Micro and small enterprises squeezed for working capital often monetise their receivables — through factoring, invoice discounting on the TReDS platforms, or outright assignment of the debt to a financier or group entity. Each route converts tomorrow’s payment into today’s cash. But the MSMED Act, 2006 built its delayed-payment machinery — the statutory interest under Sections 15 to 17, the Facilitation Council reference under Section 18, the 75% pre-deposit shield under Section 19 — around the supplier as a statutory status, not around the invoice as a piece of property. Understanding what travels with an assignment and what stays behind is essential before any MSME receivable changes hands.
The receivable is property; the remedy is status
Indian law has long treated a debt as an actionable claim — property that Section 130 of the Transfer of Property Act, 1882 allows its holder to assign by a written instrument. A supplier’s unpaid invoice can therefore be sold, pledged or discounted like any other asset, and an entire regulated industry exists to buy it: factors registered under the Factoring Regulation Act, 2011, and the Trade Receivables Discounting System (TReDS) platforms on which MSME invoices are auctioned to financiers.
The MSMED Act, however, speaks a different language. Section 15 obliges the buyer to pay the supplier within the agreed period, capped at forty-five days from acceptance or deemed acceptance. Section 16 makes delayed payment carry compound interest, at monthly rests, at three times the bank rate. Section 17 entitles the supplier to recover the amount with that interest, and Section 18 lets a party to such a dispute refer it to the Micro and Small Enterprises Facilitation Council. Every link in that chain is tied to the statutory definition of “supplier” in Section 2(n) — a micro or small enterprise, with specific statutory extensions such as the National Small Industries Corporation and State Small Industries Corporations. The package of advantages is, in substance, a privilege of the enterprise’s status, enacted to protect the smallest participants in the supply chain.
What travels with an assignment — and what does not
Passes to the assignee
The debt itself, as an actionable claim. Contractual interest under the supply terms. Interest already accrued as part of the money claim. The right to sue the buyer civilly, and the buyer’s obligation to pay the assignee once notice of assignment is given.
Stays with the enterprise
The status of “supplier” under Section 2(n). The practical ability to invoke the Facilitation Council machinery in its own right, with its conciliation-then-arbitration sequence and the 75% pre-deposit that shields any award. The policy premium the Act reserves for micro and small enterprises.
The buyer’s defences also survive the transfer: an assignee takes the claim subject to every equity available against the assignor — quality disputes, debit notes, set-offs. Assignment changes the creditor; it does not improve the claim.
Three routes to liquidity, three risk profiles
| Route | How it works | Who pursues a defaulting buyer | MSMED machinery |
|---|---|---|---|
| TReDS discounting | Invoice accepted by the buyer is auctioned to financiers; the enterprise is paid upfront | The financier recovers from the buyer; recourse depends on the facility terms | Not needed for the discounted invoice — payment is immediate |
| Factoring (Factoring Regulation Act, 2011) | Receivables are assigned to a registered factor, with or without recourse | The factor, as assignee, through contractual and civil remedies | Best not assumed to be available to the factor in its own name |
| Retain and refer | The enterprise keeps the claim and files a Section 18 reference on the Samadhaan portal | The enterprise itself, with statutory interest compounding monthly | Fully available — council forum, Section 16 interest, Section 19 deposit shield |
Structuring the funding without losing the forum
- Assign proceeds, not the claim. A financing document can give the financier the fruits of the recovery while the enterprise remains the claimant before the Council — preserving the statutory character of the proceeding.
- Use recourse structures for disputed dues. Clean, buyer-accepted invoices suit TReDS and non-recourse factoring; contested claims belong with the enterprise, funded on recourse terms.
- Serve notice of assignment properly. Where the debt is assigned, the buyer must know whom to pay; payment made to the assignor without notice complicates everyone’s position.
- Sell the award, not the argument. Once a Facilitation Council award attains finality, it is enforceable as a decree and a transferee can execute it under Order XXI Rule 16 CPC — a far cleaner asset to transfer than a raw, contested receivable.
- Mind the group-restructuring trap. Business transfers, slump sales and successions should expressly deal with pending Samadhaan references; a claim filed by one entity and a supply made by another is an invitation to a maintainability objection.
The buyer’s perspective
For buyers, an assignment notice is a moment for care, not relief. The forty-five-day discipline of Section 15 applied while the enterprise held the debt, and interest that accrued in that period does not evaporate because the invoice later changed hands. Equally, a buyer facing a claim from an assignee is entitled to ask the threshold questions: is the assignment in writing and complete, has notice been given, and in what capacity is the claimant invoking which forum? The answers decide whether the proceeding belongs before a Facilitation Council, a commercial court, or nowhere at all in its present form.
Practice note: Before any MSME receivable is monetised, map the dispute first. An undisputed, buyer-accepted invoice is a financeable asset; a disputed one is litigation in waiting, and the MSMED Act’s forum and interest advantages are worth more than most discounts. Structure the funding around the enterprise’s claim — not in place of it.
Frequently Asked Questions
Can a factor or financier who has purchased invoices file before the Facilitation Council?
The Act's machinery is framed around the supplier — the micro or small enterprise that made the supply — and Section 2(n) extends the term only to specified bodies such as the National Small Industries Corporation and State Small Industries Corporations. A commercial assignee fits no category comfortably, so the prudent working assumption is that the Samadhaan route is personal to the enterprise, and a financier should secure its recovery contractually rather than bank on Section 18.
Does assignment wipe out the buyer's liability for statutory interest?
The buyer's obligation to pay by the Section 15 deadline, and the interest that accrued under Section 16 while the enterprise held the debt, arise from the statute and the supply — not from who presently holds the invoice. Interest already accrued forms part of the debt and can be assigned with it as a money claim. What the assignee cannot safely assume is the continued use of the MSMED Act's special forum and enforcement advantages in its own name.
What is the safest structure when dues are disputed?
Keep the claim in the enterprise. The supplier files the Section 18 reference itself and, if funding is needed, raises it against the claim — by borrowing against the expected recovery, by a recourse facility, or by assigning only the proceeds of the claim rather than the claim. A power of attorney arrangement, with the enterprise remaining the claimant on record, preserves the statutory character of the proceeding.
Can an MSEFC award, once passed, be transferred?
Yes, with a crucial difference. Once the Council's arbitral award attains finality it is enforceable as a decree, and the Code of Civil Procedure expressly contemplates execution by the transferee of a decree under Order XXI Rule 16. Selling the award is therefore legally cleaner than selling the raw claim: the statutory battles have been fought by the right party, and what changes hands is a crystallised, executable debt.