A significant share of the delayed-payment grievances of micro and small enterprises is owed not by private traders but by the State: government departments, municipal bodies, and public sector undertakings. The Micro, Small and Medium Enterprises Development Act, 2006 draws no distinction — "buyer" under Section 2(d) means whoever buys goods or receives services from a supplier for consideration, and the obligations in Sections 15 to 18 bind government buyers exactly as they bind private ones. The route to recovery, however, calls for some additional craft when the paying hand is public.
The statutory position: the State is just a buyer
Nothing in the MSMED Act carves out the government. The supplier files the same Udyam-backed reference; the Micro and Small Enterprises Facilitation Council of the appropriate State exercises the same Section 18 jurisdiction; interest accrues under the same Sections 16 and 17. Two features of the Act do the heavy lifting against official inertia: the non-derogable 45-day ceiling in Section 15, which no contract clause or sanction-pending excuse can extend, and the overriding effect in Section 24, which neutralises inconsistent conditions in tender documents and government contracts — including clauses purporting to waive interest on delayed payments.
The recovery path, step by step
1. Build the payment file
Purchase order or contract, delivery challans and acceptance records, invoices, and correspondence. Note the day of acceptance or deemed acceptance — the statutory clock runs from there, and objections to goods must be made in writing within fifteen days to defer it.
2. Demand with interest computed
A pre-reference demand annexing an interest computation under Section 16 concentrates official minds: compound interest at three times the bank rate accumulates fast, and audit exposure for the department grows with it.
3. Samadhaan reference
File the Section 18 reference on the MSME Samadhaan portal against the department or PSU. Conciliation follows; many government matters settle here once the file reaches a decision-taking officer.
4. Arbitration and award
Failing conciliation, the Council arbitrates. The 1996 Act applies as if under an arbitration agreement; the Council is to endeavour to decide within ninety days of the reference.
5. Enforcement
The award is enforced as a decree. A government challenge faces the 75% pre-deposit under Section 19; execution proceeds against the department\'s funds if payment still does not come.
Government-specific friction, and answers
"Sanction is awaited"
Budgetary process is not a defence under the Act; interest is the statutory cost of the wait, and the reference need not await the department\'s internal cycle.
Arbitration clauses in tenders
A contractual arbitration clause does not oust the Council\'s Section 18 jurisdiction for a registered supplier\'s delayed-payment claim — the statutory mechanism prevails, by force of Sections 18 and 24.
Counter-claims of defective supply
Departments often answer with quality objections raised long after acceptance. The fifteen-day written-objection discipline in Section 2(b)\'s deemed-acceptance scheme confines that defence to what was recorded contemporaneously.
Positioning the claim well
Registration and classification discipline matter: the supplier should hold a valid Udyam registration as a micro or small enterprise and frame the claim within the Act\'s coverage for goods supplied and services rendered. Claims should be computed transparently — principal, the appointed-day analysis, and the compound-interest table — because Councils and enforcing courts adopt a well-prepared computation far more readily than they build one. And where the buyer is a PSU with an internal grievance or vendor-payment portal, run that channel in parallel, not in substitution: the statutory clock and the Council\'s jurisdiction do not pause for internal escalation.
Government files move when the cost of not moving is visible. The MSMED Act makes that cost statutory, compounding and audit-traceable — which is precisely why a properly built Samadhaan reference against a public buyer so often produces payment at the conciliation stage.
Frequently Asked Questions
Does the 45-day payment rule apply to government departments?
Yes. Section 15 MSMED Act obliges every buyer — the State included — to pay on or before the agreed date, and in no case beyond forty-five days from the day of acceptance or deemed acceptance. An agreement cannot extend this outer limit, and procurement-policy timelines requiring prompt payment to MSEs reinforce rather than dilute the statute.
What interest does a government buyer owe on delay?
The same as any buyer: under Section 16, compound interest with monthly rests at three times the bank rate notified by the Reserve Bank, running from the appointed day or the agreed date. Under Section 17 the buyer is liable for the amount with interest, and Section 24 gives Sections 15 to 23 overriding effect over anything inconsistent in any other law — tender conditions included.
Can a Facilitation Council pass an award against the government?
Yes. Section 18 permits a reference against any buyer; conciliation is attempted first, and failing settlement the Council arbitrates or refers the dispute to institutional arbitration, with the Arbitration and Conciliation Act, 1996 applying to the proceedings. Awards are passed against government departments and PSUs on the same footing as private buyers.
What if the government buyer wants to challenge the award?
The challenge route is a Section 34 application, but Section 19 MSMED Act bars entertaining it unless seventy-five per cent of the awarded amount is deposited — a requirement courts apply to State buyers as strictly as to private ones, with the Council's supplier-friendly design in view. Pending challenge, the court can order release of a part of the deposit to the supplier.