In short. Take a delayed payment dispute to the Facilitation Council and the first thing you'll face is MSME conciliation. You can't skip it. Section 18(2) of the MSMED Act has the Council push supplier and buyer towards a deal before it rules on anything. Sign a settlement and it's as good as an arbitral award. If talks fail, the Council moves to arbitration. Expect conciliation to take two to six months. Walk into the first sitting with your invoice schedule, your interest working and a clear idea of the lowest figure you'd take.
Is this your situation?
- You filed your delayed payment case on the MSME Samadhaan portal a few weeks ago. Now there's a date for a conciliation meeting and you've no idea what to expect.
- The Council has sent notice to your buyer, and you'd like to know what actually happens at that first sitting.
- The buyer's accounts head rang to say they'll pay the principal if you forget the interest. Should you agree at conciliation?
- You're on the buyer's side. A notice of an MSME reference landed on your desk and you need to understand this stage.
- Some of your invoices are more than three years old, and a friend in the trade said conciliation may still be open to you.
- You keep hearing the word 'arbitration' and want to know when conciliation stops and the Council starts deciding.
How MSME conciliation works before arbitration
A micro or small supplier refers a payment dispute to the Micro and Small Enterprises Facilitation Council under Section 18(1) of the MSMED Act. The Council doesn't begin by deciding who's right. Section 18(2) makes it try conciliation first, either on its own or with help from an institution or centre that offers alternative dispute resolution services. Only when conciliation fails and stands terminated does Section 18(3) allow the Council to take up the dispute for arbitration, or send it to an arbitral institution.
So think of MSME conciliation as an organised attempt at settlement, with the Council sitting in the middle. No witnesses. No cross-examination, and no award at this stage. The members hear both sides, test the figures, ask the buyer what it admits and put forward terms. If the parties agree, they sign a settlement agreement that binds them and can be enforced like an arbitral award. If they don't, the same Council can go on to arbitrate. The Supreme Court settled that point in Gujarat State Civil Supplies Corporation v. Mahakali Foods (2022).
Plenty of suppliers treat conciliation as a box to tick on the way to an award. That's a mistake. A large share of Council cases end right here, partly because a buyer who sees the Section 16 interest figure often decides that paying the principal quickly is cheaper than a fight. Prepare for conciliation as seriously as you would for a hearing. You'll usually see your money sooner.
What Section 18(2) conciliation takes from the Arbitration Act
Section 18(2), MSMED Act, 2006
Once a reference comes in, the Council runs conciliation itself or asks an ADR institution to help. Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 then apply as though the conciliation had been started under Part III of that Act.
Sections 65, 67, 69 and 70, Arbitration and Conciliation Act, 1996
The conciliator can ask each side for a statement of its position and supporting documents. It has to help the parties independently and impartially, and it can meet them together or one at a time. When one party gives it factual information, it may share the substance with the other side, unless that information was given on condition it stay confidential.
Sections 73 and 74
If the parties agree, they sign a written settlement agreement and the conciliator authenticates it. It's final and binding, with the same status and effect as an arbitral award on agreed terms under Section 30. That means it can be enforced like a decree.
Sections 75, 76 and 77
Conciliation proceedings are confidential. They end with a signed settlement, with the conciliator declaring in writing that further efforts aren't justified, or with a party declaring in writing that the proceedings are terminated. While conciliation is pending, the parties shouldn't start arbitral or court proceedings on the same dispute, except to protect their rights.
Sections 80 and 81
Section 80 ordinarily stops a conciliator from later sitting as arbitrator. Mahakali Foods held that Section 18(3) of the MSMED Act overrides it, so Council members can do both. Section 81 stops a party from relying, in later proceedings, on the other side's settlement proposals, admissions made during conciliation, the conciliator's proposals or a party's willingness to accept a proposal.
Between filing and the first conciliation date
Once the application is filed on the MSME Samadhaan portal or handed in at the Council, the Council office goes through it. The usual queries are about the Udyam certificate, the supplier's address (which fixes jurisdiction under Section 18(4)), and invoices or delivery papers that are missing. After the reference is registered, the Council sends notice to the buyer with a copy of the claim, asks for a reply and lists the matter for a conciliation sitting. How long that gap lasts depends heavily on the state, and sometimes on which council within the same state. A few weeks to a few months is common.
