Interest overrides the contract
Section 16 applies despite any agreement, so a clause waiving interest does not bind a registered MSME supplier.
Under Section 16 of the MSMED Act, 2006, delayed payment to a registered micro or small supplier carries compound interest with monthly rests at three times the RBI bank rate — whatever the contract says. Our MSME lawyers in Delhi, led by Adv. Amarendra Kumar Dubey and Adv. Kanhaiya Lal Mishra, compute and recover it.
Estimate only. Uses one bank rate for the whole period.
Sections 15, 16 and 17 of the MSMED Act work together. The best MSME lawyers in Delhi build the claim on all three. Read the full guide to the MSME Act 2006.
The buyer must pay on or before the agreed date, which cannot exceed 45 days from acceptance. Without an agreement, payment is due within 15 days of acceptance.
From the day after the due date, the buyer owes compound interest with monthly rests at three times the RBI bank rate, notwithstanding any contract term.
The buyer is liable to pay the principal and the interest due under Section 16 for goods supplied or services rendered.
Registered micro and small suppliers. Check the eligibility conditions before you file.
The method our MSME lawyers in Delhi use to prepare a claim statement.
Use the agreed payment date, or the 15th day after acceptance if there is no agreement. Interest starts the next day.
Take the RBI Bank Rate and multiply by three. Where the rate changed during the delay, apply the rate valid for each period.
Add each month's interest to the principal, then compute the next month's interest on the larger amount.
Show principal, rate, period and total in the legal notice and in the statement of claim on the MSME ODR portal.
Illustrative figures at an assumed bank rate of 5.5% (so 16.5% p.a. compounded monthly). Actual rates depend on RBI notifications.
| Principal | 3 months | 6 months | 12 months |
|---|---|---|---|
| ₹5,00,000 | ₹20,910 | ₹42,694 | ₹89,034 |
| ₹10,00,000 | ₹41,820 | ₹85,388 | ₹1,78,068 |
| ₹25,00,000 | ₹1,04,549 | ₹2,13,471 | ₹4,45,170 |
Interest is one pressure point. These rules add more.
Section 16 applies despite any agreement, so a clause waiving interest does not bind a registered MSME supplier.
Buyers can claim a deduction for dues to micro and small suppliers beyond 45 days only when actually paid, an incentive to clear them.
Companies must report amounts outstanding to micro and small suppliers beyond 45 days in a half-yearly return.
File at odr.msme.gov.in. A buyer who challenges an award must deposit 75% of it first (Section 19).
The award can be enforced like a decree against bank accounts and assets. See our delayed payment recovery page.
13+ years of practice; 1400+ cases handled and successfully executed.
Leads strategy on interest claims, arbitration and challenges to awards before the High Court and Supreme Court.
Prepares interest computations, legal notices and ODR claims, and handles execution against defaulting buyers.
Section 16 of the MSMED Act, 2006 provides compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. The buyer owes it from the day immediately following the due date until payment is made.
It is the Bank Rate announced by the Reserve Bank of India, which is aligned with the Marginal Standing Facility rate. Check the latest RBI notification for the figure applicable to your period; the rate can change over time, so the correct computation may use different rates for different periods.
From the day following the agreed payment date, or the day following the appointed day where there is no agreement. The appointed day is the 15th day after the buyer accepts or is deemed to accept the goods or services, and the agreed period cannot exceed 45 days.
No. Section 16 applies notwithstanding any agreement between the buyer and the supplier. A clause fixing a lower rate or waiving interest does not take away the statutory right of a registered micro or small supplier.
Interest is calculated each month and added to the principal, so the next month's interest is charged on the larger amount. This makes the claim grow faster than simple interest, and delay becomes expensive for the buyer.
Use the formula: interest = principal × (1 + 3r/12)^n − principal, where r is the bank rate as a decimal and n is the number of months overdue. Use the calculator on this page for an estimate; your lawyer should prepare the final computation with the correct rate for each period.
Yes. Late payment of the principal does not wipe out interest. You can claim interest for the period of delay even after the principal is paid, subject to limitation and the facts of your case.
The award can provide for interest for the pendency of the proceedings and for the period after the award until payment. The exact entitlement depends on the award's terms, so check this with your lawyer before execution.
The statutory three-times compound interest is available to registered micro and small suppliers. Other businesses rely on the contract rate or, if the contract is silent, interest awarded by the court under the Interest Act, 1978 and Section 34 of the CPC.
From the 2023-24 financial year, a buyer can claim a tax deduction for amounts payable to micro and small enterprises only when actually paid if the payment is delayed beyond 45 days (or 15 days without an agreement). It gives buyers a tax reason to clear MSME dues on time. Discuss applicability with a tax adviser.
Companies that owe money to micro or small suppliers for more than 45 days must file the half-yearly Form MSME-1 return with the Registrar of Companies giving details of the outstanding amounts and the reasons for the delay. Buyers often prefer to settle before this disclosure.
Yes. A notice that quantifies the principal and Section 16 interest, and sets a clear payment deadline, strengthens your claim record and often leads to payment. Our MSME lawyers in Delhi draft these and file the claim on the ODR portal if the buyer does not pay.
Share the invoices and due dates; we will prepare the claim statement and send the legal notice. Global Vision Law Firm, M-3 Gupta Tower, Commercial Complex, Azadpur, Delhi 110033.
+91 95998 01188 · globalvisionlawoffice@gmail.com
Last updated: 10 October 2026. Estimates are indicative; general information, not legal advice.
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