Searching Case Laws & Precedent on Legal Query!
Scanned Judgements…!
Searching Case Laws & Precedent on Legal Query!
Scanned Judgements…!
MSME Registration and Arbitration Rights MSMEs can invoke arbitration under private agreements if such agreements explicitly contain arbitration clauses. However, the timing of MSME registration is crucial. If registration occurs after the contract or work completion, the MSME may not be entitled to invoke the MSME-specific arbitration provisions.References: ["Jkg Infratech Private Limited VS Larsen And Toubro Limited - Delhi"], ["Jkg Infratech Private Limited VS Larsen And Toubro Limited - Delhi"], ["Jkg Infratech Private Limited VS Larsen And Toubro Limited - Delhi"], ["Rashmi Cement Limited VS Radha Bhattad - Calcutta"], ["CROSSLITE INFRA PRIVATE LIMITED vs DIRECTOR OF INDUSTRIES AND COMMERCE HARYANA CUM CHAIRMAN HARYANA - Kerala"]
Section 18 of MSME Act and Deemed Arbitration Section 18 of the MSME Development Act (MSME Act) provides for dispute resolution through the MSME Facilitation Council, which can automatically convert disputes into arbitration-like proceedings under the Arbitration and Conciliation Act, 1996, even without a formal arbitration agreement. This deemed arbitration is applicable when the MSME is registered at the time of dispute or work.References: ["Jkg Infratech Private Limited VS Larsen And Toubro Limited - Delhi"], ["Jkg Infratech Private Limited VS Larsen And Toubro Limited - Delhi"], ["Rashmi Cement Limited VS Radha Bhattad - Calcutta"], ["Marine Craft Engineers Private Limited VS Garden Reach Shipbuilders and Engineers Limited - Calcutta"], ["Sterkem Pharma Private Limited VS Symbiosis Pharmaceuticals Private Limited - Himachal Pradesh"], ["Bharat Heavy Electricals Limited VS State of Telangana - Telangana"]
Existence of Arbitration Agreements For private arbitration, a valid arbitration agreement (written, signed, or in electronic form) is generally required. Courts have held that even in the absence of a formal agreement, Section 18 of MSME Act can create a deemed arbitration, which can be invoked by the MSME if registered properly at the relevant time.References: ["Bafna Udyog VS Micro & Small Enterprises, Facilitation Council - Bombay"], ["Sterkem Pharma Private Limited VS Symbiosis Pharmaceuticals Private Limited - Himachal Pradesh"], ["Rashmi Cement Limited VS Radha Bhattad - Calcutta"], ["Bharat Heavy Electricals Limited VS State of Telangana - Telangana"]
Jurisdiction and Statutory Provisions The MSME Act provides a special statutory framework for dispute resolution, which sometimes overrides general arbitration laws, especially when the MSME is registered before the dispute arises. Courts have clarified that private agreements cannot override statutory rights granted to MSMEs under the MSME Act.References: ["Rashmi Cement Limited VS Radha Bhattad - Calcutta"], ["Swiss Ribbons Pvt. Ltd. VS Union of India - Supreme Court"], ["GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. VS MAHAKALI FOODS PVT. LTD. (UNIT 2) - Supreme Court"], ["ARETPL-AT (JV) VS Central Coalfields Limited - Jharkhand"], ["DEWAN REALTORS PRIVATE LIMITED vs UNITY SMALL FINANCE BANK - Bombay"]
Private Agreements vs. Statutory Rights While private agreements may contain arbitration clauses, the MSME Act's provisions for dispute resolution can be invoked independently if the MSME is registered at the relevant time. Courts have emphasized that statutory rights of MSMEs are protected and cannot be negated solely by private contractual clauses.References: ["GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. VS MAHAKALI FOODS PVT. LTD. (UNIT 2) - Supreme Court"], ["ARETPL-AT (JV) VS Central Coalfields Limited - Jharkhand"], ["Sri Kalachand Bose VS CA Santanu Brahma Resolution Professional of Maa Ratanti Kalimata Cold Storage Private Limited (CIRP) - National Company Law Tribunal"], ["RACHNA JHUNJHUNWALA VS Ramesh Kumar Agarwal - National Company Law Tribunal"]
Can an MSME Invoke Arbitration under a Private Agreement? Yes, an MSME can invoke arbitration under a private agreement if it contains a valid arbitration clause and the MSME was registered at the time of contract execution or dispute. The registration date is critical; registration after the work or contract completion generally disqualifies the MSME from invoking MSME-specific arbitration provisions.
