Calcutta High Court Rules MSMED Act Does Not Bar Arbitration Under Arbitration Act for Dispute Resolution

ENA MSME 2024-09-17 12:13:07 New Delhi, Sep 17 (KNN) In a significant ruling, the Calcutta High Court has affirmed that parties involved in disputes under the Micro, Small & Medium Enterprises Development Act, 2006 (MSMED Act) have the option to pursue arbitration independently under the Arbitration and Conciliation Act, 1996, based on an arbitration clause in their agreement. The High Court observed that Section 18(1) of the MSMED Act provides an option rather than a mandate. The use of may indicates that parties are not compelled to adhere to the Facilitation Councils jurisdiction if they prefer other remedies, such as arbitration under the Arbitration Act. The Court highlighted that the strict requirements of Section 18 only become mandatory if the parties opt for the Facilitation Councils jurisdiction. Further, the Court agreed with the Petitioner that its claim, involving not just recovery but also the procurement of goods and compensation for non-performance, exceeded the scope of Section 17. Thus, the dispute was not confined to the MSMED Acts provisions and warranted arbitration under the Arbitration Act. Addressing the Respondent's procedural objections, the Court ruled that the application for an arbitrator under Section 11 is a preliminary step and does not require the same level of detail as a full-fledged legal claim. The applications procedural defects were deemed insufficient to disqualify the request for arbitration at this stage. The Court allowed the petition, appointing Reetobroto Kumar Mitra as the sole arbitrator to resolve the dispute, thereby underscoring the right of MSME units to choose arbitration over statutory dispute resolution mechanisms. This decision came in the case of Gita Refractories Pvt Ltd Vs Tuaman Engineering Limited. Gita Refractories Pvt Ltd (Petitioner), an MSME unit, initiated proceedings under Section 11 of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator. The Petitioner argued that the mandatory provisions of Section 18 of the MSMED Act, which mandate mediation and arbitration through a Facilitation Council, are not applicable in this case. The Petitioner contended that the term may in Section 18(1) implies that opting for alternative dispute resolution mechanisms, such as arbitration under the Arbitration Act, is permissible. The Petitioners claim extended beyond mere recovery of amounts due under Section 17 of the MSMED Act, encompassing additional demands for the purchase of goods and compensation for the failure to accept the goods. This, the Petitioner argued, expanded the dispute beyond the scope of Section 17. The Respondent countered by claiming that the Petitioners application under Section 11 did not comply with procedural requirements outlined in the Courts Practice Directions issued on October 13, 2023. Specifically, the Respondent pointed out procedural defects related to the application. (KNN Bureau) 39300 https://knnindia.co.in/news/newsdetails/msme/calcutta-high-court-rules-msmed-act-does-not-bar-arbitration-under-arbitration-act-for-dispute-resolution 2024-09-17 12:13:07 knnindia.co.in Calcutta High Court Rules MSMED Act Does Not Bar Arbitration Under Arbitration Act for Dispute Resolution