Step-by-Step MSME Delayed Payment Recovery: From the New ODR Portal to MSEFC Proceedings (2026 Guide)

Disclaimer: This article is published for general informational and educational purposes only. It does not constitute legal advice, and no attorney-client relationship is created by reading this content. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Laws and procedures are subject to change; readers are advised to consult a qualified advocate before taking any legal action. This publication complies with the Bar Council of India Rules on professional standards and is not intended as solicitation or advertisement.

Delayed payments remain the single most crippling challenge for micro and small enterprises in India. According to Government data, outstanding delayed payments to MSMEs run into lakhs of crores at any given time, choking working capital, stalling operations, and forcing many enterprises to shut down. Parliament recognised this decades ago when it enacted the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), which creates a statutory right to timely payment, imposes compound interest on delays, and establishes Facilitation Councils for dispute resolution.

Until recently, aggrieved enterprises filed complaints through the MSME Samadhan portal. That has now changed. In June 2025, the Government launched the MSME Online Dispute Resolution (ODR) Portal at odr.msme.gov.in, and with effect from 15 October 2025, all new delayed payment complaints by micro and small enterprises must be filed exclusively on this portal. The Samadhan portal no longer accepts fresh filings.

This guide explains the complete legal framework for MSME delayed payment recovery the statutory provisions, the new ODR filing process, the two-tiered dispute resolution mechanism, interest computation, the tax consequences under Section 43B(h) of the Income Tax Act, and the enforcement of MSEFC awards. For an overview of all payment recovery options available to businesses in Chennai, see our comprehensive Payment Recovery Lawyers in Chennai guide.

The Statutory Framework: Sections 15 to 18 of the MSMED Act, 2006

Section 15 – The 45-Day Payment Mandate

Section 15 of the MSMED Act, 2006, is the foundation of the entire delayed payment regime. It provides that where any supplier (a micro or small enterprise) supplies goods or renders services to any buyer, the buyer shall make payment to the supplier on or before the date agreed upon between the buyer and the supplier in writing. If there is no written agreement, payment must be made within fifteen days of acceptance of goods or services. Critically, even where there is a written agreement, the agreed period cannot exceed forty-five days from the date of acceptance or the date of deemed acceptance.

This means that any contractual term purporting to allow a payment period beyond forty-five days is void to the extent of such excess the buyer cannot contract out of this statutory ceiling.

Section 16 – Mandatory Compound Interest on Delayed Payment

Where a buyer fails to make payment within the time limit prescribed under Section 15, the buyer is liable to pay compound interest with monthly rests to the supplier on the outstanding amount. The rate of interest is three times the bank rate notified by the Reserve Bank of India. As of April 2026, the RBI bank rate stands at 5.50%, making the applicable interest rate under Section 16 equal to 16.50% per annum, compounded monthly.

This interest accrues automatically from the day immediately following the date on which payment was due. No demand or notice is required from the supplier. The interest continues to accrue until the date of actual payment.

Section 17 – Non-Deductibility of Interest for the Buyer

Section 17 provides that the buyer cannot claim the interest paid or payable under Section 16 as a deduction from income under the Income Tax Act, 1961. This is a punitive provision designed to ensure that the interest burden is a genuine deterrent and not merely a tax-deductible cost of doing business.

Section 18 – The MSEFC Dispute Resolution Mechanism

Section 18 establishes the Micro and Small Enterprises Facilitation Council (MSEFC) in every State and Union Territory. The MSEFC is the statutory body empowered to resolve delayed payment disputes. Any party to a dispute may make a reference to the MSEFC, which must first attempt conciliation in accordance with the provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996. If conciliation fails, the MSEFC proceeds to arbitration under the Arbitration and Conciliation Act, or refers the dispute to an institution for arbitration.

The MSEFC must dispose of the reference within ninety days from the date of making the reference.

The Transition: From Samadhan to the MSME ODR Portal

What Was the Samadhan Portal?

