Yes. An eligible micro or small enterprise can file a delayed-payment claim even if its buyer is located in another Indian State. Under Section 18(4) of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”), the Facilitation Council having jurisdiction where the supplier is located can deal with a dispute against a buyer located anywhere in India.

For example, a registered small enterprise located in Delhi does not ordinarily have to file its MSME delayed-payment claim in Maharashtra merely because its customer is based in Mumbai. For a qualifying Section 18 claim, territorial jurisdiction follows the eligible supplier in the manner provided by the MSMED Act.

That does not mean every business holding an MSME certificate can use this remedy. Registration status, the date of registration, the nature of the business, the underlying supply and limitation can all affect whether the claim is maintainable.

Which State’s MSE Facilitation Council has jurisdiction?

For a qualifying delayed-payment dispute, Section 18(4) gives jurisdiction to the Micro and Small Enterprises Facilitation Council (“MSEFC”) or the relevant ADR centre where the supplier is located, even when the buyer is located elsewhere in India.

The operative provision specifically contemplates a dispute between a supplier located within the Council’s jurisdiction and a buyer located “anywhere in India.”

The Ministry of MSME’s current ODR Scheme Guidelines adopt the same approach: the territorial jurisdiction of the MSEFC is determined by where the micro or small enterprise supplier is located according to its Udyam Registration or Udyam Assist Platform registration.

Example

Assume:

• Supplier: registered small manufacturing enterprise in Noida, Uttar Pradesh
• Buyer: company in Bengaluru, Karnataka
• Goods supplied: ₹18 lakh
• Buyer has failed to pay the invoices

Subject to eligibility and the other statutory requirements, the fact that the buyer is in Karnataka does not by itself require the supplier to pursue the Section 18 reference in Karnataka.

The relevant MSEFC jurisdiction is determined by the supplier’s location under the statutory scheme.

What does the Supreme Court say about interstate MSME claims?

The Supreme Court has recognised the special statutory jurisdiction created by Section 18.

In Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (Unit 2), decided on 31 October 2022, the Supreme Court analysed Sections 15–24 of the MSMED Act and confirmed that Section 18(4) confers jurisdiction on the Facilitation Council in relation to disputes involving a supplier within its jurisdiction.

The Court also held that the statutory remedy under Section 18 is not defeated merely because the parties’ commercial contract already contains a separate arbitration agreement. Once the statutory Section 18 mechanism is validly invoked in a dispute covered by the Act, a private arbitration clause does not by itself prevent recourse to the MSEFC.

This matters in interstate contracts because buyers sometimes respond:

“Your agreement says disputes must be arbitrated in our State.”

That contractual provision does not automatically eliminate a qualifying supplier’s statutory remedy under the MSMED Act.

Whether the MSMED Act applies in the first place must, however, still be established.

Can every MSME file an interstate delayed-payment claim?

No. The delayed-payment regime in Chapter V principally protects eligible micro and small enterprise suppliers, not every entity commonly described as an MSME.

The Ministry’s current delayed-payment guidance states that eligible applicants are micro and small enterprises registered for qualifying manufacturing or service activities. The official guidance specifically states that enterprises registered only for trading activities under NIC codes 45, 46 and 47 are not eligible for these delayed-payment provisions.

The current MSME classification, applicable from 1 April 2025, provides:

Classification	Investment limit	Turnover limit
Micro enterprise	Up to ₹2.5 crore	Up to ₹10 crore
Small enterprise	Up to ₹25 crore	Up to ₹100 crore
Medium enterprise	Up to ₹125 crore	Up to ₹500 crore

Both the applicable investment and turnover criteria must be considered.

Importantly, medium-enterprise classification does not automatically give access to the Chapter V MSEFC delayed-payment remedy, which is framed for micro and small enterprises.

Official Udyam Registration Portal

Does the MSME registration need to exist before the contract?

This is one of the most important eligibility checks.

The Supreme Court held in Silpi Industries v. Kerala State Road Transport Corporation, decided on 29 June 2021, that a seller cannot obtain MSME registration later and use it retrospectively to claim the statutory benefits for earlier transactions.

The Court stated that, to seek benefits under the Act, the seller should have the relevant registration when entering into the contract; subsequent registration operates prospectively and cannot convert previous supplies into protected MSME transactions.

