MSE Facilitation Council: MSME Delayed Payment Guide

If a buyer has not paid your business, the Micro and Small Enterprises Facilitation Council (MSEFC) can provide a special statutory dispute-resolution route under the MSMED Act, 2006.

But being commonly described as an “MSME” does not automatically make every unpaid invoice eligible.

Before approaching the MSEFC, a business should establish three things: whether it qualifies for the delayed-payment protection, whether the relevant supply is covered, and whether the claim is still legally enforceable.

What is the MSE Facilitation Council?

The MSEFC is a statutory body established under the Micro, Small and Medium Enterprises Development Act, 2006 to deal with disputes concerning amounts due to eligible micro and small enterprise suppliers.

It is different from MSME Samadhaan.

MSME Samadhaan is the online facility through which delayed-payment applications can be submitted. The MSEFC is the statutory body that deals with the reference.

The Ministry of MSME does not itself decide the payment dispute merely because an application has been filed through the Samadhaan portal.

Who can approach the MSEFC for delayed payment?

The first qualification is important: the delayed-payment provisions are directed at eligible micro and small enterprises, not every business falling within the broader MSME category.

Current Ministry guidance states that a micro or small enterprise with valid Udyam Registration can apply under the delayed-payment mechanism.

The Ministry's current scheme guidance also states that enterprises registered under trading activities corresponding to NIC Codes 45, 46 and 47 are not eligible for these delayed-payment provisions.

So before filing, check the enterprise's classification and registered activity rather than relying only on the fact that it possesses an Udyam certificate.

Does the timing of MSME registration matter?

Yes.

A business should not assume that obtaining MSME registration after a dispute arises will retrospectively convert an earlier transaction into an MSMED Act claim.

The Supreme Court has held that where registration was obtained after the relevant contract, the benefits of the MSMED Act could not be claimed retrospectively for supplies made before registration. Registration may operate prospectively for eligible supplies made after it.

This means the timeline should be checked carefully:

When was the enterprise registered? When was the contract entered into? When were the goods supplied or services rendered?

These dates can affect whether the MSEFC route is available.

When does delayed payment arise under the MSMED Act?

Section 15 regulates when payment to a qualifying supplier must be made.

Where there is a written agreement between the supplier and buyer, the agreed payment period cannot extend beyond 45 days from the day of acceptance or deemed acceptance of the goods or services.

Where there is no written agreement fixing the payment date, the statutory concept of the “appointed day” becomes relevant.

The practical point is that “45 days” is a maximum permitted contractual credit period, not a universal statement that every MSME invoice automatically becomes due only after 45 days.

If your contract requires payment in 15 or 30 days, the buyer does not automatically receive 45 days merely because the supplier is an MSE.

What can be referred to the MSEFC?

Section 18 allows a party to a dispute concerning an amount due under Section 17 to make a reference to the MSEFC.

Section 17, in turn, concerns the buyer's liability to pay the amount due for goods supplied or services rendered, together with the statutory interest provided under Section 16.

That connection matters.

The MSEFC mechanism is designed around payment disputes arising from qualifying supplies of goods or services. A business should therefore establish the underlying transaction and the amount said to be due rather than treating the Council as a general forum for every commercial disagreement involving an MSME.

Do you need to send a legal notice before approaching the MSEFC?

The MSMED Act does not make a prior legal notice a universal precondition to making a reference under Section 18.

A written demand can nevertheless be commercially useful.

It can identify the unpaid invoices, establish exactly what is being claimed, record the payment default and reveal whether the buyer actually disputes the debt.

The distinction is important:

A legal notice may be strategically useful without necessarily being a statutory prerequisite for approaching the Council.

What happens after the dispute reaches the MSEFC?

Under the presently operative Section 18 framework, the process begins with conciliation.

The Council may conduct the conciliation itself or seek assistance from an institution or centre providing alternative dispute-resolution services.

The objective at this stage is settlement rather than adjudication.

If conciliation succeeds, the dispute ends on the agreed terms.

If conciliation fails and is terminated without settlement, Section 18 provides for the dispute to move to arbitration. The Council may take up the dispute itself for arbitration or refer it to an institution or centre providing alternative dispute-resolution services.

The Arbitration and Conciliation Act, 1996 then applies to the arbitration as contemplated by Section 18.

The result can therefore ultimately be an arbitral award, not merely a recommendation asking the buyer to pay.

