Sections 20 and 21 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.
Section 20 tells us who sets up the Micro and Small Enterprises Facilitation Council: the State Government, by notification. Section 21 tells us who sits on it: not less than three and not more than five members drawn from four categories, with a senior State industries officer as chairperson. Together they answer the question "who decides my delayed payment reference?".
Section 20: the State Government shall, by notification, establish one or more Micro and Small Enterprises Facilitation Councils, at the places, with the jurisdiction and for the areas the notification specifies. Section 21: a Council has not less than three but not more than five members, chosen from four listed categories. The Director of Industries (or an officer not below that rank) is the chairperson. Composition, vacancies and procedure are as prescribed by the State Government.
Section 20: the State establishes the Councils
The text: "The State Government shall, by notification, establish one or more Micro and Small Enterprises Facilitation Councils, at such places, exercising such jurisdiction and for such areas, as may be specified in the notification."
- Who: the State Government. Under section 2(p) the State Government, for a Union territory, means the Administrator appointed under article 239 of the Constitution.
- How: by notification, which the Act defines in section 2(j) as a notification published in the Official Gazette.
- How many: "one or more". A State may have one Council or several.
- Where and for what area: as the notification specifies. The Act itself names no place.
This matters for jurisdiction under section 18(4): the Council that may act is the one with jurisdiction over the place where the supplier is located, and that place depends on the State's notification.
Section 21(1): who sits on the Council
A Council "shall consist of not less than three but not more than five members to be appointed from among the following categories":
| Clause | Category |
|---|---|
| (i) | Director of Industries, by whatever name called, or any other officer not below the rank of such Director, in the Department of the State Government having administrative control of the small scale industries or, as the case may be, micro, small and medium enterprises |
| (ii) | one or more office-bearers or representatives of associations of micro or small industry or enterprises in the State |
| (iii) | one or more representatives of banks and financial institutions lending to micro or small enterprises |
| (iv) | one or more persons having special knowledge in the field of industry, finance, law, trade or commerce |
The list joins clauses (i) and (ii) with "and", clause (iii) with "or", and clause (iv) after an "or" at the end of clause (iii). The printed text is not entirely clear on whether every category must be represented on every Council, so the point should be checked against the gazette text and the State's own rules. What is certain is the size limit of three to five, and that the first category supplies the chairperson.
Section 21(2): the chairperson
"The person appointed under clause (i) of sub-section (1) shall be the chairperson of the Micro and Small Enterprise Facilitation Council." The chair is therefore a senior State officer from the industries department, not a representative of industry or banks.
Section 21(3): composition, vacancies and procedure by State rules
"The composition of the Micro and Small Enterprise Facilitation Council, the manner of filling vacancies of its members and the procedure to be followed in the discharge of their functions by the members shall be such as may be prescribed by the State Government."
The Central Government's rule-making power in section 29 does not cover this; the power here is given to the State. Whether a State has framed rules, and what they say about quorum or sittings, is not in the Act. Check the State's own notification or rules.
If you want to know which Council has jurisdiction over your place of business and how to approach it, our MSME conciliation and arbitration team can help.
How the Council's role connects
| Provision | Council's role |
|---|---|
| s.18(1) | Receives a reference for an amount due under section 17 |
| s.18(2) | Conducts conciliation itself or refers it to an institution or centre |
| s.18(3) | Takes up arbitration itself or refers it |
| s.18(4) | Has jurisdiction for a supplier in its area and a buyer anywhere in India |
| s.19 | Its decree, award or order can be challenged only after the deposit |
See reference and conciliation and section 19.
What sections 20 and 21 do not say
- They do not give the term of office of members.
- They do not say whether members are paid.
- They do not say whether a chairperson alone may sit.
- They do not name the Council of any State.
- They do not require every category in section 21(1) to be represented. See the note above; verify in the rules.
- They do not say what happens to a reference if the Council lacks a quorum. That is for the State's rules.
A useful practical note
Because the State fixes each Council's composition, two Councils in different States can have different members and procedures. A supplier should read its own State's notification and rules before filing. Our topical post on the MSEFC process covers the process from the filing side.
Practical examples
Example 1: a State with one Council. The State notifies one Council for the whole State. Suppliers anywhere in the State refer their disputes to it, because the notification gave it the State as its area.
Example 2: a State with several Councils. The State notifies a Council for each division. A supplier refers its dispute to the Council whose area covers the supplier's location. The buyer may be in another State, because section 18(4) looks to the supplier's place.
Example 3: who chairs. A Council is formed with the Director of Industries, two association representatives and a banker. The Director chairs, as section 21(2) requires.
Common mistakes
- Assuming a single national Council. The Act provides State Councils.
- Thinking the Central Government prescribes each Council's composition. Section 21(3) gives that to the State.
- Forgetting the three to five member range.
Need help finding the right Council?
The right forum depends on where the supplier is located and on the State's notification. If you would like help identifying the Council for your reference and preparing the papers, our MSME conciliation and arbitration service can guide you.
Key takeaways
- The State Government establishes one or more Councils by notification, fixing place, jurisdiction and area (s.20).
- A Council has three to five members from the categories in s.21(1).
- The Director of Industries or an officer not below that rank is the chairperson (s.21(2)).
- Composition, vacancy filling and procedure are as prescribed by the State Government (s.21(3)).
- The Act names no Council and sets no term of office.
Read next
- Section 18 of the MSMED Act, 2006: Reference and conciliation
- Section 18 of the MSMED Act, 2006: Arbitration, jurisdiction and the ninety day limit
- MSME Facilitation Council (MSEFC): Dispute Resolution Process
- MSME Samadhaan: Recover Delayed Payments
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.