The MSME Samadhan portal (samadhaan.msme.gov.in) was launched in 2017 as a Delayed Payment Monitoring System. It allowed micro and small enterprises to file complaints against buyers for delayed payments. The portal served primarily as a filing and tracking mechanism it did not resolve disputes itself, but routed complaints to the respective state MSEFCs.

What Changed in 2025?

On 27 June 2025 (MSME Day), the President of India launched the MSME Online Dispute Resolution (ODR) Portal at odr.msme.gov.in. This portal was developed under the MSME RAMP (Raising and Accelerating MSME Performance) programme and represents a fundamental upgrade from Samadhan.

On 3 October 2025, the Ministry of MSME issued a notification mandating that all new delayed payment cases filed by micro and small enterprises under the MSMED Act, 2006, must be lodged exclusively on the ODR Portal with effect from 15 October 2025.

The Samadhan portal continues to operate in a limited capacity it provides status tracking for legacy cases filed before 15 October 2025, redirects new users to the ODR Portal, and maintains the historical case database. No new filings are accepted on MSME Samadhan.

How Is the ODR Portal Different?

The ODR Portal introduces a two-tiered dispute resolution process that goes far beyond the mere filing-and-forwarding function of Samadhan:

Tier 1 – Pre-MSEFC Resolution (Voluntary): Before a dispute reaches the statutory MSEFC, the ODR Portal facilitates voluntary, out-of-court settlement through guided digital negotiation pathways. Both parties are invited to participate in an online mediation or negotiation process. This stage is consensual – either party can opt out. The advantage is speed, confidentiality, and preservation of the commercial relationship.

Tier 2 – MSEFC Proceedings (Statutory): If the Pre-MSEFC process fails (or either party opts out), the dispute automatically advances to the statutory MSEFC proceedings under Section 18 of the MSMED Act. The entire process – conciliation, and if necessary, arbitration – is conducted digitally through the portal, including virtual hearings, secure document uploads, and electronic communication.

Step-by-Step: Filing a Delayed Payment Complaint on the MSME ODR Portal

Step 1: Verify Your Eligibility

Before filing, confirm that you meet the following prerequisites:

You must be a micro or small enterprise with a valid Udyam Registration. Medium enterprises are not eligible to file under the MSMED Act delayed payment provisions (Sections 15 to 18 apply only to micro and small enterprises as “suppliers” under Section 2(n)).

Your Udyam Registration date must precede the invoice date in dispute. The Supreme Court in Silpi Industries v. Kerala State Road Transport Corporation (2021) held that for the MSMED Act’s protections to apply, the supplier must have been registered under the Act on the date of entering into the contract or at the time of supply. Retrospective registration does not confer retrospective rights. This is a threshold eligibility issue that must be verified before filing.

The buyer must fall within the definition of “buyer” under Section 2(b) of the MSMED Act – any person or entity that purchases goods or receives services from a micro or small enterprise for consideration.

Step 2: Gather the Required Documents

Before initiating the filing on the ODR Portal, compile the following documents:

Udyam Registration Certificate (the portal will auto-verify your Udyam number)

Purchase Orders or Work Orders from the buyer

Tax Invoices showing the supply date, amounts, and goods/services description

Delivery Challans or Proof of Service Completion (acknowledgments, completion certificates, signed delivery receipts)

Any written agreement between you and the buyer regarding payment terms (this determines whether the 15-day or 45-day limit applies)

Correspondence — demand notices sent to the buyer, email reminders, and the buyer’s responses (if any)

Bank statements showing non-receipt of payment

Interest calculation statement — a month-wise computation of compound interest at 3x the RBI bank rate

Step 3: Register on the ODR Portal

Navigate to odr.msme.gov.in. If you are a first-time user, create an account using your Udyam Registration number, mobile number, and email address. The portal verifies your Udyam details against the Udyam Registration database. Once verified, you gain access to the filing dashboard.