Deemed Arbitration under Section 18 Even without a formal arbitration clause, Section 18 of the MSME Act allows disputes involving MSMEs to be referred to arbitration via the MSME Facilitation Council, provided the MSME was registered at the relevant time. This mechanism acts as a deemed arbitration process, supplementing private agreements.
Legal Precedence Courts have consistently upheld that statutory protections for MSMEs under the MSME Act take precedence, and private contractual arbitration clauses do not hinder the statutory dispute resolution process if the MSME's registration conditions are met.
In summary, MSMEs can invoke arbitration both under private agreements with arbitration clauses and through the statutory mechanism provided by Section 18 of the MSME Act, depending on the timing of registration and the existence of a valid arbitration agreement.
References:- ["Jkg Infratech Private Limited VS Larsen And Toubro Limited - Delhi"], ["Jkg Infratech Private Limited VS Larsen And Toubro Limited - Delhi"], ["Rashmi Cement Limited VS Radha Bhattad - Calcutta"], ["Bafna Udyog VS Micro & Small Enterprises, Facilitation Council - Bombay"], ["Sterkem Pharma Private Limited VS Symbiosis Pharmaceuticals Private Limited - Himachal Pradesh"], ["Bharat Heavy Electricals Limited VS State of Telangana - Telangana"], ["CROSSLITE INFRA PRIVATE LIMITED vs DIRECTOR OF INDUSTRIES AND COMMERCE HARYANA CUM CHAIRMAN HARYANA - Kerala"], ["Sri Kalachand Bose VS CA Santanu Brahma Resolution Professional of Maa Ratanti Kalimata Cold Storage Private Limited (CIRP) - National Company Law Tribunal"], ["RACHNA JHUNJHUNWALA VS Ramesh Kumar Agarwal - National Company Law Tribunal"], ["Swiss Ribbons Pvt. Ltd. VS Union of India - Supreme Court"], ["GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. VS MAHAKALI FOODS PVT. LTD. (UNIT 2) - Supreme Court"], ["ARETPL-AT (JV) VS Central Coalfields Limited - Jharkhand"], ["DEWAN REALTORS PRIVATE LIMITED vs UNITY SMALL FINANCE BANK - Bombay"]
In the world of business contracts, arbitration clauses are common, designed to keep disputes out of courts and resolve them privately. But what happens when you're a Micro, Small, or Medium Enterprise (MSME) in India facing payment delays? A frequent question arises: Can I go to court when an arbitration clause exists? The answer isn't straightforward, as the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) creates a specialized pathway that often takes precedence. This blog breaks down the legal framework, judicial insights, and practical tips to help MSMEs navigate these waters effectively.
Note: This is general information based on Indian law and case precedents. It is not legal advice; consult a qualified lawyer for your specific situation.
The MSME Act prioritizes quick recovery of dues for MSMEs, establishing the Micro and Small Enterprises Facilitation Council (MSEFC) as the go-to body for disputes over amounts due under Section 17. Section 18 allows any party to refer such matters to the MSEFC, starting with conciliation. If that fails, arbitration follows—governed by the Arbitration and Conciliation Act, 1996 (Arbitration Act), as if an arbitration agreement existsMahavir Ferro Alloys Pvt. Ltd. VS Passary Minerals Ltd. - 2018 0 Supreme(Ori) 357.
