Commercial contracts · Template

Vendor and supplier agreement template for India

A vendor agreement decides what happens on the bad day: goods arrive late, quality slips, an invoice goes unpaid. In India it also decides something most templates miss entirely — whether the supplier's MSME status, and the statutory payment protection that comes with it, is on the record at all.

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When you need this

  • Before the first purchase order to a new supplier, not after a dispute
  • When you are the supplier and want the 45-day payment ceiling documented
  • Where quality, quantity or delivery timing genuinely matters to your own customers
  • When the vendor will hold your customer data, which pulls in a separate DPDP obligation
  • Where the relationship is recurring rather than a single transaction

What this document must contain

  • The vendor's Udyam registration number — This is the single most valuable field on the document. Udyam registration is what establishes MSME status, and MSME status is what triggers the payment ceiling and the interest remedy under the MSMED Act. Omit it and the strongest remedy is undocumented.
  • Payment terms within the statutory ceiling — Under s. 15 of the MSMED Act, 2006, payment to a registered micro or small enterprise is due on the agreed date, and where no date is agreed the period cannot exceed 45 days from acceptance. A contractual 90-day term does not lawfully displace that.
  • A precise scope of supply — Specification, quantity, grade. 'As per discussion' is not a scope, and it is the phrase that appears in most disputes.
  • Delivery timeline and acceptance procedure — The acceptance date is what starts the payment clock. Define how goods are inspected, in what window, and what happens on rejection.
  • Warranty, defect liability and remedy — Repair, replace or refund — and who bears freight. Without this, the answer is negotiated after the dispute has already started.
  • GSTIN and PAN for both parties — Required for the tax position to work, and it identifies the entities precisely rather than by trade name.
  • Termination rights and notice period — Both for cause and for convenience. A supply relationship with no exit is a supply relationship you cannot fix.

The law that governs it

  • MSMED Act, 2006 — s. 15 — A buyer must pay a registered micro or small supplier by the agreed date; where no date is agreed, within 45 days of the day of acceptance. The section caps what the parties can agree to, so a longer contractual term does not override it.
  • MSMED Act, 2006 — s. 16 — On late payment the buyer is liable to compound interest, with monthly rests, at three times the bank rate notified by the RBI. This liability cannot be waived by contract — an agreement to the contrary does not displace it.
  • Indian Stamp Act, 1899 — s. 35 — Where the agreement is chargeable with duty, it must be stamped before execution or it cannot be admitted in evidence. Duty is State-specific, so the place of execution matters.

Common mistakes

  • Not recording the vendor's Udyam number, leaving the MSMED remedy invisible on the face of the contract
  • Writing a 60- or 90-day payment term with a registered micro or small supplier and assuming the contract settles the point
  • Leaving acceptance undefined, so nobody can say when the payment clock started
  • No jurisdiction clause, so a dispute begins with an argument about where to have it
  • Omitting a data protection addendum where the vendor will process personal data on your behalf

Frequently asked questions

What is the maximum payment period for an MSME supplier in India?

Under s. 15 of the MSMED Act, 2006, payment is due on the date agreed in writing, and where no date is agreed, within 45 days from the day of acceptance or deemed acceptance. The section operates as a ceiling on what can be agreed, so a longer contractual term does not lawfully extend it.

What interest applies to late payment to an MSME?

Section 16 of the MSMED Act, 2006 provides for compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. It is a statutory liability and an agreement to the contrary does not displace it — which is why it is worth confirming the current notified bank rate when computing a claim.

Does the vendor have to be Udyam registered for this to apply?

The MSMED remedies attach to enterprises registered as micro or small. Capturing the Udyam registration number in the agreement is what puts that status beyond argument later, which is why the field belongs on the face of the contract rather than in a supporting email.

Do I need a separate data processing agreement with my vendor?

If the vendor will handle personal data on your behalf, yes. Section 8(5) of the DPDP Act, 2023 requires a data fiduciary to engage a processor only under a valid contract. A vendor DPA addendum covers that obligation without reopening the commercial agreement.

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