Step 4: File Your Claim

The portal provides a guided, step-by-step digital claim form. You will need to enter:

Your enterprise details (auto-populated from Udyam Registration)

Buyer details (name, address, GSTIN if available)

Invoice details (invoice number, date, amount, payment due date)

Total principal amount outstanding

Interest claimed (the portal may assist with computation)

Description of the dispute and efforts already made to recover payment

Upload supporting documents (in PDF format)

Review the claim carefully before submission. Once filed, the portal generates a unique case reference number.

Step 5: Pre-MSEFC Negotiation (Tier 1)

Upon filing, the portal notifies the buyer electronically. Both parties are invited to participate in the Pre-MSEFC resolution process. This stage involves:

Automated negotiation: The portal may facilitate structured offers and counter-offers between the parties.

Mediation: An empanelled mediator may be assigned to conduct virtual mediation sessions.

Timeline: This stage is time-bound, though voluntary. Either party can opt out at any time.

If the parties reach a settlement at this stage, the settlement agreement is recorded on the portal. A mediated settlement agreement may be enforceable under the Mediation Act, 2023 (which provides for enforcement of mediated settlement agreements as if they were court decrees).

Step 6: MSEFC Proceedings (Tier 2)

If the Pre-MSEFC process does not result in settlement, the dispute is automatically escalated to the MSEFC of the state where the supplier is located. The proceedings follow the statutory framework under Section 18 of the MSMED Act:

Conciliation: The MSEFC first attempts conciliation under Sections 65 to 81 of the Arbitration and Conciliation Act, 1996. A conciliator (either a member of the Council or an independent person) facilitates negotiation between the parties.

Arbitration: If conciliation fails, the Council proceeds to arbitrate the dispute itself or refers it to an institution for arbitration. The arbitration is conducted in accordance with the Arbitration and Conciliation Act, 1996. Virtual hearings are conducted through the ODR Portal.

Disposal timeline: The MSEFC must dispose of the reference within ninety days from the date of the reference.

Step 7: Obtain and Enforce the Award

If the MSEFC passes an award in your favour, the buyer is directed to pay the principal amount along with compound interest under Section 16. The award of the MSEFC is enforceable as if it were a decree of a court under Section 36 of the Arbitration and Conciliation Act, 1996. If the buyer fails to comply, the supplier can file an execution petition before the competent civil court.

Important limitation on challenge: Under the proviso to Section 18(4) of the MSMED Act, no application to set aside an MSEFC award under Section 34 of the Arbitration and Conciliation Act can be entertained by a court unless the buyer has deposited 75% of the award amount with the court. This deposit requirement is a powerful deterrent against frivolous challenges and ensures that the supplier receives substantial payment even if the award is contested.

Interest Computation: A Practical Example

Understanding the interest computation is essential for both filing the claim and assessing the financial impact on the buyer. Consider the following example:

Facts: A micro enterprise supplied goods worth Rs 10,00,000 on 1 January 2026. The payment agreement provides for payment within 30 days, i.e., by 31 January 2026. The buyer does not pay until 30 April 2026 — a delay of three months (89 days).

Applicable rate: 3 × RBI Bank Rate (5.50%) = 16.50% per annum, compounded monthly. The monthly rate is 16.50% ÷ 12 = 1.375%.

Computation (month-wise compounding):

Month 1 (February): Rs 10,00,000 × 1.375% = Rs 13,750. Outstanding at end of Month 1: Rs 10,13,750.

Month 2 (March): Rs 10,13,750 × 1.375% = Rs 13,939. Outstanding at end of Month 2: Rs 10,27,689.

Month 3 (April): Rs 10,27,689 × 1.375% = Rs 14,131. Outstanding at end of Month 3: Rs 10,41,820.

Total interest for 3 months: Rs 41,820 on a principal of Rs 10,00,000. This is significantly higher than simple interest would be (which would be Rs 40,425), illustrating the punitive nature of the compounding provision.

For amounts running into crores and delays extending to several months or years, the interest burden is substantial — often exceeding the principal itself. For more on recent tribunal decisions applying this interest framework, see our article on Most Important MSME Samadhan Cases Ruled by Indian Courts.

