A recurring situation in supplier practice: the buyer strings out payments for months beyond the agreed credit period, then clears the principal once the supplier threatens action — and treats the file as closed. It is not. Under the Micro, Small and Medium Enterprises Development Act, 2006, interest on delayed payment accrues by force of statute, survives payment of the principal, and can be pursued on its own before the Micro and Small Enterprises Facilitation Council. This explainer sets out how interest-only claims work and what they require.
The statutory chain: Sections 15, 16, 17 and 18
| Provision | What it does |
|---|---|
| Section 15 | Obliges the buyer to pay on or before the agreed date (maximum credit period forty-five days from acceptance), or within fifteen days where there is no agreement. |
| Section 16 | Imposes compound interest, with monthly rests, at three times the bank rate notified by the RBI, on the delayed amount for the period of delay — automatically, "notwithstanding anything contained in any agreement". |
| Section 17 | Entitles the supplier to recover the amount due with the Section 16 interest — the recovery hook for interest-only claims. |
| Section 18 | Provides the forum: a reference to the Facilitation Council, conciliation first, arbitration thereafter, with a ninety-day aspiration for disposal. |
Nothing in this chain conditions the interest claim on the principal remaining unpaid. The liability crystallises day by day during the delay; payment of principal stops further accrual but does not erase what has accrued.
Building an interest-only reference
What buyers argue — and how it usually fares
Buyer’s objection
“Accounts were settled — the supplier accepted the principal without protest, so nothing survives.”
The statutory answer
The interest arises from the Act, not the contract, and Section 24 overrides inconsistent arrangements. Acceptance of principal is not, without more, a discharge of a liability the parties could not contract away in the first place. A specific, documented accord on the interest itself is a different — and rarer — matter.
Perspective matters on quality disputes too: a buyer who genuinely disputed the goods should have raised objections within the fifteen-day window contemplated by Section 2(b)’s deemed-acceptance mechanics. Objections invented after years of silence, once an interest claim lands, seldom impress a Council.
A realistic word on recovery
Interest-only claims are legally sound but commercially charged: they are often brought against buyers with whom the supplier still trades. Many suppliers therefore bank the computation and deploy it as negotiating leverage — a documented Section 16 schedule attached to a demand notice concentrates minds — reserving the Samadhaan reference for relationships already ended. Both are legitimate uses of a liability the statute deliberately made expensive to ignore.
This article is for general information only and is not legal advice or a solicitation.
Frequently Asked Questions
The buyer has paid all invoices, though late. Is a claim still maintainable?
Yes, for the statutory interest. Section 16 makes the buyer liable to pay compound interest with monthly rests at three times the RBI-notified bank rate on the delayed amount for the period of delay, and Section 17 entitles the supplier to recover that interest. Late payment of principal extinguishes the principal, not the accrued interest.
Can the buyer rely on a contract clause waiving interest?
Section 24 of the MSMED Act gives Sections 15 to 23 overriding effect notwithstanding anything inconsistent in any other law or instrument. Courts have consistently treated the statutory interest as incapable of being contracted out of by the buyer.
From when does interest run?
From the "appointed day" — the day following expiry of the agreed credit period, which Section 15 caps at forty-five days from acceptance or deemed acceptance — or, absent an agreement, from the day following the fifteen-day statutory window. The delay period runs until actual payment.
Is the interest tax-deductible for the buyer?
No. Section 23 of the MSMED Act specifically disallows deduction of this interest in computing the buyer’s income under the Income-tax Act — one of several provisions designed to make delay expensive rather than convenient.