Chapter-V Of MSMED Act Related To Delayed Payments To MSME Would Override Provisions Of Arbitration Act: SC

The Supreme Court has held that Chapter V of the Micro, Small and Medium Enterprises Development Act, 2006 pertaining to delayed payments to Micro and Small Enterprises would override the provisions of the Arbitration and Conciliation Act, 1996.

The bench of Chief Justice UU Lalit and Justice Bela M Trivedi observed thus "…the Arbitration Act, 1996 in general governs the law of Arbitration and Conciliation, whereas the MSMED Act, 2006 governs specific nature of disputes arising between specific categories of persons, to be resolved by following a specific process through a specific forum. Ergo, the MSMED Act, 2006 being a special law and Arbitration Act, 1996 being a general law, the provisions of MSMED Act would have precedence over or prevail over the Arbitration Act, 1996."

Advocate Deepanwita Priyanka represented the Petitioners whereas Advocate Anushree Prashit Kapadia represented the Respondents.

The bench was dealing with a batch of appeals, though factually different, had certain common questions of law.

The following questions arose before the Court-

(i) Whether the provisions of Chapter-V of the MSMED Act, 2006 would have an effect overriding the provisions of the Arbitration Act, 1996?

(ii) Whether any party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council under sub-section (1) of Section 18 of the said Act, if an independent arbitration agreement existed between the parties as contemplated in Section 7 of the Arbitration Act, 1996?

(iii) Whether the Micro and Small Enterprises Facilitation Council, itself could take up the dispute for arbitration and act as an arbitrator, when the council itself had conducted the conciliation proceedings under sub-section (2) of the Section 18 of the MSMED Act, 2006 in view of the bar contained in Section 80 of the Arbitration Act,1996?

While answering the second question the Court held thus "No party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council, though an independent arbitration agreement exists between the parties."

The Court observed that sub-section (1) of Section 18 of the MSMED Act, 2006 is an enabling provision which gives the party to a dispute covered under Section 17 thereof, a choice to approach the Facilitation Council, despite an arbitration agreement existing between the parties.

While answering the third question the Court held that the Facilitation Council, which had initiated the Conciliation proceedings under Section 18(2) of the MSMED Act, 2006 would be entitled to act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act.

"The proceedings before the Facilitation Council/institute/centre acting as an arbitrator/arbitration tribunal under Section 18(3) of MSMED Act, 2006 would be governed by the Arbitration Act, 1996. The Facilitation Council/institute/centre acting as an arbitral tribunal by virtue of Section 18(3) of the MSMED Act, 2006 would be competent to rule on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration Act, 1996.", the Court held.

The Court further held that a party who was not the 'supplier' as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract cannot seek any benefit as the 'supplier' under the MSMED Act, 2006. If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration.

In the aforesaid premises, the Court dismissed the following appeals- SLP(c) No. 12884 of 2020, SLP(c)No. 7375 of 2020, SLP(c)No. 2135 of 2021 & SLP(c)No. 6166 of 2021 whereas the Court allowed the following appeals- C.A. No. 127 of 2018 and C.A. No. 6167 of 2013.

Cause Title- Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (Unit 2) & Anr. with connected matters

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