The 45-day outer limit
Section 15 of the Act requires a buyer to pay a micro or small supplier by the date agreed in writing, and where there is no agreed date, within 15 days of acceptance of the goods or services. Even where the parties agree a longer credit period, the Act caps it: payment cannot be deferred beyond 45 days from the day of acceptance or deemed acceptance, whatever the contract says. A clause promising 90-day credit terms does not override this cap for the purpose of the Act’s remedies.
Compound interest at a punitive rate
Section 16 makes a defaulting buyer liable to pay compound interest with monthly rests, at three times the bank rate notified by the Reserve Bank of India, running from the day after the due date until actual payment. This rate is deliberately high compared with ordinary commercial interest, and it is not something the buyer can contract out of; it applies regardless of what the underlying agreement says about interest, or whether it says nothing at all.
The Facilitation Council route
Section 18 lets a supplier refer the dispute to the Micro and Small Enterprises Facilitation Council rather than filing a civil suit. The Council first attempts conciliation; if that does not resolve the matter within a set period, it either arbitrates the dispute itself or refers it to an institution for arbitration, and the arbitration award is meant to follow within roughly 90 days of the reference. This route is generally faster and cheaper than civil litigation, and the supplier does not need to prove a contractual arbitration clause because the Act itself supplies the mechanism.
Challenging a Council award
Section 19 allows a buyer to apply to set aside a Council decree or award, but only after depositing 75 per cent of the amount awarded with the court. Courts have discretion over how much of that deposit is released to the supplier pending the challenge. Buyers should also be aware of Section 22, which requires disclosure of outstanding dues to micro and small suppliers in the annual accounts, and Section 23, which denies an income-tax deduction for interest paid under the Act, both of which give a defaulting buyer reasons beyond the interest rate to settle promptly.
