MSME Council Jurisdiction: Limited to Delay in Payments, Not Deficiency of Services

In the world of micro, small, and medium enterprises (MSMEs) in India, timely payments are crucial for survival and growth. But when disputes arise, where do businesses turn? A common question arises: The MSME Council's Jurisdiction is Limited to Resolving Disputes Related to Delay of Payment Not Deficiency of Services. This blog post dives deep into this critical legal distinction, drawing from key judgments and provisions of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. Understanding this can save businesses time, money, and frustration by directing them to the right forum.

We'll explore the scope of MSME Facilitation Councils, their limitations, and why service deficiency claims don't belong here. Note: This is general information based on legal precedents and is not specific legal advice. Consult a qualified lawyer for your situation.

Understanding MSME Facilitation Councils and Their Role

MSME Facilitation Councils, established under the MSME Act, serve as specialized bodies to promote timely payments to micro and small enterprises. Their primary mandate is to facilitate quick resolution of payment-related disputes between suppliers (MSMEs) and buyers.

As per Section 18(4) of the MSME Act, these councils have jurisdiction to act as an arbitrator or conciliator in disputes between a supplier located within their jurisdiction and a buyer located anywhere in India

Sirius Global Limited vs South Eastern Railway - Delhi

The MSME Act even overrides conflicting agreement provisions or the Arbitration and Conciliation Act, 1996. Once referred, proceedings follow arbitration norms 2021 0 Supreme(Del) 2201. However, this power is not unlimited.

Key Focus: Delay in Payments

The councils' jurisdiction centers on recovery of delayed payments. Courts have emphasized that the object of MSME Act is to ensure timely and smooth payment to the suppliers who are the micro and small enterprises, and to provide a legal framework for resolving the dispute with regard to the ... 2025 Supreme(Online)(Del) 9792.

Section 16 of the MSME Act deals specifically with payment disputes, empowering councils under Section 17 for recovery of amounts due 2023 0 Supreme(Telangana) 22. This scope is limited only to recovery of amounts due from the buyer2023 0 Supreme(Telangana) 22.

Limitations on MSME Council's Jurisdiction

While powerful for payment issues, MSME Councils cannot entertain every dispute. Their authority is confined to matters under the MSME Act, akin to limitations in Section 10(4) of the Industrial Disputes Act, 1947 2007 7 Supreme 629.

• Registration Requirement: If the contract was entered when the supplier was not an MSME, the council lacks jurisdiction 2023 0 Supreme(Del) 2831. Registration at the time of contract is key 2023 0 Supreme(Cal) 1161.
• Geographical and Party Constraints: Councils handle suppliers within their area, even if buyers are elsewhere, but foreign entities without Indian presence may complicate matters 2021 0 Supreme(Telangana) 291.
• No Override for Non-Payment Issues: Exclusive jurisdiction clauses in contracts (e.g., Mumbai courts) may still apply if not overridden by MSME provisions

  Gammon Engineers and Contractors Pvt. Ltd. VS Rohit Sood - Bombay (2024)

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In one case, the Supreme Court noted the High Court ought not to entertain writs against council notices, directing parties to the council for incidental matters related to MSMEs 2022 4 Supreme 92.

Deficiency of Services: Outside MSME purview

A critical distinction: MSME Councils do not handle deficiency of services. This is explicitly limited 2023 0 Supreme(Del) 738.

• Consumer Forums for Services: Statutory bodies promising development (e.g., site allotments) fall under consumer forums for service deficiencies 2014 2 Supreme 513.
• Not Solely Delay-Based: Consumer forums won't deem delay in claim processing alone as deficiency; it's just one factor 2022 0 Supreme(SC) 705.

Courts reinforce: Scope of MSME Act is limited only to recovery of amounts due from the buyer and in this context MSME Act provides jurisdiction to Facilitation Council to act as a conciliator or arbitrator in respect of matters referred to in Section 17 of the MSME Act 2023 0 Supreme(Telangana) 22. Broader contractual disputes, like service quality, go to civil courts or agreed arbitration 2023 0 Supreme(All) 1620.

Distinction in Practice

| Dispute Type | MSME Council Jurisdiction? | Alternative Forum ||--------------|----------------------------|-------------------|| Delay in Payment | Yes 2025 Supreme(Online)(Del) 9792 | MSME Council || Deficiency in Services | No 2023 0 Supreme(Del) 738 | Consumer Forum/Civil Court || Non-MSME at Contract Time | No 2023 0 Supreme(Del) 2831 | Contractual Arbitration || General Contract Breach | Typically No | Regular Courts 2023 0 Supreme(Cal) 1162 |

This table highlights why misfiling can lead to dismissals and delays.

Judicial Precedents Reinforcing Limited Scope

Supreme Court and High Courts have clarified boundaries:

• MSME Act Prevails Over Arbitration Act for Payments: But only for eligible disputes 2025 Supreme(Online)(Del) 9792. Section 24's overriding effect doesn't apply universally 2023 0 Supreme(Cal) 1162.
• No Jurisdiction for Non-Payment Claims: In a case involving RA bills, reference was made for non-payment, but not broader issues 2024 Supreme(Online)(DEL) 9132.
• Contractual Jurisdiction Clauses: If parties agree to specific courts, MSME doesn't automatically override unless payment-specific 2023 0 Supreme(All) 1620.

In Essar Oil and Gas Exploration and Production Limited vs. Gargi Travels Private Limited, courts followed precedents limiting Section 18 2023 0 Supreme(Cal) 1162. Similarly, challenges to council awards highlight procedural adherence but uphold payment focus 2019 0 Supreme(Del) 1893.

The MSME Act’s applicability depends on the registration status of the enterprise at the time of the contract – a recurring theme 2023 0 Supreme(Cal) 1161.

Practical Implications for Businesses

For MSME suppliers:- Register early and invoke councils promptly for payment delays.- For service disputes, pivot to consumer forums or courts.

Buyers should note: Councils prioritize MSME payments, with interest and compound rates applying strictly.

Disputes via Samadhan Portal must be handled substantively by MSEFCs, avoiding delays attributed to technical issues

Dipanwita Paul Das vs Development Commissioner Small Scale Industries - 2023 Supreme(Online)(CIC) 7608

Conclusion and Key Takeaways

The MSME Council's jurisdiction is strictly limited to resolving disputes related to delay of payment, not deficiency of services. This ensures focused, efficient resolution for what matters most: cash flow for MSMEs. Courts consistently uphold this, as seen in rulings emphasizing timely payments over broad contractual fights 2025 Supreme(Online)(Del) 9792 2023 0 Supreme(Telangana) 22.

Key Takeaways:- File payment delays with MSME Councils if registered timely

Sirius Global Limited vs South Eastern Railway - Delhi

Businesses navigating these waters should seek tailored advice. Stay informed, pay promptly, and resolve smartly.

References:- 2023 0 Supreme(Del) 738

Sirius Global Limited vs South Eastern Railway - Delhi

Gammon Engineers and Contractors Pvt. Ltd. VS Rohit Sood - Bombay (2024)

Dipanwita Paul Das vs Development Commissioner Small Scale Industries - 2023 Supreme(Online)(CIC) 7608