In short. Every state has an MSME Facilitation Council (MSEFC), set up under Section 20 of the MSMED Act, 2006, to sort out delayed payment fights between registered micro or small suppliers and the buyers who won't pay them. Section 18 has it try conciliation first. No settlement? Then it arbitrates the dispute itself or hands it to an arbitration institution. Its award is enforced like a decree, and a buyer who wants to challenge it must first deposit 75 percent. The Act says 90 days. Expect longer. Your first job is to check the date on your Udyam certificate.
Is this your situation?
- You delivered in good faith. Acceptance was months ago, well past 45 days, and the buyer still hasn't paid for the goods or the work.
- Your CA said "go to the MSME Council". You nodded, but you've no real idea what that body is or what goes on there.
- The purchase order has an arbitration clause and says courts in Chennai. Can a Council in Delhi even hear you?
- You're the buyer, and a notice from a Facilitation Council about a supplier's claim has just landed on your desk.
- You sat through one conciliation sitting. Nothing was agreed. What happens next?
- Suppose you win an award. Would a big company actually have to pay it?
What is the MSME Facilitation Council, in plain terms?
The Micro and Small Enterprises Facilitation Council goes by MSEFC, or just the MSME Council. It's a statutory body. Every state government and union territory sets one up under Section 20 of the Micro, Small and Medium Enterprises Development Act, 2006. For a supplier, it really has one job that matters. It decides disputes over money a buyer owes a micro or small enterprise for goods supplied or services rendered, along with the interest the Act charges on late payment.
It isn't a court. It isn't a government grievance cell either. It sits somewhere in between. In its first role it's a conciliator, helping the two sides settle. If that fails, it turns into an arbitral tribunal, or passes the case to an arbitration institution, and the Arbitration and Conciliation Act, 1996 applies as if the parties had signed an arbitration agreement. What comes out at the end is an arbitral award. You can enforce it like a civil court's decree.
Parliament set this up because it accepted that small suppliers can't afford to chase large buyers through civil suits for years. How well it delivers on that depends a lot on the state. A busy Council that sits rarely is a different animal from one that sits every week.
The sections of the MSMED Act that set up and run the Council
Section 15, MSMED Act, 2006
The buyer has to pay on the date agreed in writing, and that agreed period can't go past 45 days from acceptance or deemed acceptance. If nothing was agreed in writing, payment is due before the appointed day. That's the day after 15 days from acceptance.
Section 16
Pay late, and the buyer owes compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. It runs from the appointed day or the day after the agreed date, whatever the contract says. We go into this in our note on when an MSME can claim three times the bank rate as interest.
Section 17
The buyer is liable to pay the amount along with Section 16 interest. That amount is what you can take to the Council.
Section 18
Either party to a dispute over the amount due under Section 17 can refer it to the Council. The Council runs conciliation (Sections 65 to 81 of the Arbitration Act apply). If that fails, it arbitrates itself or refers the dispute to an institution. Section 18(4) gives jurisdiction to the Council where the supplier is located. Section 18(5) says each reference should be decided within 90 days. In practice it seldom is.
Section 19
A buyer who wants to set aside the decree, award or order has to deposit 75 percent of the awarded amount first. While the challenge is pending, the court can order part of that deposit paid out to the supplier.
Sections 20 and 21
The state government sets up one or more Councils by notification. Each has three to five members. The chairperson is the Director of Industries or an officer of similar rank. The other members come from micro and small industry associations, from banks and financial institutions that lend to such enterprises, and from people with special knowledge of industry, finance, law, trade or commerce.
Section 24
Sections 15 to 23 apply notwithstanding anything inconsistent in any other law. It's one reason the Council route beats a private arbitration clause.
Who can go to the MSEFC, and who can't?
Usually it's a supplier, which means a micro or small enterprise with Udyam registration (before that, a memorandum under Section 8). But Section 18 says any party to a dispute can make a reference, so a buyer can go too. Buyers rarely bother. Medium enterprises are outside Chapter V altogether, even though they register on the same Udyam portal. If a medium enterprise is owed money, it has to file a commercial suit or use arbitration under its contract.
