DELAYED PAYMENT RECOVERY (FACILITATION COUNCIL)

1. Introduction

In today’s fast-paced business environment, Micro and Small Enterprises (MSEs) often face critical challenges—particularly cash flow disruptions arising from delayed payments. While selling on credit is commonplace, delayed or non-payment can jeopardize the very survival of small businesses. Recognizing this, the Government of India has empowered state-level Facilitation Councils under the MSME Development Act, 2006. These councils offer legal recourse through conciliation and arbitration to resolve payment disputes efficiently and effectively.

2. Understanding the Issue: Why Delayed Payments Hurt MSMEs

Reliable cash flow is the lifeblood of MSMEs. Delays in payments—from lengthy approval processes to disputes—can:

• Deplete working capital
• Delay procurement of raw materials
• Disrupt payroll and overheads
• Hamper growth plans

Given their limited financial buffers, recovery of dues can mean the difference between growth and closure. Thus, prompt dispute resolution is not just desirable—it's essential.

3. The Legal Framework: MSMED Act, 2006

The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 provides a robust mechanism to protect MSEs against delayed payments:

• Payment Terms: Buyers must settle payment within 45 days of acceptance of goods or services; otherwise, interest applies
• Interest Penalty: Defaulting parties owe interest at three times the RBI bank rate, compounded monthly
• State Facilitation Councils: Every state has a Micro and Small Enterprise Facilitation Council (MSEFC) to handle delayed payment disputes

4. How the Facilitation Council Works

Step-by-Step Process:

1. Eligibility: Only registered Micro or Small Enterprises (via Udyam or EM Part II/UAM) can lodge claims
2. Filing a Reference: Submit the payment dispute to the relevant MSEFC—either offline or via the MSME Samadhaan portal
3. Council Action: The council first attempts conciliation; if unsuccessful, it proceeds to arbitration
4. Award Issued: A binding order is issued, enforcing payment of principal plus statutory interest
5. Appeals: Only parties other than the supplier may appeal—and only after depositing 75% of the awarded amount

5. Online Platform: MSME Samadhaan Portal

To streamline filing and ensure transparency, the MSME Samadhaan portal provides:

• Online Filing: Centralized platform to submit claims electronically National Government Services Portal
• Automatic Forwarding: Once submitted, claims are routed to the relevant state’s Facilitation Council
• Tracking Status: Enterprises can monitor their case progress in real time National Government Services Portal
• Mandatory Registration: Udyam registration is required prior to filing, with the date of registration preceding the date of disputed invoice
• No Legal Notice Needed: Claims can be filed directly without prior legal notices

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6. Why This Mechanism Matters

Benefits for MSMEs:

• Fast Resolution: 90-day dispute resolution far outpaces traditional court systems.
• Legal Recourse: Statutory interest and facilitation ensure fair recovery.
• Low Cost: Avoids expensive litigation; most cases resolve via conciliation.
• Scalable Protection: Available across all Indian states, including Haryana
• Boosts Liquidity: Timely recovery improves financial health and supports growth.

7. Role of Advice Consultant

Advice Consultant supports MSMEs by guiding them through the entire process:

• Eligibility Verification: Ensuring enterprises meet registration criteria.
• Documentation Support: Drafting applications, invoices, and declarations.
• Portal Assistance: Helping file cases on MSME Samadhaan.
• Representation: Preparing for conciliation/arbitration hearings.
• Follow-Up: Tracking resolution and facilitating award execution.
• Advisory Services: Navigating complex scenarios, including buyer disputes.

8. Example: Haryana MSEFC in Action

In Haryana, MSEFC plays a proactive role:

• MSEs are encouraged to file claims for dues pending beyond 45 days
• References can be filed by enterprises with Udyog Aadhaar/MSE registration.
• Claims are accepted from buyers across India, not just within state borders
• District-level support (via DIC or MSME Directorate) is available for offline filings