Section 16 of the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 contains the most powerful statutory protection for B2B suppliers in India.
1. Three Times the RBI Bank Rate
If a buyer delays payments to a registered MSME unit beyond the statutory period, they are legally liable to pay compounded interest at three times the bank rate notified by the Reserve Bank of India. Currently, this interest rate is approximately 20.25% per annum.
2. Compounded with Monthly Rests
Unlike regular simple commercial interest, MSME statutory interest is compounded with monthly rests. This means the unpaid interest amount is added to the principal balance at the end of every calendar month, creating a highly punitive compounding effect.
3. The 45-Day Statutory payment limit
Under Section 15 of the Act, the agreed payment period between a buyer and an MSME supplier cannot legally exceed 45 days. Any agreement specifying a payment timeline longer than 45 days is legally void, and the payment interest calculation automatically begins on the 46th day following the delivery date.