The fight is usually about the registration date. In Silpi Industries v. Kerala SRTC (2021) and Gujarat State Civil Supplies Corporation v. Mahakali Foods (2022), the Supreme Court said a supplier who wasn't registered on the contract date can't claim the Act's benefits for that contract. Then in NBCC (India) Ltd v. State of West Bengal (January 2025), a two-judge bench took a wider view and sent the question to a larger bench. As of the latest reports we've seen, it hasn't been decided. Check the current position before you rely on either line. Our note on registering on Udyam after the contract explains how to handle a claim caught in that gap.
Traders are the other doubtful lot. Retail and wholesale traders could register from July 2021, but only for priority sector lending, and several High Courts have said they can't use the Council. Read whether a trader can use the Facilitation Council. Service providers? They're clearly covered.
Can the Council hear you if the contract has an arbitration clause?
Yes. In Mahakali Foods (2022) the Supreme Court held that Chapter V of the MSMED Act is a special law with an overriding clause. It prevails over the Arbitration Act and over any private arbitration agreement. Once a registered supplier makes a Section 18 reference, the buyer can't insist on the contract's arbitration or on the institution the contract names. The Court went further. It said the Council can act as arbitrator even after it has acted as conciliator in the same dispute, despite Section 80 of the Arbitration Act, which normally stops a conciliator from later becoming the arbitrator.
Exclusive jurisdiction clauses go the same way. Section 18(4) gives jurisdiction to the Council where the supplier is located. So a Delhi supplier isn't dragged to Chennai just because the purchase order says Chennai. High Courts have applied this steadily, the Bombay High Court among them in 2025, in a case where the contract named a different seat. If your contract names an institution like the Delhi International Arbitration Centre, the commercialcourtlawyer.com comparison of DIAC arbitration and the MSME Council explains how the two fit together.
How a case moves through the Council, stage by stage
Councils differ from state to state, and sometimes from one sitting to the next. But this sequence follows Section 18, and it's what most suppliers in Delhi NCR will go through.
Reference
You file online through the Samadhaan system and its online dispute resolution portal, with invoices and supporting papers. Our step-by-step guide to filing a Samadhaan complaint online walks through the form.
Scrutiny and registration
The Council's office checks you're a micro or small enterprise, the buyer is properly identified, and the claim falls under Section 17. Defects get flagged. A clean reference is registered as a case.
Notice to the buyer
The Council sends notice and asks the buyer for a reply. Expect objections. The buyer may go after your registration, category or limitation, argue the merits, or claim set-off.
Conciliation
The Council, or an ADR institution it sends the matter to, holds conciliation. It's informal. If you settle, the terms are recorded, and the settlement has the status of an arbitral award.
Conciliation ends
No settlement? Then the conciliation is recorded as terminated, and the Council has to start arbitration. It can't just order payment because talks broke down.
Arbitration
The Council sits as the tribunal or refers the dispute to an institution. You file a statement of claim, the buyer answers with a defence and quite often a counter claim of its own, documents are exchanged between the two sides, and then the tribunal hears arguments. Where facts are disputed, witnesses are sometimes examined.
Award
Then the award, with reasons. A properly drafted one sets out the principal, Section 16 interest up to a stated date, interest from then until the buyer actually pays, and the costs of the proceedings, so that nobody has to argue later about what the figure was meant to be. Both sides get copies.
Challenge or enforcement
The buyer can challenge under Section 34 of the Arbitration Act within three months (plus up to 30 days more), but only after depositing 75 percent under Section 19. No challenge, or a failed one, and you enforce the award as a decree.
What really happens at a conciliation sitting?
Less than you'd expect. More than you fear. It's usually a meeting room at the Department of Industries, or a video link, with the chairperson or a member presiding. The conciliator gives you a few minutes to explain the claim and then asks the buyer where it stands. After that it's about narrowing the gap. Is the principal admitted? Is part of it disputed? What does the buyer say about interest, and can it pay in instalments? Our separate note on how conciliation works before arbitration gets into tactics.
