TELANGANA MSME

FC RULES
 • The Micro, Small and Medium Enterprises Development Act, 2006
(Act 27 of 2006)
• Telangana State Micro and Small Enterprises Facilitation Council
Introduction (TSMSEFC)
• Need for revised rules for better implementation and case handling
 • Reference to the original rules issued in G.O.Ms.No.37, dated
11.12.2014
• Advisory from the Ministry of MSME, Government of India, for
Background incorporating best practices
• Submission of draft revised rules by the Commissioner of
Industries, Telangana
 • To facilitate the working of Micro and Small Enterprises
Facilitation Council
Objective • Ensuring effective implementation of the Micro, Small, and
Medium Enterprises Development Act, 2006
 • Officially called "the Telangana State Micro and Small Enterprises
Facilitation Council Rules, 2017"
Revised Rules • Applicable to the entire Telangana State

Overview • Effective from the date of publication in the official Gazette of

Telangana State
 • Key terms and their meanings in the revised rules:"Act" refers to the Micro,
Small, and Medium Enterprises Development Act, 2006
• "Section" denotes a section of the Act
• "Arbitration and Conciliation Act" refers to the Arbitration and Conciliation Act,
1996
• "Council" signifies the Micro and Small Enterprises Facilitation Council
established by Telangana Government under Section-20 of the Act
• "Chairperson" denotes the Chairperson of the Council appointed under clause (i)
Definitions of sub-section (1) of Section 21 of the Act
• "Government" represents the Government of Telangana in the Department of
Industries / MSME
• "Institute" refers to institutions or centers providing alternate dispute resolution
services as per Section 8 of the Act
• Member" refers to a member of the Council
• "MSE" unit signifies a micro or small enterprise as per the provisions of the Act
• The words and expressions used and not defined, but defined in the Act shall
have the meanings assigned to them in the Act.
 • Streamlined process for Micro and Small Enterprises Facilitation
Council
Implications • Enhanced implementation and resolution of cases

and Benefits • Better support for Micro, Small, and Medium Enterprises in
Telangana
 • The Government will establish at least one Micro & Small
Enterprises Facilitation Council (MSEFC), with the possibility of
creating more MSEFCs if required, based on the work demand and
specified areas.
• The Government may provide secretariat assistance to the MSEFC
and designate an official from the Secretariat as the council's
secretary, empowered to issue notices and orders on behalf of the
Setting up of council.
• The Government may appoint a legal expert to assist the Council in
the MSEFC legal matters.
• A fee or processing charges may be specified for applications filed
with the council.
• The Secretariat for the council will have its own seal for official
use.
 • The Government will appoint the Director of Industries Department
Manner of as the Chairperson of the Council, considering the provisions in sub
Clause (i) of Clause (1) of Section 21 of the Act.
Appointment • Another senior officer may be designated as Director of Industries
of Chairperson for the limited purpose of serving as the Chairperson of the council.
 • The MSEFC will consist of not less than 3 and not more than 5
members, including the chairperson.
• Members will be appointed based on the provisions of Clause (ii),
(iii), and (iv) of sub-section (1) of Section 21 of the Act.
Manner of • A member will cease to be a part of the council if they no longer
Appointment represent the category or interest for which they were appointed.

of Members of • In the event of a member's death, resignation, deemed resignation,

