A buyer should not ignore an MSME ODR notice. The first automated notice under the MSME ODR Portal relates to a voluntary pre-MSEFC process, and the buyer is given three days to submit a brief reply and decide whether to participate. But ignoring that notice does not make the claim disappear: if the voluntary stage does not resolve the dispute, the matter can proceed to the formal Micro and Small Enterprises Facilitation Council (MSEFC) process under Section 18 of the MSMED Act.

The consequences become significantly more serious once formal MSEFC conciliation and arbitration proceedings begin. A buyer who has a genuine defence should put it on record rather than assume that silence will stop the proceedings.

What exactly is an MSME ODR notice?

An MSME ODR notice is an electronic communication generated after an eligible micro or small enterprise files a delayed-payment application through the Government’s MSME Online Dispute Resolution Portal.

The Ministry of MSME’s ODR framework has two broad stages:

Stage	Nature	Can the buyer opt out?
Pre-MSEFC Digital Guided Pathway / negotiation	Voluntary settlement process	Yes
Formal MSEFC proceedings	Statutory process under the MSMED Act	No equivalent right to stop the claim merely by refusing participation

The Government’s ODR guidelines expressly describe the pre-MSEFC stage as voluntary and confidential. If it does not produce a settlement, or a party opts out, the dispute proceeds to the formal MSEFC stage.

That distinction is critical.

How long does a buyer have to respond to the first ODR notice?

The ODR guidelines give the buyer three days from receipt of the automated communication to submit a brief reply with supporting documents.

The same communication also informs the parties about the Digital Guided Pathway and their ability to opt out of the voluntary pre-MSEFC process within three days.

A buyer’s reply may address matters such as:

• whether the claimed invoice is payable;
• amounts already paid;
• disputed goods or services;
• supporting correspondence;
• contractual objections; and
• documents supporting the buyer’s defence.

Does missing the three-day deadline automatically mean the buyer admits the debt?

No. Missing the three-day pre-MSEFC response period does not by itself create an arbitral award or automatically prove the supplier’s claim.

The guidelines themselves use voluntary language for the pre-MSEFC process. But silence is still strategically risky because the buyer loses an early opportunity to place its version of the transaction on record and explore settlement.

More importantly, non-participation does not terminate the supplier’s underlying statutory claim.

What happens if the buyer ignores the pre-MSEFC ODR notice?

If no settlement results from the voluntary stage, the case can proceed into the formal MSEFC process.

The official ODR guidelines state that where parties fail to settle or opt out of pre-MSEFC proceedings, they enter the MSEFC stage, which is the formal dispute-resolution process contemplated by the MSMED Act.

The voluntary pre-MSEFC stage is normally intended to conclude within 15 days from filing. It may continue for a further period, up to a total of 30 days, where both parties consent to continuation.

So the practical sequence is:

Supplier files claim → buyer receives ODR communication → voluntary negotiation opportunity → no settlement/opt-out → formal MSEFC process.

Ignoring the first email therefore does not amount to defeating the claim.

Can a buyer ignore a formal MSEFC notice?

A formal MSEFC notice should not be ignored.

Under the presently operative Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006, the Council first conducts conciliation itself or refers the dispute to an ADR institution. If conciliation fails, the Council may itself take up the dispute for arbitration or refer it for arbitration, with the Arbitration and Conciliation Act, 1996 applying to that arbitration.

At that stage, a buyer should distinguish between:

• not wanting to settle;
• disputing MSEFC jurisdiction;
• disputing the supplier’s MSME eligibility;
• disputing the amount claimed; and
• simply failing to participate.

The first four positions can be legally argued.

The fifth simply risks leaving the buyer’s evidence and objections unheard.

Can MSEFC pass an award merely because the buyer did not attend conciliation?

No. The Supreme Court has held that failure to participate in conciliation does not permit the MSEFC to skip the arbitration procedure and immediately treat the supplier’s claim as proved.

In Jharkhand Urja Vikas Nigam Ltd. v. State of Rajasthan & Ors., Civil Appeal No. 2899 of 2021, decided on 15 December 2021, the buyer did not appear in the Council’s proceedings. The Council proceeded to direct payment of the supplier’s principal and interest claim.

