The delayed-payment machinery of the MSMED Act, 2006 — reference to the Micro and Small Enterprises Facilitation Council under Section 18, conciliation, and failing that, arbitration — is designed around the supplier’s claim. The question buyers ask when a Samadhaan notice lands is immediate and practical: can we bring our own claims into that proceeding — for defective supplies, delay, damages — or must we sue separately? The Supreme Court answered the core of it in Silpi Industries v. Kerala SRTC (2021): a counter-claim is maintainable in the Section 18 arbitration. But the answer has texture that matters in practice.
The statutory route, briefly
Silpi Industries: the door is open
For years, buyers argued — and some High Courts accepted — that the Section 18 mechanism was a one-way street confined to the supplier’s claim, leaving the buyer to a separate suit or arbitration. Silpi Industries v. Kerala SRTC settled the point: because Section 18(3) imports the Arbitration and Conciliation Act wholesale, Section 23(2A) of that Act — which expressly permits the respondent to submit a counter-claim or plead set-off within the scope of the arbitration — operates in the statutory arbitration too. The Supreme Court reasoned that splitting claim and counter-claim into separate fora over the same transaction would multiply proceedings and risk conflicting findings.
Two further holdings of Silpi Industries to keep in view: the Limitation Act applies to Section 18(3) arbitrations; and the supplier must answer the registration-timing requirements of the Act for its own claim — each side’s claim stands on its own statutory feet.
Counter-claim, set-off and defence: three different tools
| Defence | Resists the supplier’s claim — defective supply, short delivery, delay, terms not met. Raise from the conciliation stage, with the paper trail: purchase orders, inspection reports, rejection memos, debit notes. |
|---|---|
| Set-off | A money claim pleaded to extinguish or reduce the supplier’s claim in the same proceeding, within the arbitration’s scope. |
| Counter-claim | An affirmative claim seeking an award in the buyer’s favour — damages for defects, delay or breach. Maintainable per Silpi Industries, subject to limitation and to the arbitration’s scope. |
Practical notes for buyers
For suppliers, the mirror lesson: a buyer’s counter-claim does not stall the reference, and its merits will be tested in the same award — but prepare for it. The reply to the counter-claim deserves the same rigour as the statement of claim, and the supplier’s own record on quality and delivery should be assembled before the reference is filed, not after the counter-claim arrives.
The wider frame
The MSMED Act tilts the field towards the small supplier deliberately — that is its purpose. Silpi Industries keeps the tilt from becoming a denial of the buyer’s forum: everything arising from the transaction can be fought out in one statutory arbitration, with the Act’s interest and pre-deposit provisions intact on the supplier’s side and ordinary arbitral process available on the buyer’s. For Delhi practitioners, where the Delhi MSEFC routes contested references into institutional arbitration, the working consequence is simple: treat the Section 18 arbitration as the single, decisive battlefield for both sides of the account.
Frequently Asked Questions
Can a buyer file a counter-claim before the Facilitation Council?
Yes, in the arbitration stage. In Silpi Industries v. Kerala SRTC (2021), the Supreme Court held that a counter-claim is maintainable in arbitral proceedings under Section 18(3) of the MSMED Act. Once the Council or the institution it refers the matter to is seized of the arbitration, the Arbitration and Conciliation Act, 1996 applies as if under an agreement, and Section 23(2A) of that Act permits counter-claims and set-off.
Does the buyer's counter-claim defeat the Act's special protections?
No. The supplier's entitlements — including compound interest at three times the bank rate under Section 16 and the Section 19 pre-deposit on any challenge — continue to govern the supplier's claim. The counter-claim is adjudicated in the same proceeding, but it does not convert the statutory arbitration into an ordinary one.
What about quality and delay defences?
Defences to the claim — defective goods, short supply, delayed delivery, non-fulfilment of contract terms — can and should be raised before the Council from the conciliation stage itself, with documents. A defence is distinct from a counter-claim: the first resists the supplier's claim, the second seeks an affirmative award, and both are available in the arbitration.
Is there a limitation issue for counter-claims?
Yes. Silpi Industries also held that the Limitation Act applies to Section 18(3) arbitrations. A buyer's counter-claim must itself be within limitation, computed on ordinary principles. A stale damages claim cannot be revived merely because the supplier has invoked the Council.