In Civil Appeal No.8008 of 2022-SC- Chapter-V of MSMED Act, 2006 has overriding effect over provisions contained in Arbitration Act, 1996; Facilitation Council entitled to proceed with reference made by party despite existence of independent arbitration agreement: SC
Justices Uday Umesh Lalit & Bela M. Trivedi [31-10-2022]

Read Judgment: GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. & ANR v. MAHAKALI FOODS PVT. LTD. (UNIT 2) & ANR 

Tulip Kanth

New Delhi, November 3, 2022: The Supreme Court has clarified that no party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council, though an independent arbitration agreement exists between the parties.

While considering one of the appeals in question, the Division Bench of Justice Uday Umesh Lalit and Justice Bela M. Trivedi held, “In view of the detailed discussion and conclusions arrived at by us, hereinabove, holding that Chapter-V of the MSMED Act, 2006 has an overriding effect over the provisions contained in the Arbitration Act 1996, the Facilitation Council would be entitled to proceed further with the reference made by the party (supplier) under Section 18 (1) of the MSMED Act, 2006 despite an independent arbitration agreement existing between the parties.”

Seven appeals were brought to the Top Court’s  attention which involved certain common questions of law. One of these appeals was filed by the appellant-Gujarat State Civil Supplies Corporation Ltd. (Original Petitioner). The appellant challenged the Order passed by the Gujarat High Court whereby the appeal filed by the appellant under Section 37 of the Arbitration and Conciliation Act, 1996 was dismissed.

In the said First Appeal, the appellant had challenged the Order of the Commercial filed under Section 34 of the Arbitration Act read with Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act, 2006), whereby the commercial court had confirmed the award made by the Madhya Pradesh Micro and Small Enterprises Facilitation Council, Bhopal holding that the provisions of MSMED Act, 2006 had an effect overriding the provisions of the Arbitration Act and that the Facilitation Council at Bhopal had the jurisdiction to adjudicate upon the disputes between the parties.Other appellants also faced similar challenges.

Referring to the MSMED Act, the Bench opined that Chapter-V is party-specific, in as much as the party i.e. the Buyer and the Supplier as defined in Sections 2(d) and 2(n) respectively are covered under the said Chapter.

The Facilitation Council or the centres providing alternative dispute resolution services have been conferred with the jurisdiction to act as an Arbitrator or Conciliator under Section 18(4), notwithstanding anything contained in any law for the time being in force, in a dispute between the supplier located within its jurisdiction, the Bench noted.

Noticing that the provisions of Arbitration Act have been made applicable to the dispute only after the Conciliation initiated under sub-section (2) does not succeed and stands terminated without any settlement between the parties, the Bench further made it clear that Sub-section (1) and sub-section (4) of Section 18 starting with non obstante clauses have an effect overriding the other laws for the time being in force.

Holding that Chapter-V of the MSMED Act, 2006 would override the provisions of the Arbitration Act, 1996, the Bench said, “ The Facilitation Council, which had initiated the Conciliation proceedings under Section 18(2) of the MSMED Act, 2006 would be entitled to act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act.”

The Apex Court further asserted that a party who was not the supplier as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract, cannot seek any benefit as the supplier under the MSMED Act, 2006. If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration.

Thus, noticing that the provisions contained in Chapter-V of the MSMED Act, 2006 have an effect overriding any other law for the time being in force including the Arbitration Act,the Bench dismissed the appeal filed by Gujarat State Civil Supplies Corporation Ltd.