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: MSME Registration Alone Cannot Override Existing
The has clarified that under the does not automatically extinguish a . Justice Amit Borkar, presiding over the , ruled that the under must be actually invoked—not merely intended—to displace an agreed arbitration framework. The Court appointed as to resolve a ₹76.67 lakh dispute between and .
The Missing Crates and a Cross‑Border Dispute
The dispute originated from a Cold Storage Facility Service Agreement dated , under which Qwik Supply Chain handed over storage facilities to CRPL Infra. Two amendment agreements later expanded the scope of services. In , CRPL Infra lodged an FIR with the in Howrah, alleging that certain crates and pallets had gone missing. An email from CRPL Infra on acknowledged the shortage, attributed it to theft, and offered to compensate uncovered losses via monthly billing adjustments.
When Qwik Supply Chain quantified the loss at ₹76,67,613 and sought payment, CRPL Infra declined. On , Qwik Supply Chain invoked the (Clause 19) and nominated its arbitrator. CRPL Infra responded by stating its MSME registration and intention to approach the . Yet, two months later, CRPL Infra itself issued a notice under , invoking arbitration and nominating a different arbitrator. This contradictory conduct set the stage for the .
Arguments Over the and MSME Shield
Qwik Supply Chain’s case: The applicant argued that Clause 19 contained a complete arbitration mechanism—despite using “may”—and that the did not create an automatic bar. Relying on and , it contended that the word “may” only gave either party the option to commence the agreed procedure, not to renegotiate consent. It further submitted that the respondent’s own arbitration notice demonstrated both parties understood the agreement to be arbitrable.
CRPL Infra’s objections: The respondent raised three principal hurdles: (i) the was permissive, not mandatory; (ii) its MSME registration compelled the dispute to be referred to the Facilitation Council, overriding the contractual clause; and (iii) the alleged theft rendered the dispute , as third‑party criminals and the true owners of the goods were not before the Court.
Court’s Analysis: No Automatic Override, No “May” Weakness
The “may” misconception Justice Borkar rejected the argument that the word “may” in Clause 19.1 negated a binding intent. Reading the clause as a whole, he observed that it provided a complete sequence—, request for arbitration, , , and a . “Real question is whether parties had agreed that disputes between them would go to arbitration, or whether after dispute arose, they were still required to enter into some fresh agreement or give further consent,” the judgment reads. Finding no requirement for post‑dispute consensus, the Court held the clause constituted a .
: Invocation, not registration, is key On the clash between the and the Arbitration Act, the Court drew a critical distinction. While acknowledging that the in held to override the Arbitration Act, Justice Borkar noted that this override applies only when the has actually been set in motion. “A statement that party intends to approach Facilitation Council is different from actual reference under . cannot be treated as having commenced merely because one party expressed such remedy,” the Court stated. Since CRPL Infra had not placed any material showing it had made a reference under Section 18 before the , its objection failed.
The Court further observed that the nature of the claim—compensation for missing crates rather than unpaid dues for goods supplied—left open the question whether Sections 17 and 18 of the were even attracted. It expressly kept all MSMED‑related issues for the arbitrator to decide.
Theft no bar to civil arbitration The allegation of theft, the Court clarified, did not render the contractual dispute . “Possible for theft is distinct from CRPL Infra's alleged civil or for the loss,” the judgment emphasised. The arbitrator would determine the civil claim between the contracting parties, while the criminal proceedings would take their own course.
Clause 19.3 Triggered: Appointed
A critical procedural finding sealed the appointment. Clause 19.3 provided that if the party receiving a request for arbitration failed to nominate its arbitrator within 30 days, the arbitrator named in the request would act as . Qwik Supply Chain’s request was dated ; CRPL Infra’s reply did not nominate an arbitrator but merely objected to the process. The later independent arbitration notice from CRPL Infra, issued after the 30‑day period, could not undo the contractual consequence. Consequently, the Court appointed Mr. Vikramjit Grewal, Advocate, as the .
Key Observations from the Judgment
- “ as an MSME does not remove every contained in a contract.”
- “Word ‘may’ cannot be separated from rest of Clause 19. Entire clause has to be read together.”
- “Possible for theft is distinct from civil or for the loss.”
- “ cannot be treated as having commenced merely because one party expressed such remedy.”
Decision and Implications
The allowed the application, appointed as , and ordered the arbitration to proceed in Mumbai in English. All objections regarding jurisdiction, arbitrability, applicability of the , and maintainability of claims were left open for the arbitrator. The ruling reinforces that a valid remains operative until the statutory alternative is actually triggered, and that MSME registration alone does not immunise a party from its contractual arbitration obligations.