Key points:- No need for a pre-existing arbitration agreement: The MSME Act deems one to exist upon reference to MSEFC or an ADR center Samrat Furnaces Pvt. Ltd. VS State of Gujarat - 2020 0 Supreme(Guj) 506.- Broad jurisdiction: MSEFC can handle cases regardless of the buyer's or supplier's location Mahavir Ferro Alloys Pvt. Ltd. VS Passary Minerals Ltd. - 2018 0 Supreme(Ori) 357.- Overriding effect: Section 24 of the MSME Act trumps conflicting provisions, including general arbitration laws, for payment disputes Mahavir Ferro Alloys Pvt. Ltd. VS Passary Minerals Ltd. - 2018 0 Supreme(Ori) 357Samrat Furnaces Pvt. Ltd. VS State of Gujarat - 2020 0 Supreme(Guj) 506.
This statutory mechanism often sidelines contractual arbitration clauses for MSME payment recovery claims.
Typically, courts respect arbitration clauses under Section 8 of the Arbitration Act, referring parties to arbitration. However, in MSME cases, courts have ruled that disputes over any amount due under Section 17 fall under exclusive MSEFC jurisdiction. Regular courts won't entertain them until the statutory process is exhausted Mahavir Ferro Alloys Pvt. Ltd. VS Passary Minerals Ltd. - 2018 0 Supreme(Ori) 357Bata India Limited vs AVS International Private Limited - Delhi (2019).
Judicial interpretations reinforce this:- Exclusive forum: Courts cannot hear MSME payment disputes bypassing MSEFC Mahavir Ferro Alloys Pvt. Ltd. VS Passary Minerals Ltd. - 2018 0 Supreme(Ori) 357.- Contractual seat vs. statutory seat: Even if a contract specifies a different arbitration seat, MSEFC's location (often tied to the MSME) prevails Bata India Limited vs AVS International Private Limited - Delhi (2019).
From case law, in a works contract dispute, the court dismissed a writ petition under Article 226, noting: After failing to invoke the procedures under the Arbitration Act, it is now not open for the State to approach this Court by filing a Writ Petition under Article 226 of the Constitution of India Executive Engineer VS Bholasingh Jaiprakash Construction Ltd. - 2024 Supreme(Del) 405. This underscores exhausting arbitration remedies first.
Section 18(2)-(3) mandates conciliation first, then arbitration if it fails. But Section 80 of the Arbitration Act prohibits the same entity (like MSEFC) from acting as both conciliator and arbitrator without party consent Indian Highways Management Company Limited VS Mukesh & Associates - 2021 0 Supreme(Del) 2201. Courts have invalidated proceedings where MSEFC tried both roles Indian Highways Management Company Limited VS Mukesh & Associates - 2021 0 Supreme(Del) 2201Gammon Engineers and Contractors Pvt. Ltd. VS Rohit Sood - Bombay (2024).
In another ruling: The court held that once the MSME Council acts as a conciliator, it cannot later act as an arbitrator for the same dispute Indian Highways Management Company Limited VS Mukesh & Associates - 2021 0 Supreme(Del) 2201. MSMEs should watch for this procedural pitfall.
Challenges arise when contracts have arbitration clauses. The MSME Act's special status often overrides them for Section 17 dues. However:- Works contracts limitation: MSEFC lacks jurisdiction over pure works contracts, as they don't qualify under Section 17 KMV Projects Limited vs Andhra Pradesh Micro and Small Enterprises Facilitation Council - 2025 Supreme(AP) 391. The court ruled: The Facilitation Council lacks jurisdiction over disputes arising from works contracts under the MSME Act KMV Projects Limited vs Andhra Pradesh Micro and Small Enterprises Facilitation Council - 2025 Supreme(AP) 391.- Non-arbitrability orders: Writs challenging MSEFC's non-arbitrability findings are often dismissed, with appeals under Section 37 of the Arbitration Act preferred V.K.S. Constructions vs State of Telangana - 2025 Supreme(Telangana) 10.