removal, or incapacity, the Government may appoint a new person
MSEFC to fill the vacancy.
• Any member of the council can resign by giving one month's notice
in writing to the Government.
 • The Government has the authority to remove a member from office
under specific conditions, including: Declared of unsound mind by
a competent court
• Bankruptcy or insolvency
Removal of • Conviction of an offense punishable under the Indian Penal Code
Members • Absent from consecutive meetings without leave
• Acquiring a financial or other interest likely to affect their functions
as a member
Term of Office  Except for the chairperson, other members will hold office for a
for Members period not exceeding two years from the date of their appointment.
 • An aggrieved Micro or Small Enterprise (MSE) unit can submit a
reference to the Micro and Small Enterprises Facilitation Council in
the provided format (Form-1). The reference should include the Udyog
Aadhar Memorandum (UAM) number, mobile number, and email
address of the aggrieved MSE unit.
Procedure to be • The reference must be accompanied by the prescribed fee or
processing charges notified by the Government (refer to para 3(iv)).
followed in the Additionally, the MSE unit must provide an undertaking that it has not
filed a reference before the Civil Court for the same dispute.
discharge of • Upon receiving the references, the Council's Secretariat will enter the
functions of the data in the designated web portal and send an acknowledgment of
receipt to the applicant MSE unit via email.
Council • The Council may conduct a preliminary examination of the reference
to check for fees or the competency of the MSE unit to file the
reference. If found unsatisfactory, the reference may be returned.
 Notice of at least seven days will typically be given for any meeting, but in
cases of urgency, shorter notice may be given at the discretion of the
Chairperson.
 The Council may appoint one or more experts under Section 26 of the
Arbitration and Conciliation Act, 1996.
 The Council, with approval, may apply to the Court under Section 27 of the
Arbitration and Conciliation Act, 1996, for assistance in taking evidence.
 The reference/application of the aggrieved MSE supplier should include
comprehensive details such as the supplier's status, supplied goods or
services, agreed payment terms, received payment details, and interest
calculation under Section 16 of the Act. An affidavit with necessary court
fee stamp must support the claim. The Council may request additional
information or relevant documents from the petitioner for the proceedings.
 The reference/application will be acknowledged immediately upon delivery
at the Council's office or on the same day for registered post deliveries. The
buyer will have fifteen days to respond to the reference after receiving it. An
extension may be granted by the Chairperson for sufficient cause.
 The Chairperson will examine the reference and the buyer's response and, if satisfied
with a prima facie case of delayed payment, place the reference before the Council's
next immediate meeting for consideration.
 The Council will either conduct conciliation itself or refer the matter to an institute
or center providing alternate dispute resolution services for conciliation, as per the
provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996.
 If conciliation does not lead to a settlement, the Council will act as an Arbitrator or
refer the matter to an institute for arbitration, following the provisions of the
Arbitration and Conciliation Act, 1996.
 After finalizing the award, the Council will pass appropriate final orders in the
matter, with decisions made by a majority of members present at the meeting.
 The Council's arbitral award will be made in accordance with Section 31 of the
Arbitration and Conciliation Act, 1996, and within the time specified in Section
18(5) of the Act. Copies of the award will be made available within seven days of
filing an application.
 The provisions of Sections 15 to 23 of the Act will take precedence over any
inconsistent provisions in other laws in force.
 The proceedings of every Council meeting, including the annual progress report, will
be forwarded to the Member-Secretary of the Advisory Committee constituted under
Section 7(3) of the Act.
  A reference to the Council will be made by submitting a statement
of claim in Form 1 along with supporting documents and facts. The
claimant must enclose the requisite number of copies and include
an initial share deposit of Rs. 1000 by way of a demand draft in the
name of the Chairman, TSMSEFC, Hyderabad.
 If a reference contains any claim beyond the matters mentioned in
Reference to sub-section (1) of section 6 of the Act, the Council will return the
the Council claim to the claimant for the removal of extraneous matters.
 The claimant must comply within thirty days of such return;
otherwise, the Council may terminate the proceedings without
prejudice to the claimant's right to make a fresh reference if entitled
to do so.
  The Council may request the claimant to provide a better statement
or additional particulars of the claim or further documents in
support. The claimant must respond within thirty days of receipt of
Provision of such communication or within such extended period as allowed by
the Council for sufficient cause.
Additional  Failure to comply with the request may result in the termination of
Information the proceedings, without prejudice to the claimant's right to make a
fresh reference if entitled to do so.
  Upon receiving a statement of claim, every member of the Council
must disclose in writing any circumstances that may raise doubts
about their independence or impartiality. Such disclosure will be
sent to the parties along with the notices in Form 2, which calls for
a statement of defense.
 The procedure for challenging a member and the grounds for
Challenge of challenge will be in accordance with Sections 12 and 13 of the
Arbitration and Conciliation Act, 1996.
Member  If a successful challenge occurs, the Council will cease to proceed
with the reference and transfer the case to another Council with
alternate or concurrent jurisdiction over the dispute. The other
Council will then proceed with the reference afresh or as deemed
fit, considering the stage of proceedings completed in the former
Council.
  The Council, if satisfied with its jurisdiction and the claimant's
entitlement under the Act to make a reference, will send a copy of
the statement of claim to the respondent via registered post. The
respondent will be asked to furnish a statement of Defense in Form
(3) within fifteen days, along with supporting documents and his
half share of deposit for costs.
Statement of  The Council will also notify the claimant of the respondent's
Defense statement of Defense and request a further deposit from the
claimant towards his half share of costs.
 If the respondent requests an extension for submitting the statement
of Defense, the Council may allow additional time, not exceeding
thirty days from the receipt of the notice under sub-rule (1).
  Once the statement of Defense is received and the deposits are paid
by the parties, the Council will fix a date for the appearance and
hearing of the parties and issue notice in Form (5) via registered post.
 If the respondent fails to submit a statement of Defense within the
stipulated time, the Council will proceed to fix a date for the
appearance and hearing of the parties.
Hearings and  If the respondent fails to pay the required deposit, the Council will
call upon the claimant to pay that share within fifteen days or may
Written suspend or terminate the proceedings if the claimant also fails to pay.

