Section 18 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
If conciliation under section 18(2) fails, sub-section (3) sends the dispute to arbitration by the Facilitation Council or an institution it refers to. Sub-section (4) fixes which Council has jurisdiction: the one where the supplier is located, even if the buyer is anywhere in India. Sub-section (5) says every reference must be decided within ninety days from the date it is made.
If conciliation is unsuccessful and terminated without settlement, the Council either takes up the dispute for arbitration itself or refers it to an institution or centre providing alternate dispute resolution services. The 1996 Act then applies as if there were an arbitration agreement under section 7(1). The Council has jurisdiction over a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India. Every reference must be decided within ninety days from the date of making it.
Sub-section (3): from conciliation to arbitration
The text: "Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996, shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that Act."
| Point | What the text says |
|---|---|
| Condition | Conciliation "not successful" and "terminated without any settlement" |
| Duty | The Council "shall" take up arbitration itself or refer it out |
| Law applied | The Arbitration and Conciliation Act, 1996, as if under an arbitration agreement under section 7(1) of that Act |
The deeming is important. Section 7(1) of the 1996 Act concerns an arbitration agreement. The MSMED Act does not require the parties to have signed one; it treats the arbitration as if they had. So an arbitration clause, or its absence, in the supply contract does not block the reference in the Act's wording.
Sub-section (4): whose Council?
Sub-section (4) says: "Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India."
The anchor is the supplier's location. The buyer can be anywhere in India, including another State. A supplier therefore approaches the Council whose area covers its own place, not the buyer's. The State Government specifies each Council's places and area in its notification under section 20. See sections 20 and 21. The words "anywhere in India" also mean that the text says nothing about a buyer outside India.
Sub-section (5): the ninety day period
"Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference." Observe:
- The clock runs from the date of making the reference, not from the end of conciliation.
- "Every reference made under this section" covers the whole of section 18, so the ninety days cover conciliation and arbitration together as worded.
- The sub-section does not say what happens if ninety days pass without a decision. It states no automatic consequence, such as termination or a fine. Read the text as a time limit without a stated penalty, and check how courts and Councils apply it to your dispute.
The timeline
| Stage | Provision | Timing |
|---|---|---|
| Reference made | s.18(1) | Day 0 |
| Conciliation | s.18(2) | Within the ninety days |
| Arbitration if conciliation fails | s.18(3) | Within the same ninety days as the text is worded |
| Decision | s.18(5) | Within ninety days from the date of the reference |
For the first two steps, see reference and conciliation.
Who can be an arbitrator
The Council itself, or an institution or centre providing alternate dispute resolution services, acts as arbitrator under sub-section (4). The Act does not require an individual arbitrator to be named. The composition of the Council is in section 21 and is in the hands of the State Government's rules. The Act does not say whether the same body that conducted failed conciliation may also arbitrate; sub-section (3) says the Council "shall either itself take up the dispute for arbitration". Whether that raises any difficulty is a matter of the 1996 Act and court decisions, which this article does not review.
If you need help choosing the right Council or preparing the reference and claim statement, our MSME conciliation and arbitration service can assist.
After the award
A party unhappy with the award or decree may apply to a court to set it aside, but section 19 conditions that application on a deposit of seventy-five per cent of the amount by an appellant who is not a supplier. See section 19.
What these sub-sections do not say
- They do not define "located".
- They do not give a consequence for missing the ninety days.
- They do not name the place of arbitration. Seat and venue are for the 1996 Act and the Council's procedure.
- They do not require an arbitration clause in the contract.
- They do not bar a buyer from raising a defence or counterclaim; the text is silent.
Practical examples
Example 1: buyer in another State. A small supplier in one State is owed money by a buyer in a distant State. Under sub-section (4), the Council having jurisdiction over the supplier's location can act, although the buyer is located elsewhere in India.
Example 2: no arbitration clause. The supply contract has no arbitration clause. Sub-section (3) treats the arbitration as if it was under an arbitration agreement in section 7(1) of the 1996 Act, so the missing clause does not stop the Council.
Example 3: day count. A reference is made on 1 July. Sub-section (5) looks to a decision within ninety days from that date. Conciliation that runs long uses up part of that period.
Common mistakes
- Filing with the Council where the buyer is located rather than where the supplier is located.
- Counting ninety days from the end of conciliation.
- Assuming the Act cancels the reference if the ninety days lapse.
Need help with an arbitration before the Council?
Preparing for arbitration means a clear statement of claim, the dates and the interest workings, and a view on jurisdiction. Our MSME conciliation and arbitration team can work with you on the papers.
Key takeaways
- Failed conciliation leads to arbitration by the Council or a referred institution (s.18(3)).
- The 1996 Act applies as if there were an arbitration agreement under its section 7(1).
- The Council of the supplier's location has jurisdiction, with the buyer anywhere in India (s.18(4)).
- Every reference is to be decided within ninety days from the date of making it (s.18(5)).
- The text states no consequence for exceeding ninety days.
Read next
- Section 18 of the MSMED Act, 2006: Reference and conciliation
- Section 19 of the MSMED Act, 2006: Seventy-five per cent deposit to challenge an award
- Sections 20 and 21 of the MSMED Act, 2006: Establishment and composition of the Council
- MSME Facilitation Council (MSEFC): Dispute Resolution Process
Disclaimer: Based on the Micro, Small and Medium Enterprises Development Act, 2006 (official text, not amended by the Jan Vishwas Acts of 2023 or 2026) and the Udyam notifications S.O. 2119(E) of 26 June 2020 and S.O. 1364(E) of 21 March 2025, read with later developments noted in the article, as on 30 September 2026. Notifications, rules and the Udyam portal change; verify the current position before acting.