The MSME 45-Day Payment Rule: Who Actually Gets It, and How to Use It

Quick answer

The MSMED Act, 2006 caps a written payment agreement at 45 days from acceptance (section 15), sets a 15-day default where there is no written agreement (section 2(b)), and makes a late buyer liable for compound interest with monthly rests at three times the RBI bank rate (section 16) — enforceable by a reference to the Micro and Small Enterprises Facilitation Council (section 18). But section 2(n) confines "supplier" to a micro or small enterprise. Medium enterprises are outside Chapter V, and trading registrations under NIC 45, 46 and 47 are expressly excluded from it.

Who this is for

Any micro or small supplier with an invoice that has gone quiet. Founders deciding whether Udyam registration is worth an afternoon. Finance teams that have just crossed from small to medium and do not realise what they gave up. And, on the other side of the table, buyers with an audit coming who need to know what section 22 requires them to disclose.

Establish first whether you have the remedy at all

This is the step that most content skips, and it decides everything that follows.

Section 2(n) defines a "supplier" as a micro or small enterprise which has filed a memorandum under section 8(1). Chapter V of the Act is headed, in terms, "Delayed Payments to Micro and Small Enterprises."

So the remedy is not "for MSMEs". It is for micro and small enterprises. Medium enterprises are outside the chapter.

That is not a technicality — it is a live threshold that moves as you grow. Under the limits in force from 1 April 2025 (notification S.O. 1364(E) dated 21 March 2025, amending S.O. 2119(E)):

The micro and small rows are the ones that carry Chapter V. Cross into medium and you keep the Udyam registration, the priority-sector treatment and the scheme access — and lose the statutory 45-day protection.

Three rules decide which row you are in.

1. Composite criterion. Under paragraph 3 of S.O. 2119(E), crossing the ceiling on either investment or turnover moves you to the next higher category; you move back down only after falling below the ceilings on both.
2. Aggregation. All units holding GSTINs against the same PAN are one enterprise, and their investment and turnover are added together. Splitting locations does not keep you small.
3. Exports are excluded. Paragraph 5(1) excludes exports of goods or services from turnover for classification. An exporter can carry a large top line and still be small on the MSME test.

And there is a lag in both directions. Paragraph 8(5): on an upward re-classification you retain your existing status until one year from the close of the year of registration. Paragraph 8(6): on a downward one you stay in your present category until the close of the financial year and get the new status from 1 April following.

That lag is worth planning around. If your accounts are about to push you into medium, the delayed-payment remedy does not evaporate the day the accounts are signed.

The trader exclusion, stated plainly

Retail and wholesale trade under NIC codes 45, 46 and 47 were admitted to Udyam by the Ministry of MSME's Office Memorandum of 2 July 2021. But that memorandum restricts what admission buys: "benefits to Retail and Wholesale trade MSMEs are to be restricted to Priority Sector Lending only."

The gap was closed explicitly a couple of months later. After Facilitation Councils were approached by traders, the Office of the Development Commissioner (MSME) issued an Office Memorandum on 3 September 2021 recording that "the benefits to Retail and Wholesale trade MSMEs are restricted upto Priority Sector Lending only, and any other benefits, including provisions of delayed payments as per MSMED Act, 2006, are excluded."

So a trading Udyam is a credit instrument, not a recovery instrument. It helps with bank lending. It does not give you a case before a Facilitation Council. If your activity codes are wrong — if you are in substance a manufacturer or service provider registered under a trade code, or the reverse — that is worth correcting before you ever need the remedy.

The clock: 15 days by default, 45 days by agreement

Section 15 is the core obligation. Where a supplier supplies goods or renders services to any buyer, the buyer shall make payment on or before the date agreed in writing — and the proviso is the famous part:

in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

Two readings people get wrong:

Forty-five days is a ceiling on what you can contract for, not a default. If you agreed 30 days, 30 days is your date. If you agreed 90 days, the agreement is ineffective beyond 45.

Where there is no written agreement, the default is fifteen days, not forty-five. Section 2(b) defines the "appointed day" as the day immediately following the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance. So a supplier operating on a purchase order with no payment-terms clause is on a 15-day clock, and most suppliers assume the opposite.

