MSME Act Under Scrutiny: Courts Revisit Interest Claims Outside Section 18

The intersection of arbitration and statutory protections under the MSME Act has sparked a legal conundrum: Can MSMEs claim interest under Section 16 even if they bypass Section 18’s Facilitation Council and pursue arbitration directly?

The MSME Act provides a robust framework to protect small enterprises from delayed payments. Section 15 mandates timely payment, while Section 16 entitles MSMEs to compound interest on delays. Section 18 offers a dedicated dispute resolution route via the Facilitation Council. However, many MSMEs enter into private arbitration agreements, raising the question—does the statutory interest survive outside this route?

Legal experts argue that the right to interest under Section 16 is substantive and not contingent on the procedural path of Section 18. Recent court interpretations suggest that MSMEs may retain this right even in arbitration, provided the claim is rooted in delayed payments under the Act.

Key Highlights:

- Legal issue: Applicability of MSME interest claims outside Section 18

- Section 16: Grants compound interest for delayed payments

- Arbitration route: Increasingly preferred by MSMEs

- Judicial view: Interest may be claimed independently of Facilitation Council proceedings

- Implication: Could redefine MSME dispute resolution strategies

Sources: Cyril Amarchand Mangaldas Blog, Supreme Court Judgement (Jan 2025), G.R. Hari Legal Research Wing