Who can claim under the MSMED Act

1. The seller must be a micro or small enterprise

The payment protection in Sections 15 to 24 is available to a "supplier", and Section 2(n) defines that word narrowly:

"supplier" means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8, and includes the National Small Industries Corporation, the Small Industries Development Corporation of a State or Union territory, and any company, co-operative society, trust or body engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises.Section 2(n), MSMED Act, 2006 (abridged)

Three practical consequences follow. Medium enterprises are not suppliers for this purpose. The memorandum, today the Udyam registration, is part of the definition, which is why its timing is argued over (section 5 below). And a body that markets MSE products, such as NSIC or a state small-industries corporation, can claim too.

2. Classification: both investment and turnover

Since 1 April 2025 an enterprise is classified by both its investment in plant and machinery or equipment and its annual turnover. It must sit within both limits for a category. Crossing either one moves it up.

Export turnover is left out when turnover is computed for classification. What usually matters in a dispute is your status when you contracted and supplied, so keep the Udyam print-outs from those years, not only the current certificate.

3. Udyam or Udyam Assist registration

Udyam Registration is free, online and self-declared, linked to PAN and GST data. Informal micro enterprises without GST or income-tax registration can be recognised through the Udyam Assist Platform (UAP), via authorised partners. The Ministry's ODR scheme guidelines treat micro and small enterprises registered on either as eligible to file.

The registration also fixes where your case is heard. Under the ODR guidelines, territorial jurisdiction follows the supplier's location as per its Udyam or UAP registration. The 2026 amendment, once in force, says the same in Section 18(5): the Council where the supplier's "official address as per the registration made under section 8" is located.

4. Traders and medium enterprises

Retail and wholesale traders have been allowed to register on Udyam since July 2021, but the Ministry's Office Memorandum of 2 July 2021 restricts their benefits to priority-sector lending only. The delayed-payment remedy is therefore generally unavailable for pure trading. If you manufacture and also trade, look at what you supplied to this buyer and how your registration describes your activity.

Medium enterprises fall outside the definition of "supplier" altogether. They can still sue, or use the commercial courts or insolvency law. They cannot use the Council route or Section 16 interest.

5. When you registered: the most contested question

Many enterprises register only after a big order, or after a payment goes bad. Whether a later registration helps has divided the Supreme Court.

• The restrictive line. In Silpi Industries (2021) and Mahakali Foods (2022), the Court said a party that was not a "supplier" on the date of the contract cannot claim the Act's benefits. A registration obtained later operates prospectively, for supplies made after it. Short orders in Vaishno Enterprises and Nitesh Estates (2022) followed this.
• The liberal line. In NBCC (India) Ltd. v. State of West Bengal (10 January 2025), a two-judge bench held that "any party to a dispute" in Section 18 is not confined to a supplier registered before the contract, and that registration is not a precondition to a reference. Because that sits uneasily with the earlier rulings, it referred the question to a three-judge bench. As of 12 October 2026 no larger-bench decision has been reported.
• A useful older principle. In Shanti Conductors (2019), a three-judge bench held under the predecessor 1993 Act that liability arises from the supply, so supplies made after the law applied were covered even though the contract was older.

6. Who counts as a buyer

Section 2(d) is wide: a buyer is "whoever buys any goods or receives any services from a supplier for consideration". That includes private and listed companies, firms, individuals, trusts, central and state government departments, public sector undertakings and local bodies. Government buyers are not exempt: the Samadhaan portal reports cases against state governments and central PSUs as categories of their own.

Under Section 18(4) the Council where the supplier is located can act against a buyer located anywhere in India. A buyer outside India is beyond that wording, so export receivables need a different remedy.

7. Works contracts: the courts are divided

Construction, EPC and turnkey contractors often register as micro or small enterprises. Whether an indivisible works contract is a "supply of goods or services" under the Act is not settled:

• Excluded: the Bombay High Court in P.L. Adke v. Wardha Municipal Corporation (2021) and National Textile Corporation v. Elixir Engineering (2023), and the Orissa High Court in Indian Oil Corporation v. Adarsh Nobel Corporation (October 2025), treated composite works contracts as outside the Council's jurisdiction.
• Included: the Calcutta High Court in Hindustan Petroleum Corporation v. West Bengal MSEFC (2023) found no basis in the Act to carve out works contracts, since they too involve supplying goods and rendering services.

The Supreme Court has not squarely ruled. Under Mahakali Foods the Council, acting as arbitral tribunal, decides objections to its own jurisdiction first. Contracts that split supply and service components cleanly stand on firmer ground. See the High Court rulings.

8. What you can claim

• The unpaid principal on every invoice that is past its due date.
• Interest under Section 16 at three times the Bank Rate, compounded monthly, from the day after the due date. You can claim it on invoices that were eventually paid late, even when no principal is outstanding.
• Both together, invoice-wise, in one reference against one buyer.

Expect the buyer to answer with deductions, liquidated damages or quality claims. A counter-claim and set-off are maintainable before the Council (Silpi Industries). Retention money and amounts withheld under the contract need separate analysis of when they actually fell due.

9. Limitation: the three-year question

The Supreme Court's 2025 ruling in Sonali Power Equipments drew a clear line:

Time can be extended. A written acknowledgment of the debt signed by the buyer, such as a balance confirmation, restarts limitation under Section 18 of the Limitation Act, and so can a part-payment under Section 19. The Court also accepted that the buyer's own Section 22 disclosure of unpaid MSE dues in its audited accounts may amount to an acknowledgment, to be examined case by case.

10. Documents that win claims

• Registration: Udyam or UAP certificate, plus any earlier UAM or EM-II, showing your category and dates.
• The bargain: purchase orders, work orders, contract or rate contract, with the credit terms.
• Invoices: every unpaid or late-paid invoice, with GSTR-1 showing it was reported.
• Acceptance: signed delivery challans, lorry receipts, e-way bills, goods receipt notes, inspection or completion certificates, measurement sheets.
• Money trail: the buyer's account in your ledger, bank receipts, credit and debit notes. TDS the buyer deducted on your invoices, visible in Form 26AS or AIS, shows it booked them.
• Acknowledgments: balance confirmations, emails promising payment, part-payments. These matter for limitation.
• Disputes: any written objection by the buyer, and how it was resolved.

11. When to use another route

The Council route is powerful but not universal. Consider other remedies when:

• you are a medium enterprise or a pure trader;
• the buyer is outside India;
• the claim is not for payment for goods or services supplied, for example damages for a cancelled order;
• arbitration is time-barred and conciliation has failed.

Alternatives include a summary suit before the commercial court, or an application against a corporate buyer under Section 9 of the Insolvency and Bankruptcy Code where the default is at least ₹1 crore. Once in force, the 2026 amendment also makes a Council award or mediated settlement a debt recognisable under the IBC and recoverable as arrears of land revenue.