MSME payment delays? Centre may step in on dispute resolution

In June this year, the ministry launched a dedicated ODR portal for MSMEs to quickly resolve delayed payment disputes. The ODR portal aims to help small businesses file claims digitally, monitor their cases and recover their dues from large firms, governments and public sector units in a transparent and efficient manner. Under the existing law, state governments have the powers to empanel private ODR firms.

Now, the MSME ministry is considering a similar dispensation for the central government as well, allowing it to also empanel private ODR service providers, the officials cited earlier said on the condition of anonymity.

“Currently, as per law, only state governments have the power to empanel private firms for resolving delayed payment disputes. But more needs to be done. The government is considering adding more powers for the central government to also empanel firms and resolve disputes faster," said the first official.

The second official added that the government has started working on the proposal, but it may take some time before concrete changes are made.

Queries emailed to the MSME ministry remained unanswered till press time.

Delayed payments cases are those when MSME suppliers to large corporations have dues pending for over 45 days since delivery.

According to Section 18 of the MSME Development Act, 2006, the Micro and Small Enterprises Facilitation Council (MSEFC) established by the state government has the power to either handle the delayed payment dispute itself or refer the matter to an institution that provides alternative dispute resolution (ADR) services. In such cases, they can empanel private institutions to resolve disputes.

Like the state-level MSEFC, the MSME ministry wants a similar mechanism at the central level.

Private institutions that provide dispute resolution services are very few in north-eastern states and even in tier-II and III cities in the country, creating another challenge, said P. Madhava Rao, registrar of Hyderabad-based Amika Arbitration and Mediation Centre. “There, it is a challenge for the state governments to identify the ADR institutions," he said.

Rao said that since the central government has come up with the MSME ODR portal, it should be the one empaneling private ODR firms and advising states.

The proposal comes in the backdrop of state-level facilitation councils not having yielded positive results. They have yet to hear about a quarter of the more than 250,000 claims raised by the MSMEs, with less than a tenth being settled mutually.

India’s MSME sector is made of more than 66 million small businesses, which account for about 45% of the country’s exports. Micro and small enterprises made up more than 90% of the sector.

To be sure, the government in 2017 created these state government-run MSEFCs. These units would hear MSME applications for delayed payments, assess them, and try to resolve the dispute between the buyer and supplier by using out-of-court resolution methods such as arbitration, mediation or conciliation.

But these bodies have not been as effective as envisaged. Mint reported on 23 April that MSMEs were increasingly opting for litigation in courts to get respite from delayed payments, and that MSEFCs did not command enough power to make large businesses pay bills on time.

At that time, the government was working on creating the MSME ODR portal, to bring MSEFCs online and resolve disputes quickly.

The advantage of online dispute resolution is that it is tailored for smaller-value disputes wherein parties that have limited access to courts and the judiciary can also argue their case. For MSMEs, especially those not based in commercial hubs or urban areas, ODR can be fruitful as it can reduce the cost and time of travel.

So far, more than 254,000 applications seeking ₹28,143 crore have been filed by MSMEs with state MSEFCs, according to data on the government’s MSME Samadhaan portal. Of these, more than 70,000 have been rejected, and only about 50,000 have actually been disposed of by MSEFCs.

About 23,000 applications have been mutually settled by parties.