Advocate B.K. Singh tells suppliers the first conciliation sitting is the most important day of the case. It's the one time a senior officer looks at the whole dispute with the aim of settling it. Go with someone who can agree figures on the spot. Take a one-page statement of invoices, payments and interest. And know your floor: the lowest figure you'd accept and the instalment period you could live with. Suppliers who turn up without that usually leave with an adjournment. Nothing more.
Conciliation is without prejudice. Under Section 81 of the Arbitration Act, what either side says or offers there can't be used as evidence in the arbitration. A buyer offering 70 percent hasn't admitted 70 percent. And if you were willing to waive some interest, that doesn't shrink your claim when talks fail.
How is the arbitration stage different?
It's a real arbitration under Part I of the Arbitration Act. The tribunal is either the Council's members or an institution's arbitrator. In Jharkhand Urja Vikas Nigam v. State of Rajasthan (2021), the Supreme Court set aside an order a Council had passed without holding arbitration after conciliation failed. The Calcutta High Court reached a similar result in 2025. So the buyer has to get a fair chance to file a defence and counter claim, and to be heard.
The Limitation Act, 1963 applies here (Silpi Industries, 2021). A claim filed more than three years after the cause of action, with no acknowledgment or part payment to restart the clock, may be thrown out as time-barred. In Sonali Power Equipments v. MSEFC (2025), the Supreme Court said limitation doesn't bar conciliation. So even an old claim can be settled at that stage. The arbitration that follows is still subject to limitation, though. The buyer can also bring a counter claim in the same proceedings, which the Supreme Court accepted in Silpi Industries.
Two questions are still open. Does a writ petition lie against a Council's award? Can Council members arbitrate in every case? The Supreme Court referred both to a larger bench in Tamil Nadu Cements Corporation v. MSEFC (2025). Day to day, it changes little for most suppliers. It's one more reason to keep the Council's procedure clean.
What if the buyer says the goods were bad, or claims set-off?
Most contested Council cases turn on this. The Act has its own rule. If the buyer doesn't object in writing within 15 days of delivery, the goods or services count as accepted on the day of delivery, and the payment clock starts then. If it did object in writing within those 15 days, acceptance only happens once the supplier removes the objection. So the tribunal's first question is simple. Was there a written rejection inside that window? A complaint that surfaces months later, or only after the reference was filed, counts for much less.
Set-off is the other usual defence. Buyers knock off liquidated damages for late delivery, penalties for short supply or rework charges, and then claim nothing's due. The tribunal asks whether the contract allowed the deduction, whether you accepted the debit note, and whether the buyer can prove its loss. A one-sided debit note, sent without notice and never accepted, proves nothing on its own. Keep your reply to each debit note, with dates, in one place. The tribunal will go through them one at a time.
Don't take this to mean the Council always backs the supplier. It doesn't. Where the buyer has a genuine, documented complaint about defective supply, the award will reflect it. The lesson is practical. Answer complaints in writing when they come up, not on the day you file.
What the Facilitation Council can't do for you
It can't give you urgent interim relief on day one the way a court can. Once it's sitting as an arbitral tribunal it does have a tribunal's powers under Section 17 of the Arbitration Act, including ordering security. But getting to the arbitration stage takes time. If you think the buyer is about to sell its plant or empty its accounts, talk to a lawyer about a court application straight away. Don't wait for the Council.
It can't hear disputes that aren't about money owed to a micro or small supplier for goods or services. A partnership fight, a loan, a lease, or a claim by a medium enterprise is outside it. It can't enforce its own award either. A court does that. And it can't make a broke buyer solvent. If there's no money, an award only proves the debt, and the conversation may turn to insolvency or to chasing guarantors. That's a different discussion.
