MSME Arbitration provides an important legal remedy for Micro and Small Enterprises (MSEs) seeking recovery of outstanding payments from buyers. The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) establishes a special dispute resolution mechanism through the Micro and Small Enterprises Facilitation Council (MSEFC). This mechanism helps MSME suppliers recover delayed payments through conciliation and arbitration.
Under Sections 15 to 18 of the MSMED Act, an eligible micro or small enterprise can approach the MSME Facilitation Council when a buyer fails to make payment within the prescribed period. The Council can first attempt settlement through conciliation. If conciliation fails, the Council may conduct arbitration itself or refer the dispute to an institution providing alternative dispute resolution services.
MSME arbitration differs from ordinary commercial arbitration because the MSMED Act provides special statutory protections to eligible suppliers. These include mandatory statutory interest, overriding legal provisions and a special requirement of pre-deposit when a buyer challenges an MSME arbitral award.
This article explains the MSME arbitration procedure, jurisdiction of the MSME Facilitation Council, statutory interest, limitation, enforcement of awards and legal remedies available to both suppliers and buyers.
MSME arbitration is a statutory dispute resolution mechanism under Section 18 of the MSMED Act, 2006. It enables eligible micro and small enterprises to resolve disputes concerning delayed payments and recover outstanding dues from buyers.
Unlike conventional arbitration, which generally depends upon an arbitration agreement between parties, MSME arbitration arises from the statutory mechanism under Section 18 of the MSMED Act.
An eligible supplier can approach the MSME Facilitation Council even when the underlying contract does not contain an arbitration clause.
The MSME Facilitation Council has the authority to:
The statutory mechanism aims to provide a relatively accessible and specialised remedy for MSME payment disputes.
The MSMED Act contains several provisions governing delayed payments and dispute resolution.
| Provision | Legal significance |
|---|---|
| Section 15 | Time limit for payment to micro and small enterprises |
| Section 16 | Mandatory compound interest for delayed payments |
| Section 17 | Liability of buyer to pay principal and interest |
| Section 18(1) | Reference of disputes to the MSME Facilitation Council |
| Section 18(2) | Conciliation proceedings |
| Section 18(3) | Arbitration proceedings |
| Section 18(4) | Territorial jurisdiction of the Council |
| Section 19 | Deposit requirement for challenging an MSME award |
| Section 22 | Disclosure of unpaid amounts in annual financial statements |
| Section 24 | Overriding effect of Sections 15 to 23 |
Sections 15 to 18 form the foundation of MSME delayed payment recovery and arbitration proceedings.
An enterprise must satisfy the statutory eligibility requirements before it can initiate proceedings under Section 18 of the MSMED Act.
Generally, the following conditions apply:
Important: The MSMED Act’s delayed payment protection under Chapter V applies to micro and small enterprises. Medium enterprises do not receive the same delayed-payment remedy under Sections 15 to 18.
The eligibility of traders requires careful examination. Retail and wholesale traders may obtain Udyam Registration for specified purposes, but registration alone does not automatically establish eligibility for delayed-payment protection under Chapter V.
The nature of the business, applicable MSME notifications and the supplier’s eligibility must be examined before filing an MSME claim.
The MSME arbitration procedure involves statutory conciliation followed by arbitration if the parties fail to settle the dispute.
The eligible supplier can file a reference before the MSME Facilitation Council having territorial jurisdiction over the supplier.
The supplier can submit the reference through the MSME Samadhaan portal, along with relevant documents and details of the outstanding payment.
The usual supporting documents include:
After receiving the reference, the MSME Facilitation Council examines the claim and initiates the prescribed proceedings.
The Council issues notice to the buyer and provides an opportunity to submit a response.
The buyer may dispute the claim on grounds such as defective goods, incomplete services, non-performance, incorrect invoices, limitation, jurisdiction or absence of an eligible supplier relationship.
Section 18(2) provides for conciliation before arbitration.
The MSME Facilitation Council may conduct conciliation itself or refer the matter to an institution or centre providing alternative dispute resolution services.
