MSEFC Cannot Reject MSME Claim Merely Over ‘Exorbitant’ Interest Demand: MP HC

In a clear affirmation of the statutory safeguards available to micro and small enterprises, the Madhya Pradesh High Court has held that the Micro and Small Enterprises Facilitation Council (MSEFC) cannot return an MSME’s reference merely because the interest claimed is considered high.

The Court said that the Act contains no restriction on the rate of interest that may be claimed and that the Council is required to follow the procedure prescribed under the MSMED Act before arriving at any conclusion.

A Single Bench of Justice Pranay Verma allowed the writ petition and set aside the Council’s order, observing that the claim could not have been rejected at the threshold on the ground that the interest demanded was “exorbitant.”

The Court noted, “There is no prohibition on a rate of interest to be claimed. If in the opinion of respondent No.1 the same is exorbitant…it is always up to it to grant the rate of interest as is found to be just and appropriate.”

According to the record and the background placed before the Court, the petitioner, Aculance IT Solutions Pvt. Ltd., an MSME, had filed a reference under Section 18 of the MSMED Act seeking recovery of delayed payments along with interest.

The reference was returned by the MSEFC, Bhopal through an order dated 21.08.2025, on the view that the interest component of the claim was not sustainable.

The petitioner contended that the Council was bound to register the reference and initiate the statutory conciliation process, and that its refusal to do so amounted to denial of the procedure mandated under the MSMED Act, 2006.

It was submitted that the Council did not issue any notice, commence conciliation, or record any reasons other than the perceived excessiveness of interest. The petitioner asserted that the Council’s jurisdiction includes determination of interest, and that a dispute over the quantum of interest cannot be a ground to refuse consideration of the reference.

These factual inputs, reflected in the case file and accompanying documents, showed that the challenge before the Court was directed against the Council’s refusal to entertain the claim at the very threshold.

The Court examined the impugned order and the statutory framework under Section 18 of the MSMED Act. It observed that upon receipt of a reference, the Council is required under Section 18(2) to either conduct conciliation itself or refer the matter to an alternative dispute resolution centre.

This requirement, the Court noted, is mandatory and forms the first statutory step in the dispute-resolution mechanism envisaged for MSMEs.

The Court further underscored that the Council, being the designated authority, is empowered to determine the appropriate rate of interest. It held that a reference cannot be rejected without initiating the statutory process, even if the Council ultimately concludes, upon adjudication, that the rate claimed is excessive.

The impugned order, which returned the reference without conducting conciliation or adjudication, was therefore found to be contrary to the procedure mandated by the Act.

Referring to the contents of the returned claim, the Court reiterated that the Act does not impose a ceiling or cap on the interest a claimant may seek. The statutory intent, it observed, is that MSMEs should not be deprived of the procedural mechanism provided under Section 18, and any objections to quantum must be addressed within the adjudicatory process rather than used to deny access to it.

On this basis, the Court set aside the MSEFC’s order dated 21.08.2025 and remanded the matter to the Council for fresh proceedings strictly in accordance with law. It directed the Council to initiate conciliation and thereafter act in terms of Section 18 depending on the outcome of such proceedings.

The decision reinforces the procedural protections afforded to MSMEs in delayed-payment disputes.

By clarifying that high interest claims do not constitute a threshold defect, the Court has reaffirmed that evaluation of interest is a matter for adjudication, not pre-screening.

Counsel(s) Appearing: Yamak Sharma, Counsel for the petitioner, Shri Rajwardhan Gawde, Advocate for the State.

Case Title: Aculance IT Solutions Pvt. Ltd. v. M.P. Micro & Small Enterprises Facilitation Council & Others

Date of Judgment: 13.11.2025

Bench: Justice Pranay Verma