Checking Whether explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A company that buys from micro and small enterprises must pay within the time the MSMED Act allows, show unpaid amounts in its annual accounts if its accounts are audited, and, if payments run beyond forty-five days, file a half-yearly return with the Registrar in MSME Form-1. This guide shows how to check a vendor's status and what each text prints, as per the Micro, Small and Medium Enterprises Development Act, 2006, the Udyam notification as amended, the Companies Act, 2013 in the Ministry's consolidated text (last updated 29 July 2022) and the 2019 and 2024 Orders on MSME Form-1, consulted on 3 October 2026. Later amendments should be checked.
A buyer must pay a micro or small enterprise supplier by the agreed date, which must never exceed forty-five days from the day of acceptance or deemed acceptance (section 15), or, if there is no written agreement, before the appointed day; delay carries compound interest with monthly rests at three times the bank rate notified by the Reserve Bank (section 16). A company whose payments to such suppliers are pending beyond forty-five days files MSME Form-1 under the Order made under section 405 of the Companies Act, by 31 October for April to September and 30 April for October to March.
Who is a supplier for these rules
Section 2(n) of the MSMED Act defines "supplier" as a micro or small enterprise which has filed a memorandum with the authority under section 8(1)(a), and includes the National Small Industries Corporation, State small industries corporations and bodies engaged in selling goods produced, or services rendered, by such enterprises. Section 2(b) defines the "appointed day" as the day following the expiry of fifteen days from the day of acceptance or deemed acceptance of the goods or services. Under the Udyam notification (S.O. 2119(E), 26 June 2020), the memorandum is the Udyam Registration: on registration the enterprise gets an Udyam Registration Number and an e-certificate, the Udyam Registration Certificate.
Checking a vendor
Ask the vendor for its Udyam Registration Number and Udyam Registration Certificate, as the notification names them, and record the category stated. The classification is fixed by investment in plant and machinery or equipment and turnover. The amendment notification S.O. 1364(E) dated 21 March 2025, in force from 1 April 2025, substitutes the limits in paragraph 1 of the 2020 notification as follows:
| Category | Investment in plant and machinery or equipment does not exceed | Turnover does not exceed |
|---|---|---|
| Micro enterprise | two crore and fifty lakh rupees | ten crore rupees |
| Small enterprise | twenty five crore rupees | one hundred crore rupees |
| Medium enterprise | one hundred twenty five crore rupees | five hundred crore rupees |
Paragraph 3 of the 2020 notification applies a composite criterion: an enterprise that crosses a ceiling in either investment or turnover leaves its category for the next higher one. Medium enterprises are not "suppliers" under section 2(n) for sections 15 and 16, which speak of micro and small enterprises. This article describes no portal steps.
If you want your vendor list checked and the return prepared, see our MSME form filing service.
The payment rule: sections 15 to 17
- Section 15: the buyer pays on or before the date agreed in writing or, where there is no agreement, before the appointed day. Proviso: in no case may the period agreed in writing exceed forty-five days from the day of acceptance or deemed acceptance.
- Section 16: where the buyer fails to pay, it is liable to pay compound interest with monthly rests to the supplier from the appointed day or, as the case may be, from the date immediately following the agreed date, at three times the bank rate notified by the Reserve Bank, notwithstanding anything in any agreement or any law.
- Section 17: for goods supplied or services rendered, the buyer is liable to pay the amount with interest as provided in section 16.
- Section 18: any party to a dispute about an amount due may make a reference to the Micro and Small Enterprises Facilitation Council; conciliation, then arbitration; a reference is decided within ninety days of the reference.
- Section 22: a buyer that is required to get its annual accounts audited under any law furnishes in its annual statement of accounts, as additional information, the principal and interest unpaid to any supplier at the end of each accounting year, interest paid and payments made beyond the appointed day, interest due and payable for delay, interest accrued and remaining unpaid, and further interest remaining due in succeeding years.
- Section 23: interest payable or paid by a buyer under the Act is not allowed as a deduction in computing income under the Income-tax Act, 1961. For tax questions, see our income-tax guides.
Our guide on interest on delayed payments discusses delayed payment interest.