During conciliation, the parties may explore settlement of the outstanding principal, interest and other disputed amounts.
If the parties reach a settlement, the settlement is recorded in accordance with the applicable legal framework.
If conciliation fails and terminates without settlement, Section 18(3) authorises the MSME Facilitation Council to take up the dispute for arbitration or refer it to an appropriate arbitration institution.
At this stage, the provisions of the Arbitration and Conciliation Act, 1996 apply to the arbitration as if the parties had entered into an arbitration agreement under Section 7 of that Act.
The supplier files its Statement of Claim, setting out:
The buyer gets an opportunity to file its Statement of Defence and supporting documents.
The parties may also file rejoinders, additional documents and applications, wherever permitted by the tribunal.
The arbitral tribunal examines the pleadings, documents and evidence produced by the parties.
Depending on the nature of the dispute, the tribunal may consider:
After considering the evidence and submissions, the tribunal proceeds to final arguments.
After completion of the proceedings, the arbitral tribunal passes an award determining the rights and liabilities of the parties.
The award may direct the buyer to pay:
Section 18(5) of the Act prescribes a 90-day period for deciding a reference. The statutory time requirement, however, should not be confused with a guarantee that every dispute will conclude within 90 days in practice.
Territorial jurisdiction is one of the most important issues in MSME arbitration.
Section 18(4) of the MSMED Act specifically deals with the jurisdiction of the MSME Facilitation Council. Under the established statutory framework, the Council having jurisdiction over the supplier’s location can entertain a dispute even when the buyer carries on business in another State.
For example:
In such circumstances, the Delhi MSME Facilitation Council may exercise jurisdiction if the supplier satisfies the applicable statutory requirements and its registered location falls within the Council’s jurisdiction.
The location of the buyer or place of delivery does not, by itself, defeat the jurisdiction conferred by Section 18(4).
Important legal consideration: The applicable statutory version and the supplier’s official registered address must be examined when determining jurisdiction. A contractual jurisdiction clause cannot automatically override the statutory jurisdiction of the MSME Facilitation Council.
Yes. The existence of an independent arbitration agreement does not automatically prevent an eligible MSME supplier from approaching the MSME Facilitation Council.
The Supreme Court examined this issue in the landmark judgment:
Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (Unit 2) (2022).
The Supreme Court held that the MSMED Act, being a special legislation, prevails over the general provisions of the Arbitration and Conciliation Act, 1996, to the extent of inconsistency.
The Court also held that an existing arbitration agreement between the parties does not prevent a party from invoking Section 18 of the MSMED Act.
Therefore, an eligible MSME supplier can pursue the statutory MSME arbitration mechanism even when the commercial agreement contains a separate arbitration clause. VoxJuris+1
This judgment is particularly important in commercial contracts where buyers attempt to rely upon contractual arbitration clauses to resist proceedings before the MSME Facilitation Council.
One of the most significant advantages of MSME arbitration is the statutory interest protection under Section 16 of the MSMED Act.
Section 16 provides for compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India (RBI).
This interest becomes payable when the buyer fails to make payment within the period prescribed under Section 15.
The applicable interest mechanism involves:
Section 15 generally requires the buyer to make payment within the agreed period, which cannot exceed 45 days from acceptance or deemed acceptance of goods or services.
Where there is no written agreement, the payment must be made before the appointed day, which is generally the day immediately following the expiry of 15 days from acceptance or deemed acceptance.
Example: If an MSME supplier raises an invoice for ₹10 lakh and the buyer fails to make payment within the statutory period, the supplier may claim the principal amount together with statutory compound interest under Section 16.
The interest liability can become substantial when the buyer delays payment for several months or years.
Yes. A buyer aggrieved by an MSME arbitral award can challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996, subject to the special requirements of Section 19 of the MSMED Act.
Section 19 requires a buyer challenging an award to deposit 75% of the amount in terms of the award before the competent court entertains its application to set aside the award.