The Section 43B(h) Tax Consequence: Why Buyers Cannot Afford to Delay

The Finance Act, 2023, inserted clause (h) in Section 43B of the Income Tax Act, 1961, with effect from 1 April 2024 (applicable from Assessment Year 2024-25). This provision creates a powerful tax consequence for any buyer who delays payment to a micro or small enterprise beyond the time limit prescribed in Section 15 of the MSMED Act.

How it works: If a buyer makes payment to a micro or small enterprise beyond the statutory 15-day (without agreement) or 45-day (with agreement) limit, the expenditure is disallowed as a deduction in the financial year in which the goods or services were received. The deduction is allowed only in the financial year in which the payment is actually made.

Critical nuance: Unlike other provisions of Section 43B (where payment before the due date of filing the return under Section 139(1) is sufficient for deduction), Section 43B(h) does not allow this relaxation. If the 45-day window is missed, the deduction is disallowed for that year — even if payment is made before the return filing date.

Applicability: Section 43B(h) applies only to payments due to micro and small enterprises (not medium enterprises) that are registered under the MSMED Act. It does not apply to enterprises engaged only in trading activities — the definition of “supplier” under Section 2(n) covers only enterprises engaged in manufacturing or providing services.

This provision has fundamentally changed the commercial dynamics of buyer-supplier relationships. Buyers who previously delayed payments with impunity now face a direct hit on their taxable income. For a detailed analysis, see our article on Section 43B(h) — MSME Hope.

Common Errors and Pitfalls in MSME Delayed Payment Claims

Based on reported MSEFC decisions and the experience of practitioners, the following errors frequently undermine otherwise meritorious claims:

Filing without valid Udyam Registration: Following Silpi Industries v. Kerala SRTC (2021), the MSEFC will reject claims where the supplier was not registered at the time of the transaction. Ensure your Udyam Registration predates the invoice.

Claiming beyond limitation: While the MSMED Act does not prescribe a specific limitation period for filing before the MSEFC, the general limitation period of three years under the Limitation Act, 1963, applies. Calculate the limitation from the date the payment became due (i.e., the expiry of the 15-day or 45-day period). For more on this issue, see Delay in Filing MSME Claims — Loss of Remedy.

Incorrect interest computation: Using simple interest instead of compound interest, or applying an outdated RBI bank rate, will result in an incorrect claim amount. The rate must be calculated at three times the bank rate prevailing during each month of delay, compounded monthly.

Failure to issue a demand notice: While a demand notice is not a statutory prerequisite for filing before the MSEFC, it strengthens the claim significantly and demonstrates the supplier’s bona fide efforts to recover payment before resorting to the statutory mechanism. Sending a notice under Section 15 read with Section 16 prior to filing is strongly advisable.

Not producing the written agreement: If the payment agreement provides for a period shorter than 45 days, the interest accrues from the contractual due date, not from the 45th day. Failure to produce the agreement may result in the MSEFC applying the default 15-day period, which could work in your favour but may also complicate the calculation.

Frequently Asked Questions (FAQs)

1. Can I still file on the Samadhan portal?

No. With effect from 15 October 2025, the MSME Samadhan portal no longer accepts new filings. All new delayed payment complaints must be filed on the MSME ODR Portal at odr.msme.gov.in. The Samadhan portal continues to provide status updates for cases filed before this date and redirects new users to the ODR Portal.

2. Is the ODR Portal free to use?

The filing on the ODR Portal is free of charge for micro and small enterprises. There is no court fee or filing fee for initiating a delayed payment reference. However, if the dispute proceeds to arbitration and an external institution is engaged, there may be institutional fees, which are typically nominal and regulated.

3. Can a medium enterprise file a complaint on the ODR Portal?

No. The delayed payment provisions under Sections 15 to 18 of the MSMED Act, 2006, apply only to micro and small enterprises as defined under Section 7 of the Act. Medium enterprises are excluded from this statutory mechanism. A medium enterprise must pursue recovery through civil suit, arbitration, or other available remedies.