The pivot: "acceptance" and "deemed acceptance"

The whole computation runs from this, so it is worth documenting properly rather than assuming.

In broad terms, the day of acceptance runs from actual delivery of the goods or rendering of the services — but where the buyer makes a written objection about the goods or services within fifteen days of delivery, the day of acceptance becomes the day on which the supplier removes the objection. Deemed acceptance applies where no such written objection is made within that period.

Practical consequence: keep the proof of delivery, and keep any objection correspondence and your response to it. The interest computation starts from a date, and the date is evidential.

Section 16: the interest, and why it is unusual

Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.

Four features worth naming:

• Compound, with monthly rests. Not simple interest. The rests are what make it bite on a long-overdue receivable.
• Three times the RBI bank rate. A multiple of a published rate, so it moves with the bank rate rather than being fixed. (We do not print a current rate here — it is a published figure that changes, and an evergreen page quoting one would be wrong within a year.)
• Notwithstanding anything in any agreement. A contract clause capping or waiving interest does not displace it.
• It runs from the appointed day or from the day after the agreed date — not from the date you first complained.

Section 18: taking it to the Facilitation Council

Section 18 is the enforcement route, and it is a two-stage one.

Stage one — conciliation. Any party to a dispute may make a reference to the Micro and Small Enterprises Facilitation Council. The Council either conducts the conciliation itself or seeks the assistance of an institution or centre providing alternative dispute resolution services, and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 apply as if the conciliation were initiated under Part III of that Act.

Stage two — arbitration. Where the conciliation is not successful and stands terminated without settlement, the Council either takes up the dispute for arbitration itself or refers it to an ADR institution, and the Arbitration and Conciliation Act, 1996 then applies to the dispute as if the arbitration were in pursuance of an arbitration agreement referred to in section 7(1) of that Act.

What we will not tell you is how long that takes or how often it succeeds. No official statistic on either was captured, and an invented one would be worse than saying nothing. What we can say is that the route exists, that it is designed to be cheaper than a civil suit, and that the interest under section 16 accrues while it runs.

The buyer's side: section 22 disclosure, and section 27(2)

This is the lever most suppliers do not know they have.

Section 22 requires a buyer who is required to get its annual accounts audited under any law to include, in its annual statement of accounts, the following particulars:

• the principal amount and the interest due remaining unpaid to any supplier at the end of each accounting year;
• the interest paid by the buyer under the Act, along with the amounts of payment made beyond the appointed day;
• the interest due and payable for the period of delay;
• the interest accrued and remaining unpaid at the end of the accounting year; and
• the further interest remaining due and payable in succeeding years, until it is actually paid.

Section 27(2) makes contravention of section 22 punishable with a fine of not less than ₹10,000.

The practical significance is not the fine. It is that an audited buyer has to put its MSME arrears on the face of its accounts. That makes the exposure visible to its auditor, its board and anyone doing diligence on it — which is a very different conversation from a reminder email.

A worked example

A small enterprise (registered on Udyam, manufacturing activity codes, investment ₹6 crore, domestic turnover ₹40 crore) supplies goods to a company on 3 February. Delivery is documented. No written objection is raised. The purchase order has no payment-terms clause.

The appointed day. No written agreement, so section 2(b) applies: fifteen days from acceptance. Acceptance is deemed, since no objection was raised within fifteen days of delivery. So the appointed day is the day immediately following the expiry of fifteen days from 3 February — payment was due, and the clock starts, in the third week of February.

Not 45 days. The 45-day figure in section 15 is the ceiling on an agreement in writing. There is no agreement in writing here, so it never applies.

The interest. From the appointed day, section 16 charges compound interest with monthly rests at three times the RBI bank rate, notwithstanding anything in any agreement.

The classification check. Investment ₹6 crore is above the ₹2.5 crore micro ceiling but within the ₹25 crore small ceiling; turnover ₹40 crore is within the ₹100 crore small ceiling. Composite criterion satisfied at small. Chapter V applies, so the supplier is a "supplier" within section 2(n).

Had the same business been classified medium — say investment ₹30 crore — the invoice would be identical, the delay identical, and none of Chapter V would be available. The recovery route would be an ordinary contractual claim.

