A recurring question for micro and small enterprises chasing unpaid bills is where to file: the buyer may be in another State, the purchase order may name a far-away court, and the contract may even contain an exclusive jurisdiction clause. For the Facilitation Council stage, the MSMED Act, 2006 answers the question itself. Section 18(4) fixes jurisdiction with the Micro and Small Enterprises Facilitation Council of the place where the supplier is located, regardless of where the buyer carries on business.
The statutory rule: the Council of the supplier
Section 18 of the MSMED Act, 2006 is the gateway to the delayed-payment machinery. Sub-section (1) allows any party to a dispute about an amount due under Section 17 to make a reference to the Micro and Small Enterprises Facilitation Council. Sub-sections (2) and (3) set out the two-stage process: conciliation first, and if conciliation fails, arbitration by the Council or by an institution to which it refers the dispute, with the Arbitration and Conciliation Act, 1996 applying to that arbitration.
Section 18(4) then answers the territorial question directly. It provides that the Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an arbitrator or conciliator in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India. The anchor is the location of the supplier. The location of the buyer is expressly made irrelevant: the buyer may be anywhere in India, and the Council of the place of the supplier still has jurisdiction.
Why the contract cannot shift the Council stage
Commercial contracts routinely contain clauses conferring exclusive jurisdiction on the courts of a particular city, and sometimes their own arbitration clauses seated elsewhere. For ordinary suits, such clauses matter. For the Facilitation Council stage under the MSMED Act, the position is different, and it flows from the structure of the statute itself.
- Section 18(1) begins with a non-obstante clause, operating notwithstanding anything contained in any other law for the time being in force. The reference to the Council is a statutory remedy, not a contractual one.
- Section 18(4) confers jurisdiction on the Council of the location of the supplier in mandatory terms. The parties cannot, by private agreement, confer that statutory jurisdiction on some other Council or take it away from the competent one.
- Section 24 of the Act gives Sections 15 to 23 overriding effect over anything inconsistent in any other law. The delayed-payment scheme, including the jurisdiction rule, therefore prevails over inconsistent contractual arrangements at this stage.
The practical consequence: a purchase order that says disputes will be decided only by courts at the place of the buyer does not prevent a registered micro or small enterprise from referring its delayed-payment claim to the Council of its own location. The council stage runs on the statute.
What this means for a Delhi supplier
Take a micro or small enterprise with its unit in Delhi, registered on the Udyam portal, supplying goods or services to buyers in Maharashtra, Gujarat, Karnataka or anywhere else in India. If payments are delayed beyond the period allowed under Section 15, the enterprise files its reference before the Delhi Micro and Small Enterprises Facilitation Council. It does not need to chase the buyer in the courts or councils of the buyer state at this stage. Conciliation and, if needed, arbitration take place under the Delhi Council, and the buyer must respond there.
The rule works both ways. A Delhi-based buyer facing a reference from a supplier located in another State will find the proceedings before the Council of that other State, and will have to contest them there. Location of the supplier, not convenience of the buyer, drives the Council stage.
Filing is electronic: the Samadhaan portal
References are filed online through the MSME Samadhaan portal of the Ministry of Micro, Small and Medium Enterprises. The supplier logs in with its Udyam registration, fills in details of the buyer and the outstanding invoices, and uploads documents. The portal identifies the jurisdictional Council from the details of the supplier and places the reference before it. Documents that should be kept ready include:
Udyam certificate
Proof that the supplier is a registered micro or small enterprise, which is the foundation of the claim under Chapter V.
Invoices and purchase orders
The commercial trail: purchase orders or work orders, invoices raised, delivery challans or proof of acceptance of goods or services.
Ledger and account statement
A statement of the running account with the buyer showing supplies made, payments received and the balance outstanding with the date from which it is due.
Demand notice and correspondence
Any demand letter or legal notice sent to the buyer and the replies received, which help establish the delay and any admissions.
Where later court proceedings go
The Section 18(4) rule fixes the seat of the Council stage only. Once the Council (or the institution it refers the dispute to) makes an award, the buyer who wishes to challenge it must apply under Section 34 of the Arbitration and Conciliation Act, 1996, since Section 18(3) makes that Act applicable to the arbitration. That application goes before the court having jurisdiction under the framework of the 1996 Act, and it is subject to the 75 percent pre-deposit mandated by Section 19 of the MSMED Act, which is examined in a separate explainer on this site. Execution of an unchallenged or upheld award likewise follows the ordinary course for enforcement of arbitral awards.
For a supplier weighing its options, the takeaway is simple: the MSMED route keeps the first, decisive stage of the dispute at home. The rest of the Samadhaan process, the interest computation under Sections 15 to 17 and the pre-deposit on challenge are covered in the connected articles; this page is confined to the question of which Council hears the matter.
Frequently Asked Questions
Our buyer is in Mumbai and our unit is in Delhi. Where do we file the MSEFC reference?
With the Facilitation Council for the place where your enterprise, as supplier, is located. Section 18(4) of the MSMED Act gives the Council of the location of the supplier jurisdiction to act as arbitrator or conciliator in a dispute between that supplier and a buyer located anywhere in India. A Delhi-based supplier therefore files before the Delhi MSEFC through the Samadhaan portal.
Does an exclusive jurisdiction clause in the purchase order change this?
For the Council stage, the statutory scheme prevails. Section 18 opens with a non-obstante clause and Section 18(4) then confers jurisdiction on the Council of the location of the supplier. A contractual choice of some other forum does not shift the reference away from that Council, because the reference arises under the statute and not under the contract.
Where is the award challenged after the Council decides?
Arbitration under Section 18(3) proceeds as if under the Arbitration and Conciliation Act, 1996, so a challenge to the award is an application under Section 34 of that Act, filed before the court having jurisdiction under the framework of that Act, together with the 75 percent pre-deposit required by Section 19 of the MSMED Act.
Is the filing before the Council physical or online?
The reference is filed electronically through the MSME Samadhaan portal maintained by the Ministry of MSME. The supplier registers with its Udyam number, files the application against the buyer online and uploads supporting documents such as invoices and purchase orders. The portal then routes the reference to the jurisdictional Facilitation Council for the location of the supplier.