Facing an MSME Samadhaan Claim: The Buyer's Side of Section 18

The Micro, Small and Medium Enterprises Development Act, 2006 gives a supplier a statutory route to recover delayed payments: a reference under Section 18 to the Micro and Small Enterprises Facilitation Council, usually filed online through the MSME Samadhaan portal. For a buyer, the first sign is often a portal-generated notice. This article explains, from the buyer's side, how the proceeding unfolds, what objections are ordinarily available, and the interest and pre-deposit provisions that define the stakes.

How a Section 18 reference proceeds

Section 18(1) of the MSMED Act, 2006 permits any party to a dispute regarding an amount due under Section 17 — the principal together with statutory interest — to make a reference to the Micro and Small Enterprises Facilitation Council. In practice the reference is filed by the supplier through the MSME Samadhaan portal, and the Council of the State where the supplier is located takes it up.

The statute prescribes a two-stage process. Under Section 18(2), the Council first either conducts conciliation itself or refers the matter to an institution providing alternate dispute resolution services, and the provisions of the Arbitration and Conciliation Act, 1996 relating to conciliation apply. If conciliation fails, Section 18(3) directs the Council to take up the dispute for arbitration itself or refer it to an institution, and the provisions of the 1996 Act then apply as if the arbitration were pursuant to an arbitration agreement under Section 7(1) of that Act. Section 18(5) sets a target: every reference is to be decided within ninety days of being made.

Objections commonly raised by buyers

The Council decides a claim on its merits, and the buyer's reply is the place where every defence must be raised. Certain objections recur in these proceedings.

• Threshold status of the supplier. The Act protects a "supplier" as defined in Section 2(n), which is tied to the enterprise's classification and registration under the Act. Buyers commonly raise, as a threshold question, whether the claimant held a valid registration — today, Udyam registration — and whether its classification as a micro or small enterprise subsisted on the date of the contract or supply. This is an issue the buyer can place before the Council on the documents; the registration certificate and its date are among the first papers to examine.
• Disputes on the goods or services themselves. Section 15 obliges payment for goods supplied or services rendered. Where the buyer's case is that the goods were not supplied, were short-supplied, or the services were incomplete, the delivery and acceptance record becomes central.
• Quality and deficiency defences. Section 2(b) defines the "appointed day" by reference to the day following acceptance or deemed acceptance, and contemplates objections to quality being recorded in writing within fifteen days of delivery. A buyer who objected in writing within that window stands on the statutory text; a buyer who paid nothing and said nothing is on weaker documentary footing.
• Accord and satisfaction. Where the parties settled the account — a full and final payment accepted without protest, a signed reconciliation, or a discharge voucher — the buyer can contend that nothing remains "due" under Section 17. The settlement documents must be produced.
• Limitation. Because the Section 18(3) arbitration is governed by the 1996 Act, buyers ordinarily contend that the Limitation Act, 1963 applies to the claims as it applies to arbitrations, and that stale invoices are barred. The invoice dates, any acknowledgments of liability and part-payments all bear on this computation.

The interest exposure: Sections 15 and 16

Section 15 fixes the outer limit for payment: where there is an agreement, the agreed period, which cannot exceed forty-five days from the day of acceptance or deemed acceptance; where there is none, before the appointed day. Section 16 then attaches the consequence: compound interest with monthly rests at three times the bank rate notified by the Reserve Bank, notwithstanding anything in the agreement or any other law. Section 17 makes the buyer liable for the principal with interest so computed, and Section 23 adds a further sting — the interest paid or payable under the Act is not deductible for income-tax purposes.

Challenging an award: the 75 per cent pre-deposit

An award of the Council can be challenged in the manner the 1996 Act provides for arbitral awards, but Section 19 of the MSMED Act imposes a statutory condition: no application for setting aside any decree, award or other order of the Council is to be entertained unless the appellant, if not the supplier, deposits seventy-five per cent of the awarded amount. The proviso permits the court, pending the challenge, to direct payment of such percentage of the deposit to the supplier as it considers reasonable, subject to conditions. The pre-deposit is a serious commercial factor: contesting an award requires locking in most of its value at the outset.

Practical steps on receiving a Samadhaan notice

A reference under Section 18 is a compact, time-bound proceeding with a heavy statutory tilt in favour of prompt payment. A buyer who engages early, documents its defences and weighs the interest and pre-deposit provisions candidly is best placed to respond. Independent legal advice on specific facts is always advisable.