Facilitation Councils Under MSMED Act Failing to Meet Statutory Deadlines, Data Reveals

The promise of expeditious dispute resolution for micro, small, and medium enterprises (MSMEs) under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, appears to be increasingly illusory, as fresh data from the MSME Samadhaan portal reveals that over 36% of recovery applications filed since inception remain pending. This backlog—amounting to over 90,000 cases—casts a long shadow over the legislative intent of Section 18(5), which mandates that Facilitation Councils decide references within 90 days. For a sector contributing to nearly a third of India's GDP, the systemic delays not only undermine the legal framework but also threaten the financial health of small enterprises that can ill-afford prolonged litigation.

The MSMED Act was enacted to provide a faster, more cost-effective alternative to traditional civil courts for MSMEs seeking payment for goods and services supplied. The legislation introduced a dedicated adjudicatory mechanism through Facilitation Councils, intended to act as arbitration tribunals with stringent timelines. Section 18(5) was a cornerstone of this design, specifying that references should be decided within 90 days. The Framers envisioned that this would prevent the exact "docket explosion" that has dogged civil courts, where cases meander for years and even decades, draining resources and eroding faith in the justice delivery system. The subsequent amendment in 2017 further streamlined the process with the launch of the MSME Samadhaan portal, aiming to digitize and accelerate the filing and tracking of claims.

The Data: A Bleak Picture of Delay and Dysfunction

Contrary to the legislative vision, the practical operation of the MSME dispute resolution machinery has been fraught with procedural inertia. According to data collated from the MSME Samadhaan portal, approximately 2,56,892 applications for recovery have been filed since the portal's inception. Of these, 44,537 applications remain pending initial scrutiny, while 46,260 are under active adjudication—a combined pendency rate of nearly 36%. Incredibly, the problem is even more acute when the government itself is a party: of the 32,797 cases filed against central and state government departments and public sector undertakings, a staggering 26,407 have seen no effective response, indicating a "plethora of non-appearances" and procedural foot-dragging.

The implications are severe. The Facilitation Councils, often headed by the Director of Industries of each state, are saddled with additional administrative responsibilities that leave little room for dedicated judicial or quasi-judicial work. Reports suggest that in many states, hearings are held only once a month, with each sitting listing over 100 cases. In such an environment, meaningful legal arguments are replaced by routine adjournments, and the statutory mandate of 90 days is routinely ignored. The figure stands in stark contrast to the judiciary's own performance metrics: in just the first two quarters of the current year, High Courts disposed of nearly 93% of the cases instituted, according to the National Judicial Data Grid. This comparative underperformance by a supposedly alternative mechanism is a damning indictment of its operational reality.

Flawed Structure and Lack of Legal Expertise

The structural flaws are not limited to workload. The composition of the Facilitation Councils, as envisioned under Section 21 of the MSMED Act, requires representation from banking, industry, and persons with special knowledge in law, trade, or commerce. However, ground realities frequently deviate from this statutory design. The composition is often dominated by administrative officers with limited familiarity with procedural law, evidentiary standards, or arbitration jurisprudence. When disputes involve complex contractual interpretations, proof of supply, or valuation of damages, the lack of legal expertise becomes a critical handicap. The result is that a mechanism designed for speed and simplicity often gets bogged down in procedural quagmires, leading to erroneous awards or unnecessary appeals.

A Path Forward: Strengthening Institutional Capacity

To salvage the promise of the MSMED Act, a multi-pronged reform is essential. First, there is an urgent need to infuse the Facilitation Councils with dedicated legal expertise. This could be achieved by either empanelling a new cadre of full-time legal members or by mandating that the Director of Industries be assisted by a legally trained adjudicator with experience in commercial disputes. Second, the composition mandated under Section 21 must be adhered to in letter and spirit. The presence of at least one member with proven legal experience would go a long way in ensuring that the councils can properly assess evidence, apply substantive law, and issue reasoned awards that withstand judicial scrutiny. Third, the government should consider providing regular training and financial autonomy to these bodies to clear the backlog and address the pendency.

The Road Ahead: Legal Reforms and Judicial Oversight

The current situation is untenable. The MSMED Act's alternative dispute resolution mechanism was meant to be a bulwark against the slow-moving wheels of justice. Instead, it increasingly mimics them. While the government’s recent announcement of a ₹10,000 crore SME Growth Fund is a welcome step for liquidity, it does little to address the root cause of payment delays: an ineffective enforcement regime. The Facilitation Councils must be empowered to function as efficient, sea-riented tribunals, not as a rubber stamp for consensual awards. Moreover, the High Courts can play a supervisory role by identifying and addressing systemic bottlenecks through writ petitions or suo motu action. Without these fundamental changes, the MSMED Act risks becoming yet another well-intentioned but ultimately broken promise—leaving India's MSMEs, the very backbone of the economy, high and dry in their quest for timely justice.