The court may direct payment of an appropriate portion of the deposited amount to the MSME supplier, subject to conditions.
This provision protects MSME suppliers against prolonged litigation and ensures that the buyer provides substantial financial security while challenging the award.
Once an MSME arbitral award becomes enforceable, the supplier can initiate execution proceedings to recover the awarded amount.
Section 36 of the Arbitration and Conciliation Act, 1996 provides the mechanism for enforcement of arbitral awards.
The MSME supplier can seek execution before the competent court and pursue remedies such as:
A buyer cannot automatically stay enforcement merely by filing a challenge under Section 34. A separate stay order must be obtained in accordance with applicable law.
A buyer receiving notice from the MSME Facilitation Council should examine the supplier’s eligibility, contractual documents, limitation and merits of the claim.
Some commonly available defences include:
A. Supplier is not an eligible MSME
The buyer may examine whether the supplier qualifies as a micro or small enterprise for the transaction and whether the supplier satisfies the applicable registration requirements.
B. Supplier is a trader
The buyer may question the maintainability of the claim where the supplier carries on wholesale or retail trading activities and does not qualify for delayed-payment protection under the applicable MSME framework.
C. Goods were defective
The buyer may establish that the supplied goods did not meet the agreed specifications or contractual standards.
D. Services were incomplete
The buyer may dispute the claim where the supplier failed to perform its contractual obligations.
E. Invoices are disputed
The buyer may challenge invoices that do not correspond with purchase orders, delivery records or contractual requirements.
F. Claim is barred by limitation
The buyer may raise limitation objections under the applicable provisions of the Limitation Act, 1963.
G. No amount is payable
The buyer may establish that it has already paid the outstanding amount or that the supplier has incorrectly calculated the claim.
A buyer should file a detailed Statement of Defence with supporting documents rather than rely on general denials.
Yes. A buyer may raise a counterclaim or set-off in MSME arbitration, subject to the applicable procedural and jurisdictional requirements.
The Supreme Court examined the scope of counterclaims in statutory MSME proceedings in Silpi Industries v. Kerala State Road Transport Corporation (2021).
The Court considered the applicability of the Arbitration and Conciliation Act to proceedings under Section 18 and the rights of parties to raise counterclaims.
Section 23(2A) of the Arbitration and Conciliation Act, 1996 expressly recognises the right of a respondent to submit a counterclaim or plead a set-off, subject to the tribunal’s jurisdiction.
Accordingly, a buyer may seek appropriate relief where the supplier has caused losses, breached contractual obligations or failed to perform its obligations.
However, the counterclaim must fall within the jurisdiction of the arbitral tribunal and satisfy the applicable legal requirements. webapi.sci.gov.in+1
The following judgments are important for understanding MSME arbitration and statutory payment recovery.
The Supreme Court held that the MSMED Act is a special legislation and prevails over inconsistent provisions of the Arbitration and Conciliation Act, 1996.
The Court also held that the existence of an independent arbitration agreement does not prevent an eligible supplier from invoking Section 18 of the MSMED Act.
The Supreme Court considered the applicability of MSME registration requirements, statutory benefits and counterclaims in proceedings under the MSMED Act.
The judgment is particularly relevant when determining whether an enterprise can claim statutory MSME benefits for transactions entered into before obtaining registration.
The Supreme Court examined the statutory mechanism under Section 18 and the relationship between MSME proceedings and the Arbitration and Conciliation Act.
The judgment is relevant to the procedural requirements governing MSME arbitration and the availability of statutory remedies.
These judgments provide important guidance for suppliers, buyers and advocates handling MSME arbitration proceedings.
Limitation is an important consideration when filing an MSME payment recovery claim.
The MSMED Act does not prescribe a separate comprehensive limitation period for every type of claim under Section 18. Therefore, the applicable provisions of the Limitation Act, 1963 and the nature of the underlying claim must be examined.
In particular, an MSME supplier should consider:
A supplier should not assume that the availability of the MSME Samadhaan portal extends the limitation period.
