxable profits.
Section 24 Overriding Effect: The provisions of Sections 15 to 23 have overriding effect over anything inconsistent contained in any other law or commercial agreement, guaranteeing primacy to MSME suppliers.