When a micro or small enterprise invokes the Micro, Small and Medium Enterprises Development Act, 2006 for a delayed payment, two procedural questions arise before any argument on merits: which Facilitation Council has jurisdiction, and how long the process should take. Section 18(4) answers the first with a supplier-centred venue rule; Section 18(5) answers the second with a ninety-day timeline for deciding the reference. This explainer sets out how the two provisions operate and what each side should do about them.
The statutory scheme in brief
Chapter V of the MSMED Act, 2006 builds a complete code for delayed payments to micro and small enterprises: Section 15 obliges the buyer to pay within the agreed period, capped at forty-five days from the day of acceptance or deemed acceptance; Section 16 imposes compound interest at three times the bank rate; Section 17 makes the buyer liable for the amount with interest; and Section 18 supplies the forum — the Micro and Small Enterprises Facilitation Council. Within Section 18, subsections (4) and (5) do quiet but decisive work.
Section 18(4): the supplier’s council
Section 18(4) provides that the Facilitation Council of the place where the supplier is located has jurisdiction to act as conciliator or arbitrator in a dispute between that supplier and a buyer located anywhere in India. The venue rule is supplier-protective by design: a small enterprise chasing its dues does not have to litigate in the buyer’s home State.
Section 18(5): the ninety-day direction
Section 18(5) directs that every reference made under the section shall be decided within ninety days from the date of making it. The architecture into which that period fits looks like this:
Anyone who practises before Facilitation Councils knows that references frequently outlive the ninety days: conciliation dates, pleadings before the arbitral stage and administrative load all consume time. The lapse of the period does not by itself invalidate the proceedings or the eventual award. The provision’s practical value lies elsewhere — it is the yardstick a supplier cites when pressing the Council for dates, and the measure a writ court is reminded of when delay before a Council is challenged as defeating the statute’s object.
What each side should do with these rules
- Suppliers: keep the Udyam registration, invoices, delivery challans and acceptance trail ready before filing; a documented claim moves faster through both conciliation and arbitration stages.
- Suppliers: diarise the ninety-day mark and seek expedition in writing when it passes — a paper trail of urgency helps both before the Council and in any later writ proceedings about delay.
- Buyers: raise jurisdictional and status objections at the first opportunity before the Council itself; sitting out the proceedings only ripens an ex parte award, and a challenge then costs a 75% pre-deposit under Section 19.
- Buyers: treat the forty-five-day ceiling under Section 15 as a compliance deadline, because interest under Section 16 — compound, at three times the bank rate — accrues automatically and cannot be contracted out of, given Section 24.
- Both sides: remember that settlement remains open throughout; a conciliated settlement recorded by the Council closes the matter without the pre-deposit and appeal cycle.
The Delhi picture
For Delhi suppliers, references go to the Delhi Micro and Small Enterprises Facilitation Council through the Samadhaan portal, and challenges to awards travel to the High Court of Delhi side of Section 34 proceedings with the Section 19 pre-deposit. The venue and timeline rules discussed here are the first things to verify in any delayed-payment brief — they decide where the fight happens and supply the instrument for keeping it moving. This article states the statutory position for general information; the application of these provisions to any particular dispute turns on its own facts and documents.
Frequently Asked Questions
Which Facilitation Council hears a delayed payment reference?
Under Section 18(4) of the MSMED Act, the Council of the place where the supplier is located has jurisdiction to act as conciliator or arbitrator in a dispute between that supplier and a buyer located anywhere in India. A Delhi-registered supplier therefore files before the Delhi MSEFC even if the buyer operates from another State.
Is the ninety-day period under Section 18(5) a hard deadline?
Section 18(5) directs that every reference shall be decided within ninety days from the date of making it. In practice, references — which pass through conciliation and then arbitration — often take longer, and the lapse of the period does not by itself terminate the proceedings. The provision functions as a statutory discipline that parties can invoke to press for expedition.
Can the buyer insist on a contractual forum or arbitration clause instead?
The statutory mechanism operates notwithstanding anything contained in any other law, and Section 24 gives Sections 15 to 23 overriding effect over inconsistent laws. A buyer served with a Section 18 reference should raise its objections before the Council and, if aggrieved by an award, pursue the challenge route — which requires the 75% pre-deposit under Section 19.
How is a reference actually filed?
Delayed payment references are filed online through the MSME Samadhaan portal, annexing the Udyam registration, invoices, and proof of supply and acceptance. The reference is routed to the jurisdictional Council determined by the supplier's location, which first attempts conciliation under Section 18(2) and, on failure, takes up or refers the arbitration under Section 18(3).