Councils sit from time to time, not every day. One sitting can have a long list. The Delhi Council works under the Delhi government's industries department. UP and Haryana have more than one council each, and it's the council for your district that will hear you. Our guide on which Council has jurisdiction shows how to work that out. The MSMED (Amendment) Act, 2026 now lets states set up additional councils, and that part of the amendment came into force on 15 October 2026.
Don't waste the waiting period. Read the buyer's reply the day it arrives. It tells you which defences are coming (status, acceptance, quantity, set-off). You then have time to write a short answer to each before the sitting.
What really goes on at a council hearing for conciliation
An MSME council hearing at this stage feels more like a structured meeting than a court. The Council calls each matter in turn. It's usually chaired by a senior officer of the state industries department, with members from industry associations and, in some councils, a legal member. Some councils now hold sittings by video conference as well as in person, so check your notice. You'll be asked to explain the claim briefly, the buyer will respond, and then the members ask questions. Expect things like these. Which invoices does the buyer admit? Was there any written objection to quality within 15 days of delivery? What's been paid since the reference? Will the buyer pay the admitted principal, and by when?
The members might suggest terms there and then. A common one is payment of the admitted principal within 30 days, with interest left open for later. Or they'll ask both sides to step outside, talk and come back. If the buyer's representative needs management approval, the matter often goes to the next sitting. Two or three sittings are normal before conciliation either produces a settlement or gets closed as failed.
Lawyers can usually appear. Some councils prefer the parties themselves at conciliation, though, so find out how yours works. Even if your lawyer goes, take someone from the business who knows the dealings and can agree a figure. A sitting where nobody on either side can say yes is a wasted date.
What to say at conciliation, and what to keep to yourself
Open with numbers, not grievances. A single page listing each invoice, its date of acceptance, payments received and the balance, with Section 16 interest worked out separately, lets the Council grasp your claim in a minute. Our guide on how to calculate MSME delayed payment interest shows a clean way to set it out. Keep the story of the relationship short. The members have heard hundreds like it. They want figures.
Section 81 protects what you say. Your settlement proposals, admissions made during conciliation and your willingness to accept a proposal can't be used against you later in the arbitration. So you can negotiate honestly. That doesn't make every concession safe, though. Don't accept, even casually, that you weren't a micro or small enterprise, that a quality objection came in time, or that a claim is time-barred, unless it's true. Those points sit at the centre of any arbitration. Conceding them in front of the very members who may later arbitrate is unwise.
Before each sitting, Advocate B.K. Singh sits down with the client and prepares a two-column sheet. One column holds what the buyer has admitted in writing. The other holds what's genuinely disputed. In his experience the conciliations that go best are the ones where the supplier asks for the admitted column to be paid straight away and offers to talk about the rest. It gives the Council an easy first order. And the buyer gets a face-saving way to pay something.
How a conciliation settlement is recorded, and whether it binds
When the parties agree, the terms go into a written settlement agreement, signed by both and authenticated by the Council. Under Sections 73 and 74 of the Arbitration Act it's final and binding, with the same status and effect as an arbitral award on agreed terms. If the buyer defaults, you don't start over. You can enforce the settlement like a decree under Section 36. Our guide on what happens after an MSME Council award explains that stage.
The wording matters more than most people think. A settlement that only says 'the buyer will pay Rs 18 lakh in three instalments' leaves you with very little if the second instalment never comes. Advocate B.K. Singh won't let his team draft a conciliation settlement without a default clause. If any instalment isn't paid on its date, the interest waiver falls away and the full claim with Section 16 interest becomes payable. Buyers who mean to pay rarely object. And if they don't pay, enforcement becomes simple.
Before you sign, check three more things. Is the buying entity's name correct? Is each payment date an actual calendar date, not 'within a reasonable time'? Does the agreement say whether payments include GST and TDS? If the buyer is a government body or PSU, ask who approved the settlement for it. Our guide on an MSME claim against a government department or PSU explains why that approval matters.
