MSMEs often face delayed payments with little recourse—but that’s changing. Under the MSME Samadhaan portal and the MSMED Act, small suppliers can now initiate powerful recovery actions through Facilitation Councils. Even arbitration clauses in contracts don’t override this special law, as confirmed by the Supreme Court in the landmark Haricharan Dass Gupta v. Union of India case. This blog explains how MSMEs can enforce decrees, recover dues faster, and navigate the legal terrain confidently.
Also Read : Most Important MSME Samadhan Cases ruled by Indian Courts
What Is MSME Samadhaan and Why Was It Introduced?
MSME Samadhaan is an online grievance redressal platform launched by the Ministry of MSME to help micro and small enterprises resolve delayed payment disputes quickly and cost-effectively.
Purpose:
- Address payment delays from large buyers or government agencies.
- Reduce legal costs for small businesses by providing statutory arbitration via Facilitation Councils.
- Empower MSMEs with a structured legal path under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.
The portal allows any registered MSME supplier to file complaints online and track the status of their case—from conciliation to arbitration—under Section 18 of the Act.
Also Read : Step-by-Step MSME Samadhan Procedure for Delayed Payments
MSME Samadhaan is not just a complaints portal—it’s a legislative safeguard designed to shift the power dynamic in favour of small businesses.
Legal Basis: MSMED Act vs Arbitration Act — Which Prevails?
One of the most litigated questions is: If there is an arbitration clause in the contract, can the MSME still go to the Facilitation Council?
The Supreme Court says YES.
Legal Framework:
- The MSMED Act, 2006 is a special statute that overrides general legislation like the Arbitration and Conciliation Act, 1996.
- Section 18(4) of the MSMED Act includes a non-obstante clause, giving overriding power to the Facilitation Council.
- As held in Silpi Industries v. Kerala SRTC and reaffirmed in Haricharan Dass Gupta v. Union of India (2025):
“The MSMED Act being a special and later statute prevails over the Arbitration Act in case of conflict.”
So even if your contract specifies arbitration elsewhere (say Mumbai or Singapore), once the MSME triggers Section 18, that contractual clause becomes subordinate to the statutory scheme.
Also Read : What Are the Common Errors to Avoid in Msme Samadhaan Procedures?
Key Takeaways from Haricharan Dass Gupta v. Union of India (2025)
This landmark case reaffirmed the supremacy of MSMED Act over private arbitration agreements. Here’s what the SC clarified:
| Issue | Court’s Finding |
|---|---|
| MSME filed with Delhi Council, buyer objected citing Bengaluru arbitration clause | The Facilitation Council’s jurisdiction stands |
| Does Arbitration Act override MSMED Act? | No. MSMED Act prevails due to Sections 18(4) & 24 |
| Can arbitration proceed under the Council even if contract says otherwise? | Yes. Private agreements can’t override statute |
| Can Facilitation Council act as arbitrator even after failed conciliation? | Yes, despite Section 80 of Arbitration Act |
“Private agreements cannot obliterate the statutory provisions” – SC in Haricharan Dass Gupta
This judgment cements the authority of MSME Facilitation Councils and protects small businesses from being sidelined by contract terms favouring bigger players.
Also Read : How to Resolve Msme Samadhaan Payment Issues?
Common Pitfalls in MSME Recovery and How to Avoid Them
Pitfall 1: Not Registering on Udyam or Samadhaan
Without MSME registration, the supplier cannot initiate proceedings under the MSMED Act.
Solution: Ensure Udyam Registration is valid and updated before initiating any claim.
Pitfall 2: Accepting Arbitration Clauses That Limit Remedies
Contracts often have restrictive arbitration clauses, which buyers use to stall MSME Samadhaan claims.
Solution: Understand that MSMED overrides such clauses, and do not be deterred.
Pitfall 3: Poor Record-Keeping of Invoices and Delivery Notes
Lack of documentation weakens your claim.
Solution: Keep digital records of all invoices, emails, purchase orders, and delivery receipts.
Pitfall 4: Delay in Filing
Waiting too long may allow buyers to dispose of assets or create jurisdictional confusion.
Solution: File a case promptly through MSME Samadhaan and begin Section 18 proceedings.
Seat of Arbitration in MSME Cases: Who Decides?
This is a crucial question answered definitively by both statute and Supreme Court jurisprudence.