4. What if the buyer disputes the quality of goods or services?

The buyer may raise defences including quality disputes, partial delivery, or breach of contract. However, the MSEFC has consistently held that such defences do not extinguish the statutory obligation to pay within the prescribed time. The buyer should have raised quality objections within a reasonable time of delivery and cannot withhold payment indefinitely on this ground. The MSEFC will examine the evidence and may adjust the awarded amount if the quality defence has merit, but compound interest continues to accrue on the amount found due.

5. What is the 75% deposit requirement for challenging an MSEFC award?

Under the proviso to Section 18(4) of the MSMED Act, any buyer wishing to challenge an MSEFC award by filing an application under Section 34 of the Arbitration and Conciliation Act, 1996, must first deposit 75% of the award amount with the court. This pre-deposit condition is mandatory and is designed to discourage frivolous challenges and ensure that the supplier receives substantial payment even during litigation.

6. How is the interest rate calculated under the MSMED Act?

The interest rate is three times the bank rate notified by the Reserve Bank of India, compounded monthly. As of April 2026, the RBI bank rate is 5.50%, making the applicable rate 16.50% per annum with monthly compounding. The rate is variable — if the RBI revises the bank rate during the period of delay, the applicable rate changes accordingly for subsequent months.

7. Does Section 43B(h) apply to medium enterprises?

No. Section 43B(h) of the Income Tax Act, 1961, applies only to payments due to micro and small enterprises (not medium enterprises) registered under the MSMED Act. It also does not apply to enterprises engaged solely in trading — only those engaged in manufacturing or providing services are covered as “suppliers” under Section 2(n) of the MSMED Act.

8. Can I simultaneously file a civil suit and an MSME ODR complaint?

There is a jurisdictional overlap, but it is generally advisable to pursue the MSEFC route first, given its speed (90-day mandate), lower cost, and the 75% deposit requirement for challenge. Filing parallel proceedings in a civil court while the MSEFC reference is pending may lead to jurisdictional challenges. However, the MSEFC’s jurisdiction is specific to delayed payment disputes under the MSMED Act, and other civil remedies (including suits for damages, breach of contract claims, or injunctive relief) may be pursued in parallel if they raise different causes of action. For a comprehensive overview of all recovery options, see our Payment Recovery Lawyers in Chennai hub page.

9. What happens to cases filed on Samadhan before 15 October 2025?

Legacy cases filed on the Samadhan portal before 15 October 2025 will continue to be processed through the existing mechanism. The Samadhan portal remains accessible for status tracking of these cases. Over time, these cases are expected to be migrated to the ODR Portal for continuity, but the substantive proceedings will not be disrupted.

10. Is Udyam Registration mandatory for filing a delayed payment claim?

Yes. Under the current framework, a valid Udyam Registration is a prerequisite for filing on the ODR Portal. The portal auto-verifies your Udyam number. Furthermore, following the Supreme Court’s decision in Silpi Industries v. Kerala SRTC (2021), the registration must predate the transaction in question — you cannot register after the supply and claim retrospective protection.

About the Author

Advocate Suresh is the founder of Aran Law Firm, Chennai, with over 15 years of practice in intellectual property law, commercial litigation, and business law. He is enrolled with the Bar Council of Tamil Nadu and Puducherry and regularly advises micro, small and medium enterprises on delayed payment recovery, MSEFC proceedings, and commercial dispute resolution. This article reflects his understanding of the current legal position and is intended solely for informational purposes.

Last updated: April 2026

Disclaimer: This article is published by Aran Law Firm for informational purposes only. It is not intended to constitute legal advice or to create an attorney-client relationship. The contents are based on Indian law as applicable at the time of writing and are subject to change. Readers should not act upon the information in this article without seeking independent legal counsel. Every legal situation is unique, and the application of law depends on specific facts and circumstances. Past results do not guarantee future outcomes. This publication is made in compliance with the Bar Council of India Rules, which prohibit advertising or solicitation by advocates. Any information received through this article should not be construed as legal advice.

For specific legal guidance on your MSME delayed payment recovery matter, you may consult a qualified commercial litigation advocate in your jurisdiction.