By Siddarth Poola | CORD Intern
India’s Micro, Small and Medium Enterprises (MSMEs) are often described as the backbone of the economy, for good reason too as they contribute roughly 30% of GDP and close to 45% of exports, spanning over 6 crore enterprises, most of this production coming from the micro units. Yet, despite this economic prevalence, MSMEs remain structurally vulnerable when disputes arise. Tight cash flows, weak bargaining power, and limited legal capacity mean that even routine disagreements (especially around payments) can quickly become existential threats.
At the heart of the problem lies a mismatch: MSMEs operate in fast, credit-dependent markets, but the systems meant to resolve their disputes are slow, fragmented, and often inaccessible. Understanding the nature of MSME disputes, and why existing mechanisms fall short, is essential before any meaningful reform can take shape.
The Patterns of MSME Disputes: Patterns
While MSMEs face a wide spectrum of conflicts, payment defaults are the most prevalent both in volume and impact. Statutorily, buyers are required to clear MSME dues within 45 days, failing which interest accrues at three times the RBI rate. Even though protection exists, payment delays haven’t gone away .In 2022, MSMEs were owed a massive ₹10.7 lakh crore, this situation would get better over the next few years, as by 2024 the amount went down to ₹7.34 lakh crore. Even though there is progress, we can’t ignore the fact that 4% of the GDP is stuck in a black hole. This situation is exacerbated by the logjam of cases in the official channels of dispute resolution (over 2.39 lakh cases involving roughly ₹28,400 crore had been filed on the Samadhaan portal, with a resolution rate of 30%.)
Other prominent areas for concern are the contractual and supply-chain disputes. Many MSMEs operate on loosely drafted contracts, often dictated by larger corporations, which contain vague payment triggers, weak penalty clauses, and one-sided termination rights which usually leaves small firms vulnerable. Some less common disputes are supplier and customer conflicts, labour and employment issues, intellectual property breaches, and regulatory compliance matters, but they are still damaging. For a tech-oriented MSME, for instance, the absence of clear IP-assignment or confidentiality clauses can undo years of innovation overnight. Taken together, these disputes reveal a pattern: MSME conflicts are rarely complex in principle, but they are amplified by power asymmetries and procedural friction.
Structural Drivers
Several MSME-specific characteristics explain why disputes escalate so quickly and resolve so poorly.
Firstly, thin margins and fragile cash flows mean that MSMEs lack the financial buffers to absorb delayed payments or prolonged litigation. For a micro-enterprise, one unpaid invoice can halt operations entirely.
Secondly, limited legal awareness and capacity play a critical role. Most MSMEs do not have in-house counsel, and external legal services are often perceived as something that is too expensive and time-consuming. Faced with a choice between pursuing a claim or focusing on survival, many entrepreneurs simply write off losses.
Thirdly, bargaining power imbalances skew outcomes. Large buyers frequently treat delayed payments as interest-free credit, confident that smaller suppliers lack the leverage to be able to push back.
Finally, geographic and technological barriers compound the problem. MSMEs are spread across tier-2 and tier-3 cities, far from courts or facilitation councils ( a state level body that acts as an arbitrator). While digitisation has improved filing, hearings and follow-up often remain physical, undermining accessibility.
Recent years have seen important shifts. On the positive side, there is greater legal awareness.There has been a decisive push toward online dispute resolution (ODR). Post-pandemic reforms, including the Mediation Act, explicitly recognise online mediation, while both courts and ministries have experimented with virtual hearings. With judicial backlogs stretching into the millions, ADR and ODR are no longer peripheral.
The Legal Framework: Comprehensive but Fragmented
At the same time, disputes are becoming more complex, driven by e-commerce, cross-border supply chains, and technology-heavy contracts. India’s dispute resolution framework is built on a framework that can handle complex disputes; The MSME Development Act provides a dedicated mechanism through Facilitation Councils, backed by mandatory pre-deposit requirements that strengthen enforcement. Commercial Courts, arbitration, consumer fora, labour tribunals, and mediation centres offer additional pathways depending on the dispute type.
Yet this multiplicity is also a weakness. Thresholds, jurisdictional overlaps, and uneven state-level implementation mean that many MSMEs fall through the cracks. Awareness of available options remains patchy, and procedural complexity often negates the intended speed advantages.
Despite formal protections, process delays remain chronic. Facilitation Councils routinely overshoot their intended timelines, while courts can take years to reach judgment. Accessibility is uneven, costs are unpredictable, and documentation requirements overwhelm small firms. Crucially, dispute resolution remains poorly integrated with the digital systems MSMEs already use for finance, tax, and compliance.
The Strategic Opportunity: ODR as MSME Infrastructure
The gaps in existing dispute resolution systems point to a clear opportunity to position Online Dispute Resolution (ODR) as core MSME infrastructure, rather than as an alternative forum. The MSME ODR Scheme reflects this policy shift, recognising that court-centric models are poorly aligned with the needs of MSMEs which hinge on time sensitivity, cost constraints, and geographic dispersion.
A well-implemented ODR framework can directly address these gaps. End-to-end digital processes reduce delays and physical barriers; standardised workflows improve consistency and predictability; and multilingual, mobile-first access lowers entry thresholds for micro and small enterprises. When integrated with financial and compliance systems, ODR can also help mitigate the cash-flow disruptions that often trigger or exacerbate MSME disputes.
The framework does exist, its success will depend on how quickly State MSME Departments operationalise the scheme through credible empanelment, capacity-building, and awareness creation. In this context, ODR platforms that are aligned with statutory objectives and designed around MSME workflows, such as CORD, can play a quiet but enabling role, helping translate policy intent into practical, scalable outcomes without adding institutional complexity.
Scalable, MSME-Centric Justice
MSMEs do not need more laws; they need systems that work at their scale and speed. The persistence of payment delays and unresolved disputes is not merely a legal failure, it is an economic one. As India’s MSME ecosystem continues to grow, dispute resolution must evolve from a last-resort remedy into a routine business tool. Scalable, technology-driven platforms like CORD are uniquely positioned to bridge this gap, ensuring that access to justice keeps pace with enterprise growth.