The Supreme Court reaffirmed that principle in Mahakali Foods: a party that was not a “supplier” within Section 2(n) at the relevant contractual stage cannot retrospectively acquire that status merely by registering later.

Practical example

A company:

• entered a supply contract in January 2024;
• delivered all goods by July 2024;
• registered as an MSE only in January 2025; and
• now wants MSME statutory interest on those 2024 supplies.

A later Udyam registration should not be assumed to retrospectively create Chapter V rights for the earlier completed transaction.

Registration timing should therefore be checked before an MSEFC reference is filed.

How long does the buyer have to pay an MSE supplier?

Section 15 imposes a special payment rule.

Where the parties have agreed a payment date in writing, the agreed payment period cannot exceed 45 days from acceptance or deemed acceptance of the goods or services. Where there is no written payment period, the statute applies the “appointed day” mechanism.

This means that a contractual clause saying:

“Payment within 90 days of invoice”

does not simply override the MSMED Act for a qualifying MSE transaction.

For the statutory delayed-payment framework, 45 days is the maximum period contemplated by Section 15.

What interest can an MSME claim for delayed payment?

A qualifying supplier can claim the principal outstanding amount together with the statutory interest prescribed by Section 16.

The buyer becomes liable for:

compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India.

This statutory rate can be substantially higher than ordinary commercial interest.

It also applies notwithstanding a contrary contractual provision within the scope of Section 16.

Businesses should calculate interest using the RBI bank rate applicable during the relevant periods rather than simply applying today’s rate retrospectively.

Does the 45-day rule apply if the buyer disputes the goods?

A genuine dispute about acceptance, rejection, quality or contractual performance can affect the analysis.

The MSMED Act defines concepts including acceptance, deemed acceptance and the appointed day. A buyer cannot ordinarily avoid the statutory regime merely by ignoring an invoice, but a properly raised and genuine dispute regarding defective or rejected goods may require examination of the evidence and contract.

The supplier should therefore preserve documents showing:

• delivery;
• receipt;
• inspection or acceptance;
• absence of timely objections;
• email acknowledgements;
• part-payments; and
• any later admission of liability.

The MSEFC process should not be treated as an automatic debt-collection system where the existence or amount of the debt itself is genuinely disputed.

Where does the supplier file an interstate MSME claim?

A qualifying MSE can use the Government’s MSME delayed-payment infrastructure.

The Ministry currently operates the MSME ODR Portal, providing digital processes for delayed-payment disputes, while the MSME Samadhaan framework continues to form part of the Government’s delayed-payment infrastructure.

MSME ODR Portal

MSME Samadhaan Portal

The ODR guidelines expressly provide that territorial jurisdiction follows the location shown for the MSE supplier in its Udyam/Udyam Assist registration.

What documents should an MSME keep ready?

A supplier should ordinarily prepare a complete documentary trail before commencing proceedings.

Useful documents include:

1. Udyam Registration Certificate;
2. purchase order or work order;
3. signed contract or service agreement;
4. invoices;
5. delivery challans;
6. proof of completion of services;
7. e-way bills or transport records, where applicable;
8. buyer acknowledgements;
9. ledger statements;
10. bank statements showing payments or part-payments;
11. emails, WhatsApp messages or other correspondence admitting the outstanding amount;
12. objections or rejection communications from the buyer;
13. interest calculation; and
14. a clear invoice-wise statement showing principal outstanding.

The Ministry’s Samadhaan guidance also indicates that delivery acknowledgements, invoices, part-payments and emails can be relevant supporting evidence.

Is a legal notice compulsory before filing?

A separate legal notice is not made a statutory precondition under Section 18, and the Ministry’s official delayed-payment FAQ likewise states that a legal notice is not necessary before filing before the Council.

Sending a demand notice may nevertheless be commercially useful in some cases.

That is a strategic step, not a substitute for checking statutory eligibility.

What happens after the claim is filed?

Under the presently operative Section 18 structure, the process broadly proceeds in two stages.

Stage 1: Conciliation

The MSEFC may itself conduct conciliation or refer the matter to an institution or centre providing alternative dispute-resolution services.

The purpose is to see whether the parties can settle the dispute.

Stage 2: Arbitration if conciliation fails

If conciliation is unsuccessful, the Council may itself take up the dispute for arbitration or refer it to an appropriate institution or centre.

