Most writing about the MSME Facilitation Council assumes the supplier wins and the buyer challenges. Practice is less tidy: references get rejected at the threshold, claims are allowed in part, interest is trimmed, counterclaims succeed, and sometimes the Council simply does not take the reference up. A micro or small enterprise on the wrong end of these outcomes is not remediless — but its remedies differ in important ways from the buyer’s, starting with the pre-deposit that the supplier never has to make.
First, diagnose the outcome
The right remedy depends on what actually happened, and MSEFC outcomes come in distinct species:
The Section 34 route — without the deposit
Once the Section 18(3) arbitration produces an award, the Arbitration and Conciliation Act, 1996 supplies the challenge machinery. A supplier aggrieved by rejection or curtailment applies to set the award aside under Section 34, within three months (extendable by thirty days on sufficient cause) — and here the MSMED Act’s asymmetry matters: the seventy-five per cent pre-deposit in Section 19 binds only an applicant not being a supplier. The grounds are the familiar, narrow ones — an award ignoring the statutory interest mandate of Sections 15 to 17, deciding contrary to the record, or denying a party a proper opportunity is attacked as such, not re-argued on facts. Counsel should frame the challenge around the Act’s non-derogable architecture: the statutory interest is not a discretionary embellishment but the core of the remedy Parliament created.
Interest under Section 16 — three times the bank rate, compounded monthly — and the unallowability of that interest as a business deduction are deliberate legislative in terrorem devices. An award that allows the principal but silently drops the statutory interest is a natural candidate for challenge, since it rewrites the statute’s scheme.
The writ route — when there is nothing to challenge
Section 34 presupposes an award. Where the Council declines jurisdiction without adjudication, sits on the reference, or purports to close it administratively, the supplier’s remedy is Article 226. Facilitation Councils are statutory bodies performing public functions under Section 18, and High Courts direct them to convene conciliation, constitute the arbitration and decide within a timeframe. The writ should annex the Samadhaan portal acknowledgment, the reference record and the correspondence showing the lapse of the ninety-day aspiration — courts respond to demonstrated inaction, not general grievance.
Strategic choices after a threshold failure
The larger point
The MSMED Act was designed to change buyer behaviour, not merely to decide cases, and its tilt in favour of suppliers persists even in defeat: no pre-deposit to challenge, writ supervision over Council inaction, and preserved parallel remedies. A supplier who treats an adverse MSEFC outcome as a diagnosis — threshold, merits, partial, or inaction — and picks the matching remedy promptly loses a battle, not the claim.
This article is for general information only and is not legal advice or a solicitation.
Frequently Asked Questions
Can a supplier challenge an adverse MSEFC award?
Yes. The arbitration stage under Section 18(3) of the MSMED Act is governed by the Arbitration and Conciliation Act, 1996, and the resulting award — including one rejecting the claim — can be challenged under Section 34 before the competent court within the limitation that section prescribes.
Does the supplier have to deposit 75% to challenge?
No. Section 19 of the MSMED Act requires the deposit from an applicant “not being a supplier”. The pre-deposit is a shield for the supplier’s award against dilatory buyer challenges; it does not burden the supplier’s own application for setting aside.
What if the Council refuses to entertain the reference at all?
A refusal to take up a reference, or indefinite inaction, is not an award and cannot be attacked under Section 34. The remedy is a writ petition under Article 226 seeking a direction to the Council to proceed in accordance with Section 18, since the Council performs statutory functions.
Does a failed MSEFC claim bar a civil suit or other recovery?
The MSMED route is an additional, overriding remedy for statutory interest, but an award on merits between the parties will bind them like any arbitral award. Where the reference failed on threshold grounds — such as registration timing — the underlying contractual claim may still be pursued in the ordinary forum, subject to limitation. The two tracks must be mapped carefully before electing.