Large buyers draft purchase orders; small suppliers sign them. Predictably, those documents often stipulate 90- or 120-day credit periods, interest-free dues, and dispute clauses designed to keep claims away from the Facilitation Council. Section 24 of the Micro, Small and Medium Enterprises Development Act, 2006 is the legislature's answer: Sections 15 to 23 of the Act have effect notwithstanding anything inconsistent contained in any other law for the time being in force. Combined with the internal language of Sections 15 and 16 — which themselves override the parties' agreement — the delayed-payment regime operates as mandatory law. This explainer maps what exactly is protected, and what a buyer's standard terms can and cannot achieve.
Three layers of overriding language
The Act does not rely on Section 24 alone. The mandatory character of the delayed-payment chapter is built in three places, and pleadings should invoke all of them.
| Provision | Overriding language | Effect |
|---|---|---|
| Section 15, proviso | Agreed credit period "shall not exceed forty-five days" | Caps every contractual credit term at 45 days from acceptance or deemed acceptance |
| Section 16 | "Notwithstanding anything contained in any agreement... or in any law" | Compound interest with monthly rests at three times the RBI bank rate, by force of statute |
| Section 18(1) | "Notwithstanding anything contained in any other law" | Facilitation Council reference available despite contrary dispute-resolution clauses |
| Section 24 | Sections 15 to 23 override anything inconsistent in any other law | The chapter prevails over other statutes to the extent of inconsistency |
What buyers' standard terms cannot do
- Extend the payment period beyond 45 days by a credit clause, a payment-milestone schedule operating as disguised credit, or an "on approval" term that defers acceptance indefinitely — the deemed-acceptance rule in Section 2(b) fixes acceptance at 15 days absent written objection.
- Exclude or dilute Section 16 interest by a nil-interest clause, a lower contractual rate, or a waiver recital.
- Oust the Facilitation Council by an exclusive-jurisdiction or institutional-arbitration clause.
- Impose forfeiture-style conditions — such as "no interest if claim not raised within 30 days" — that are inconsistent with the statutory scheme.
What remains open to buyers
Mandatory law governs the consequences of delay; it does not write the parties' bargain on everything else. Buyers may still contract meaningfully on specifications and quality-testing protocols (which bear on when acceptance occurs), on delivery schedules, on price, and on set-offs arising from defective supply — provided objections are raised in writing within the fifteen-day window rather than manufactured after a demand. A buyer with a genuine, contemporaneously documented quality dispute is contesting acceptance itself, which is a different battle from attempting to contract out of Sections 15 and 16.
The chapter's supporting cast
Sections 19 and 22-23 complete the armour. Section 19 requires a buyer challenging a Council award to deposit seventy-five per cent of the awarded amount before any court application to set it aside is entertained — an obligation that itself cannot be negotiated away. Sections 22 and 23 bite the buyer's accounts and tax computation: audited annual statements must disclose unpaid MSME principal and interest, and interest paid or payable under Section 16 is not deductible as business expenditure under the Income-tax law. The disclosure regime means a buyer's own balance sheet frequently proves the supplier's claim.
Litigation posture in Delhi
For suppliers, the sequence is: demand notice computing principal and Section 16 interest; online reference through MSME Samadhaan to the Facilitation Council with jurisdiction; conciliation, then arbitration under the Act. For buyers, realistic defences concentrate on acceptance (documented quality objections within time), on the supplier's registration status for the transactions in question, and on quantification — not on the standard-term clauses that Sections 15, 16, 18 and 24 have already disarmed.
Practice note: When reviewing supply contracts for MSME clients, do not fight to delete the buyer's 90-day clause — flag it, sign if commercially necessary, and rely on the statute. When advising buyers, the honest advice is the mirror image: the clause will not save you; paying within 45 days, or objecting in writing within 15, is the only compliance that works.
Frequently Asked Questions
Can a buyer and an MSME supplier agree to a 90-day credit period?
They can write it, but it will not bind. The proviso to Section 15 caps any agreed credit period at 45 days from the day of acceptance or deemed acceptance. Beyond 45 days, statutory interest under Section 16 runs regardless of the longer period stated in the purchase order.
Can the supplier waive interest under Section 16?
Section 16 operates "notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force". A pre-dispute waiver clause in the buyer's standard terms is therefore ineffective. Courts scrutinise even post-dispute settlements said to give up statutory interest, though a genuine accord and satisfaction of the entire claim stands on a different footing.
Does an arbitration clause in the contract exclude the Facilitation Council?
No. Section 18 permits "any party to a dispute" to refer it to the Micro and Small Enterprises Facilitation Council notwithstanding anything contained in any other law, and Section 24 reinforces the chapter's primacy. An independent arbitration agreement does not oust the Council's statutory jurisdiction over a delayed-payment dispute; the Council route, once invoked, proceeds under the Act.
Is the buyer's liability affected if the supplier's Udyam registration came after the contract?
Registration timing matters to the applicability of the Act's benefits to a given supply, and the position must be examined transaction-wise. The safe course for suppliers is to register before supplying and to state the Udyam number on every invoice; the safe course for buyers is to verify registration status at onboarding rather than discover it in the Council.