A delayed-payment reference before the Micro and Small Enterprises Facilitation Council can take time to mature into an award. In that interval the supplier worries about one thing above all: whether the buyer will still be worth suing when the award finally comes. Buyers wind down operations, transfer assets or drift towards insolvency while the reference is pending. The question, then, is what interim protection the MSMED framework allows, at which stage, and from which forum.
The gap at the conciliation stage
Section 18 of the MSMED Act, 2006 sets up a two-stage process. On a reference, the Council first conducts or arranges conciliation, applying the conciliation provisions of the Arbitration and Conciliation Act, 1996. Only if conciliation fails does the Council take up the dispute for arbitration under Section 18(3), either itself or through an institution to which it refers the matter.
At the conciliation stage the Council is a facilitator, not an adjudicator. The MSMED Act confers on it no express power to attach assets, direct security or restrain a buyer from dealing with its property while the parties explore settlement. A supplier who senses that the buyer is using the conciliation window to reorganise its affairs cannot look to the Council itself for a freezing direction during that phase.
What changes at the arbitration stage
Section 18(3) provides that when conciliation fails, the arbitration is conducted as if it arose from an arbitration agreement between the parties, and the provisions of the Arbitration and Conciliation Act, 1996 apply to it. That statutory fiction is the key that unlocks interim protection, because the 1996 Act carries two dedicated provisions:
| Provision | Forum | What it allows |
|---|---|---|
| Section 17, Arbitration and Conciliation Act | The arbitral tribunal — here, the Council acting as arbitrator or the institution to which the dispute is referred | Interim measures of protection during the arbitral proceedings, including orders to secure the amount in dispute and to preserve property or evidence. |
| Section 9, Arbitration and Conciliation Act | The court | Interim measures before or during the arbitral proceedings, and after the award but before enforcement, including securing the claim, appointment of receivers and restraints on alienation. |
Once the MSEFC reference crosses into the arbitral stage, therefore, the supplier is in substantially the same position as a claimant in an ordinary arbitration: it may move the tribunal under Section 17, or the court under Section 9, for protective orders.
What protection is typically sought
Security for the claim
A direction that the buyer deposit the claim amount, furnish a bank guarantee or otherwise secure the sum in dispute pending the award.
Restraint on alienation
An order restraining the buyer from transferring, encumbering or dealing with identified assets where a real risk of dissipation is shown.
Preservation of goods
Protection of goods lying with the buyer, rejected consignments, tooling or moulds belonging to the supplier, pending adjudication.
Preservation of records
Directions to preserve ledgers, statements of account and correspondence needed for the invoice-wise adjudication of the claim.
The standard: protection is not automatic
Courts do not order security for a money claim as a matter of course. An applicant under Section 9 must show a strong case on the merits and place credible material indicating that the respondent is acting, or is about to act, in a way that would render the eventual award illusory — for instance, siphoning receivables, transferring immovable property after the dispute arose, or shutting down the business while denying liability. General commercial anxiety, or the bare fact that a large sum is claimed, does not meet the threshold. The same discipline applies to the tribunal under Section 17.
For an MSME supplier this translates into evidence work: balance sheets or public filings showing deterioration, records of asset transfers, dishonoured cheques, admissions in correspondence coupled with conduct, or the buyer vacating premises. The stronger the documentary case on liability — supported by the invoice-wise chart, the deemed-acceptance trail and the statutory interest computation — the more readily a court will find the first limb satisfied and focus on the risk of dissipation.
Sequencing the remedies
Choice of forum in practice
Where the Council or the referred institution is actively hearing the arbitration, Section 17 offers a quick route because the tribunal already knows the record, and its interim orders are enforceable in the same manner as orders of a court. Section 9 is the natural choice where relief is needed against the risk of overnight dissipation, where banks or other third parties must be put on notice, or where the arbitral stage has been reached but hearings have not begun in earnest. Which court is approached follows the framework of the 1996 Act, and in commercial matters the forum will generally be the commercial court or the Delhi High Court depending on the value involved. The supplier should also bear in mind Section 24 of the MSMED Act, which gives the delayed-payment provisions overriding effect: the interim-measures machinery of the 1996 Act supplements the MSMED scheme rather than diluting it.
This article is for general information only and is not legal advice or a solicitation.
Frequently Asked Questions
Can the Facilitation Council itself pass interim orders during conciliation?
The MSMED Act gives the Council no express power to grant interim measures at the conciliation stage under Section 18(2). Conciliation is a consensual process aimed at settlement, not an adjudication. Interim protection becomes realistically available once conciliation fails and the dispute moves to the arbitration stage under Section 18(3), when the Arbitration and Conciliation Act, 1996 applies to the proceedings.
Can a supplier ask the court to secure the claim amount?
Yes, under Section 9 of the Arbitration and Conciliation Act once the arbitral stage is engaged, but not as a matter of course. Courts require a strong case on the merits and credible material showing a real risk that the respondent is dissipating or alienating assets so that an eventual award would be rendered illusory. Bare apprehension or the mere pendency of a money claim is not enough.
Should the application go to the Council under Section 17 or to the court under Section 9?
It depends on urgency and on what is sought. The tribunal stage forum under Section 17 suits directions between the parties once arbitration is under way and hearings are being taken. Section 9 before the court is generally preferred where urgent ex parte protection is needed, where third parties such as banks are involved, or where enforcement of the interim order itself may be an issue.
Does interim relief remain available after the award is made?
Section 9 permits an application for interim measures before or during the arbitral proceedings, and after the award is made but before it is enforced. An award-holder facing a buyer who may challenge the award while stripping assets can therefore seek protection in that window as well, subject to the same standards of a strong case and demonstrated risk.