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Section 18: Reference to Facilitation Council

Micro, Small and Medium Enterprises Development Act, 2006 • Official Statutory Text & Practice Guide

MSME Law
3x Compound Interest
MSEFC Facilitation Council
Act 27 of 2006
Section 17 All 32 Sections of MSMED Act Section 19
Statutory Defined Terms in this Section: (Click any term for official legal definition)
Council Sec 2 Supplier Sec 2 Buyer Sec 2

Legal Commentary & Landmark Judgments: Section 18

Section 18 of the MSMED Act provides a specialized, statutory dispute resolution mechanism before the Micro and Small Enterprises Facilitation Council (MSEFC), mandating conciliation followed by statutory arbitration that overrides any private arbitration agreement.

  • Procedural Mechanism: Section 18 is the procedural engine of the MSMED Act.
  • Statutory Powers & Jurisdiction: Any party to a dispute regarding amounts due under Section 17 may make a reference to the MSEFC within whose jurisdiction the supplier is located.
  • Core Legal Standard: Upon reference, the Council must first conduct conciliation (either itself or through an alternate dispute resolution institution) under Sections 65 to 81 of the Arbitration and Conciliation Act, 1996.
  • Operational Mechanism: If conciliation is unsuccessful, the Council must either take up the dispute for arbitration itself or refer it to an arbitral institution.

The arbitration is conducted under the 1996 Act, and the Council or center is mandated to decide the dispute within ninety days from the date of the reference.

Key Landmark Precedents:
  • Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (2023) 6 SCC 401: The Supreme Court authoritatively settled the conflict between the MSMED Act and the Arbitration Act, holding that the statutory reference under Section 18 overrides and supersedes any private, pre-existing arbitration agreement entered into between the parties.
  • Silpi Industries v. Kerala State Transport Corporation (2021) 18 SCC 790: The Supreme Court held that the Limitation Act, 1963 applies to proceedings before the Facilitation Council under Section 18, meaning claims must be brought within the statutory limitation period of three years from the date of default.
  • Jharkhand Urja Vikas Nigam Ltd. v. State of Rajasthan (2021) SCC OnLine SC 1257: The Supreme Court held that the Facilitation Council cannot bypass the mandatory two-stage procedure; it must first conduct conciliation, and only upon failure of conciliation can it enter upon arbitration. An award passed without formally terminating conciliation and initiating arbitral proceedings is legally unsustainable.
Legal Commentary:

Section 18 creates a significant jurisdictional advantage for MSMEs: the supplier can invoke the MSEFC at its own place of business, completely nullifying any exclusive jurisdiction clauses or foreign seat designations contained in the commercial purchase orders of large corporate or government buyers.

Section 17 All 32 Sections of MSMED Act Section 19