Council stages at a glance: what happens, how long, what it costs
| Stage | What the Council does | How long it usually takes | Costs apart from the lawyer's fee |
|---|---|---|---|
| Filing and scrutiny | Checks your status, the buyer and the claim, then registers the case | A few weeks to a few months | Little or no fee in most states; check the current position |
| Notice and reply | Asks the buyer to reply | 1 to 3 months | Nil |
| Conciliation | Meets both sides, suggests terms, records any settlement | 1 to 4 months, one sitting or several | Travel if the sitting is physical |
| Arbitration | Pleadings, documents, hearing, then the award | Often 6 to 18 months or more, the 90-day target notwithstanding | Institution fee if it's sent to an ADR centre |
| Buyer's Section 34 challenge | Nothing; the court hears it | Several months to a few years | Buyer deposits 75 percent under Section 19 and pays the court fee |
| Execution | Nothing; the court enforces it | A few months to a year or more | Court fee on execution under the state schedule; check the current figure |
Where's the Council for Delhi, Noida, Ghaziabad and Gurugram?
It's the Council for wherever the supplier is located. Delhi's Council works under the Delhi Government's Department of Industries and is chaired by a senior officer there. Check the Department's website for the current address and sitting days. A supplier in Noida, Greater Noida or Ghaziabad goes to the Uttar Pradesh Council covering its district. One in Gurugram or Faridabad goes to the Haryana Council for its area. Both states have provided for regional or district-level Councils alongside the state Council. Arrangements change. Confirm which Council is taking references from your district right now.
Filing is online, so the portal routes your reference by the address on your Udyam registration. Say you've got a factory in Kundli and an office in Delhi. What counts is the unit that made the supply and raised the invoices, and that's the unit that should be on record. Our note on where to file an MSME complaint covers multi-unit businesses and buyers based in other states.
After the award, the forum changes. A Section 34 challenge goes to the court with jurisdiction over the arbitration. For commercial disputes in Delhi, that's the district Commercial Court or, above Rs 2 crore, the Commercial Division of the Delhi High Court. An increase in that limit has been proposed, so check where it stands. Execution goes wherever the buyer's assets are.
Take these to your first hearing
- Your Udyam certificate, plus proof of category for the supply years if your turnover moved
- The purchase orders, work orders or contract you supplied under
- Invoices with their delivery challans, e-way bills, GRNs or completion certificates
- The buyer's ledger from your books, and any balance confirmation or acknowledgment they've given
- Bank statements showing every part payment, even the small ones
- An invoice-wise sheet of principal and Section 16 interest, showing the bank rate used for each period
- Your demand notice, reminders and whatever the buyer wrote back
- An authority letter for whoever attends for the business, ideally with power to settle
Is a Council award as good as a court decree?
In law, yes. A settlement recorded in conciliation has the status of an arbitral award under Section 74 of the Arbitration Act, and Section 36 lets an arbitral award be enforced just like a court decree. Since the 2015 amendment, filing a challenge doesn't automatically stay the award. The court has to grant a stay, usually on conditions. MSME cases add one more hurdle for the buyer. Section 19. No challenge is heard unless 75 percent of the awarded amount is deposited, and the court can release part of it to the supplier while the case goes on.
In practice, you find out whether an award is strong or weak at the enforcement stage. In Council matters that reach Advocate B.K. Singh after the award, the commonest problem is an award stating a lump sum without saying how post-award interest is to be worked out. The next is an award against a buyer entity whose name doesn't match its bank accounts. Both can be fixed. Both slow recovery down. So get the buyer's exact legal name right when you file the reference, and ask the tribunal to spell out future interest.
For what comes after the award, see what happens after an MSME Council award. If the buyer challenges, read whether a buyer can challenge a Council award. The commercialcourtlawyer.com page on executing a decree explains how bank accounts and property get attached.
Where the Council does well, and where it struggles
- Good with admitted dues. When the buyer accepts it took the supply and is just sitting on the money, conciliation often ends in a settlement, or at least a payment schedule.
- Good against buyers hiding behind clauses. Because the Act overrides arbitration and jurisdiction clauses, the buyer loses its usual procedural cover.
- Good on interest. Section 16 interest is statutory. The Council applies it as routine.