What if your contract already contains an arbitration clause?

A contractual arbitration clause does not necessarily take the dispute outside the MSMED Act.

The Supreme Court in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. recognised the overriding statutory character of the Section 18 mechanism. The Court held that the statutory conciliation-and-arbitration framework under the MSMED Act can operate notwithstanding an arbitration agreement between the parties.

This means a business should not automatically conclude that its contractual arbitration clause prevents recourse to the MSEFC.

The supplier must, however, first qualify for the statutory mechanism.

What if the buyer disputes the quality of the work?

An MSEFC reference is not automatically successful merely because an invoice remains unpaid.

The buyer may contend, for example, that:

• goods were defective or rejected;

• services were incomplete;

• contractual milestones were not achieved;

• quantities were incorrect;

• delivery was delayed; or

• the amount invoiced was not contractually due.

The underlying documents therefore matter.

A supplier should preserve purchase orders, contracts, invoices, delivery records, completion certificates, milestone approvals, emails, WhatsApp correspondence, acceptance records and any communication in which the buyer acknowledges the outstanding amount.

The strength of a payment claim depends not only on MSME status but also on proving the underlying entitlement to payment.

What interest can be claimed?

Section 16 gives the delayed-payment regime significant financial consequences.

Where the buyer fails to make payment as required by Section 15, the buyer becomes liable to pay compound interest with monthly rests at three times the Bank Rate notified by the Reserve Bank of India.

This statutory interest operates notwithstanding anything contained in an agreement between the buyer and supplier.

The amount should therefore be calculated carefully using the correct statutory starting point and applicable RBI Bank Rate rather than by applying an assumed percentage to the invoice.

Can an old unpaid invoice still be taken to the MSEFC?

Do not assume that the MSMED Act keeps a claim alive indefinitely.

The Supreme Court has confirmed that limitation principles apply to arbitration under Section 18(3). The special MSMED mechanism cannot be used to revive claims that have already become time-barred.

For businesses, the practical lesson is simple: repeated payment reminders are not a substitute for checking limitation.

The age of the invoices, acknowledgements of liability, part-payments and procedural history may all need examination before a claim is filed.

What happens if the buyer challenges the award?

The MSMED Act makes challenging an award financially significant for the buyer.

Under Section 19, an application by a buyer to set aside the relevant award cannot be entertained unless 75% of the amount in terms of the award is deposited, subject to the statutory framework.

The court may also direct that part of the deposited amount be paid to the supplier subject to conditions it considers necessary.

This does not prevent an award from being challenged. It changes the financial conditions under which the challenge proceeds.

What should you check before approaching the MSEFC?

Before filing, verify:

1. Enterprise status: Are you a qualifying micro or small enterprise?

2. Registration: Was the relevant registration in place for the transaction being claimed?

3. Activity: Is the registered business activity eligible for the delayed-payment provisions?

4. Supply: Can you prove the goods were supplied or services performed?

5. Payment terms: When did the amount legally become payable?

6. Outstanding amount: Can the principal and statutory interest be calculated invoice by invoice?

7. Buyer objections: Has the buyer disputed performance, quality, quantity or liability?

8. Limitation: Is the claim still within the legally permissible period?

9. Evidence: Do you have the contract, purchase order, invoices, delivery/performance records and relevant communications?

If one of these questions produces an uncertain answer, that issue should normally be resolved before assuming that the MSEFC route is available.

The practical decision

The MSEFC mechanism can be a significant remedy for qualifying micro and small enterprises because it combines statutory payment protection, substantial delayed-payment interest and a specialised dispute-resolution framework.

But it should not be treated as an automatic debt-collection portal.

The important question is not simply:

“Do I have an MSME registration?”

It is:

“Was I a qualifying supplier for this transaction, is this amount legally due, and can I establish the claim with evidence?”

If the answer to those questions is yes, the MSEFC route may become an important part of the recovery strategy.

Important 2026 legal update

The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 received Presidential assent on 13 August 2026. Among other changes, it amends the delayed-payment dispute-resolution framework, including the treatment of mediation, arbitration and procedural timelines.

However, the Amendment Act itself provides that it will come into force on the date or dates separately notified by the Central Government.

Accordingly, the operative procedure for a particular dispute should be checked against the commencement notifications in force when action is taken rather than assuming that every provision of the 2026 Amendment became operational merely upon Presidential assent.