It is advisable to initiate proceedings promptly after the buyer defaults.
MSME Samadhaan is an online facility provided by the Ministry of MSME for filing delayed-payment references.
Eligible micro and small enterprises can use this facility to submit payment-related complaints before the concerned MSME Facilitation Council.
The general process involves:
The Samadhaan portal facilitates the filing and monitoring of delayed-payment references. It is important to understand that filing a complaint on the portal and conducting arbitration are separate stages of the statutory dispute resolution process. MSME RAMP PORTAL+1
The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 received Presidential assent on 13 August 2026. However, the Central Government has provided for phased commencement.
As on 30 October 2026, the following distinction is important:
| Provision | Position |
|---|---|
| Sections 2–7, 11 and 13–17 of the Amendment Act | Effective from 15 October 2026 |
| Section 12 of the Amendment Act | Scheduled to commence on 15 December 2026 |
| Sections 8–10 of the Amendment Act | No commencement date appointed in the notification dated 12 October 2026 |
In particular, Section 8 of the Amendment Act proposes significant changes to Section 18 of the principal Act, including:
However, these proposed changes should not be treated as operative merely because Parliament has enacted the Amendment Act. Section 8 has not been brought into force by the commencement notification dated 12 October 2026.
The existing operative statutory framework must therefore be applied until the relevant provisions commence. Gazette Tracker+2
This distinction is particularly important for advocates, MSME suppliers and buyers who are currently involved in proceedings before an MSME Facilitation Council.
MSME arbitration involves several legal and procedural issues. Both suppliers and buyers should obtain appropriate legal assistance to protect their interests.
An experienced MSME arbitration lawyer can assist with:
For MSME suppliers
For buyers
Q1. What is the legal provision for MSME arbitration?
Section 18(4) of the MSMED Act, 2006 provides the mechanism for arbitration when mediation fails and terminates without settlement. The Arbitration and Conciliation Act, 1996 governs the arbitration proceedings.
Q2. Is an arbitration agreement necessary for MSME arbitration?
No. Section 18 creates a statutory mechanism for arbitration. An independent arbitration agreement is not necessary for invoking this statutory remedy.
Q3. Can an MSME supplier file a case against a buyer located in another State?
Yes. The MSME Facilitation Council having jurisdiction over the supplier can entertain proceedings against a buyer located anywhere in India, subject to the applicable statutory requirements.
Q4. What is the rate of interest in MSME arbitration?
Section 16 provides compound interest with monthly rests at three times the bank rate notified by the RBI.
Q5. Can a buyer challenge an MSME arbitral award?
Yes. A buyer can challenge an award under Section 34 of the Arbitration and Conciliation Act, 1996. However, Section 19 of the MSMED Act requires a non-supplier applicant to deposit 75% of the awarded amount.
Q6. Can MSME arbitration proceed despite a contractual arbitration clause?
Yes. The Supreme Court in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. held that an eligible supplier can invoke Section 18 despite an independent arbitration agreement.
Q7. Can an MSME supplier claim interest even when the contract does not provide for interest?
Yes. Section 16 creates a statutory interest liability. The buyer cannot avoid this liability merely because the contract does not contain an interest clause.
Q8. Can a buyer file a counterclaim in MSME arbitration?
Yes. A buyer can raise a counterclaim or set-off, subject to the applicable law and jurisdiction of the arbitral tribunal.
Q9. Is MSME Samadhaan itself an arbitration proceeding?
No. MSME Samadhaan is an online filing and monitoring facility. The statutory dispute resolution process takes place before the MSME Facilitation Council or the institution to which it refers the dispute.
Q10. What happens if the buyer does not comply with an MSME arbitral award?
The supplier can initiate enforcement proceedings under Section 36 of the Arbitration and Conciliation Act, 1996, subject to the applicable legal requirements.
MSME arbitration is an important statutory remedy for micro and small enterprises facing delayed payments and commercial disputes. Sections 15 to 18 of the MSMED Act provide a specialised mechanism for recovering outstanding payments through mediation and arbitration.
