If Section 18 Of MSME Act Not Triggered, Parties Can Resort To Other Mechanism For Dispute Resolution: Delhi High Court
The Delhi High Court observed that there is no mandate that a Micro, Small or Medium Enterprise must necessarily take recourse to the mechanism under Micro, Small and Medium Enterprises and Development Act, 2006 (MSME Act) for resolution of its dispute.
A Petition was filed by a Micro Enterprise under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of an Arbitrator for adjudicating the disputes between the Parties.
The Bench of Justice Jyoti Singh observed, “In my view, MSME Act does not mandate resorting to the procedure under Section 18, albeit it must be stated that having triggered the process under the said Act, party will be obliged to follow the mechanism prescribed therein till its logical conclusion.”
Advocate K.S. Negi represented the Petitioner, while Advocate Vinita Sasidharan represented the Respondent.
Case Brief
The Petitioner, a Micro Enterprise, entered into an agreement with the Respondent, as the Respondent placed a purchase order of SAP Business One License and its implementation/AMC. However, the Respondent withheld payments, thus, giving rise to dispute between the Parties.
The Petitioner invoked arbitration for the resolution of dispute, however, the same was refused by the Respondent. Thus, the Petitioner sought appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.
The Respondent contended that the Petitioner being a MSME is bound to take recourse to the dispute resolution mechanism under MSME Act. It was submitted that the MSME Act is a special law, while the Arbitration and Conciliation Act is a general law and therefore, provisions of the MSME Act will take precedence over Arbitration and Conciliation Act. Reliance was also placed on Section 18 of MSME Act to support this plea of the Respondent.
On the contrary, the Petitioner contended that there is no mandate that the Party registered as Micro, Small or Medium Enterprise must necessarily take recourse to the mechanism under MSME Act for resolution of its dispute, however, if jurisdiction of Council is invoked under Section 18 of MSME Act, party cannot resort to arbitration unless the Council refers the matter to arbitration.
Court’s Reasoning
The Delhi High Court referred to Sections 17 and 18 of the MSME Act and opined that in a case where the Party does not invoke the jurisdiction of the Council and consequently, no proceedings are pending under Section 18 of the MSME Act, it cannot be urged that the Party having a dispute arising out of a contractual relationship with another Party, is precluded from taking recourse directly under provisions of Arbitration and Conciliation Act for appointment of an Arbitrator.
“Once the mechanism under MSME Act is triggered by any party, the procedure has to be taken to its logical end. However, once there is no trigger by invoking the jurisdiction of the Council, the party cannot be precluded from resorting to any other mechanism for resolution of its disputes.”, the Court said.
While interpreting Section 18 of MSME Act, the Court emphasized that the Legislature in its wisdom has used the word ‘may’ in Section 18(1) of MSME Act, which indicates that the intent of the Legislature was to leave it to the discretion of the aggrieved party to either take recourse to Section 18 of MSME Act and invoke the jurisdiction of the Council or to resort to procedure under Arbitration and Conciliation Act and there is no reason why the Court should interpret the word ‘may’ as ‘shall’.
Accordingly, the Delhi High Court allowed the Petition for the appointment of arbitrator.
Cause Title: M/s Total Application Software Co. Pvt. Ltd. V. M/S Ashoka Distillers and Chemicals (Neutral Citation: 2025:DHC:4876)
Appearance:
Petitioner: Advocates K.S. Negi and Nikhil Rajput
Respondent: Advocates Vinita Sasidharan, Vasu Vats and Aadya Malik
