Compliance
Challenging an award under Section 18 requires a buyer to deposit 75% of the awarded sum before a court will even consider setting it aside, turning a simple dispute into a costly financial commitment for the buyer.
Check your DPDP readiness — free More on the blogSection 18 of the Micro, Small and Medium Enterprises Development Act creates a fast‑track mechanism for unpaid micro or small suppliers to recover dues from buyers. It allows either party in a dispute over the amount due, including interest, to refer the matter to the Micro and Small Enterprises Facilitation Council, bypassing ordinary courts and other statutes. The provision aims to protect smaller enterprises by giving them a specialised forum that can act quickly and with less procedural burden.
The core of Section 18 is the right to approach the Facilitation Council whenever a dispute arises about the amount payable under Section 17. This includes the principal invoice, the statutory interest under Section 16 and any compound interest calculated at three times the RBI bank rate. The Council’s jurisdiction is independent of other laws, meaning the parties cannot be forced to use a different forum once they have invoked this provision.
Once a reference is made, the Council must first attempt conciliation, either itself or through an approved alternative dispute resolution institution, following the Arbitration and Conciliation Act. If the parties reach a settlement, the matter ends there. If conciliation fails, the Council proceeds to arbitration, either acting as the arbitrator or referring the case to an arbitration institution. The arbitration proceeds as though the parties had a formal arbitration agreement under the Act, ensuring the same procedural safeguards.
The Council where the supplier is located holds jurisdiction over the dispute, regardless of where the buyer operates in India. This prevents buyers from forcing a case into a distant court. Moreover, the Act imposes a strict deadline: every reference must be decided within ninety days of filing. The time limit encourages swift resolution and reduces the prolonged uncertainty that can cripple small businesses.
If a buyer wishes to set aside the Council’s award, Section 19 mandates a deposit of 75% of the awarded amount before any court will entertain the application. The court may release part of this deposit to the supplier while the challenge is pending. This requirement makes the financial barrier to contesting an award very high, effectively discouraging frivolous challenges and placing a heavy cash burden on the buyer.
Businesses should treat a Section 18 reference as a serious financial risk. Suppliers can obtain a rapid award, and buyers face a steep 75% deposit if they wish to contest it. Early engagement in conciliation, accurate calculation of interest, and readiness to meet the deposit requirement are essential to avoid costly surprises. Understanding the jurisdictional rule also helps buyers prepare for where the dispute will be heard.
Section 18 gives micro and small suppliers a dedicated council to resolve payment disputes quickly, with a ninety‑day deadline and a process that starts with low‑cost conciliation before moving to arbitration.
A buyer can apply to set aside the award, but the court will only consider the application after the buyer deposits 75% of the awarded amount, as required by Section 19 of the Act.
The amount includes compound interest calculated at three times the RBI bank rate, with monthly rests, making the total claim potentially much larger than the original invoice.
The Council located in the supplier’s state has jurisdiction over the dispute, even if the buyer operates in a different state, ensuring the case is heard where the small business is based.
Published 26 October 2026. Founder & CEO at VidhiSar. I have watched four companies pay for the same mistake, and it was never the mistake anyone expected. VidhiSar is software, not a law firm: every answer names the section it relies on so you can check it, and anything turning on your specific facts is worth putting to a professional. More about who builds this
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