MSME Delayed Payment Notice (India)

A MSME Delayed Payment Notice in India gives formal notice of the matter it concerns and records the date from which the stated consequences take effect.

The MSMED Act 2006 creates a statutory payment framework that overrides contractual terms: regardless of what the buyer and the MSME supplier have agreed in writing, the buyer cannot retain payment for more than 45 days from the date of delivery or acceptance. If no payment period has been agreed in writing, the buyer must pay within 15 days. Any contractual provision that purports to give the buyer more than 45 days to pay is void to the extent of the excess, as confirmed by the Supreme Court of India in Ministry of Micro, Small and Medium Enterprises v. Bharat Forge Ltd (2022).

Section 16 of the MSMED Act makes the interest obligation automatic and statutory: from the day following the expiry of the prescribed payment period, compound interest with monthly rests at three times the RBI bank rate runs on the overdue amount. As of 2025, the RBI bank rate is 6.25%, making the statutory interest rate 18.75% per annum — significantly higher than standard commercial interest rates and far exceeding most bank lending rates. This deliberately punitive rate is designed to deter large buyers from using MSME suppliers as a source of cheap, involuntary financing.

The Finance Act 2023 introduced Section 43B(h) into the Income Tax Act 1961, effective from Assessment Year 2024-25, providing that payments to Micro or Small Enterprises (not Medium Enterprises) are deductible as a business expense only if paid within the Section 15 timeline. Payments made beyond the 45-day (or 15-day) deadline are not deductible in the year of expense — only in the year of actual payment. For large corporate buyers with corporate tax rates of 22% to 30%, this effectively imposes an additional tax cost of ₹22,000 to ₹30,000 per ₹1,00,000 of delayed MSME payment, dramatically increasing the real cost of delayed payment.

The MSME Delayed Payment Notice is a prerequisite for accessing the Government of India's SAMADHAAN portal (samadhaan.msme.gov.in), through which MSME suppliers can file online delayed payment applications and track their resolution before the MSME Facilitation Council in the relevant state.

An MSME Delayed Payment Notice should be issued as soon as the statutory payment period under Section 15 of the MSMED Act 2006 has expired without the buyer making full payment.

After the 45-day limit: When an MSME supplier has agreed a payment period with the buyer (e.g., 30 days or 45 days net) and the buyer has not paid within that agreed period — or when payment was due within 15 days of delivery (no written payment period agreed) and the buyer has not paid within 15 days — the statutory interest under Section 16 begins running immediately from the next day. The MSME notice should be issued promptly once the deadline passes to formally establish the date from which interest is claimed and to give the buyer a final opportunity to pay before MSEFC proceedings are initiated.

Before filing before the MSME Facilitation Council: While Section 18 of the MSMED Act does not expressly require a pre-filing notice as a legal condition precedent, established practice and state MSEFC rules in Maharashtra, Tamil Nadu, Karnataka, and other states require evidence of a prior demand being made to the buyer. Issuing a formal demand notice — sent by registered post with Acknowledgement Due (RPAD) to the buyer's registered address — creates the written record required for MSEFC proceedings and demonstrates that the MSME gave the buyer a final opportunity to pay.

Section 43B(h) income tax use: When an MSME supplier issues a formal delayed payment notice citing Section 43B(h) of the Income Tax Act 1961 (loss of tax deduction for the buyer), this often prompts prompt payment from large corporate buyers who are sensitive to their tax positions, avoiding the need for MSEFC proceedings entirely.

Contra-invoicing disputes: When a buyer has raised objections to an invoice (quality dispute, quantity shortfall) and has withheld payment, the MSME notice formally challenges the buyer to resolve the dispute within a specified period — after which the MSME can invoke MSEFC conciliation/arbitration to resolve both the payment dispute and any counter-claim by the buyer.

Annual financial statement disclosures: Listed companies and companies with turnover above ₹500 crore must disclose MSME payment defaults in their annual financial statements under Section 22 of the MSMED Act. Receipt of a formal MSME delayed payment notice triggers the company's obligation to reflect the outstanding amount and interest in its financial disclosures.

A legally effective MSME Delayed Payment Notice under Section 16 of the MSMED Act 2006 must contain specific information to support MSEFC proceedings and to create the evidentiary record needed for a delayed payment claim.

MSME supplier details: The notice must state the full legal name and registered address of the MSME supplier, the Udyam Registration Number (URN) issued by the Ministry of MSME through the Udyam Registration portal (udyamregistration.gov.in), the category of the enterprise (Micro, Small, or Medium), and the date of Udyam Registration. The URN is the definitive proof of MSME status — without a valid Udyam Registration, the protections of the MSMED Act do not apply.

Buyer details: Full legal name of the buyer, registered office address, and GST number (GSTIN). For large company buyers, the CIN (Corporate Identification Number) under the Companies Act 2013 can also be included.

Invoice schedule: A precise tabulation of each overdue invoice — invoice number, invoice date, description of goods or services, invoice amount (principal), the agreed payment date or statutory due date (15 or 45 days from delivery/acceptance), and the number of days the payment is overdue.

Section 15 reference: The notice must cite Section 15 of the MSMED Act 2006 as the basis for the payment obligation and state whether a written payment period was agreed and what that period was, or confirm that no period was agreed (triggering the 15-day default).

Section 16 interest computation: The notice must compute the compound interest due under Section 16 of the MSMED Act 2006 — stating the RBI bank rate (currently 6.25%), the statutory interest rate (three times the bank rate = 18.75% per annum), the principal amount overdue, the number of days of delay, and the computed interest amount as of the date of the notice. Monthly compounding must be reflected in the calculation.

Section 43B(h) reference: Including a reference to Section 43B(h) of the Income Tax Act 1961 (as inserted by Finance Act 2023) informs the buyer that delayed payment to Micro or Small Enterprises disqualifies the expense from income tax deduction in the current year, creating immediate tax pressure on the buyer.

Demand and timeline: The notice must contain a clear demand for payment of the total amount (principal + Section 16 interest) within a specified period — typically 15 to 30 days from the date of the notice — failing which the MSME will file a reference before the MSME Facilitation Council under Section 18 of the MSMED Act.

Delivery method: The notice must be sent by Speed Post / Registered Post with Acknowledgement Due (RPAD) to the buyer's registered address, and separately by email to the buyer's official contact. The postal receipt and the email delivery confirmation are retained as evidence of service.

Additional compliance elements for a MSME Delayed Payment Notice (India) used in India include: Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). The Industrial Disputes Act 1947 and state labour commissioners govern employment disputes. The Information Technology Act 2000 and IT (Reasonable Security Practices) Rules 2011 protect personal data. The Income Tax Act 1961 and Goods and Services Tax Act 2017 govern tax obligations through the Central Board of Direct Taxes (CBDT) and GST Council. Forms-legal.com provides this template as a starting point for India-compliant documentation.