The Supreme Court held that, after failed conciliation, the Council was required to initiate arbitration in accordance with the Arbitration and Conciliation Act. Conciliation and arbitration could not simply be clubbed together. The Court held that the particular purported award before it was legally unsustainable because the mandatory arbitration procedure had not been followed.

But buyers should not misread this judgment.

It does not mean that ignoring MSEFC proceedings is safe.

The Supreme Court also recognised that the Council can proceed to arbitration after conciliation fails, provided the proper arbitral process is followed.

Can arbitration continue if the buyer keeps refusing to participate?

Once the matter reaches statutory arbitration, the buyer cannot safely prevent adjudication merely by staying away.

The Supreme Court in Jharkhand Urja Vikas Nigam emphasised that the arbitral procedure must be followed and that the supplier’s claim must be adjudicated through arbitration rather than automatically accepted merely because the buyer missed conciliation.

Practically, this means a buyer should file its defence, documents and jurisdictional objections at the appropriate stage rather than relying on non-participation as a strategy.

What should a buyer check immediately after receiving an MSME ODR notice?

A buyer should first conduct a document-and-eligibility review, rather than immediately admitting or denying the claim.

Check:

1. Who filed the claim? Confirm the legal identity of the supplier.
2. Was the supplier a qualifying micro or small enterprise?
3. When was its Udyam registration obtained?
4. What invoices are included in the claim?
5. Were the goods delivered or services actually performed?
6. Were quality or performance objections raised contemporaneously?
7. Were those objections made in writing?
8. Have part-payments, credit notes or deductions been omitted?
9. Is the claim within the applicable limitation framework?
10. Does the MSEFC have jurisdiction over the particular dispute?

These questions should be answered with contemporaneous records—not reconstructed explanations prepared only after the ODR notice arrives.

What documents should the buyer collect?

The buyer should create an invoice-wise response file containing:

• purchase orders and contracts;
• invoices;
• goods receipt notes;
• delivery challans;
• service completion records;
• inspection or rejection reports;
• emails raising quality defects;
• debit and credit notes;
• bank-payment evidence;
• ledger accounts;
• TDS records where relevant;
• settlement correspondence;
• balance confirmations; and
• any admission or acknowledgment exchanged between the parties.

A useful buyer response should state separately what is:

admitted, already paid, genuinely disputed and unsupported by the buyer’s records.

Can a buyer argue that the invoice was genuinely disputed?

Yes. A buyer is entitled to raise genuine contractual and factual defences.

However, timing matters.

Section 15 of the MSMED Act requires covered buyers to make payment within the written agreed period, subject to an outer limit of 45 days from acceptance or deemed acceptance. Section 16 imposes compound interest with monthly rests at three times the RBI-notified bank rate where payment is delayed beyond the statutory deadline.

The statutory definition of acceptance also gives significance to objections raised by the buyer in writing within the prescribed period.

Accordingly, an inspection report or email sent when the defect was discovered will generally be more useful evidence than an unsupported allegation raised for the first time after an MSME recovery claim is filed.

Does ignoring the notice stop MSME interest from running?

No. Ignoring the ODR process does not stop statutory delayed-payment interest.

Where Sections 15 and 16 apply, the buyer’s liability can include compound interest with monthly rests at three times the RBI-notified bank rate.

As a result, delaying engagement can increase the financial exposure even while the dispute is being processed.

The interest rule operates independently of whether the buyer chooses to participate in the voluntary pre-MSEFC negotiation.

What happens if an MSEFC arbitration award is ultimately passed?

An arbitral award under the Section 18 mechanism can create substantial enforcement exposure.

Under the currently operative Section 19 of the MSMED Act, a buyer seeking to set aside an award or qualifying order cannot have its challenge entertained unless it deposits 75% of the amount awarded, in the manner directed by the court.

This is one of the strongest practical reasons to defend the case properly before an award is passed.

Waiting until after the award can make the dispute significantly more expensive.

Should a buyer settle after receiving an MSME ODR notice?

Settlement can be commercially sensible where the principal liability is clear but the dispute concerns interest, reconciliation, defective quantities or payment timing.

