Even In The Absence Of An Arbitration Agreement, The Matter Can Be Referred To Arbitration Under Section 18 Of The MSMED Act: Punjab And Haryana High Court

[13 June 2022] The Punjab and Haryana High Court has ruled that even in the absence of an arbitration agreement between the parties, the matter can be referred to arbitration under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).
The Single Bench of Justice Lisa Gill reiterated that the MSMED Act being a Special Act shall prevail over the Arbitration and Conciliation Act, 1996 (A&C Act). The Court held that even if there was an agreement between the parties for resolution of disputes by arbitration, if a seller was covered under the MSMED Act, the agreement between the parties would have to be ignored in view of the mechanism provided under the MSMED Act. Section 18(1) of the MSMED Act provides that any party to a dispute may make a reference to the Micro and Small Enterprises Facilitation Council (MSEFC). Under Section 18(2), the MSEFC shall either itself conduct conciliation proceedings in the matter or it may seek the assistance of any institution or centre. Section 18(3) provides that where the conciliation initiated under Section 18(2) is not successful, the MSEFC may either itself take up the dispute for arbitration or refer the matter to any institution or centre for arbitration.
The Court noted that the petitioner had not challenged the appointment of the Sole Arbitrator by the HMSEFC. The Court added that the respondent, who was registered under the MSMED Act, was entitled to approach the HMSEFC under the MSMED Act for redressal of its grievance. The Court observed that in view of the decision of the Supreme Court in the case of M/s Silpi Industries versus Kerela State Road Transport Corporation (2021), the MSMED Act being a Special Act shall prevail over the A&C Act and have an overriding effect.
Thus, the Court held that even if there was an agreement between the parties for resolution of disputes by arbitration, if a seller was covered under the MSMED Act, the agreement between the parties would be ignored in view of the mechanism provided under the MSMED Act. The Court added that the seller, in that case, could approach the competent authority to address its grievances under the MSMED Act. The Court noted that Section 18 of the MSMED Act, that deals with reference of a dispute to a Micro and Small Enterprises Facilitation Council (MSEFC), starts with a non-obstante clause.
Thus, the Court held that even in the absence of an arbitration agreement between the parties, the matter could be referred to arbitration under Section 18 of the MSMED Act.