The statutory interest provisions under Section 16, territorial jurisdiction under Section 18 and the 75% pre-deposit requirement under Section 19 provide significant protection to eligible MSME suppliers.
However, suppliers must carefully examine their registration, eligibility, contractual documents, limitation and territorial jurisdiction before initiating proceedings. Similarly, buyers should examine the merits of the claim and raise appropriate legal and factual defences.
With the MSME Amendment Act, 2026 introducing further reforms through phased commencement, it is particularly important to examine the provisions actually in force when initiating or defending proceedings.
Professional legal assistance can help businesses navigate MSME arbitration, protect their contractual rights and pursue effective payment recovery remedies.
NB Associates – Advocates & Legal Consultants provides legal services in MSME arbitration, MSME payment recovery, MSME Samadhaan proceedings and commercial dispute resolution.
Our legal team assists clients in proceedings before MSME Facilitation Councils, arbitral tribunals, Commercial Courts and High Courts.
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We represent clients in MSME arbitration and commercial payment recovery matters across Delhi NCR and other parts of India.
Legal disclaimer: This article is for general informational and educational purposes and does not constitute legal advice. The applicability of statutory provisions depends on the facts and circumstances of each case.
RBI Interest Rate for MSME Delayed Payment: Interest Rate, Calculation and Legal Remedies
Introduction
The RBI interest rate for MSME delayed payment is an important consideration for micro and small enterprises seeking to recover outstanding invoices from buyers. Delayed payments can affect working capital, business operations and the ability of an enterprise to meet its financial obligations. To address this problem, the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) provides a special statutory mechanism for recovering outstanding payments along with interest.
Under Section 16 of the MSMED Act, a buyer who fails to make payment within the prescribed period must pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India (RBI). This statutory interest applies notwithstanding anything contained in an agreement between the buyer and the supplier or any other law in force.
The RBI bank rate is therefore central to calculating MSME delayed payment interest. However, businesses must distinguish the RBI bank rate from the repo rate and other monetary policy rates.
Suppliers should also understand Sections 15, 16, 17 and 18 of the MSMED Act because these provisions govern payment deadlines, statutory interest, recovery of dues and dispute resolution through the Micro and Small Enterprises Facilitation Council (MSEFC).
Section 16 of the MSMED Act prescribes the interest rate applicable to delayed payments to eligible micro and small enterprises.
The statutory formula is:
MSME delayed payment interest rate = 3 × RBI bank rate
The interest carries monthly rests, which means the law requires compounding at monthly intervals.
For example, if the applicable RBI bank rate is 5.50% per annum, the statutory annual interest rate is:
5.50% × 3 = 16.50% per annum
This is the nominal annual statutory rate before accounting for monthly compounding.
The RBI bank rate may change over time. Therefore, a supplier claiming interest for several months or years should verify the applicable bank rate for the relevant period.
The statutory interest rate differs from the ordinary interest rate mentioned in a commercial contract. Where Section 16 applies, a contractual provision specifying a lower interest rate does not ordinarily displace the statutory rate.
Official reference: Section 16 of the MSMED Act, 2006.
The Reserve Bank of India publishes several monetary policy rates, including the repo rate, standing deposit facility rate, marginal standing facility rate and bank rate.
For MSME delayed payment claims, the relevant benchmark under Section 16 is the bank rate notified by the RBI, not the repo rate merely because it receives greater public attention.
At the time of preparing this article, the RBI’s published rates list the bank rate at 5.50%. Three times this rate produces a statutory annual rate of 16.50%.
Businesses should verify the latest rate on the official RBI website before calculating or filing a claim.
The following table illustrates the calculation at different hypothetical bank rates.
| RBI bank rate | Statutory rate under Section 16 |
|---|---|
| 5.00% | 15.00% per annum |
| 5.25% | 15.75% per annum |
| 5.50% | 16.50% per annum |
| 5.75% | 17.25% per annum |
| 6.00% | 18.00% per annum |
| 6.50% | 19.50% per annum |
These examples illustrate the statutory formula. They do not represent a historical record of RBI rate changes.
