Nearly every contested claim before a Micro and Small Enterprises Facilitation Council meets the same defence: the parties' contract says otherwise. The purchase order stipulates payment in 90 or 120 days; a clause recites that no interest shall be payable on delayed amounts; another routes all disputes to a chosen court or a contractual arbitration mechanism. Section 24 of the Micro, Small and Medium Enterprises Development Act, 2006 is the legislature's answer. It declares that Sections 15 to 23 of the Act — the entire delayed-payment code — have effect notwithstanding anything inconsistent in any other law for the time being in force. This explainer maps what that overriding effect does to the standard buyer defences, and where its limits lie.
What Section 24 actually says
The provision is one sentence: Sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Read with the non-obstante language inside Section 16 itself — which overrides agreements as well as laws — the delayed-payment code operates as mandatory law. Parties cannot contract out of it, and other statutes yield to it within its field.
The protected code, section by section
| Provision | What it guarantees | What it defeats |
|---|---|---|
| Section 15 | Payment by the agreed date, capped at 45 days from acceptance or deemed acceptance | Credit-period clauses longer than 45 days |
| Section 16 | Compound interest, monthly rests, three times the bank rate, from the appointed day | Interest-waiver and lower-rate clauses |
| Section 17 | The buyer's liability to pay the amount with interest as above | Netting and set-off devices designed to erase statutory interest |
| Section 18 | Reference to the Facilitation Council: conciliation, then arbitration | Exclusive jurisdiction clauses and rival contractual arbitration mechanisms |
| Section 19 | 75% pre-deposit for any application setting aside a Council award or decree | Attempts to litigate the award without securing the supplier |
| Sections 22–23 | Disclosure of unpaid MSME dues in buyers' accounts; interest not deductible as expenditure | Silent balance sheets and tax absorption of default interest |
How the courts have applied the override
The Supreme Court's decision in Gujarat State Civil Supplies Corporation v. Mahakali Foods settled the central collision: where the MSMED Act applies, its Section 18 mechanism prevails over an independent arbitration agreement between the parties, and a Council acting under the Act proceeds notwithstanding the contractual clause. The same logic runs through the pre-deposit jurisprudence under Section 19 — the 75% deposit is a condition that cannot be bargained away — and through the consistent refusal of courts to enforce interest-waiver clauses against the Section 16 entitlement. The override is, however, directional: it protects the statutory floor for the supplier; it does not create claims the Act itself does not confer.
Where buyers still have room
- Status: whether the claimant held the requisite enterprise status for the supplies in question remains a live threshold issue, with the case law on registration timing still developing.
- Merits: quality disputes, short supply, debit notes and performance failures are fully arguable — Section 24 protects the payment code, not the claim's merits.
- Scope: transactions outside "goods supplied or services rendered" to the buyer — pure trading questions, works outside the Act's definitions — invite genuine contest.
- Procedure: the Council's own compliance with the conciliation-then-arbitration sequence under Section 18 is reviewable, though ordinarily before the tribunal or in a Section 34 challenge rather than by writ.
Practice note: Suppliers should plead Section 24 together with the specific non-obstante language of Section 16 whenever a buyer invokes contract clauses — the two provisions together answer the credit-period, interest and forum defences at the threshold. Buyers, for their part, should concentrate objections where the override does not reach: supplier status, the genuineness of the dues, and documented quality disputes raised contemporaneously rather than after the Samadhaan reference arrives.
Frequently Asked Questions
Can a buyer and supplier agree to a credit period longer than 45 days?
They can write one, but it will not be enforced beyond the statutory ceiling. Section 15 requires payment on or before the agreed date, and caps any agreed credit period at 45 days from the day of acceptance or deemed acceptance. A 90-day clause operates as a 45-day clause for an MSMED-covered supply.
Is a contractual "no interest on delayed payment" clause valid against an MSME supplier?
No. Section 16 fixes compound interest with monthly rests at three times the RBI-notified bank rate, and it applies "notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force". The interest entitlement is statutory and arises automatically on default.
Does an exclusive jurisdiction or arbitration clause oust the Facilitation Council?
The Supreme Court held in Gujarat State Civil Supplies Corporation v. Mahakali Foods that the MSMED Act's Section 18 mechanism overrides an independent arbitration agreement — the Council's statutory process takes precedence, and a contractual clause cannot be used to bypass it once a valid reference is made.
Are there limits to the overriding effect?
Yes. Section 24 protects the Chapter V code; it does not rewrite the commercial bargain on price, quality or delivery, nor does it decide whether the claimant is a "supplier" within the Act at the relevant time. Threshold questions — enterprise status, the nature of the transaction, limitation — remain fully contestable before the Council and the arbitral tribunal.