Case Note & Summary
The dispute involved a supplier who had executed a purchase order dated June 8, 2018, and supplied goods to the respondent buyer. Invoices were raised but amounts remained unpaid. The supplier, being a micro or small enterprise, made a reference to the Micro Small Enterprises Facilitation Council, Nashik, on April 24, 2023, under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006, which provides a statutory mechanism for conciliation and arbitration. However, the council did not initiate any proceedings. The supplier then filed an arbitration petition under Section 11 of the Arbitration and Conciliation Act, 1996, before the Bombay High Court, seeking appointment of an arbitrator, contending that the arbitral institution (the council) had failed to act. The court noted that Section 18 of the MSMED Act creates a statutory arbitration agreement and that the council's inaction entitled the supplier to invoke the court's jurisdiction under Section 11. The respondent did not appear. The court allowed the petition and appointed a sole arbitrator to resolve the payment dispute, holding that the statutory agreement and the council's default justified the appointment.
Headnote
A) Arbitration - Statutory Arbitration Agreement under MSME Act - Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 creates a deemed arbitration agreement between the enterprise and the buyer; where the Micro Small Enterprises Facilitation Council fails to initiate conciliation and thereby fails to act on a reference, the aggrieved enterprise may seek appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. Held: The court appointed a sole arbitrator to adjudicate the payment dispute arising from unpaid invoices for goods supplied under a purchase order (Paras 1-2).
Issue of Consideration
Whether the court should appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 when the Micro Small Enterprises Facilitation Council failed to initiate conciliation proceedings under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006.
Final Decision
Petition allowed. The court appointed a sole arbitrator to adjudicate the disputes arising from the purchase order and unpaid invoices, noting that the council's inaction triggered the jurisdiction under Section 11.
Law Points
- Statutory arbitration agreement under Section 18 of the Micro
- Small and Medium Enterprises Development Act
- 2006
- Failure of Micro Small Enterprises Facilitation Council to act triggers Section 11 of the Arbitration and Conciliation Act
- 1996
- Court may appoint arbitrator when designated arbitral institution fails to perform its function
Case Details
2025 LawText (BOM) (06) 39
Arbitration Petition No. 208 of 2023
Somasekhar Sundaresan, J.
Sagar Kasar, Vivekanand Krishnan, Chaitali Bhogle, Rishabh Tiwari, Amol Wagh
M B Sugars & Pharmaceuticals Private Limited
Micro Small Enterprises Facilitation Council & Anr
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Nature of Litigation
Arbitration petition under Section 11 of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator due to the failure of the Micro Small Enterprises Facilitation Council to act upon a reference under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006.
Remedy Sought
Petitioner sought appointment of a sole arbitrator to adjudicate the dispute regarding unpaid invoices for goods supplied.
Filing Reason
The respondent buyer failed to pay amounts due under invoices raised after supplying goods. A reference to the Micro Small Enterprises Facilitation Council, Nashik, was made, but the council did not initiate any conciliation or arbitration proceedings.
Issues
Whether the court should appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 when the statutory arbitral institution (MSEFC) has failed to act under Section 18 of the MSME Act.
Submissions/Arguments
Petitioner argued that the Micro Small Enterprises Facilitation Council failed to initiate conciliation proceedings despite a valid reference, and thus the statutory arbitration agreement under Section 18 of the MSME Act could be invoked, necessitating the court's intervention to appoint an arbitrator.
Ratio Decidendi
Where the Micro Small Enterprises Facilitation Council fails to act on a reference under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006, the statutory arbitration agreement under that provision can be invoked, and the court may appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, as the designated arbitral institution has failed to perform its function.
Judgment Excerpts
This is a Petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 ... not having initiated conciliation proceedings as a precursor to arbitration in terms of Section 18 of the MSME Act.
the arbitral institution which is meant to appoint the arbitrator has failed to do so.
Procedural History
Petitioner executed a purchase order dated June 8, 2018 and supplied goods. Invoices remained unpaid. Petitioner made a reference to Micro Small Enterprises Facilitation Council, Nashik on April 24, 2023 under Section 18 of the MSME Act. The council did not act. Petitioner filed Arbitration Petition No. 208 of 2023 under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 7, Section 11
- Micro, Small and Medium Enterprises Development Act, 2006: Section 18