And had the activity codes been NIC 46 (wholesale trade) rather than manufacturing, the same thing would be true for a different reason: the 3 September 2021 memorandum excludes trading registrations from the delayed-payment provisions.

Common mistakes

• Assuming every MSME has the remedy. Section 2(n) confines it to micro and small.
• Assuming 45 days is the default. It is the maximum you can agree in writing. Without a written agreement, section 2(b) gives you 15.
• Assuming a trading Udyam carries it. The 2 July 2021 and 3 September 2021 memoranda restrict trading registrations to Priority Sector Lending.
• Computing interest from the invoice date. It runs from the appointed day, which is anchored to acceptance or deemed acceptance, not to invoicing.
• Not documenting delivery and objections. The whole clock hangs on the acceptance date.
• Accepting a contractual waiver of interest. Section 16 operates notwithstanding anything contained in any agreement.
• Registering the wrong category to look bigger for a tender. Paragraph 6(8) of S.O. 2119(E) applies section 27 of the Act to intentional misrepresentation in registration or updation — a fine up to ₹1,000 on a first conviction, and not less than ₹1,000 and up to ₹10,000 on a second or subsequent one. Overstating carries the same exposure as understating.
• Splitting GSTINs under one PAN to stay small. Paragraph 3 aggregates them into one enterprise.
• Letting the registration lapse into suspension. Paragraph 8(2) makes an enterprise that fails to update its information within the specified period liable for suspension of its Udyam status — which is a poor thing to discover when you need to prove you are a supplier.
• Not being registered at all. Section 2(n) requires a memorandum under section 8(1). Udyam is how that is filed, and paragraph 6(2) puts the fee at nil.

What to do next

1. Confirm your category on the current limits — micro or small, on the composite criterion, with GSTINs under one PAN aggregated and exports excluded from turnover.
2. Check your NIC activity codes. If they read as retail or wholesale trade, the remedy is excluded, whatever the substance of your business.
3. Fix the paperwork on the receivable: proof of delivery, absence of any written objection within fifteen days, and the agreed terms if any were agreed in writing.
4. Compute the appointed day from acceptance or deemed acceptance — 15 days without a written agreement, up to 45 with one.
5. Compute the section 16 interest from that day, compounded with monthly rests at three times the bank rate.
6. Then choose the route: a reference to the Facilitation Council under section 18, or a commercial negotiation informed by the fact that an audited buyer has to disclose the arrears under section 22.

If your registration or classification is not right, fix that first — Udyam registration carries no government fee and it is what section 2(n) actually requires. The Udyam benefits guide covers what else the registration unlocks, and MSME vs Udyam explains why they are the same thing.

Sources and currency

Applies to: India. Micro, Small and Medium Enterprises Development Act, 2006 (Act 27 of 2006), Chapter V. Classification limits in force from 1 April 2025 under S.O. 1364(E) dated 21 March 2025, amending S.O. 2119(E) dated 26 June 2020. Read on 19 August 2026.

Every section, period, rate and limit here was read from the bare text of the MSMED Act, 2006 on India Code, from the gazette text of S.O. 1364(E) and S.O. 2119(E), or from a signed Ministry Office Memorandum. No claim rests on a blog, a competitor page or any udyam-lookalike domain. We do not state how long a Facilitation Council reference takes or how often one succeeds — no official statistic on either was captured, and an invented one would be worse than silence. This is not legal advice on your contract.

• Micro, Small and Medium Enterprises Development Act, 2006 (Act 27 of 2006) — section 2(b) appointed day, section 2(n) supplier, sections 15, 16, 18, 22 and 27, and Chapter V
• Ministry of MSME notification S.O. 1364(E) dated 21 March 2025 — revised investment and turnover limits in force from 1 April 2025, published with the parent notification S.O. 2119(E) dated 26 June 2020
• Udyam Registration portal (Ministry of MSME) — the only official portal, and the source of the current classification table
• Ministry of MSME Office Memorandum dated 2 July 2021 — retail and wholesale trade (NIC 45, 46, 47) admitted to Udyam with benefits restricted to Priority Sector Lending
• Office of DC (MSME) Office Memorandum dated 3 September 2021 — confirms the MSMED Act delayed-payment provisions do not extend to retail and wholesale trade registrations