AS | Ankit Sarawagi|Founder, CFOmatrix·July 2026·9 min read | Written from real filing experience |
- Two stages, one council. Section 18 makes the MSEFC try conciliation first (18(2)); only if that fails does it arbitrate (18(3)) under the Arbitration and Conciliation Act 1996.
- Many cases close in conciliation, once the buyer sees the interest exposure. The award stage is for the buyers who will not engage.
- The award is binding and enforceable like a court decree, covering the principal plus the Section 16 interest.
- 90 days is the target, not the reality. Expect roughly a month to the first notice, several hearings, and an arbitration-fee stage before you get there.
- Appeals are expensive to start: a buyer must pre-deposit 75% of the award (Section 19) before any court will even hear a challenge.
| Section 18 Conciliation first (18(2)), then arbitration (18(3)) | 90 days Statutory target for the award (slower in practice) | 75% Of the award a buyer must deposit to appeal (Sec 19) |
What the MSEFC Is (Section 18)
The Micro and Small Enterprises Facilitation Council (MSEFC) is a statutory body that each state government sets up under the MSMED Act, 2006. It is the forum that decides delayed-payment disputes between a registered micro or small supplier and its buyer. You do not approach it directly by post or in person, you reach it by filing your reference, free of cost, on the central MSME Samadhaan portal, which routes the case to the council of your state.
Everything the council does flows from Section 18 of the Act, which sets out a deliberate two-stage sequence. The council is required to attempt a settlement first, and only escalate to a binding decision if that attempt fails.
If you have not filed yet, start with the mechanics of the portal. → See our step-by-step guide to filing on MSME Samadhaan for the screens and the document checklist, then come back here for what happens once the council takes up your case. For the wider context, the full MSME delayed-payment recovery guide ties the interest right, the tax rule and this process together.
The End-to-End Process
Before we open each stage, here is the whole journey in one view, from the reference landing at the council to a binding, enforceable award.
The Conciliation Stage (18(2))
The council always starts as a settlement forum, not a court. Under Section 18(2), it either conducts the conciliation itself or refers it to an alternate dispute-resolution body, and the conciliation provisions of the Arbitration and Conciliation Act 1996 apply to it.
In plain terms, the council calls both sides to a hearing and tries to get them to agree. This is the stage where the interest exposure does its quiet work: once a buyer sees a claim that adds roughly 19.5% a year, compounding, on top of the principal, and realises the interest is not tax-deductible for it, the arithmetic of settling early becomes obvious. A large share of cases are resolved here without ever reaching an award.
Conciliation is where your paperwork pays off. Walk in with the invoices, the purchase order, proof of delivery and a clean interest computation under Section 16, and the council can see the number is real. A buyer facing a documented, compounding claim usually prefers a negotiated payment plan to an adverse award on the record.
If the buyer engages in good faith, you may leave conciliation with an agreed settlement or payment schedule. If the buyer stonewalls, ignores the notices or disputes the claim without substance, the council records that conciliation has not succeeded, and the matter moves to the second stage.
The Arbitration Stage (18(3))
When conciliation fails, Section 18(3) switches the council’s hat. It either takes up the dispute for arbitration itself or refers it to an ADR institution, and, importantly, the Arbitration and Conciliation Act, 1996 then applies to that arbitration as if it were being conducted under an arbitration agreement between the parties. You do not need to have signed an arbitration clause with the buyer; the statute supplies one.
This is the stage that produces a binding award. The council examines the evidence and, if it finds the buyer liable, awards you the unpaid principal plus the interest computed under Section 16 from the appointed day. That award carries the force of an arbitral award under the 1996 Act.
Because the 1996 Act applies, the arbitration follows a recognised procedure and the award can be enforced (and challenged) through the routes that Act provides. It is not an informal recommendation, it is a decision the courts will back.
The Reality: 90 Days vs the Field
The MSMED Act sets a target: the reference should be decided within 90 days. That is the number in the statute, and it is worth quoting when you push the council to move. But I have filed these cases myself, and the honest timeline is longer and more grinding. Here is what actually happens.
The arbitration-fee stage is where determined suppliers lose momentum. If the case reaches arbitration and the fees are not deposited, it can be dropped for want of progress. Decide before you file whether you are willing to fund that stage to reach a binding award, and budget for it.
The strongest leverage often lands before the first hearing. A formal demand notice that quotes the 19.5% interest clock and Section 43B(h) tells the buyer exactly what non-payment costs, and many pay at that point. Treat the MSEFC filing as the credible threat behind the notice, and be ready to see the process through if the buyer calls your bluff.