If the RBI changes the bank rate during the period of default, the supplier should examine the relevant notifications and applicable calculation method before finalising the interest claim.
Section 16 establishes the statutory liability of a buyer who fails to pay an eligible micro or small enterprise within the period prescribed under Section 15.
The provision contains three important elements.
The buyer must pay interest at three times the bank rate notified by the RBI. The parties cannot ordinarily contract out of this statutory liability where the Act applies.
Section 16 expressly provides for compound interest with monthly rests. Consequently, the interest calculation differs from simple interest calculated only on the original principal.
Interest becomes payable from the appointed day or, where applicable, the day immediately following the agreed payment date, subject to Section 15 and the applicable statutory rules.
The correct starting date depends on the contract, the acceptance or deemed acceptance of the goods or services, and the statutory payment period.
Section 15 of the MSMED Act regulates the period within which a buyer must pay a micro or small enterprise.
The payment deadline depends on whether the parties have agreed on a written payment date.
Where the parties have a written agreement: The buyer must pay by the agreed date, but the agreed payment period cannot exceed 45 days from the date of acceptance or deemed acceptance of the goods or services.
Where there is no written agreement: The buyer must pay before the appointed day, as defined under the Act.
The appointed day generally falls immediately after the expiry of 15 days from acceptance or deemed acceptance.
For example, assume a buyer accepts goods on 1 April and the parties have agreed in writing to a 30-day payment period. The agreed payment period runs from the relevant acceptance date. If the buyer does not pay by the contractual deadline, statutory interest may become payable from the date prescribed under Sections 15 and 16.
The exact interest commencement date must be calculated from the relevant contractual and statutory dates rather than assumed solely from the invoice date.
An MSME supplier should calculate interest on the outstanding amount using the statutory rate and monthly compounding method.
The calculation generally requires the following information:
Assume the following facts:
| Particulars | Amount or date |
|---|---|
| Outstanding principal | ₹10,00,000 |
| Illustrative RBI bank rate | 5.50% per annum |
| Statutory annual interest rate | 16.50% |
| Illustrative delay | 12 months |
| Compounding frequency | Monthly |
For illustration, assume a constant nominal annual rate of 16.50%, with monthly compounding throughout the 12-month period.
The monthly rate is:
16.50% ÷ 12 = 1.375%
The compound interest formula is:
[
A=P\left(1+\frac{r}{12}\right)^{12}
]
Where:
Applying the formula:
[
A=₹10,00,000(1+0.165/12)^{12}
]
The illustrative result is approximately:
| Particulars | Amount |
|---|---|
| Principal | ₹10,00,000 |
| Amount after 12 monthly compounding periods | ₹11,77,900 |
| Illustrative interest | ₹1,77,900 |
This example is an approximation, not a final legal interest calculation. Actual claims must account for the statutory commencement date, the applicable RBI bank rate over the relevant period, the precise compounding method and any part-payments.
The MSMED Act expressly provides for compound interest with monthly rests.
This is an important distinction because simple interest does not account for monthly compounding.
Under simple interest, interest is calculated only on the original principal. Under monthly compounding, interest is periodically added to the outstanding balance for subsequent calculations, in accordance with the applicable method.
For example, a supplier claiming ₹10 lakh with a nominal annual rate of 16.50% cannot automatically calculate the entire claim as simple interest at 16.50% for each year. The statutory requirement for monthly rests must be considered.
A proper calculation should also avoid applying an incorrect rate to a period when the RBI bank rate differed.
Section 16 begins with a non obstante clause. It imposes statutory interest notwithstanding anything contained in an agreement between the buyer and supplier or any other law in force.
Accordingly, where the MSMED Act applies, a buyer generally cannot avoid the statutory interest obligation merely by relying on a contractual clause prescribing a lower rate.
Similarly, a contractual term allowing payment after more than 45 days cannot ordinarily override the maximum payment period under Section 15.