The pre-MSEFC stage exists specifically to provide a quick, voluntary settlement opportunity before the parties enter the more formal statutory mechanism.

A settlement should clearly state:

• admitted principal;
• disputed amount;
• interest treatment;
• instalment dates, if any;
• treatment of pending invoices;
• consequences of default;
• whether the ODR/MSEFC claim will be withdrawn; and
• when withdrawal will occur.

Do not withdraw proceedings merely because the buyer has orally promised to pay later.

Has the MSMED (Amendment) Act, 2026 changed these rules?

The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026, Act No. 16 of 2026 received Presidential assent on 13 August 2026 and contains important future changes to Section 18, online dispute resolution, statutory timelines and enforcement.

However, the Amendment Act expressly states that its provisions commence only on the date or dates separately appointed by the Central Government through Official Gazette notification.

In the official materials reviewed up to 28 September 2026, no separate commencement notification was identified bringing the relevant 2026 Section 18 amendments generally into force.

Accordingly, this article uses the currently operative Section 18–19 framework, while recognising that this area is in legislative transition.

What Should a Buyer Do After Receiving an MSME ODR Notice?

A practical response sequence is:

Day 1: Verify that the communication genuinely came through the MSME ODR process and identify every invoice claimed.

Immediately: Freeze deletion of emails, ERP entries, inspection reports and vendor correspondence.

Within the three-day portal window: File a concise response with the material documents and decide whether voluntary pre-MSEFC settlement is commercially appropriate.

Before formal MSEFC proceedings: Prepare invoice-wise admissions, payments, defences, jurisdiction objections and eligibility issues.

If formal proceedings begin: Respond to every MSEFC/arbitration communication within the specified period.

The correct strategy is therefore not “ignore or pay.”

It is:

Verify the claim, preserve the evidence, respond on time, separate admitted and disputed amounts, and decide whether settlement or defence is commercially justified.

FAQs: MSME ODR Notices for Buyers

1. Is an MSME ODR notice a court summons?

Not necessarily. The first automated ODR communication relates to the Government’s pre-MSEFC ODR mechanism. It may later progress into formal statutory MSEFC proceedings under Section 18.

2. Is replying to the first MSME ODR notice compulsory?

The official guidelines describe the pre-MSEFC process as voluntary and state that the buyer may file a brief reply within three days. But failing to respond does not stop the supplier’s case from progressing.

3. What happens if the buyer does not respond within three days?

The buyer may lose the immediate opportunity to submit its response and participate effectively in the voluntary process. If no settlement occurs, the dispute can move into the formal MSEFC stage.

4. Can the buyer opt out of MSME ODR?

The buyer can opt out of the voluntary pre-MSEFC process. That does not eliminate the supplier’s underlying Section 18 claim; the dispute can proceed to MSEFC.

5. Can an MSEFC award be passed without hearing the buyer?

The Council cannot simply treat non-attendance at conciliation as an automatic basis for an arbitral award. The Supreme Court has held that failed conciliation must be followed by arbitration conducted according to the Arbitration and Conciliation Act.

6. Can the buyer challenge the supplier’s MSME status?

Yes. Supplier eligibility, registration timing and whether the transaction falls within the statutory framework can be material legal issues and should be raised with supporting evidence at the appropriate stage.

7. Does the buyer still owe interest while the dispute is pending?

If the underlying Section 15–16 conditions are satisfied, statutory interest can continue to apply. Section 16 provides compound interest with monthly rests at three times the RBI-notified bank rate.

8. What happens if the buyer loses the MSME arbitration?

The buyer may challenge the award under the Arbitration and Conciliation Act, but Section 19 of the MSMED Act presently requires a non-supplier challenger to deposit 75% of the award/order amount before the setting-aside application is entertained.

9. Can a buyer negotiate after receiving the notice?

Yes. Early settlement is precisely one of the purposes of the voluntary pre-MSEFC ODR process. Any settlement should clearly record principal, interest, payment dates and withdrawal mechanics.

10. Should a buyer reply even if the entire claim is false?

Yes. A buyer disputing the claim has an even stronger reason to respond with invoices, payment proof, rejection records, contractual documents and jurisdictional or eligibility objections rather than leave the supplier’s version unanswered.