MSMED Act 2006
The Micro, Small and Medium Enterprises Development Act 2006 is India’s principal SME law. It is not a construction statute, but its delayed-payment chapter (Chapter V) functions as India’s de facto Prompt Payment Legislation for small construction subcontractors and suppliers — there being no construction-specific security-of-payment Act in India.
MSMED Act 2006 [part-of] Prompt Payment Legislation MSMED Act 2006 [regulates] India
For a registered Micro or Small Enterprise that is a supplier or subcontractor, the Act imposes a 45-day payment limit and — via Section 16 — automatic interest on delayed payment at three times the RBI-notified bank rate, compounded monthly, which no court or tribunal may reduce. This is one of the most punitive late-payment interest regimes of any market in the vault. Section 18 routes disputes to the MSME Facilitation Council for conciliation and then arbitration, to be concluded within 90 days; the resulting award is enforceable as a court decree, and a buyer challenging it must first deposit 75% of the award amount. The MSME Samadhaan portal (2017) monitors delayed payments. As a special statute the Act overrides the general Arbitration and Conciliation Act and any contrary arbitration agreement.
MSMED Act 2006 [opposes] Global Subcontractor Payment Delays MSME Facilitation Council [regulates] Construction Payment Disputes
The Act’s weakness for construction is the unresolved “works contract” question: several Indian court decisions hold that composite, indivisible works contracts fall outside the MSMED Act, leaving construction subcontractors uncertain whether they can access its strong remedy at all. The Act is therefore powerful in principle but jurisdictionally contested in the construction context — a key open question for the India market.
MSMED Act 2006 [contradicts] Construction Payment Disputes
Connections
- India — jurisdiction the Act governs, source: 2026
- MSME Facilitation Council — statutory dispute forum under the Act, source: 2026
- Global Subcontractor Payment Delays — problem the Act targets, source: 2026
- Prompt Payment Legislation — the Act is India’s de facto example, source: 2026