The Micro, Small and Medium Enterprises Development Act, 2006 gives suppliers a powerful collection mechanism — but it is a mechanism for recovering amounts due for goods supplied or services rendered, not a general forum for contractual grievances. In The Board of Major Port Authority for the Syama Prasad Mookerjee Port, Kolkata v. Haryana Micro and Small Enterprises Facilitation Council (W.P.A. No. 26463 of 2025, judgment delivered 5 October 2026), the Calcutta High Court quashed a Section 18(1) reference where the underlying contract had been terminated, the termination was never challenged, and the supplier had raised no final bill. The judgment draws a clean jurisdictional line: the Facilitation Council is not the authority to decide whether a termination was lawful.
The dispute
The port authority issued an e-tender in August 2021 for architectural services for a tower complex and beautification works at Haldia. The respondent-supplier won the bid and received a work order of Rs. 12,50,000 plus GST in April 2022. Design revisions and correspondence followed; the first running account bill of Rs. 2,95,000 — twenty per cent of the contract value — was paid. By early 2025 the relationship had broken down over allegedly defective deliverables: a show-cause notice issued in February 2025 and the contract was terminated on 25 March 2025.
The supplier did not challenge the termination anywhere. Instead, it filed a claim of Rs. 18,40,800 — well above the contract value — before the Haryana Micro and Small Enterprises Facilitation Council at Panchkula under Section 18(1) of the MSMED Act. The port authority moved the Calcutta High Court in its writ jurisdiction against the reference.
The statutory architecture
| Provision | What it does |
|---|---|
| Section 15 | Obliges the buyer to pay for accepted goods or services by the agreed date, capped at 45 days from acceptance or deemed acceptance |
| Section 16 | Imposes compound interest at three times the bank rate for delayed payment |
| Section 17 | Makes the buyer liable to pay the amount with interest "as required under section 16" |
| Section 18(1) | Allows reference to the MSEFC of a dispute "with regard to any amount due under section 17" |
The chain matters. A Section 18 reference presupposes an amount due under Section 17, which presupposes supplies made and accepted under Section 15. Where the supplier can point to no bill raised for accepted work, the chain never forms.
What the Court held
The supplier never questioned the termination in any court — and the Court noted that the MSEFC “is not the authority to decide with regard to the termination of the contract.”
No final running account bill was raised; the Court found that no dues were shown payable to the supplier.
The Section 18(1) proceeding before the Haryana MSEFC was set aside and quashed; the writ petition was allowed.
The claim’s geography is worth noticing. The buyer was a Kolkata port authority, the works were in West Bengal, yet the reference was filed before the Haryana Council — presumably on the supplier’s registration. Section 18(4) does fix jurisdiction by the supplier’s location, which is precisely why buyers facing distant references increasingly test the Council’s subject-matter jurisdiction at the threshold, as happened here.
The practice point for both sides
For buyers — including public bodies — this judgment is a reminder that a Section 18 reference is not immune from scrutiny merely because the claimant is a registered MSME. Where the claim is, in substance, damages for termination or compensation for unexecuted work, the jurisdictional objection should be raised immediately and, in a clear case, by writ.
For suppliers, the lesson is procedural discipline. The MSEFC route is excellent for crystallised dues: accepted supplies, raised invoices, running account bills. It is the wrong vehicle for termination grievances. A supplier whose contract is cut short should bill for completed work without delay, protest the termination in writing, and pursue the termination dispute in the contractually agreed forum — reserving the MSEFC for what it was built to recover.
Frequently Asked Questions
What disputes can be referred to an MSEFC under Section 18 MSMED Act?
Section 18(1) permits any party to refer a dispute "with regard to any amount due under section 17" — that is, the principal for goods supplied or services rendered plus statutory interest under Section 16 for delayed payment. The trigger is Section 15: the buyer's liability to pay for accepted supplies. The Council's jurisdiction is anchored to amounts due for supply, not to every dispute arising from the commercial relationship.
Why was the reference quashed in this case?
Three strands converged: the contract for architectural services had been terminated by the buyer and the supplier never challenged the termination in any court; the supplier had raised no final running account bill, so no identifiable amount was shown due under Section 17; and the real grievance — that the termination was wrongful — is not a question the MSEFC can decide. The writ court therefore set aside the Section 18(1) proceeding.
Can a buyer challenge MSEFC proceedings by writ petition?
Ordinarily parties are left to the MSMED mechanism, including the Section 19 pre-deposit route for challenging awards. But where the challenge goes to the Council's jurisdiction itself — as here, where the claim fell outside Section 17 altogether — High Courts entertain Article 226 petitions, since an authority cannot confer jurisdiction on itself by entertaining a reference beyond the statute.
What should a supplier do when a contract is terminated mid-way?
First, raise and document bills for work actually done and accepted — the Section 17 claim must be anchored in identifiable dues. Second, if the termination itself is wrongful, challenge it in the forum the contract provides (arbitration or a civil or commercial court); damages for wrongful termination are not "amounts due" within the MSEFC's remit.