Conciliation is a voluntary, confidential dispute-resolution process in which a conciliator assists the parties to reach a settlement, and may propose terms, without imposing a decision. Under the MSMED Act, the Facilitation Council (or an institution it nominates) must first conduct conciliation; only if it fails does the matter move to arbitration under Section 18(3). A signed conciliation settlement agreement is final and binding and has the same status as an arbitral award on agreed terms.
How conciliation works in India
In a Facilitation Council matter, both sides are called to a hearing. The supplier presents the invoices and interest computation; the buyer states its position. The Council's members, acting as conciliators, explore a payment plan, often with the supplier conceding part of the interest in return for prompt payment of the principal. If terms are agreed they are recorded in a settlement agreement signed by both and authenticated by the Council, which can be enforced if the buyer defaults. If no agreement is reached after a reasonable number of sittings, the Council terminates the conciliation and takes up arbitration, where it will decide the claim with full Section 16 interest.
Why it matters for getting paid
Conciliation is faster than any award and gives the supplier money rather than paper. Buyers have a strong incentive to settle because the alternative is an award with three times bank rate interest and a 75% deposit to appeal. Suppliers should come prepared with a clear statement of account and a realistic plan to offer. Compare mediation under the Mediation Act and pre-institution mediation under the Commercial Courts Act.
How FundRaksha uses it
FundRaksha's advocates attend Council conciliation with a prepared settlement proposal and post-dated cheque or bank mandate terms, so that an agreement can be signed on the day. Settlements here are a significant part of the 60% of FundRaksha cases that never need a contested hearing. Fee: 30% of what is recovered.
Worked example (hypothetical)
A small Indore pharma packaging supplier refers a ₹7,00,000 claim, due eight months earlier. Assuming a 6.5% bank rate (19.5% a year, monthly rests), interest to date is about ₹96,300, so the claim is ₹7,96,300. In conciliation the buyer offers ₹7,00,000 over two months; the supplier counters with ₹7,00,000 plus ₹50,000 towards interest in three equal monthly cheques of ₹2,50,000. The settlement is signed and authenticated by the Council. If any cheque bounces, the supplier can enforce the settlement as an award and separately proceed under Section 138.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.