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.
Sub-sections (1) and (2) of section 18 open the dispute route for delayed payments. Sub-section (1) lets any party to a dispute make a reference to the Micro and Small Enterprises Facilitation Council about an amount due under section 17. Sub-section (2) says what the Council must then do first: conciliate, itself or through an outside institution, applying sections 65 to 81 of the Arbitration and Conciliation Act, 1996. Arbitration comes only if conciliation fails, and that is covered separately.
Any party to a dispute may, "notwithstanding anything contained in any other law for the time being in force", make a reference to the Micro and Small Enterprises Facilitation Council for any amount due under section 17. On receipt, the Council must either conduct conciliation itself or refer 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 were initiated under Part III of that Act.
Sub-section (1): the reference
The text says: "Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council."
| Phrase | Meaning |
|---|---|
| "Notwithstanding anything contained in any other law" | The reference route is available despite any other law to the contrary |
| "any party to a dispute" | Not only the supplier; the wording covers either side |
| "any amount due under section 17" | The price with interest under section 16 (see section 17) |
| "may" | A reference is permitted; the sub-section does not use "shall" |
| "Micro and Small Enterprises Facilitation Council" | The body set up under section 20 by the State Government |
Two points deserve attention. First, the sub-section says "any party", so a buyer could also, on the wording, make a reference. Second, it says "may", so it is not spelled out as an exclusive route; how it fits with other remedies is for section 24 and for the courts. Do not assume either way without taking advice on your facts.
If you are preparing a reference and want help with the claim statement, see our MSME conciliation and arbitration service.
Sub-section (2): what the Council must do
The second sub-section says that on receipt of a reference, "the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation".
So the Council has two options, both mandatory in the sense that one of them must be taken:
- conduct the conciliation itself; or
- refer the matter to an institution or centre that provides alternate dispute resolution services, for conciliation.
The provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 "shall apply to such a dispute as if the conciliation was initiated under Part III of that Act".
What that borrowing means
Part III of the 1996 Act deals with conciliation. The Act imports those sections, from 65 to 81, for the conciliation. The sections themselves (on conciliators, procedure and settlement) are not reproduced in the MSMED Act, so read them in the 1996 Act itself. This article does not summarise them section by section.
The sequence so far
| Step | Provision | Who acts |
|---|---|---|
| 1. Reference | s.18(1) | Any party to the dispute |
| 2. Conciliation | s.18(2) | The Council itself, or an institution/centre it refers to |
| 3. If conciliation fails | s.18(3) | Arbitration by the Council or a referred institution |
| 4. Time limit | s.18(5) | Ninety days from the reference |
Steps 3 and 4 are covered in our article on arbitration, jurisdiction and the ninety day limit. The ninety day period in sub-section (5) counts "from the date of making such a reference", so it starts with the reference under sub-section (1), not with the failure of conciliation.
Where the Council sits
Section 20 has the State Government establish one or more Councils by notification, and section 21 sets out their composition. See sections 20 and 21. The Act's text does not prescribe a form of reference or a fee. If a State has notified a form or procedure, it will be in that State's notification or rules, which this article has not reviewed.
What sub-sections (1) and (2) do not say
- They do not set out a form for the reference.
- They do not require the supplier to send a prior notice.
- They do not specify how long conciliation may take. Only the overall ninety days in sub-section (5) appears.
- They do not say the conciliation must succeed; sub-section (3) deals with failure.
- They do not say which State's Council. Sub-section (4) speaks of a supplier "located within its jurisdiction"; that is covered in the next article.
Practical examples
Example 1: a supplier refers. A small supplier is owed Rs 4,00,000 plus interest. It makes a reference to the Council of its State. The Council decides to conduct conciliation itself. The Part III provisions apply as if the conciliation were under that Act.
Example 2: Council refers out. The Council asks an institution providing alternate dispute resolution services to conduct the conciliation. Sub-section (2) allows this, so long as it is an institution or centre providing such services.
Example 3: the buyer refers. A buyer that says the amount claimed is wrong makes a reference. The text says "any party to a dispute", so the wording does not confine the route to the supplier.
Common mistakes
- Assuming only the supplier can refer.
- Treating conciliation as optional; sub-section (2) says the Council "shall" either conduct it or seek an institution's help.
- Starting the ninety day clock at the wrong date.
- Not keeping proof of the reference date.
Need help making a reference to the Council?
A reference should state the amount due, the dates and the interest clearly, with the supporting documents attached. If you would like help preparing it and following it through conciliation, our MSME conciliation and arbitration team can assist.
Key takeaways
- Any party to a dispute may make a reference for an amount due under section 17.
- The Council must conciliate itself or refer the matter to an alternate dispute resolution institution or centre.
- Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 apply as if the conciliation were under Part III.
- The ninety day period in section 18(5) runs from the date of the reference.
- The Act prescribes no form or fee for the reference in these sub-sections.
Read next
- Section 18 of the MSMED Act, 2006: Arbitration, jurisdiction and the ninety day limit
- Section 19 of the MSMED Act, 2006: Seventy-five per cent deposit to challenge an award
- MSME Facilitation Council (MSEFC): Dispute Resolution Process
- MSME Delayed Payment: Filing a Complaint on the Samadhaan Portal
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.