Madras HC Rules Arbitrator Cannot Adjudicate Disputes Where Supplier Is Not Registered as MSME Under MSMED Act

ENA MSME 2024-11-08 14:15:05 New Delhi, Nov 8 (KNN) In a pivotal judgment, the Madras High Court has ruled that an Arbitrator should not have decided a case on merits after concluding that the Respondent was not a valid Micro, Small, and Medium Enterprise (MSME) under the MSMED Act. The Court upheld the setting aside of the Arbitrators award, emphasising that the Respondent was entitled to invoke the provisions of the MSMED Act as a registered MSME. The Court noted that the decision constituted patent illegality under Section 34(2A) of the Arbitration and Conciliation Act, 1996, and conflicted with public policy under Section 34(2)(b)(ii). It further emphasised that the Respondent, as a validly registered MSME, had the right to seek relief under the MSMED Act and should not have been denied this remedy. The Courts judgment underscores the importance of adhering to the legal procedures under the MSMED Act, ensuring that MSME suppliers have the right to avail themselves of the machinery for dispute resolution provided by the Act. The dispute originated when M/s. Sunwin Papers, claiming to be an MSME, supplied waste paper to M/s. Sivadarshini Papers, but had not received payments for the same. M/s. Sunwin Papers had registered itself as an MSME on November 9, 2016, under the MSMED Act. When the Appellant failed to make payments for the supplied materials, the Respondent initiated a complaint with the Micro and Small Enterprises Facilitation Council (MSEFC) in Madurai. Despite the conclusion by the Sole Arbitrator that the Respondent was not a valid MSME at the time of the transaction or at the time of the dispute reference, the Court found that the Arbitrator had committed a patent illegality by deciding on the merits of the dispute. The Arbitrator concluded that M/s. Sunwin Papers did not meet the registration criteria and, based on this, proceeded to address the merits of the dispute, ruling on whether the Appellant owed any outstanding payments. M/s. Sunwin Papers challenged the Arbitrators award in the Madras High Court. The Court highlighted that the Arbitrator had incorrectly addressed the merits of the dispute despite determining that the Respondent was not an MSME, a conclusion that was legally flawed. In dismissing the appeal, the Court referred the case to a new Arbitrator nominated by the High Court Annexed Mediation and Conciliation Centre, ensuring that the dispute would be adjudicated in accordance with the proper legal provisions for MSME-related matters. (KNN Bureau) 39843 https://knnindia.co.in/news/newsdetails/msme/madras-hc-rules-arbitrator-cannot-adjudicate-disputes-where-supplier-is-not-registered-as-msme-under-msmed-act 2024-11-08 14:15:05 knnindia.co.in Madras HC Rules Arbitrator Cannot Adjudicate Disputes Where Supplier Is Not Registered as MSME Under MSMED Act