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Arbitration, Mediation and Conciliation · Introduction to Conciliation and its Importance for MSMEs

Reference to MSE Facilitation Council under Section 18 of MSMED Act

Updated 11 October 2026 · Fact-checked

Under Section 18 of the MSMED Act, 2006, any party to a dispute over an amount due under section 17 can refer it to the Micro and Small Enterprises Facilitation Council. The Council first conciliates, or sends the matter to an ADR institution. If conciliation fails, it arbitrates. The Arbitration and Conciliation Act, 1996 applies. Decide within ninety days.

Understand Reference to MSE Facilitation Council under Section 18

Small suppliers often wait long for payment from large buyers. The MSMED Act, 2006 gives them a special forum. Section 17 deals with the amount due to the supplier. Section 18 gives the route to recover it: a reference to the Micro and Small Enterprises Facilitation Council (MSEFC).

Section 18(1) says any party to the dispute may make the reference. It applies "notwithstanding anything contained in any other law for the time being in force". So the buyer or the supplier can approach the Council. A contract clause pointing elsewhere does not stop this route.

The Council works in two stages. First, on receipt of the reference, it either conducts conciliation itself or refers the matter to an institution or centre providing alternate dispute resolution services. Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (Part III) apply as if conciliation began under that Part.

Second, if conciliation is not successful and ends without settlement, the Council either takes up the dispute for arbitration itself or refers it to an ADR institution or centre for arbitration. The Arbitration and Conciliation Act, 1996 then applies as if the arbitration were under an arbitration agreement referred to in section 7(1). So no separate written arbitration agreement is needed.

Jurisdiction follows the supplier. The Council, or the centre, can act as arbitrator or conciliator where the supplier is located within its jurisdiction and the buyer is located anywhere in India. Every reference must be decided within ninety days from the date of making it. Under section 20 of the MSMED Act, the State Government sets up the Councils by notification. Under section 21, a Council has three to five members, and the Director of Industries (or an officer not below that rank) is Chairperson.

Key rules to remember

Who can refer (s.18(1))
Any party to a dispute + amount due under section 17 → reference to MSEFC
Applies notwithstanding any other law. Either supplier or buyer may refer.
Stage 1: Conciliation (s.18(2))
Council conciliates itself OR refers to an ADR institution/centre; Sections 65 to 81 of the 1996 Act apply
Treated as if initiated under Part III.
Stage 2: Arbitration (s.18(3))
Conciliation fails and terminates → Council arbitrates OR refers to ADR institution/centre; 1996 Act applies as if under s.7(1) agreement
No separate arbitration agreement is required.
Territorial jurisdiction (s.18(4))
Supplier located within Council's jurisdiction + buyer anywhere in India
Jurisdiction is decided by the supplier's location.
Time limit (s.18(5))
Decide within 90 days from the date of making the reference
Runs from the reference, not from the date of the invoice.
Council set-up (ss.20, 21)
State Government notifies Council; 3 to 5 members; Director of Industries (or higher officer) is Chairperson
Composition and procedure are prescribed by the State Government.
Equal treatment (s.18, 1996 Act)
Parties treated with equality; full opportunity to present case
Applies once the Council arbitrates under the 1996 Act.

How to solve Reference to MSE Facilitation Council under Section 18 questions

Use this order for any case question on a reference to the Council. Always apply provision, facts, conclusion.

  1. 1Identify the dispute: is it about an amount due to a supplier under section 17 of the MSMED Act? Name the supplier and the buyer.
  2. 2State section 18(1): any party may refer, notwithstanding any other law. Say who is referring.
  3. 3Check jurisdiction under section 18(4): is the supplier located within the Council's area? The buyer's location anywhere in India does not matter.
  4. 4Describe stage 1: Council conciliates itself or refers to an ADR institution or centre, with sections 65 to 81 of the 1996 Act applying.
  5. 5If conciliation fails or terminates without settlement, describe stage 2: the Council arbitrates or refers the dispute for arbitration, with the 1996 Act applying as if under section 7(1).
  6. 6Apply the ninety-day period in section 18(5) to the facts and state the date it runs from.
  7. 7Mention equal treatment of parties and a full opportunity to present the case, as the 1996 Act applies.
  8. 8Conclude clearly: who can approach whom, in what order, and what the Council must do.

Quickest way: Five-point recall for s.18

When to use it: Use when time is short and the question asks you to explain the procedure or advise a party.

  1. Who: any party, for the section 17 amount.
  2. Where: the Council, the supplier's location decides.
  3. First: conciliation, Sections 65 to 81.
  4. Then: arbitration, as if under section 7(1).
  5. Time: ninety days from the reference.

Common mistakes in Reference to MSE Facilitation Council under Section 18

  • Saying only the supplier can make the reference.

    Students think the section exists only to protect small suppliers.

    Fix: Quote section 18(1): "any party to a dispute" may refer. The buyer can too.

  • Going straight to arbitration at the Council.

    Students remember the Council as an arbitration body.

