Setting Up of Business, Industrial and Labour Laws · Micro, Small and Medium Enterprises

Micro and Small Enterprises Facilitation Council and Dispute Resolution

Updated 11 October 2026 · Fact-checked

The Micro and Small Enterprises Facilitation Council is a State-level body set up under section 20 of the MSMED Act, 2006. Any party to a dispute over an amount due can refer it to the Council. It first conciliates, then arbitrates if conciliation fails, and must decide within ninety days under section 18.

Understand Micro and Small Enterprises Facilitation Council and Dispute Resolution

A micro or small enterprise often sells goods or services to a bigger buyer and then waits for payment. Ordinary court cases are slow. The MSMED Act, 2006 therefore gives a special forum: the Micro and Small Enterprises Facilitation Council (the Council).

Section 20 says the State Government establishes one or more Councils by notification. The notification specifies the places, the jurisdiction and the areas. So the Council is a State body, not a central one.

Section 18 is the heart of the topic. Notwithstanding anything in any other law, any party to a dispute may make a reference to the Council about any amount due under section 17. Note the words "any party". Either the supplier or the buyer can refer the dispute.

The Council works in two stages. First it conducts conciliation itself, or it refers the matter to an institution or centre providing alternate dispute resolution services. Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 apply as if the conciliation was under Part III of that Act. If conciliation fails and ends without settlement, the Council takes up the dispute for arbitration itself, or refers it to such an institution or centre. The 1996 Act then applies as if there were an arbitration agreement under section 7(1).

Two safeguards complete the scheme. Every reference must be decided within ninety days of the reference. And under section 19, a court will not entertain an application to set aside a decree, award or order unless the appellant (if not a supplier) deposits seventy-five per cent of the amount. This discourages delay tactics by buyers.

Key rules to remember

Establishment of Council (section 20): State Government, by notification, establishes one or more Councils; places, jurisdiction and areas are specified in the notification; The Council is a State-level body.
Composition (section 21(1)): Not less than 3 and not more than 5 members, from the four listed categories; Categories: (i) Director of Industries or officer not below that rank in the State department; (ii) office-bearers or representatives of micro or small enterprise associations in the State; (iii) representatives of banks and financial institutions lending to micro or small enterprises; (iv) persons with special knowledge in industry, finance, law, trade or commerce.
Chairperson (section 21(2)): Person appointed under clause (i) = Chairperson; The Director of Industries (or officer not below that rank) chairs the Council.
Prescribed matters (sections 21(3) and 30): Composition details, filling of vacancies and procedure of members = as prescribed by the State Government; The State Government makes rules by notification; rules are laid before the State Legislature.
Reference (section 18(1)): Any party to a dispute may refer any amount due under section 17 to the Council; Applies notwithstanding any other law. Either supplier or buyer may refer.
Conciliation (section 18(2)): Council conciliates itself or refers to an ADR institution or centre; Arbitration and Conciliation Act, 1996, sections 65 to 81 apply; Treated as if initiated under Part III of that Act.
Arbitration (section 18(3)): If conciliation fails and terminates without settlement, Council arbitrates itself or refers to an ADR institution or centre; The 1996 Act applies as if there were an arbitration agreement under section 7(1) of that Act.
Jurisdiction (section 18(4)): Supplier located within the Council's jurisdiction; buyer located anywhere in India; Jurisdiction is decided by the supplier's location.
Time limit (section 18(5)): Decide every reference within 90 days from the date of making the reference; The period runs from the reference.
Pre-deposit (section 19): Appellant (not being a supplier) must deposit 75% of the amount in the decree, award or order before the court entertains a setting-aside application; Proviso: pending disposal, the court orders a reasonable part of the deposit to be paid to the supplier, on such conditions as it deems necessary.

How to solve Micro and Small Enterprises Facilitation Council and Dispute Resolution questions

Use this order for any question on the Council or on dispute resolution under the Act. It matches the ICSI answer style: provision, analysis, conclusion.

1Identify what is asked: composition, reference, procedure, jurisdiction, time limit or setting aside of an award.
2Name the provision: section 20 or 21 for the Council, section 18 for reference, conciliation and arbitration, section 19 for setting aside.
3State the rule in plain words with exact conditions, such as the 3 to 5 members, the 90 days or the 75 per cent.
4Apply it to the facts. Check who the supplier is, where the supplier is located, where the buyer is, and who is appealing.
5For procedure questions, follow the sequence: reference, conciliation, then arbitration if conciliation fails.
6For setting aside questions, check whether the appellant is a supplier. The deposit applies only to a non-supplier appellant.
7Write a one-line conclusion that answers the question directly.

Quickest way: Remember the Council by numbers and sequence

When to use it: Short-note questions and quick factual questions where you have limited time.

Numbers: 3 to 5 members; 90 days; 75 per cent.
Sections: 20 establishes, 21 composes, 18 refers and decides, 19 controls challenges, 30 rule-making.
Sequence: reference, then conciliation (sections 65 to 81 of the 1996 Act), then arbitration if conciliation fails.
Jurisdiction: supplier's location decides; buyer can be anywhere in India.
Write the section number next to each point in your answer.

