The Madhya Pradesh High Court has reaffirmed that state authorities cannot delay payments to MSMEs on grounds of fund unavailability once contractual liabilities are acknowledged. This judgment enforces statutory obligations under the Micro, Small and Medium Enterprises Development Act, 2006, and sets a clear timeline for compliance.
Background & Facts
The Dispute
The petitioners, M/s New Baba Enterprises and other allied firms, are registered Micro, Small and Medium Enterprises engaged in printing and allied services. They were awarded contracts through competitive tenders floated by the State of Madhya Pradesh for election-related printing work. The work orders were issued, the services were fully rendered, and the bills submitted by the petitioners were duly verified and accepted by the concerned authorities.
Key Facts
- The petitioners executed all contractual obligations under the work orders issued between 2023 and 2024.
- Bills totaling Rs. 2,40,333.52 were raised and formally accepted by the respondents.
- Despite acceptance, no payment has been made as of the date of filing the petition.
- The respondents cited non-availability of funds under the relevant budget head as the reason for delay.
- The petitioners are registered under the Micro, Small and Medium Enterprises Development Act, 2006.
- The petitioners claimed compound interest at 17.25% per annum, compounded monthly, as per their demand.
Procedural History
- Date of work completion: Between 2023 and early 2024
- Date of bill submission and acceptance: By March 2024
- Date of first representation for payment: April 2024 (recorded in correspondence)
- Date of filing of Writ Petition: 2025
- Date of hearing: 31.03.2026
- Date of order: 31.03.2026
The Parties' Positions
For the Petitioners
The petitioners argued that:
- Their bills were accepted and liability admitted.
- Delay in payment despite acceptance is arbitrary and violates Article 14 of the Constitution.
- As MSMEs, they are entitled to statutory interest under Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006, which mandates payment within 45 days of acceptance and interest at three times the bank rate if delayed.
- Reliance was placed on Mahishmati Bus Operator Association Mandla v. State of Madhya Pradesh (W.P. No. 23281/2024, decided on 20.08.2024), where this Court had directed timely payment with statutory interest.
For the Respondents
The State conceded that:
- The work was completed and bills accepted.
- Payment has been delayed due to administrative reasons and non-availability of funds.
- The claim would be considered "in accordance with law."
- No substantive objection was raised to the legal entitlement of the petitioners.
Relief Sought
The petitioners sought:
- A writ of mandamus directing the State to produce the complete record of payment status.
- A direction to pay Rs. 2,40,333.52 with compound interest at 17.25% per annum, compounded monthly, until payment.
- Costs of the petition and any other relief deemed fit.
The Legal Issue
Whether the State can withhold payment to an MSME for accepted contractual dues on grounds of fund unavailability, and whether statutory interest under the Micro, Small and Medium Enterprises Development Act, 2006 is automatically triggered upon delay beyond 45 days of bill acceptance.
Arguments Presented
For the Petitioner
The petitioners relied on Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006, which mandates that the buyer must make payment within 45 days of acceptance of goods or services. Failure to do so attracts interest at three times the bank rate notified by the Reserve Bank of India. They argued that the Act is a welfare legislation designed to protect MSMEs from cash flow crises caused by delayed payments by public and private buyers. The Court’s earlier decision in Mahishmati Bus Operator Association was cited as binding precedent establishing that once liability is admitted, delay cannot be justified by administrative inconvenience.
For the Respondent
The State did not dispute the factual admission of liability or the applicability of the Act. It conceded that payment was delayed due to budgetary constraints but asserted that the matter was under administrative review. No legal argument was advanced to contest the statutory entitlement to interest or the enforceability of the Act against the State.
The Court's Analysis
The Court observed that the facts of the case were indistinguishable from those in Mahishmati Bus Operator Association, wherein it had held that when a public authority accepts bills and admits liability, the only appropriate remedy is to direct the competent authority to decide and disburse the amount within a fixed timeframe. The Court emphasized that the Micro, Small and Medium Enterprises Development Act, 2006 is not merely directory but mandatory in its application to government entities.
"The State cannot be permitted to treat its obligations to MSMEs as contingent upon budgetary availability. Such an approach defeats the very purpose of the Act, which seeks to ensure timely payment to small enterprises that lack the financial buffers of larger corporations."
The Court noted that while the petitioners had claimed compound interest at 17.25%, the statutory rate under Section 16 is three times the bank rate notified by the RBI, which is the only legally enforceable rate. The Court declined to adjudicate the exact quantum of interest at this stage, as it requires computation based on the RBI’s notified rates during the relevant period. However, it made clear that interest must be calculated strictly as per the Act.
The Court further held that the petitioners’ right to payment is not contingent on the State’s budget cycle. Administrative inconvenience cannot override statutory rights. The Court rejected the notion that "non-availability of funds" is a valid defense against a statutory obligation.
The Verdict
The petition was disposed of with directions. The State is directed to consider the petitioners’ claim and release the admissible dues of Rs. 2,40,333.52, along with statutory interest as mandated under Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006, within one month from the date of production of a certified copy of this order. Interest shall be calculated at three times the bank rate notified by the Reserve Bank of India from the 46th day after bill acceptance until actual payment. No costs are awarded.
What This Means For Similar Cases
Statutory Interest Is Non-Negotiable
- Practitioners representing MSMEs must now insist on Section 16 interest as a matter of right, not as a negotiable claim.
- Any delay beyond 45 days of bill acceptance triggers interest automatically, regardless of whether the buyer is a government department or private entity.
- Claims for higher interest rates (e.g., 17.25%) must be abandoned in favor of the statutory rate, which is the only enforceable rate under the Act.
Administrative Delays Are Not a Defense
- Government departments cannot plead budget constraints, fund unavailability, or pending approvals as justification for non-payment.
- Writ petitions under Article 226 are maintainable even without prior formal demand if liability is admitted in writing.
- Courts will not entertain arguments that delay is "unavoidable" - the Act imposes a strict timeline.
Procedural Clarity for MSMEs
- MSMEs should maintain clear records of bill submission, acceptance dates, and follow-up communications.
- If payment is delayed beyond 45 days, a legal notice invoking Section 16 should be sent immediately.
- Writ petitions can be filed without exhausting departmental remedies if the liability is undisputed and the delay is prolonged.