The Arbitration and Conciliation Act, 1996 then applies in the manner prescribed by Section 18.

The Supreme Court in Mahakali Foods confirmed that the statutory mechanism can operate even where the parties already have an independent arbitration agreement.

The presently operative Section 18(5) states that every reference should be decided within 90 days from the making of the reference. The practical duration of proceedings may nevertheless vary considerably depending on the Council, pleadings, service, evidence and challenges.

Does limitation apply to an MSME claim?

Yes. MSME status does not make an old debt permanently recoverable.

In Silpi Industries, the Supreme Court held that the Limitation Act, 1963 applies to arbitration proceedings under Section 18(3) because Section 43 of the Arbitration and Conciliation Act applies limitation law to arbitration.

However, businesses should avoid the oversimplified statement that “every MSME claim has a three-year limitation period.”

The correct limitation analysis can depend on:

• the nature of the claim;
• invoice and due dates;
• when the cause of action accrued;
• part-payment;
• written acknowledgment;
• the contractual structure; and
• other relevant provisions of the Limitation Act.

The Supreme Court in Silpi Industries confirmed that limitation applies but deliberately left the particular claims before the primary authority to determine on their facts.

An MSE should therefore review limitation before filing rather than assuming the portal will accept any old invoice.

Can the buyer rely on an arbitration clause requiring proceedings in another State?

Not necessarily.

Suppose a Delhi MSE signs an agreement with a Bengaluru buyer containing this clause:

“All disputes shall be referred to arbitration in Bengaluru.”

For a dispute properly falling within Sections 17 and 18 of the MSMED Act, the existence of that independent arbitration agreement does not by itself exclude the statutory MSEFC mechanism.

The Supreme Court in Mahakali Foods held that a party is not prevented from making a Section 18 reference merely because a separate arbitration agreement exists.

The Court explained that the statutory provisions in Chapter V have overriding effect in the circumstances covered by the Act.

This is one reason the question “Where does the contract say disputes must be filed?” is not by itself sufficient for an MSME delayed-payment analysis.

You must first determine whether the statutory MSEFC regime applies.

What if the buyer ignores proceedings because it is in another State?

The buyer’s physical location in another State does not remove the Council’s statutory jurisdiction in a qualifying case.

A buyer receiving an MSEFC notice should therefore not ignore it merely because:

• it has no office in the supplier’s State;
• the contract was signed elsewhere;
• goods were delivered elsewhere; or
• its own registered office is in another State.

Jurisdiction under Section 18(4) specifically accommodates buyers located anywhere in India.

The buyer should instead raise any genuine objections—such as lack of supplier status, pre-registration supplies, limitation, defective performance or incorrect quantum—before the appropriate forum.

What happens if the supplier wins an MSEFC award?

An arbitral award arising from the Section 18 mechanism can be enforced under the applicable arbitration framework.

The buyer can seek to set aside an arbitral award under Section 34 of the Arbitration and Conciliation Act, subject to the special requirements of the MSMED Act.

One particularly important protection for suppliers is Section 19.

Under the presently operative Section 19, a court cannot entertain the buyer’s application to set aside the award unless the required 75% of the awarded amount is deposited.

The Supreme Court in Tirupati Steels v. Shubh Industrial Component, decided on 19 April 2022, confirmed that the 75% pre-deposit requirement is mandatory. The Court also recognised that, where genuine hardship is established, a court may permit the deposit to be made in instalments.

This requirement can significantly affect the commercial dynamics after an MSE obtains an award.

Does the MSMED (Amendment) Act, 2026 change this process?

A major MSMED amendment was enacted in August 2026, but commencement must be distinguished from enactment.

The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 (Act No. 16 of 2026) received Presidential assent on 13 August 2026. It introduces substantial changes concerning delayed payments, mediation, arbitration, digital processes, TReDS and enforcement.

However, Section 1(2) of the Amendment Act expressly says that it comes into force on the date or dates appointed by the Central Government through notification in the Official Gazette.

As of the legal verification on 30 September 2026, no separate official commencement notification was identified bringing the relevant new Section 18 delayed-payment provisions generally into force.

Accordingly, this article applies the presently operative Section 18 framework rather than treating every provision of the 2026 Amendment Act as already effective.

Businesses dealing with a claim after this date should re-check commencement because this position may change through a Gazette notification.