Common mistakes in Micro and Small Enterprises Facilitation Council and Dispute Resolution

Saying only the supplier can make a reference.
Students think of the Act as protecting suppliers only.
Fix: Section 18(1) says any party to a dispute. Either side can refer.
Placing the buyer's location as the test for jurisdiction.
Courts often look at where the defendant is, so students assume the same here.
Fix: Section 18(4): the Council where the supplier is located has jurisdiction, and the buyer may be located anywhere in India.
Going straight to arbitration.
Students remember arbitration as the main remedy.
Fix: Conciliation comes first. Arbitration follows only if conciliation is not successful and terminates without settlement.
Applying the 75 per cent deposit to every party.
Students miss the words in brackets in section 19.
Fix: The deposit is required from an appellant not being a supplier. A supplier need not deposit.
Giving the wrong member count or forgetting who chairs the Council.
Students mix the Council with the National Board, which has a much larger membership.
Fix: Council: 3 to 5 members, chaired by the Director of Industries or an officer not below that rank. The National Board is a separate central body under section 3.
Saying the Central Government fixes the Council's composition.
The Act is central, so students assume central control.
Fix: Section 21(3) leaves composition, vacancies and procedure to rules prescribed by the State Government.

Worked examples

Example 1

Sunrise Packaging, a small enterprise located in Pune, supplied goods to Delta Retail Ltd, a buyer located in Chennai. Delta has not paid the amount due. Sunrise wants to approach a Facilitation Council. Which Council has jurisdiction, and what is the procedure?

Show the solution

Provision: section 18 of the MSMED Act, 2006 allows any party to a dispute to make a reference to the Council about an amount due under section 17.
Jurisdiction: section 18(4) gives jurisdiction to the Council acting in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India. Sunrise is located in Pune, so the Council with jurisdiction over Pune can act. Delta's location in Chennai does not matter.
Procedure: on receipt of the reference, the Council conducts conciliation itself or refers it to an ADR institution or centre. Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 apply.
If conciliation fails and ends without settlement, the Council takes up the dispute for arbitration itself or refers it to an ADR institution or centre. The 1996 Act then applies as if there were an arbitration agreement under section 7(1).
Time limit: under section 18(5), the reference must be decided within ninety days from the date of the reference.

Answer: Sunrise can refer the dispute to the Council with jurisdiction over Pune, where the supplier is located. Conciliation comes first, then arbitration if conciliation fails, and the reference must be decided within ninety days.

Example 2

An arbitral award was passed by a Facilitation Council against Delta Retail Ltd for ₹40,00,000. Delta wants to apply to a court to set aside the award. What must Delta do first? Would your answer change if the supplier were the applicant?

Show the solution

Provision: section 19 of the MSMED Act, 2006 bars a court from entertaining an application to set aside a decree, award or order unless the appellant, not being a supplier, deposits seventy-five per cent of the amount in terms of the award.
Calculation: 75% of ₹40,00,000 = ₹40,00,000 × 75 ÷ 100 = ₹30,00,000.
Delta is a buyer, not a supplier. So it must deposit ₹30,00,000 with the court, in the manner the court directs, before the application is entertained.
Proviso: while the application is pending, the court shall order that such percentage of the deposited amount be paid to the supplier as it considers reasonable, subject to conditions it considers necessary.
If the supplier were the applicant, the deposit requirement would not apply, because section 19 excludes a supplier from it.

Answer: Delta must first deposit ₹30,00,000 (75% of ₹40,00,000) with the court. A supplier applying to set aside would not have to make this deposit.

Exam tips

Learn sections 18 to 21 together. A typical question asks for composition (section 21), the reference procedure (section 18) and the deposit (section 19) in one answer.
For a composition question, list all four categories and state the 3 to 5 member limit and the Chairperson rule.
In case-style questions, always check where the supplier is located and who is the appellant before concluding.
Write the precise numbers: ninety days and seventy-five per cent. Use the Act's words where possible.
Do not confuse the Council with the National Board (section 3). Mention that the Council is a State body under section 20.

Practice questions from Micro, Small and Medium Enterprises

Micro and Small Enterprises Facilitation Council and Dispute Resolution in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Micro and Small Enterprises Facilitation Council and Dispute Resolution: frequently asked questions

How many members does the Micro and Small Enterprises Facilitation Council have?

Under section 21(1), it has not less than three and not more than five members. They come from four categories: the State industries department, associations of micro or small enterprises, banks and financial institutions, and persons with special knowledge in industry, finance, law, trade or commerce. The Director of Industries, or an officer not below that rank, is the Chairperson.

Who can make a reference to the Facilitation Council?

Under section 18(1), any party to a dispute may refer it for any amount due under section 17. That means either the supplier or the buyer can make the reference.

Is conciliation compulsory before arbitration under section 18?

Yes, as the section is framed. On receipt of a reference, the Council first conducts conciliation or refers it to an ADR institution or centre. Only if conciliation is not successful and ends without settlement does the Council proceed to arbitration.

How is a case filed through MSME Samadhaan?

The Act itself does not describe the online portal. It only provides for making a reference to the Council under section 18. For the exam, focus on the statutory process: reference, conciliation, arbitration and the ninety-day limit. Check the current portal process separately from official government sources.

Does a supplier have to deposit 75% to challenge an award?

No. Section 19 requires the deposit from an appellant who is not a supplier. So a buyer must deposit seventy-five per cent of the amount in the decree, award or order before a court entertains its application.