Legal Provision:
Section 18(4) of the MSMED Act states:
“The Facilitation Council where the supplier is located shall have jurisdiction, notwithstanding anything contained in any other law.”
Supreme Court Clarification (2025):
- Even if the contract says arbitration is to be held at a different city (e.g., Bengaluru), the Council where the MSME is located has overriding jurisdiction.
- In Haricharan Dass Gupta, the Delhi Facilitation Council retained jurisdiction even though ISRO had insisted on Bengaluru.
✅ Key Takeaway: MSMEs need not worry about arbitration seat clauses—they are protected by law.
How to File a Case via MSME Samadhaan Portal
Step-by-Step Filing Process:
- Register your business on Udyam Registration Portal.
- Visit MSME Samadhaan Portal.
- Click on “Apply Online” and fill Form I for delayed payments.
- Upload:
- Invoice copies
- Purchase orders
- Udyam certificate
- Communication records
- Submit and receive acknowledgment with a unique case ID.
- Your complaint is forwarded to the relevant Facilitation Council, which issues notices for conciliation.
If the conciliation fails, the Council proceeds to arbitration either directly or via a nominated institution.
Pro Tips for Drafting MSME Contracts That Stand Up in Court
Contracts remain the first line of defence and recovery. Here’s how to future-proof your MSME agreements:
- ✅ Avoid Ambiguous Arbitration Clauses: Use standard clauses referencing statutory rights.
- ✅ Add Payment Terms Clearly: Include penalties for delay and payment timelines.
- ✅ Include Digital Execution: Ensure email exchanges and WhatsApp messages can support enforceability.
- ✅ Document Deliverables and Milestones: Attach annexures with deliverables to avoid disputes.
- ✅ Include Clause Stating MSME Status: This reinforces your eligibility under the MSMED Act.
Bonus Tip: Always mark invoices as “Interest payable under Section 16 of MSMED Act” to strengthen your case.
Expanded Section: Challenges in MSME Samadhaan Enforcement
Challenge 1: Conflicting Arbitration Clauses
- Reality: Buyers often insert arbitration clauses naming specific forums (e.g., seat at Bengaluru).
- Problem: These are later used to object to Facilitation Council jurisdiction.
- Resolution: The SC in Haricharan Dass Gupta held that MSMED Act overrides such clauses (Para 9–10).
Challenge 2: Jurisdiction Objections
- Buyers argue that the place of arbitration must follow the contract, not the MSME location.
- The Supreme Court clarified that Section 18(4) gives jurisdiction to the Facilitation Council where the supplier is located, regardless of buyer’s location.
“A private agreement cannot obliterate the statutory provisions.” – SC, Haricharan Dass Gupta, Para 9
Challenge 3: Stay Orders from High Courts
- Buyers approach High Courts to stall proceedings.
- However, this ruling confirms that statutory proceedings under the MSMED Act cannot be stayed based on arbitration agreements.
Also Read : What are the consequences of non-compliance with MSME Samadhaan regulations?
Key Case Summary: Haricharan Dass Gupta v. Union of India (2025 INSC 689)
| Fact | Detail |
|---|---|
| Parties | MSME contractor vs ISRO |
| Issue | Can arbitration proceed at Delhi despite contract stating Bengaluru as seat? |
| SC Held | Yes — MSME Facilitation Council has overriding jurisdiction |
| Key Law | Section 18(4) of MSMED Act overrides Arbitration Act |
| Impact | Boosts MSME Samadhaan by protecting supplier’s right to statutory dispute resolutio |
FAQs
Q1. What is MSME Samadhaan?
It’s an online portal where MSMEs can file payment delay complaints under the MSMED Act.
Q2. Can I approach the Facilitation Council if there’s an arbitration clause in the contract?
Yes. As per the Supreme Court, Section 18 of the MSMED Act overrides any private arbitration agreement.
Q3. Where will arbitration take place under MSME Samadhaan?
The arbitration will occur in the jurisdiction of the Facilitation Council where the supplier is located, not where the buyer prefers.
Q4. Can the buyer challenge the Facilitation Council’s jurisdiction?
They can, but courts have clarified such challenges hold no weight when the MSMED Act applies.
Q5. What happens if the buyer ignores the Samadhaan notice?
The Council can proceed ex parte and refer the matter to arbitration or act as arbitrator itself.
Also Read : Best Strategies in filing MSME Samadhaan Proceedings
