Whether the MSME Act,2006 overrides the Arbitration Act,1996?

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Shubham Budhiraja[1]

 

Hon’ble Supreme Court of India in Gujarat State Civil Supplies corp. v. Mahakali Foods Pvt. Ltd., Civil appeal no. 127 of 2018, Judgment dated 31/10/2022 has held that the MSME Act being a special law is enacted for the specific category of persons i.e. micro, small & medium buyers and suppliers whereas Arbitration & conciliation act is a general law of resolving dispute using alternative dispute mechanism. The Hon’ble Apex Court also held that private agreement between the parties agreeing for arbitration cannot override the statutory mandate of MSME Act. The MSME act imposes an obligation on the buyer to pay the due amount within the stipulated period falling which liability in nature of compound interest at 3 times of RBI interest rate. The MSME act confers on the supplier a special mechanism to recover such dues. Section 18 starts with non-obstante clause and overrides all other laws being in force. At the time of enactment of the MSME act in 2006, the parliament was well aware of the arbitration act, 1996. Thus, MSME act being later in point of time will override the arbitration act of 1996.

 

(I)                No party to a dispute covered under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Facilitation Council under Section 18(1) thereof, merely because there is an arbitration agreement existing between the parties

 

(II)              The provisions contained in Chapter-V of the MSMED Act effect overriding the provisions of the Arbitration Act , 1996 , 2006 have an . The provisions of Arbitration Act , 1996 would apply to the proceedings conducted by the Facilitation Council only after the process of conciliation initiated by the council under Section 18(2) fails and the council either itself takes up the dispute for arbitration or refers to it to any institute or centre for such arbitration as contemplated under Section 18(3) of the MSMED Act 30. , 2006.

 

(III)            When the Facilitation Council or the institution or the centre acts as an Arbitrator, it shall have all powers to decide the disputes referred to i t as if such arbitration was in pursuance of the arbitration agreement referred to in sub section (1) of Section 7 of the Arbitration Act, 1996 and then all the trappings of the Arbitration Act t , 1996 would apply to such arbitration.

 

(IV)             Such Facilitation Council/institution/centre acting as an arbitral tribunal would also be competent to rule on its own jurisdiction tribunal appointed under the Arbitration Act , 1996 like any other arbitral would have, as contemplated in Section 16.

 

(V)               A party cannot become a micro or small enterprise or a supplier to claim the benefit under the MSMED Act, 2006 by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods or rendering services. If any registration, is obtained subsequently, the same would have the effect prospectively and would apply for the supply of goods and rendering services subsequent to the registration. The same cannot operate retrospectively. However, such issue being jurisdictional issue, if raised could also be decided by the Facilitation Council/Institute/Centre acting as an arbitral tribunal under the MSMED Act, 2006


[1] Advocate, Delhi High Court [LLB, ACS, BCOM(H)], Budhirajalawchambers@gmail.com , 9654055315

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