When conciliation ends and arbitration starts
There are three exits under Section 76. Both sides sign a settlement. Or the Council writes that it sees no point trying further. Or one party writes that, as far as it's concerned, conciliation is over. Councils in practice also close the stage as failed when a buyer ignores notice and stays away, or shows up only to announce it won't pay a rupee. Whatever the reason, get the closing order on paper. Ask for your copy.
After a failed conciliation, Section 18(3) allows the Council to arbitrate the dispute itself or hand it to an institution, and the Arbitration Act kicks in as though both sides had signed an arbitration agreement. Typically the buyer files a statement of defence, with a counter-claim if it has one. You can reply with a rejoinder. From here it's a contested case, even if most of it is still fought on paper. If arbitration is new to you, our guide on what arbitration is and how it works in India covers the basics.
On paper, Section 18(5) gives the Council 90 days from the reference to decide. Several High Courts have called that period directory rather than mandatory. Run past it, and the Council keeps its power. Councils run past it all the time. Our guide on how long an MSME Facilitation Council case takes gives realistic ranges.
Can the buyer dodge or drag out conciliation?
Staying away won't stop it. Councils typically issue notice, give one or two more chances, then record that conciliation has failed and move to arbitration. A buyer who never showed up often does the supplier a favour. It reaches the arbitration stage with nothing on record to show it engaged.
Dragging things out is far more common. Buyers ask for adjournments to 'reconcile accounts'. They send a junior officer who can't agree to anything. Or they raise a jurisdiction objection, saying the supplier registered after the contract, or is a trader, or that this is a works contract. The Council can note the objection and leave it for the arbitration stage. Some buyers have gone to the High Court in writ against Council proceedings. In Tamil Nadu Cements Corporation v. MSEFC (2025) the Supreme Court referred questions about such writs to a larger bench, so check the current position if one is filed against you.
If you're the buyer, engaging properly at conciliation is usually in your own interest. It's the cheapest point at which to cap the interest and close the file. Two of our guides deal with your side of the table. One covers how to respond if an MSME supplier files a case against your company. The other explains how a buyer can settle an MSME claim without paying full interest.
Does limitation apply at the conciliation stage?
Not to conciliation. The Supreme Court decided in Sonali Power Equipments v. Maharashtra State Electricity Distribution Co (July 2025) that conciliation under Section 18(2) sits outside the Limitation Act, 1963. Invoices older than three years can still be put on the conciliation table. Whether the buyer pays is up to it.
Arbitration is another matter. Silpi Industries v. Kerala State Road Transport Corporation (2021) is the Supreme Court ruling that brings the Limitation Act into Section 18(3) arbitration. Say talks on a stale claim break down. At the arbitration stage the Council may well throw it out as time-barred, unless something extended the period, such as a part payment or a written acknowledgment by the buyer. Sonali Power also hinted that, depending on the facts, the buyer's own balance sheet entry could work as an acknowledgment.
What does that mean for you? Go into conciliation on an old claim knowing there's not much of a safety net behind it. Lean on every acknowledgment you've got. Don't bluff. Our guide on the time limit for an MSME delayed payment claim helps you check whether your invoices are within time.
Is mediation replacing MSME conciliation?
That's the direction. It hasn't fully happened yet, as of October 2026. Tucked into the Mediation Act, 2023 is a change to Section 18 of the MSMED Act, under which the Council would either mediate the dispute or pass it to a mediation service provider, and conciliation under the Arbitration Act would drop out. From what has been reported, that change wasn't switched on when other parts of the Mediation Act were notified in October 2023.
The MSMED (Amendment) Act, 2026 takes that idea further. Mediation would have 90 days from the first appearance to finish. Arbitration would have to begin within 30 days of mediation ending, and the award would be due within 90 days once pleadings close. Awards and mediated settlements could be recovered as arrears of land revenue, and the 75 percent deposit rule would cover mediated settlements too. A notification dated 12 October 2026 started several parts of the 2026 Act. The dispute-process sections were left out.
Today it's still called conciliation, on the Samadhaan portal and in every council notice we've seen. When mediation does take over, the room itself won't feel very different. Deadlines will. Look up the current notifications before leaning on anything new.