    Fix: Conciliation comes first under section 18(2). Arbitration starts only after conciliation is unsuccessful and terminates without settlement under section 18(3).

  • Saying a written arbitration agreement is needed for the Council to arbitrate.

    Students link arbitration with section 7 agreements only.

    Fix: Section 18(3) treats the arbitration as if it were under an arbitration agreement under section 7(1). The Council needs no separate agreement.

  • Deciding jurisdiction by the buyer's location.

    Students copy the civil court rule of defendant's place.

    Fix: Under section 18(4), the supplier must be within the Council's jurisdiction. The buyer may be anywhere in India.

  • Giving the time limit as ninety days from the invoice or from the arbitration start.

    Students recall the number but not the starting point.

    Fix: Section 18(5): each reference is to be decided within ninety days from the date of making the reference.

  • Confusing the Part III sections or quoting the wrong range.

    Students mix Part III with Part I.

    Fix: Conciliation uses sections 65 to 81 (Part III). Arbitration uses the 1996 Act as applied under section 7(1).

Worked examples

Example 1

Anand Fabrics, a micro enterprise located in Surat, supplied goods to Bharat Retail Ltd, a buyer based in Chennai. Payment of ₹8,40,000 is overdue. Anand Fabrics wants to approach the Facilitation Council in Gujarat. Bharat Retail says the Council has no jurisdiction because it is located in Tamil Nadu. Advise.

Show the solution
  1. Provision: section 18(1) lets any party refer a dispute over an amount due under section 17 to the Council, notwithstanding any other law.
  2. Section 18(4) gives the Council, or the centre, jurisdiction where the supplier is located within its jurisdiction and the buyer is located anywhere in India.
  3. Facts: the supplier is in Surat, within the Gujarat Council's area. The buyer is in Chennai, which is anywhere in India.
  4. Procedure: the Council will first conduct conciliation itself or refer it to an ADR institution or centre, applying sections 65 to 81 of the 1996 Act.
  5. If conciliation fails, the Council will arbitrate or refer for arbitration, treating it as under section 7(1) of the 1996 Act.
  6. The reference must be decided within ninety days from the date it is made.

Answer: Bharat Retail's objection fails. The Gujarat Council has jurisdiction because the supplier is located within its area and the buyer's location does not matter. Anand Fabrics can refer the ₹8,40,000 dispute. Conciliation comes first, then arbitration if needed, within ninety days of the reference.

Example 2

A reference is made to a Facilitation Council. Conciliation is held but ends without settlement. The buyer argues that the Council cannot arbitrate as the contract has no arbitration clause. Examine.

Show the solution
  1. Provision: section 18(3) applies when conciliation under section 18(2) is not successful and stands terminated without any settlement.
  2. The Council then either takes the dispute for arbitration itself or refers it to an ADR institution or centre for arbitration.
  3. The 1996 Act then applies as if the arbitration were in pursuance of an arbitration agreement referred to in section 7(1).
  4. Facts: conciliation ended without settlement, so the condition in section 18(3) is met.
  5. The absence of an arbitration clause is therefore irrelevant, as the section deems the agreement to exist.
  6. Once arbitration begins, section 18 of the 1996 Act requires equal treatment of the parties and a full opportunity to each to present its case.

Answer: The buyer's argument fails. Section 18(3) deems an arbitration agreement under section 7(1) to exist, so no clause is needed. The Council may arbitrate itself or refer the dispute to an ADR institution or centre, giving both parties equal treatment and a full opportunity to be heard.

Exam tips

  • Quote the sub-section numbers: 18(1) reference, 18(2) conciliation, 18(3) arbitration, 18(4) jurisdiction, 18(5) ninety days.
  • Always show the two-stage sequence: conciliation first, arbitration only after failure and termination.
  • In case questions, locate the supplier first. That decides jurisdiction.
  • Mention that Sections 65 to 81 and the 1996 Act apply, and link to equal treatment where the question talks of fairness.
  • Do not add details on the amount due under section 17 beyond what you are sure of. Keep to the reference procedure.

Practice questions from Introduction to Conciliation and its Importance for MSMEs

Reference to MSE Facilitation Council under Section 18 in other exams

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

Reference to MSE Facilitation Council under Section 18: frequently asked questions

Who can make a reference under Section 18 of the MSMED Act?

Any party to a dispute can make it, with regard to any amount due under section 17. That means both supplier and buyer. It applies notwithstanding any other law.

Does the Council conciliate or arbitrate?

Both, in order. It first conducts conciliation itself or refers it to an ADR institution or centre. If conciliation fails and terminates without settlement, it arbitrates or refers the dispute for arbitration.

Is an arbitration agreement needed for the Council to arbitrate?

No. Section 18(3) says the 1996 Act applies as if the arbitration were under an arbitration agreement referred to in section 7(1). The deeming works even if the contract has no clause.

Within how many days must the Council decide a reference?

Within ninety days from the date of making the reference, as per section 18(5).

Which Council has jurisdiction over the dispute?

The Council or centre within whose jurisdiction the supplier is located. The buyer can be located anywhere in India.