Interstate MSME claim: practical example

Consider the following situation:

ABC Components Pvt. Ltd.

• Location: Haryana
• Classification: Small enterprise
• Udyam registration obtained before the supply contract

XYZ Automotive Ltd.

• Location: Tamil Nadu

ABC supplies ₹30 lakh worth of components.

The agreement provides for payment within 45 days.

XYZ accepts the goods but pays only ₹10 lakh, leaving ₹20 lakh unpaid.

Can ABC file against XYZ even though XYZ is in Tamil Nadu?

Yes, subject to all other eligibility requirements.

Section 18(4) permits the MSEFC having jurisdiction over ABC as the supplier to deal with a dispute against a buyer located anywhere in India.

What could ABC claim?

Potentially:

• ₹20 lakh principal; plus
• statutory interest under Section 16 calculated at three times the applicable RBI bank rate, compounded with monthly rests.

What if the contract says disputes must be arbitrated in Chennai?

That arbitration clause does not automatically prevent ABC from invoking Section 18 if the statutory regime otherwise applies.

Checklist before filing an interstate MSME claim

Before commencing proceedings, verify:

Supplier eligibility

• Are you a micro or small enterprise for the relevant transaction?
• Was the necessary registration in place at the relevant time?
• Is your activity covered by the delayed-payment regime?

Transaction

• What goods or services were supplied?
• Is there a purchase order or contract?
• When were they delivered or completed?
• When were they accepted?
• Were any objections raised?

Debt

• What is the invoice-wise principal outstanding?
• Have any part-payments been received?
• Has the buyer admitted the debt?

Payment deadline

• What payment period was agreed?
• Did it exceed the statutory 45-day ceiling?

Interest

• Has Section 16 interest been calculated using the applicable RBI bank rates?

Jurisdiction

• Which MSEFC has jurisdiction based on the supplier’s registered location?

Limitation

• Is the claim still within the applicable limitation period?
• Is there any valid acknowledgment or part-payment relevant to limitation?

Documents

• Are contracts, invoices, delivery records and communications complete and consistent?

Getting these points right is more important than simply uploading outstanding invoices to a portal.

Frequently Asked Questions

1. Can a Delhi MSME file an MSEFC claim against a Maharashtra company?

Yes. If the supplier qualifies under the MSMED Act, Section 18(4) permits the relevant Council having jurisdiction over the supplier to deal with a buyer located anywhere in India.

2. Does the MSME have to travel to the buyer’s State to file its case?

Not merely because the buyer is located there. MSEFC territorial jurisdiction under the statutory delayed-payment mechanism is linked to the supplier’s location.

3. Can a medium enterprise use the MSEFC delayed-payment mechanism?

Chapter V’s delayed-payment protections are specifically framed around micro and small enterprise suppliers. A business should not assume that medium-enterprise status gives it the same MSEFC rights.

4. Can I register as an MSME today and claim old unpaid invoices?

Not automatically. The Supreme Court in Silpi Industries and Mahakali Foods held that later registration does not retrospectively confer statutory supplier benefits on earlier transactions.

5. Can the buyer insist on a 90-day payment term?

For qualifying MSE supplies, Section 15 provides that the agreed period cannot exceed 45 days from acceptance or deemed acceptance.

6. What interest is payable after the payment deadline?

Section 16 provides for compound interest with monthly rests at three times the RBI-notified bank rate.

7. Does an arbitration clause stop an MSME from approaching the MSEFC?

Not by itself. The Supreme Court in Mahakali Foods held that an independent arbitration agreement does not prevent a qualifying reference under Section 18.

8. Is a legal notice mandatory before filing?

No separate legal notice is prescribed as a mandatory precondition under Section 18. The Ministry’s delayed-payment FAQ also states that such a notice is not compulsory.

9. Is there a limitation period for MSME claims?

Yes. The Supreme Court in Silpi Industries confirmed that the Limitation Act applies to Section 18 arbitration. The exact limitation calculation should be determined from the particular transaction rather than assuming that all MSME claims have an identical deadline.

10. Does a buyer have to deposit 75% before challenging an MSEFC award?

Under the presently operative Section 19, the 75% pre-deposit requirement applies before the buyer’s challenge can be entertained. The Supreme Court has held this requirement to be mandatory, although instalments may be permitted in appropriate cases of hardship.