Getting ready for the conciliation sitting, step by step
Go through the buyer's reply carefully
List every defence it raises and every document it leans on. Note any admission, even a line saying certain invoices are 'under process'.
Make a one-page claim note
Show the balance invoice by invoice, acceptance dates, payments since filing, and Section 16 interest separately. Print copies for each member and for the buyer.
Separate admitted from disputed
Mark whatever the buyer has accepted in writing anywhere, whether in a ledger confirmation, an email or a payment advice. That's your first ask at the sitting.
Settle your range in advance
Agree within the business on the lowest figure you'd take, whether you'd give up part of the interest for quick payment, and what instalments you could live with.
Send someone who can decide
Make sure the person attending has authority to settle. If it isn't the owner or a director, give them a written authorisation.
Carry draft terms
Take a short draft with dates, amounts, GST and TDS treatment and a default clause. If agreement comes, it can be signed that same day.
If talks fail, get it in writing
Ask for the order recording failure, and be ready to file your full statement of claim for arbitration.
Each step of conciliation: time and cost
| Stage | What happens | Usual time | Cost (general) |
|---|---|---|---|
| Filing and scrutiny | Application on Samadhaan or at the Council; questions on documents and jurisdiction | 2 to 8 weeks | No portal fee when we wrote this; check |
| Notice to buyer and its reply | Buyer gets the claim and files a reply | 3 to 8 weeks | Nothing beyond your preparation time |
| First conciliation sitting | Both sides heard; Council suggests terms | One date, often 15 to 30 minutes for each matter | Appearance fee if a lawyer goes, agreed in writing |
| Further sittings | Adjourned for approvals or to reconcile accounts | 1 to 3 more dates, a month or two apart | Same as above |
| Settlement agreement | Signed by the parties and authenticated by the Council | Same day as agreement, or the next sitting | Nothing; payment as per the terms |
| Failure and move to arbitration | Order closing conciliation; arbitration starts | Usually at the sitting where talks break down | Lawyer's fee for arbitration agreed stage by stage |
| Whole conciliation stage | From filing to settlement or failure | Roughly 2 to 6 months, sometimes more | Modest next to a suit; no court fee |
What to take with you to the sitting
- Your reference and the buyer's reply, with your notes against each defence
- Udyam certificate, along with your classification history
- Purchase orders, with the payment term in each one
- An invoice schedule showing acceptance dates and balances
- Signed challans, GRNs or the emails accepting your service, for every invoice
- Your ledger, balance confirmations and payment advices
- A printed Section 16 interest working
- A written authorisation for whoever's attending, if it's not the owner or a director
- A draft settlement with a default clause, blanks ready to fill
Mistakes suppliers make at conciliation
- Turning up without figures. If you can't say what's been paid since filing, you lose credibility in the first minute.
- Insisting on full interest before you'll even talk. Interest is your strongest card. Play it during the negotiation, not as an ultimatum.
- Taking an oral promise. A settlement has to be written and signed before the Council. Something said in the corridor can't be enforced as an award.
- Signing without a default clause. When the buyer misses an instalment, you want your original claim back, not a brand new dispute.
- Giving away jurisdiction points casually. Status, timely objection and limitation will all be argued in arbitration, before the same members.
- Letting it drift for months. If the buyer keeps asking for time and pays nothing, ask the Council to record failure and move on.
An invented example: a Patparganj printer and a Noida publisher
This example is made up. Picture an offset printing press in Patparganj Industrial Area in East Delhi, on Udyam as a small enterprise since 2020. Its biggest customer is an education publisher in Sector 63, Noida, for whom it prints textbooks. Once the 2025-26 school season is over, Rs 47 lakh is still owed. In May 2026 the press goes on the Samadhaan portal, and the reference lands with the Delhi Council. The publisher replies that 6,000 books never arrived and wants a Rs 4 lakh set-off. The remaining invoices it leaves alone.
The owner's son spends a weekend matching challans against the reply. On 2,500 books, roughly Rs 1.6 lakh worth, the publisher has a point, because they never left the press. Everything else has a signed challan. So at the sitting the press gives up the Rs 1.6 lakh, puts the challans on the table and asks for the Rs 43 lakh nobody disputes. The publisher's finance manager says he needs approval. Four weeks on, at the second sitting, both sides sign. The deal is Rs 45.4 lakh over three monthly instalments, with interest waived only if each one is on time, and the whole claim plus Section 16 interest coming back on any default.