In a sewer pipeline contract case, the court referred parties back to MSEFC, stating: This Court being a 'judicial authority' under Section 8 of the Arbitration Act, ought to refer the parties to arbitration as contemplated in Section 18(3) of the MSME Act SHAH & PARIKH, ENGINEERS & CONTRACTORS VS URMI TRENCHLESS TECHNOLOGY PVT LTD - 2019 Supreme(Bom) 410. Jurisdiction objections must go to the tribunal, not courts directly.
Venue ties to MSME location, overriding contracts sometimes Mahavir Ferro Alloys Pvt. Ltd. VS Passary Minerals Ltd. - 2018 0 Supreme(Ori) 357.
In conclusion, while arbitration clauses aim for private resolution, MSMEs have a powerful statutory tool in the MSME Act. Courts typically direct parties to MSEFC first, making direct court access limited for qualifying disputes. Stay informed, act swiftly, and seek professional guidance to leverage this framework for timely dues recovery.
References:- Mahavir Ferro Alloys Pvt. Ltd. VS Passary Minerals Ltd. - 2018 0 Supreme(Ori) 357Samrat Furnaces Pvt. Ltd. VS State of Gujarat - 2020 0 Supreme(Guj) 506Bata India Limited vs AVS International Private Limited - Delhi (2019)Indian Highways Management Company Limited VS Mukesh & Associates - 2021 0 Supreme(Del) 2201Gammon Engineers and Contractors Pvt. Ltd. VS Rohit Sood - Bombay (2024)Executive Engineer VS Bholasingh Jaiprakash Construction Ltd. - 2024 Supreme(Del) 405KMV Projects Limited vs Andhra Pradesh Micro and Small Enterprises Facilitation Council - 2025 Supreme(AP) 391V.K.S. Constructions vs State of Telangana - 2025 Supreme(Telangana) 10SHAH & PARIKH, ENGINEERS & CONTRACTORS VS URMI TRENCHLESS TECHNOLOGY PVT LTD - 2019 Supreme(Bom) 410ONGC Petro Additions Limited VS State Of Gujarat - 2020 Supreme(Guj) 679
#MSMEAct, #ArbitrationIndia, #MSMEDisputes
After failing to invoke the procedures under the Arbitration Act, it is now not open for the State to approach this Court by filing a Writ Petition under Article 226 of the Constitution of India. ... It is stated that a formal agreement was entered into between the Petitioner and the Respondent No.1 on 27.08.2005 and as per the agreement, the work was to be completed within 18 months from the order of commencement of works....
Both contracts also contained arbitration clauses, but the appellant proceeded to invoke arbitration under Section 18 of the MSME Act. 4. ... The appellant, having registered under the MSME Act only on 03.02.2017, well after rendering service under the contracts in question until 2014, was not entitled to invoke arbitration under Section 18 of the said Act. 14.The appea....
Thus, inaction by the MSMED in referring to arbitration shall not entitle the Petitioner to invoke the provisions of 11(6) of the Act and seek appointment of an arbitrator de-hors existence of an arbitration agreement. 14. ... Thus, in the absence of an arbitration agreement, Section 11(6)(c) cannot be invoked. 12. I have gone through the decision in Microvision Technologies ....
Gargi Travels Private Limited; MANU/WB/0884/2023, a Co-ordinate Bench followed Porwal Sales on the issue whether section 18 of the MSME Act constitutes a bar on the Court from passing an order under section 11 of the 1996 Act. ... No. 294 of 2016, a Co-ordinate Bench of this Court was of the view that where one of the parties to an arbitration agreement is an entity within the meaning of the MSME Act, the....
