含羞草社区

Micro, small and medium enterprises (MSMEs) are significant contributors to 含羞草社区 economy, widely regarded as its backbone. As of mid-2025, they accounted for about 30% of GDP and 45% of exports.

含羞草社区 foreign direct investment (FDI) policy does not prescribe investment caps based on size or scale. Consequently, MSMEs are eligible to receive FDI up to the sectoral limits – for instance, 100% FDI under the automatic route is permitted in the manufacturing sector.

Notwithstanding exponential growth in exports and cross-border participation, MSMEs continue to face challenges in dispute resolution. This article examines available benefits under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), to MSMEs with foreign investment, as well as issues in cross-border dispute resolution and possible solutions.

MSMED Act scope and eligibility

The act was enacted to promote, develop and enhance the competitiveness of MSMEs, which are classified based on investment and turnover: micro enterprises (investment up to INR25 million (USD268,000) and turnover up to INR100 million); small enterprises (INR250 million and INR1 billion); and medium enterprises (INR1.25 billion and INR5 billion).

A “supplier” is defined as a micro or small enterprise (MSE) that has filed a memorandum under section 8(1). Medium enterprises are expressly excluded from this definition. Although filing is indicated as being discretionary, registration becomes essential in practice to avail statutory benefits.

Registered suppliers are entitled to several protections: buyers must make payments within a maximum of 45 days, failing which interest at three times the bank rate is payable, with section 18 providing for dispute resolution through reference to the Micro and Small Enterprises Facilitation Council (MSEFC).

Judicial interpretation largely emphasises the necessity of prior registration, holding that the benefits of the act are not retrospective, and the supplier must be registered on the date of contracting. Supplies made prior to registration do not attract statutory protections and subsequent registration operates prospectively.

Clarity for FDI-backed MSMEs

However, the Supreme Court recently shifted the judicial interpretation, observing that section 18 is a remedial provision enabling “any party” to refer disputes and questioning whether such reference is confined only to registered suppliers, rejecting a narrow interpretation. The matter’s ultimate determination by a larger Supreme Court bench is awaited. The MSMED Act adopts a neutral approach to ownership structures. Foreign-invested entities, including joint ventures and special purpose vehicles, may qualify as MSMEs if they satisfy prescribed thresholds. The expression “any person who intends to establish”, coupled with the inclusive definition of “supplier”, suggests the act does not distinguish between domestic and foreign ownership.

However, foreign investors must exercise caution in structuring capital infusion. Any increase in investment or turnover beyond the prescribed limits may result in losing MSME classification, forfeiting statutory benefits including recourse to the MSEFC.

The pending decision of the larger bench is likely to have significant implications for FDI-backed MSMEs, bringing much needed clarity to the existing legal uncertainty. Section 18 establishes the MSEFC as the primary forum for resolving disputes concerning delayed payments through a two-tier mechanism of conciliation followed by arbitration.

However, this is restricted to disputes where the buyer is in India. Indian MSMEs dealing with foreign buyers cannot invoke the statutory dispute resolution mechanism. The Supreme Court did not adjudicate on this jurisdictional aspect due to lack of registration of the supplier. A viable solution lies in incorporating mandatory online dispute resolution (ODR) in cross-border contracts, which facilitates dispute resolution through digital platforms encompassing negotiation, mediation and arbitration.

Institutional support and judicial clarity

For effective implementation, institutional support is required through drafting robust ODR clauses for MSMEs and establishing dedicated ODR centres. Such measures would also benefit medium enterprises, which fall outside the statutory definition of “supplier”.

The act remains beneficial for safeguarding MSMEs. Having earlier mandated strict registration compliance, recent developments shift towards a purposive interpretation. The forthcoming decision of the larger bench will be pivotal in resolving existing ambiguity.

Simultaneously, adoption of ODR offers a pragmatic solution to cross-border dispute resolution. Together, judicial clarity and procedural innovation can significantly enhance the global competitiveness of 含羞草社区 MSME sector.

Shounak Mitra is a partner and Akshita Bohra is a senior assoicate at Khaitan & Co