The Company law layer: section 405 and the Order
Section 405(1) of the Companies Act lets the Central Government, by order, require companies generally, or any class, to furnish information or statistics within the time the order specifies. Section 405(4) prints a penalty for failing to comply or furnishing incorrect or incomplete information: twenty thousand rupees and a further one thousand rupees for each day after the first, subject to a maximum of three lakh rupees, on the company and every officer in default.
The Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019 (S.O. 368(E), 22 January 2019), made under section 405:
- recites that companies that get supplies of goods or services from micro and small enterprises and whose payments to those suppliers exceed forty-five days from the day of acceptance or deemed acceptance under section 9 of the MSMED Act are "specified companies" that must submit a half-yearly return stating the amount due and the reasons for delay;
- paragraph 3: every specified company files a return in MSME Form-1 by 31 October for the period April to September and by 30 April for the period October to March.
The Amendment Order, 2024 (S.O. 2751(E), 15 July 2024) inserts a proviso to paragraph 3: only those specified companies which have payments pending to any micro or small enterprise for more than 45 days from the date of acceptance or deemed acceptance shall furnish the information in MSME Form-1. It also substitutes the form in the Annexure; the 2019 form is superseded and is not described here.
The substituted MSME Form-1 is headed "Form for furnishing half yearly return with the registrar in respect of outstanding payments to Micro or Small Enterprises". It carries company information (CIN or FCRN, name, registered office, email, PAN), return details (type of return: periodic half-yearly; period start and end dates) and a table headed "Regular half yearly return of outstanding dues (more than 45 days) to Micro or Small Enterprises Suppliers", with columns for the supplier name, PAN, payments within 45 days (through TReDS or other mode), payments after 45 days, amounts outstanding for 45 days or less and for more than 45 days, and the reason for delay. A note in the form says to report all outstanding amounts due for more than 45 days or liquidated after 45 days of acceptance. It ends with a declaration, a digital signature and a note on section 405(4).
Our guides on the half-yearly return and on filing it cover the filing. For an Indian subsidiary's calendar, see our subsidiary calendar.
Worked example (invented names)
Vega Retail Private Limited buys components from Asha Tools, which holds an Udyam Registration Certificate. Goods are delivered on 1 April and no written objection is made within fifteen days, so 1 April is the day of deemed acceptance. No written agreement fixes a date, so payment is due before the appointed day: fifteen days after 1 April ends on 16 April, and the appointed day is the day following, 17 April. If Vega pays on 20 May, it has paid after forty-five days (1 April plus forty-five days is 16 May), so the payment belongs in MSME Form-1 for April to September, due by 31 October, and interest is due under section 16 from the appointed day. If instead the parties had agreed in writing on a sixty-day period, the proviso to section 15 would still limit it to forty-five days.
Common mistakes
- Not obtaining the Udyam certificate and relying on the vendor's word.
- Fixing a written credit period above forty-five days.
- Forgetting section 22 disclosures in the audited accounts.
- Missing the 31 October or 30 April dates.
- Using a pre-2025 limit to decide whether a vendor is micro or small.
Need help with MSME Form-1?
We can review your vendor ledger, compute the delays and interest and file the half-yearly return. See our MSME form filing service.
Key takeaways
- A supplier is a micro or small enterprise that has filed a memorandum; Udyam Registration is the current memorandum.
- Written credit periods can never exceed forty-five days.
- Interest is compound, monthly rests, at three times the bank rate.
- MSME Form-1 is due by 31 October and 30 April, for companies with payments pending beyond forty-five days.
- The limits of micro, small and medium categories were revised from 1 April 2025.
Read next
- Compliance Calendar for an Indian Subsidiary of a Foreign Company
- Companies Act Thresholds in One Table
- MSME-1 Half-Yearly Return
- How to File MSME-1
Disclaimer: Based on the Companies Act, 2013 in the Ministry of Corporate Affairs consolidated text (last updated 29 July 2022), the Rules as consolidated in the Ministry's e-book and the other official texts named in this article, as consulted on 3 October 2026. Later amendments, notifications, circulars, forms and fees should be checked. Formats are general drafts to be adapted to the company's articles and facts. This article is general information, not legal advice; check the official text before acting.