The Micro, Small and Medium Enterprises Development Act, 2006 gives registered micro and small enterprises strong protection against delayed payment by buyers. Where a buyer fails to pay within the agreed period — and in any case within 45 days of acceptance of goods or services — the buyer becomes liable to pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India.
Under Section 18 of the Act, the supplier can refer the dispute to the Micro and Small Enterprises Facilitation Council. The Council first attempts conciliation. If conciliation fails, the Council either takes up the dispute for arbitration itself or refers it to an institution or centre providing alternative dispute resolution services.
One feature of this route is especially valuable for suppliers: under Section 19, a buyer who wants to challenge an award in favour of the supplier must first deposit 75% of the awarded amount with the court. That requirement discourages challenges filed purely to delay payment.
Suppliers should keep clean records: purchase orders, delivery challans, acceptance documents, invoices and any correspondence on quality or delay. The strength of an MSMED claim usually depends on proving the date of acceptance and the amount outstanding.
Where the MSMED route is not available — for example, because the supplier is not registered or the claim is not about delayed payment — a contractual arbitration clause with an institution remains the most efficient way to resolve supply disputes. Many businesses benefit from having both protections in place.