Appeals and the 75% Deposit
Once the award is passed, the buyer’s obvious move is to challenge it in court to buy more time. The MSMED Act anticipates exactly this and blocks it with one of the toughest conditions in Indian commercial law. Under Section 19, a court will not entertain the buyer’s application to set aside an MSEFC award unless the buyer first deposits 75% of the awarded amount.
The purpose is plain: to stop a buyer from using an appeal purely as a delaying tactic. A buyer who genuinely believes the award is wrong can still challenge it, but it must put most of the money on the table first, which changes the economics of a frivolous appeal entirely. For you as the supplier, this pre-deposit is one of the most powerful features of the whole system.
Enforcing the Award
An award you cannot collect is just paper. Fortunately, an MSEFC award is not a mere recommendation. Because the arbitration runs under the Arbitration and Conciliation Act 1996, the award carries the force of an arbitral award, and once the window to challenge it has passed (or a challenge has been rejected), it can be enforced like a decree of a civil court.
In short, the process is designed to end somewhere real: a binding number that the courts will help you collect. That is why the MSEFC route, slow as it is, is worth understanding fully before you decide how hard to push a non-paying buyer.
“The statute says 90 days; the field says several months and an arbitration fee. But the buyer knows one thing you should too: to fight the award, they have to put down 75% first. That asymmetry is the whole point.”
Ankit Sarawagi, CFOmatrixFrequently Asked Questions
What is the MSEFC?
The MSEFC is the Micro and Small Enterprises Facilitation Council, a statutory body constituted by each state government under Section 20 of the MSMED Act 2006. When a registered micro or small supplier is not paid on time, the council takes up the delayed-payment reference under Section 18, first trying to settle it through conciliation and, if that fails, deciding it through arbitration. You reach it by filing free of cost on the MSME Samadhaan portal.
How long does the MSEFC process actually take?
The MSMED Act targets an award within 90 days of the reference, but in practice it is slower. From my own filings, it takes roughly a month just for the council to issue the first hearing notice, then several rounds of hearings (about four to six notices to each party) before the matter is decided or referred to arbitration. Plan for several months, not 90 days, and treat the timeline as a range that varies by state council and case load.
Is the MSEFC arbitration award binding?
Yes. When conciliation fails, the council arbitrates under Section 18(3), and the Arbitration and Conciliation Act 1996 applies as if the arbitration were under an arbitration agreement. The award for the principal plus interest is binding, and once the challenge window closes it can be enforced like a decree of a civil court through execution proceedings.
Can the buyer appeal an MSEFC award?
The buyer can apply to set the award aside, but Section 19 of the MSMED Act imposes a hard condition: the court will not entertain the application unless the buyer first deposits 75% of the awarded amount. This pre-deposit is designed to stop buyers from using an appeal purely to delay payment, and the court can release part of that deposit to the supplier during the challenge.
What is the 75% deposit for an MSME appeal?
Under Section 19 of the MSMED Act 2006, a buyer who wants to challenge an MSEFC award in court must pre-deposit 75% of the amount awarded before the court will hear the application to set aside the award. It is a mandatory statutory condition, not a discretion, and it means the buyer cannot appeal without putting most of the money on the table first.
What if the buyer just ignores the council?
Non-appearance does not stop the process, it usually accelerates it against the buyer. If the buyer keeps skipping hearings, the council moves the matter from conciliation to arbitration and can proceed to pass an ex-parte award. In practice arbitration needs fees to be deposited to move forward, and if nobody deposits them the case can stall or be dropped, so a supplier should be ready to fund that stage to reach a binding, enforceable award.
Sources: Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, Sections 18 and 19 (and Section 20 constituting the council); Arbitration and Conciliation Act, 1996; MSME Samadhaan portal (samadhaan.msme.gov.in) and MSME ODR portal (odr.msme.gov.in). The 90-day figure is the statutory target; practitioner timelines reflect the author’s own filing experience and will vary by state council.
This is general educational information, current to mid-2026, and not legal or tax advice. Rates, forms and procedures change; verify the current position or consult a professional before acting on a specific matter.
AS | Founder, CFOmatrix | Finance Strategy & Equity Compliance CFOmatrix is a knowledge platform focused on how finance actually works inside growing companies. This guide draws on first-hand experience filing MSME delayed-payment cases before the facilitation council, alongside the current statutory position. |