Proceedings  The Council will not enter upon the merits of the dispute until any
challenges to jurisdiction or members have been decided at the first
hearing.
 The Council will decide whether to hold oral hearings for evidence
presentation or arguments, or whether to proceed based on
documents and materials.
 All statements, documents, or information provided by one party will be
communicated to the other party, and any expert reports or evidentiary
documents used by the Council will also be shared with the parties.
 If a party fails to communicate their statement of claim or Defense
without cause, the Council may terminate or continue the proceedings,
as appropriate, based on the specific situation.
 With the parties' agreement, the Council may use mediation,
conciliation, or other procedures to encourage dispute settlement.
 The proceedings will be conducted at the place specified by the
Government in the notification.
 The Council may adjourn the hearing from time to time for reasonable or
sufficient cause, ensuring that the decision is given within ninety days of
the first date of the hearing.
 If the parties jointly apply for the termination of proceedings at any
stage, the Council will terminate the proceedings as requested.
Honorarium to  The remuneration, honorarium, fees, and allowances for the
Council Council members will be at rates approved or notified by the
Government.
Members
  Council meetings will be held with at least seven days' notice, but
urgent meetings may be called at shorter notice at the Chairperson's
discretion.
Meetings of the  All meeting notices will be communicated to the petitioner,
including through SMS and email.
Council and  The Council shall hold regular meetings, at least once a month.
Quorum  The quorum for the meeting will be two if the number of members
is three or four, and three if the number of members is five.
  Any decision of the Council will be made by a majority of its
members present at the meeting.
 The Council shall decide every reference made under section 18
within ninety days from the date of making such a reference.
 The proceedings of every Council meeting will be uploaded on the
designated web portal.
Decisions of  No application for setting aside any decree, award, or other order
the MSEFC made by the Council or any institution providing alternate dispute
resolution services shall be entertained by any court unless the
appellant (not being a supplier) has deposited with the court
seventy-five percent of the amount as directed by the court.
 Questions of procedure may be decided by the Chairperson if
authorized by the parties or all the members of the Council
  The arbitral tribunal/Council may fix the amount of the deposit or
supplementary deposit as an advance for the costs incurred in
respect of the claim submitted to it.
 Separate deposits may be fixed for the claim and counter-claim, if
applicable.
 The deposit shall be payable in equal shares by the parties.
Deposits  If one party fails to pay their share of the deposit, the other party
may pay on their behalf.
 If both parties fail to pay the deposit for the claim or counter-claim,
the arbitral tribunal may suspend or terminate the proceedings for
that claim or counter-claim.
  The Council is entitled to allow fees and expenses incurred by the
arbitral tribunal, such as department charges, conveyance, legal or
Expenses technical advice, and other incidental expenses related to the
reference or award, as per the absolute discretion of the tribunal
(Rule 29 of the Arbitration and Conciliation Act 1996).
  The initial share deposit will be increased from Rs. 500 to Rs. 1000.
 The remaining amount (fee) of share deposits to be paid during the
council meeting will be increased by 50% of the present share
deposit.
Revised Share  The increased share deposits will be used to cover expenses such as
hiring legal or technical advisors, postal charges, Xerox expenses
Deposits for preparing documents, minutes, and forwarding files to Higher
Courts, and other incidental expenses related to conducting council
meetings (as per new guidelines 3 (iii) & (iv)).
  In complex and intricate cases, legal institutions will be referred to
Complex Cases for arbitration.
 The arbitration fee to be paid to these legal institutions may be
and Legal borne by the respective claimants/respondents.
Institutions
  The arbitral proceedings will be governed by the Arbitration and
Conciliation Act 1996.
Interpretation  These rules shall be interpreted and applied consistently with and
of Rules supplementary to the Arbitration and Conciliation Act, 1996,
without derogation (Arbitration and Conciliation Act 1996).
  The council will upload basic information and the annual progress
Progress Report report on the web portal created for this purpose (Rule 18(i)).
 Information will be provided to the Member Secretary of the
and Information National Board for Micro, Small, and Medium Enterprises as
Sharing required by the Act (Rule 18(ii)).
  The Telangana State Micro and Small Enterprises Facilitation
Council Rules, 2014 are repealed.
 However, the repeal will not affect the previous operation of the
Repeal and said rules, pending proceedings, notifications, orders, or actions
taken under the old rules (Rule 19(a)).
Saving  Pending proceedings will be continued and disposed of in
accordance with the provisions of these new rules (Rule 19(b)).
Removal of  If any difficulties arise during the implementation of these rules, the
Difficulties State Government will provide clarifications (Rule 17).
  The MSEFC plays a crucial role in resolving disputes related to
delayed payments and providing a fair platform for MSE units to
seek justice.
Conclusion  The rules and procedures ensure transparency and efficiency in the
arbitration process.