The Samadhaan mechanism under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 is usually described as a recovery weapon — statutory interest, a 90-day timeline, a 75% pre-deposit against challenges. But in practice a large share of references never reach an award on merits: the buyer, facing compound interest at three times the bank rate, comes to the table. The craft lies in converting that willingness into a settlement that actually gets performed. This article explains the stages at which an MSME claim can settle and how to paper each one.
Why buyers settle Samadhaan claims
Three features of the MSMED Act concentrate the buyer\'s mind. Section 16 imposes compound interest, with monthly rests, at three times the bank rate notified by the RBI, running from the appointed day. Section 19 requires a deposit of 75% of the awarded amount before any application to set aside an award is even entertained. And Section 18(5) directs the Council to decide references within ninety days. A buyer who fights and loses therefore pays the principal, punitive interest, and the cost of parking 75% during the challenge. Settlement is usually arithmetic, not sentiment.
The settlement windows
Drafting the settlement: the clauses that matter
| Clause | Why it matters |
|---|---|
| Acceleration on default | If an instalment is missed, the entire outstanding balance — with statutory interest revived — becomes payable at once. Without it, the supplier chases each instalment separately. |
| Interest waiver as conditional | Waive interest only upon full and timely performance; make the waiver void on default so Section 16 interest is not lost by compromise. |
| Mode and proof of payment | Account details, cheque/UTR particulars and realisation as the trigger for discharge — payment "subject to realisation" protects against bounced instruments. |
| Withdrawal mechanics | Withdrawal or full-satisfaction memo filed only after final realisation; partial satisfaction recorded instalment-wise. |
| No-prejudice clause | If the settlement fails, the supplier\'s original claims and the reference (or award) stand revived to the extent unpaid. |
A settlement recorded under Section 73 or as a Section 30 consent award is not appealable in any real sense and is nearly immune to challenge — which is exactly why buyers sometimes prefer a private MoU instead. The supplier\'s counsel should resist: the form of the settlement is the security.
Frequent mistakes
Withdrawing on a promise. References withdrawn against post-dated cheques that later bounce leave the supplier restarting from zero, sometimes outside limitation.
Settling only the principal. Silence about statutory interest invites a later dispute about whether it was waived; deal with it expressly, conditionally.
Ignoring connected proceedings. Cheque-bounce complaints, commercial suits or insolvency notices between the same parties should be mapped into the settlement so the buyer receives a complete peace and the supplier a complete price.
Forgetting the Council\'s role. Settlements reached bilaterally mid-reference should still be placed before the Council and recorded — the enforceability upgrade costs one appearance.
The takeaway
The MSMED Act does not merely arm suppliers for battle; it structures the peace. Between Section 18(2) conciliation and Section 30 consent awards, every serious settlement can be given the executability of a decree at no extra cost. The working rule for MSME counsel is simple: negotiate commercially, but record statutorily.
This article is for general information only and is not legal advice or a solicitation.
Frequently Asked Questions
At what stages can a Samadhaan reference settle?
At any point: before the Facilitation Council takes up the reference, during the mandatory conciliation stage under Section 18(2), during the arbitration stage under Section 18(3), or even after an award while execution or a Section 34 challenge is pending. The earlier the settlement, the cheaper; the later the settlement, the stronger the supplier's leverage.
What is the legal effect of a settlement in conciliation?
Section 18(2) applies Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 to the Council's conciliation. Under Section 73 of that Act, a signed settlement agreement has the same status and effect as an arbitral award on agreed terms — which Section 74 equates to an award under Section 30. It is therefore enforceable as a decree, not a mere contract.
Can a settlement be recorded during the arbitration stage instead?
Yes. If conciliation fails and the matter moves to arbitration under Section 18(3), the parties can still settle, and the tribunal may record a consent award under Section 30 of the 1996 Act. A consent award is executable like any other award, and a buyer's default in instalments can be met with straight execution rather than a fresh claim.
Should the supplier simply withdraw the reference on receiving payment?
Only against full, cleared payment. A bare withdrawal against promises leaves the supplier with nothing to execute if the buyer defaults, and a fresh reference may face limitation and estoppel arguments. The safer sequence is: settlement recorded as a consent award or Section 73 agreement, instalments tied to default clauses, and withdrawal only of what has actually been paid.