- Struggles with time. Busy Councils rarely meet the 90-day target in Section 18(5). Think months, not weeks.
- Struggles with complicated disputes. A long construction contract with measurements, variations and penalties needs detailed hearings, and some Councils find those hard to fit in.
- Can't freeze assets fast. If the buyer is moving assets out, you may need a commercial suit with attachment before judgment, or a court order under Section 9 of the Arbitration Act, alongside the Council or instead of it. Compare the options in MSME Council or commercial court.
An invented example: a Gurugram testing firm and a Delhi buyer
This is invented. Picture a small software testing firm in Sector 44, Gurugram, on Udyam since 2020, which in 2024 signs a master services agreement with an e-commerce company based in Delhi. The agreement has an arbitration clause, with the arbitrator to be appointed by the buyer, and gives courts in Delhi jurisdiction. Monthly invoices from November 2025 to April 2026, Rs 31 lakh in all, go unpaid. The buyer says some test cycles weren't finished.
The firm files a reference, and it goes to the Haryana Council covering Gurugram, since that's where the supplier is. The buyer objects that the contract requires arbitration in Delhi. The Council rejects that, relying on Section 18(4) and Mahakali Foods. At conciliation the buyer produces emails about two incomplete cycles worth about Rs 4 lakh. The firm shows sign-off emails for everything else. No deal.
Arbitration follows. Pleadings go in, and the Council hears both sides across several months of dates. Its award: Rs 27 lakh, with Section 16 interest running from the due date of each accepted invoice, and nothing for the two disputed cycles. The buyer's lawyers point out that any challenge means depositing 75 percent first. It pays. Plenty of real files are messier than this. The shape is typical, though.
What to do this week
Look at your Udyam certificate, its date and its category. List the unpaid invoices with delivery and acceptance dates, part payments and any written rejection. Work out Section 16 interest, or at the very least the due date for each invoice. Read up on how a reference is filed and what the Council will want. If you're the buyer, read how to respond when an MSME supplier files a case against your company. And for a realistic sense of timing, see how long a Facilitation Council case takes.
If you'd like your invoices, contract and correspondence checked before you go to the Council, or want to hear when MSME law changes, contact Advocate B.K. Singh's team through the contact page.
Frequently asked questions
Is the MSME Facilitation Council a court?
No. It's a statutory body set up by the state government. It acts first as conciliator and then as arbitral tribunal. Its award is enforced like a court decree, but challenges and execution go to the ordinary courts.
Who sits on the Facilitation Council?
Three to five members. The Director of Industries, or an officer of similar rank, chairs it. The rest come from micro and small industry associations, banks and financial institutions, and people who know industry, finance, law, trade or commerce.
Can the buyer just refuse to turn up?
It can stay away. The Council can still go ahead with arbitration and pass an award once proper notice has been given. Staying away usually hurts the buyer, because its defence and any counter claim never get heard.
I've already filed a civil suit for the same dues. Can I still go to the Council?
Running two cases for the same claim invites objections and wastes money. If you've filed a suit and now prefer the Council, take advice on withdrawing the suit with liberty. Keep limitation in mind while you do.
Does the Council decide damages claims, or only unpaid invoices?
The reference is about the amount due under Section 17, meaning the price of goods or services plus Section 16 interest. Wider claims, like loss of profit, may be resisted. The buyer can bring a counter claim, and the Supreme Court has held that's maintainable.
Can a Delhi Council summon a buyer from another state?
Yes, if the supplier is located in Delhi. Section 18(4) gives jurisdiction to the Council where the supplier is, wherever the buyer happens to be.
Do I get interest for the time the case sits before the Council?
Yes. Section 16 interest keeps running until payment, and the award usually provides for it. Ask the tribunal to state the rate and method for post-award interest clearly.
Can I appeal a Council award?
There's no appeal on the merits. The buyer can apply to set it aside under Section 34 of the Arbitration Act on limited grounds, after depositing 75 percent of the awarded amount under Section 19 of the MSMED Act.
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.