Debt Recovery Cases Before MSME Samadhaan: A Legal Overview

Introduction

Micro, Small and Medium Enterprises (MSMEs) form the backbone of the Indian economy, contributing significantly to GDP, exports, and employment. However, delayed payments from buyers and large corporations continue to pose a major threat to their financial health. To address this persistent issue, the Ministry of MSME launched the MSME Samadhaan Portal, a statutory platform enabling registered MSMEs to file applications for recovery of delayed payments under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).

In this blog, we discuss the procedural and legal framework for filing debt recovery cases before MSME Samadhaan, including eligibility, filing conditions, interest claims, and judicial precedents.

Only MSME Registered Entities Are Eligible

The primary eligibility criterion to file a delayed payment case under MSME Samadhaan is that the entity must be registered under the MSMED Act and possess a valid Udyam Registration (earlier known as Udyog Aadhaar).

Legal Basis:

• Section 8 of the MSMED Act, 2006 mandates registration for availing benefits under the Act.

• Post-July 1, 2020, Udyam Registration became the new mechanism for MSME registration under a self-declaration system on the Udyam portal (https://udyamregistration.gov.in).

• Without Udyam Registration, an enterprise loses its legal standing to initiate proceedings under the Act or to file a case on the MSME Samadhaan Portal (https://samadhaan.msme.gov.in).

Only Manufacturing and Service Providers Are Eligible – Traders Not Covered

A key distinction under the MSMED Act is that only enterprises engaged in manufacturing or rendering services are considered MSMEs.Entities solely engaged in trading activities (i.e., buying and selling goods) are not eligible to file cases under MSME Samadhaan.

Clarification from Government:

The Office Memorandum dated 15.12.2017 from the Ministry of MSME clarified that:

“Trading activities are not covered under the provisions of the MSMED Act, 2006. Hence, traders are not entitled to claim benefits under the delayed payment provisions of the Act.”

Judicial Precedent:

M/s. Gitanjali Enterprises v. Union of India – The court held that the benefit of interest and dispute resolution under the MSMED Act is not applicable to traders, irrespective of their Udyog Aadhaar or GST registration.

Thus, traders must explore alternative legal remedies such as filing a commercial suit under CPC or approaching the NCLT under IBC, but not the MSME Samadhaan Portal.

Filing Eligibility – 45 Days from Invoice or Due Date

As per Section 15 of the MSMED Act, if a buyer fails to make payment to an MSME supplier within 45 days from the date of acceptance or deemed acceptance of goods/services, the supplier becomes eligible to initiate recovery proceedings.

Section 15 – Obligation of Buyer:

“Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment… on or before the date agreed upon in writing or within 45 days…”

Trigger Point for Filing:

• If no agreement exists, then 15 days from delivery.

• If an agreement exists, and the due date exceeds 45 days, the MSME can file the case immediately after the 45-day window or on the expiry of the agreed date, whichever is later.

Important Note:

The claim can be filed only after the payment becomes legally overdue, which must be supported by valid invoices, delivery notes, and purchase orders.

Interest Claim: Triple the RBI Rate

Under Section 16 of the MSMED Act, the buyer is liable to pay compound interest at three times the RBI bank rate for each day of delay beyond the 45-day limit.

Section 16 – Right to Interest:

“The buyer shall be liable to pay compound interest with monthly rests to the supplier… at three times the bank rate notified by the Reserve Bank of India.”

Illustration:

Let’s say:

• Invoice Date: 01-Apr-2024

• Agreed Payment Term: 30 Days

• Due Date: 01-May-2024

• Actual Payment: Not Made

Then, interest at 3x RBI rate will accrue from 01-May-2024 onwards.

RBI Bank Rate (As of June 2025): 6.00%

Interest Claimable: 18% p.a., compounded monthly.

Dispute Resolution Mechanism:

The MSME Samadhaan Portal is only a filing interface. Upon submission, the application is forwarded to the Micro and Small Enterprises Facilitation Council (MSEFC) under Section 18 of the MSMED Act.

Section 18 – Facilitation Council Proceedings:

• The MSEFC first initiates conciliation between the buyer and supplier.

• If conciliation fails, the dispute is referred to arbitration under the Arbitration and Conciliation Act, 1996, with the Facilitation Council acting as the arbitrator.

Time Limit:

As per Section 18(5), disputes should be resolved within 90 days of making the reference.

Legal Enforceability and Recovery

The award passed by the MSEFC has the status of a civil court decree, enforceable under Section 36 of the Arbitration and Conciliation Act, 1996.

Case Law:

M/s Steel Authority of India Ltd v. Micro, Small Enterprise Facilitation Council (2021) SCC Online Del 3327

Held that awards passed by MSEFC are binding and enforceable even if the buyer is a Public Sector Undertaking, unless stayed by a competent court.

Conversion into Court Decree:

Post-award, the MSME supplier can initiate execution proceedings under Order 21 of the CPC, 1908.

Additional Notes:

Criteria Eligibility / Condition

MSME Registration - Mandatory (Udyam Certificate)

Type of Enterprise - Manufacturer / Service Provider only (Traders not eligible)

Invoice Age - At least 45 days old or overdue beyond agreed date

Interest Claim - 3x RBI bank rate, compounded monthly

Resolution Authority - MSEFC (under MSMED Act, Section 18)

Award Enforceability - As per Arbitration & Conciliation Act, Section 36

Conclusion

MSME Samadhaan is a powerful statutory remedy designed to address the chronic issue of delayed payments in the MSME sector. However, to fully benefit from the provisions of the MSMED Act, MSMEs must:

• Ensure proper documentation and record-keeping

• Possess a valid Udyam Registration

• File claims within the prescribed timeline

• Understand the legal exclusions, particularly for traders

In a legal environment increasingly focused on timely payments and creditor protection, MSME Samadhaan serves as an effective mechanism for preserving liquidity and enforcing contractual discipline.

References:

1. Micro, Small and Medium Enterprises Development Act, 2006

2. Arbitration and Conciliation Act, 1996

3. RBI Bank Rate Notifications - www.rbi.org.in

4. MSME Samadhaan Portal - https://samadhaan.msme.gov.in

5. Case Law:

6. M/s Gitanjali Enterprises v. Union of India

7. M/s Steel Authority of India Ltd v. MSEFC, 2021 SCC Online Del 3327 Visit Us- https://www.dcorpo.legal/