Two instalments come in on time. The third slips by ten days. The press doesn't need a new case, since the settlement counts as an arbitral award and the revived claim can go straight to execution. One letter saying so, and the money turns up that week. Nobody real is in this story. The pattern is a common one, though. A small point given up, a big admitted figure, and a default clause that earns its place.
Council conciliation, a private deal, or another forum?
You can always settle privately with the buyer, before or after filing, and it's often quicker. The weak spot is enforcement. A private settlement is just a contract, and if the buyer breaks it you're left with a fresh claim to bring. A settlement signed before the Council has the status of an arbitral award and can be executed directly. So if you're close to a private deal, it's often worth asking the Council to record it.
Suppliers whose contract has an arbitration clause naming an institution sometimes ask whether to go there instead. For a registered micro or small supplier, the Council route brings statutory interest and the 75 percent deposit protection. Institutional arbitration doesn't. The commercial court guide comparing DIAC arbitration with the MSME Council weighs the trade-offs, and our guide on what the MSME Facilitation Council is and how it works covers the Council beyond this stage.
Wherever you end up, the habits described here carry over. Clear figures, admitted sums kept apart from disputed ones, written terms with a default clause. They work just as well across a table in a private negotiation.
What to do this week
Got a conciliation date? Go back to the buyer's reply and build that one-pager, with invoices, acceptance dates, payments and interest on it. Highlight anything the buyer has accepted in writing. Pick who attends. Hand them a letter letting them settle inside the range you've fixed. Then get draft terms ready, default clause included, so a deal reached at the sitting gets signed before anyone leaves.
If you haven't filed yet, put the papers in order before you do. Councils engage better with a claim they can take in at one glance. Advocate B.K. Singh's team can go through your reference, the buyer's reply or a draft settlement ahead of the sitting, and tell you how far the switch to mediation under the 2026 amendment has got. Write to us on the contact page.
Frequently asked questions
Does conciliation have to happen before the MSME Council can arbitrate?
Yes. Section 18(2) makes the Council attempt conciliation first. Arbitration under Section 18(3) starts only once conciliation fails and stands terminated. If the buyer doesn't appear, the Council usually records failure and moves on.
Who acts as the conciliator in an MSME case?
The Council itself, through its chair and members, or an ADR institution the Council refers the dispute to. If conciliation fails, the same Council can arbitrate later, as the Supreme Court held in Mahakali Foods.
Can my lawyer come to the MSME conciliation meeting?
Usually, yes. Practice varies between councils and some prefer the parties in person. Even with a lawyer present, someone from the business who can agree a settlement should attend.
Can my offer at conciliation be used against me in arbitration?
No. Under Section 81 of the Arbitration Act, nobody can later rely on what was offered, admitted or proposed (by either side or by the conciliator) while conciliation was on. Still, don't give ground on legal points like your MSE status or limitation.
How many conciliation meetings does the Council hold?
Usually one to three sittings, a month or two apart. If the buyer keeps asking for time and pays nothing, you can ask the Council to record that conciliation has failed.
Can a conciliation settlement be enforced in court?
Yes. Once it's signed and authenticated under Sections 73 and 74, it ranks as an arbitral award. You execute it like a decree, under Section 36 of the Arbitration Act.
Can I take a time-barred claim to MSME conciliation?
You can. Sonali Power Equipments (2025) keeps the Limitation Act out of Section 18(2) conciliation. If talks fail, though, limitation bites at the arbitration stage.
Can the buyer raise a counter-claim at conciliation?
In the talks, yes, it can put its set-off or counter-claim on the table. Deciding a formal counter-claim is for the arbitration stage, and Silpi Industries (2021) is where the Supreme Court allowed that.
Advocate B.K. Singh
Founder of B.K. Singh & Associates. MCA, LL.B., LL.M. More than twenty years in practice before the Supreme Court, the Delhi High Court, district and commercial courts in Delhi NCR, and tribunals.
This guide explains the law in general terms and is not legal advice. For advice on your own papers, contact the team.