Delayed payments can create severe cash-flow pressure for micro and small enterprises. Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 provides a statutory route through the Micro and Small Enterprises Facilitation Council, beginning with conciliation and potentially proceeding to arbitration.
Who should review the MSME route
The supplier’s qualifying status, registration timing, nature of goods or services, invoice history and buyer relationship all require verification. A party should not assume that every small-business invoice automatically falls within the statutory mechanism.
Typical preparation for a supplier
- Udyam and earlier registration records
- Purchase orders, work orders and accepted terms
- Invoices and proof of delivery or service acceptance
- Ledger, payment acknowledgements and correspondence
- Interest computation and limitation chronology
Conciliation before arbitration
The Facilitation Council may itself conduct conciliation or use an institution or centre. If conciliation ends without settlement, the dispute may proceed to arbitration under the statutory framework. The Ministry of MSME has also developed an ODR scheme for delayed-payment disputes.
Buyer-side response
A buyer should promptly collect quality objections, rejection records, debit notes, acceptance evidence, contractual set-off rights and payment records. Unsupported afterthoughts can be less persuasive than contemporaneous documentation.
Interaction with contractual arbitration
The statutory MSME mechanism can raise questions about the contractual clause, jurisdiction and process. Parties should analyse the statute and relevant case law rather than relying only on the dispute clause.
Frequently asked questions
Is conciliation mandatory in the Section 18 sequence?
The statutory route begins with conciliation before arbitration under the mechanism.
Can a buyer ignore an MSEFC notice because the contract names another forum?
No notice should be ignored. Jurisdictional and contractual objections must be raised properly and on time.
Can settlement be structured in instalments?
Parties may negotiate commercial terms, but the written settlement must clearly address principal, interest, security and default.
Official source: Ministry of MSME ODR empanelment guidelines describing Section 18 conciliation/arbitration.
Related resources
View the Kolkata business arbitration and commercial dispute management guide.
Important: General information only. Eligibility and remedies require document-specific review.