However, the supplier must still establish that the claim qualifies for protection under the Act and that the statutory requirements have been satisfied.
Sections 17 and 18 of the MSMED Act provide the statutory framework for recovering outstanding amounts and resolving disputes.
The supplier may issue a written demand identifying the invoices, principal outstanding, applicable interest and payment deadline.
The supplier should organise:
An eligible supplier may approach the appropriate Micro and Small Enterprises Facilitation Council under Section 18.
The MSME Samadhaan portal provides an online mechanism for submitting delayed-payment references. The supplier should verify the current filing procedure and any additional requirements of the relevant Council.
Official portal: MSME Samadhaan.
The Council first undertakes conciliation in accordance with the statutory framework. If conciliation fails, the dispute may proceed to arbitration as provided under Section 18.
Under Section 17, the buyer is liable to pay the amount due along with interest calculated under Section 16.
The supplier should therefore present a clear calculation of principal, interest and payments already received.
The statutory delayed-payment mechanism under Sections 15 to 18 applies to eligible micro and small enterprise suppliers, subject to the Act and relevant judicial decisions.
An enterprise should verify its registration status, the applicable registration requirements and the nature of its business activity before initiating proceedings.
In particular, enterprises engaged solely in trading should not assume that they qualify for every remedy under the MSMED Act. The eligibility of traders requires separate examination under the applicable government directions and judicial precedents.
The supplier should also check whether the registration and other statutory requirements were satisfied at the legally relevant time for the transaction.
A well-documented claim helps establish the principal amount, the date of default and the applicable statutory interest.
The supplier should maintain the following records:
The supplier should reconcile its books with the buyer’s account and account for any credit notes, disputed invoices or partial payments before filing the claim.
Businesses frequently make errors when calculating delayed-payment interest. The most common mistakes include:
Using the repo rate instead of the bank rate: Section 16 refers specifically to the bank rate notified by the RBI.
Applying simple interest: The statute prescribes compound interest with monthly rests.
Using the invoice date automatically: The statutory commencement date depends on Section 15, the acceptance date and the applicable payment agreement.
Ignoring changes in the bank rate: A claim spanning different rate periods requires careful examination of the applicable rates.
Overlooking part-payments: Payments received during the claim period can affect the outstanding principal and subsequent interest calculation.
Assuming every business qualifies: Registration status, business activity and statutory eligibility require verification.
Claiming interest without supporting records: An invoice-wise statement and a transparent calculation make the claim easier to verify.
Section 16 of the MSMED Act prescribes interest at three times the bank rate notified by the RBI. If the applicable bank rate is 5.50%, the statutory annual rate is 16.50%.
It is 16.50% per annum when the applicable RBI bank rate is 5.50%. The statutory rate changes with the applicable bank rate.
Yes. Section 16 expressly provides for compound interest with monthly rests.
Where the applicable payment period expires without payment, the supplier may claim statutory interest from the date determined under Sections 15 and 16. The 45-day limit is the maximum agreed payment period, not a universal rule that interest always begins on the 46th day.
Yes. Where the statutory requirements are satisfied, Section 16 provides the interest obligation independently of a contractual interest clause.
A buyer cannot ordinarily avoid the statutory obligation merely because the contract specifies a lower rate or does not mention interest. However, the buyer may raise legally sustainable objections concerning the applicability of the Act, the amount due, the calculation or the commencement date.
An eligible micro or small enterprise may submit a reference through the MSME Samadhaan mechanism and pursue the matter before the competent Micro and Small Enterprises Facilitation Council, following the applicable procedure.
The liability to interest may continue while the amount remains unpaid, subject to the governing statutory provisions, the terms of the award or decision and applicable law. The calculation should reflect payments and the relevant period.
The RBI interest rate for MSME delayed payment is governed by Section 16 of the MSMED Act, 2006. The provision requires buyers to pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India.
Where the applicable bank rate is 5.50%, the statutory annual rate is 16.50%. However, suppliers should verify the applicable RBI rates and calculate interest from the correct statutory date.