The 1996 Act will then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in Section 7(1) of that Act. ... The expression ‘party’ as defined under Section 2(1)(h) of the 1996 Act indicates a person who is a party to an arbitration agreement. The said definition is not qualified in any way so as to include the agent of the party to such an agreemen....
Short facts leading to the filing of the writ petition are as follows: The appellant is a sub-contractor of M/s Corrtech International Private Limited. M/s Corrtech International Private Limited has entered into an agreement with M/s. ... The appellant and the 3rd respondent/M/S Pravsha Projects Private Limited had entered into an agreement dated 25.3.2018 for project management service in relation to the....
The decision of the Supreme Court in Shanti Conductors Private Limited vs. ... Under section 18, the Council is also empowered to take up the dispute for arbitration and the provisions of The Arbitration and Conciliation Act, 1996 shall automatically kick in and apply to the dispute as if the arbitration was in pursuance to an arbitration agreement under section 7(1) of the 1996 ... Under section 18(3), t....
M/s Corrtech International Private Limited has entered into an agreement with M/s. GIAL (INDIA) Ltd. for RLNG Gas Pipeline Project. ... The appellant and the 3rd respondent/M/S Pravsha Projects Private Limited had entered into an agreement dated 25.3.2018 for project management service in relation to the sub contract that the appellant had entered into with M/s Corrtech International Private Limited for l....
The Madras High Court in the case of Alvittas Electricals Private Limited Vs. ... or centre for arbitration and the provisions of the Arbitration and Conciliation Act, 1996 shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of that Act. ... of an arbitrator, as per settled principles and only in the cases where an ....
It could therefore rule that there existed no arbitration agreement, that the arbitration agreement was not valid, or that the arbitration agreement did not confer jurisdiction on the Tribunal to adjudicate upon the particular claim that is put forward before it. ... agreement. ... Noting the failure of Respondent No. 3 in participating in the conciliation proceedings, ....
58. Again, a learned Single Judge of the Andhra Pradesh High Court, in Rashtriya Ispat Nigam (supra) applied the proposition of Kone /Elevator (supra) erroneously to the MSME Act, which was followed by two other Single Judge decisions of the Bombay High Court in PP.L. Adke (Supra) and National Textile Corporation (supra). (iv) In another case reported in Hindustan Petroleum Corporation Limited and another versus West Bengal State Micro, Small Enterprises, Facilitation Council and others, [2023....
It is obvious that the arbitration would proceed in accordance with the procedure followed by the MSEFC or the Centre/Institution for alternative dispute resolution services, as the case may be. Clearly, recourse to an ad hoc arbitration is not available once provisions of the MSME Act are invoked and to that extent the provisions of the MSME Act would override any provisions of the agreement between the parties or the A&C Act. However, once the disputes are referred to arbitration i....
In my opinion, when any right is to be enforced under the MSME Act existence as to the arbitration agreement containing arbitration clause between the parties, that too, in writing is not required at all. [37.0.] The contention raised by the learned Senior advocate for the petitioner complaining about order impugned being non speaking and unreasoned order cannot be countenanced as well. Thus, there is ample material before the MSEFC and in absence of any claim before it by th....
(iv) He submitted that there is a distinction between domestic arbitration and statutory arbitration. This being a statutory arbitration, it is under that context that the MSME Act is applicable. Relying on a decision in the case of Mackintosh Burn Limited v. Micro and Small Enterprises Facilitation Council & Ors of the Calcutta High Court, Mr.Amin would submit that reading the provisions of Sec.18 and others that an arbitration agreement cannot dilute the statutory right of ....
It is those very disputes which form the subject matter of the present suit and on the basis of which plaintiff seeks an injunction and declaration that the claims made by defendant no.1 before the Facilitation Council are barred by limitation. This Court being a 'judicial authority' under Section 8 of the Arbitration Act, ought to refer the parties to arbitration as contemplated in Section 18(3) of the MSME Act. 1 and plaintiff in respect of the disputes pending before the Facilitation Counci....
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
