A Section 18 reference is an application to the state Facilitation Council about an amount due under Section 17 (principal plus Section 16 interest). The Council first conducts conciliation, itself or through an institution. If that fails, it takes up the dispute for arbitration under the Arbitration and Conciliation Act, 1996, and must aim to decide within 90 days. In practice the reference is filed through the MSME Samadhaan portal.
How a Section 18 reference works in India
- The supplier files the reference (online on Samadhaan) with invoices, delivery proof, Udyam certificate and an interest computation.
- The Council registers the reference and issues notice to the buyer.
- Conciliation: the Council or a nominated institution tries to settle; a signed settlement is binding.
- If conciliation fails, the Council records this and the arbitration begins; pleadings, hearing and award follow the 1996 Act.
- Award for principal and Section 16 interest; the buyer can challenge only after depositing 75% under Section 19.
The conciliation stage is not optional and cannot be skipped by the supplier, which is why the Council's first hearing is a genuine opportunity to settle.
Why it matters for getting paid
Section 18(4) is the clause that lets a Tiruppur supplier pursue a Delhi buyer from Tamil Nadu. The conciliation-then-arbitration structure means the buyer cannot drag the supplier through a civil court, and the 90-day target, even where it slips, is far shorter than a suit. Read how the Council is constituted and what conciliation involves.
How FundRaksha uses it
FundRaksha files Section 18 references after the legal notice has run its course, which for about 60% of clients is unnecessary because the buyer pays first. When filing is needed, the dedicated advocate drafts the reference, attends the Council in the supplier's state and handles the arbitration if the buyer does not settle. Fee: 30% of recovery only.
Worked example (hypothetical)
A small Pune auto-component maker is owed ₹8,00,000, due 1 February. It files a Section 18 reference on 1 August (six months late). Assuming a 6.5% bank rate (19.5% a year, monthly rests), interest to the filing date is about ₹81,200, so the reference is for ₹8,81,200 plus further interest. Conciliation is fixed for September; the buyer offers ₹8,00,000 over three instalments and the supplier accepts, saving the arbitration. Had the buyer refused, the award in, say, December would have carried interest of about ₹1,40,000 on top of the principal.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.