MSMEs should maintain complete transaction records, verify their eligibility and prepare an accurate interest statement before initiating recovery proceedings. Where the buyer refuses to pay, the supplier may consider the remedies available under Sections 17 and 18 of the MSMED Act.
NB Associates – Advocates & Legal Consultants
NB Associates assists businesses with MSME payment recovery, delayed-payment interest claims, MSME Samadhaan proceedings, Facilitation Council disputes, commercial arbitration and enforcement of arbitral awards.
Our team can assist with legal notices, invoice-wise interest calculations, preparation of MSME references, jurisdictional objections and recovery proceedings.
Office: New Delhi and Ghaziabad, Delhi NCR
Phone: 9811899279
Email: mail@nbassociates.net
Contact NB Associates for legal assistance concerning MSME delayed payment interest and recovery of outstanding commercial dues.
Territorial Jurisdiction of MSME Facilitation Council: A Complete Legal Guide
This Article is about territorial jurisdiction of the MSME Facilitation Council or MSME Facilitation Council Jurisdiction, Section 18(4) MSMED Act, Section 18(5) MSMED Act,
The territorial jurisdiction of the MSME Facilitation Council is an important legal issue in disputes involving delayed payments to micro and small enterprises. Buyers and suppliers often operate in different states, execute contracts in one location, and deliver goods or services in another. These circumstances can create confusion about which Micro and Small Enterprises Facilitation Council (MSEFC) has the authority to entertain a payment recovery claim.
Section 18(4) of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) provides the principal rule for determining jurisdiction. It empowers the MSME Facilitation Council, or an alternative dispute resolution center acting under the statutory framework, to conduct proceedings between a supplier located within its jurisdiction and a buyer located anywhere in India. The provision operates notwithstanding anything contained in any other law for the time being in force.
Read the Supreme Court judgment in M/s Harcharan Dass Gupta v. Union of India
Understanding this provision helps businesses determine the appropriate forum, assess jurisdictional objections, and avoid unnecessary litigation. It also helps buyers evaluate whether they can challenge proceedings initiated by an MSME supplier before a Council located in another state.
The MSME Facilitation Council is a statutory dispute resolution forum established under Section 20 of the MSMED Act. It addresses disputes concerning amounts due to micro and small enterprise suppliers and facilitates the recovery of outstanding payments under the Act.
A supplier that satisfies the applicable statutory requirements can approach the appropriate Council for recovery of eligible dues from a buyer. The Council follows the dispute resolution procedure prescribed under Section 18.
The process generally involves:
The territorial jurisdiction of the Council determines where the statutory proceedings may be initiated. However, territorial jurisdiction alone does not establish that every supplier qualifies for relief under the MSMED Act. The supplier must also satisfy the applicable registration and claim-related requirements.
About NB Associates – Advocates & Legal Consultants
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Our legal team assists suppliers and buyers with jurisdictional objections, preparation of claims and defences, MSME Samadhaan proceedings, arbitration strategy and related commercial litigation.
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Section 18(4) provides the statutory foundation for determining the territorial jurisdiction of the MSME Facilitation Council.
The provision states, in substance, that the Council or the center providing alternative dispute resolution services has jurisdiction to act as an arbitrator or conciliator in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India.
The provision establishes three important principles.
The Council must have territorial jurisdiction over the supplier. The location of the buyer does not, by itself, determine which MSME Facilitation Council can entertain the statutory reference.
An MSME supplier located in Delhi may initiate proceedings before the competent Delhi Council against a buyer situated in Mumbai, Bengaluru, Chennai, Kolkata, Hyderabad or another Indian city, subject to the statutory requirements.
Similarly, a supplier located in Gujarat may approach the competent Council in Gujarat against a buyer located in Delhi, if the claim otherwise falls within the Act.
Section 18(4) begins with a non obstante clause. Courts have relied on this statutory language to recognise the special jurisdictional framework created by the MSMED Act, including its relationship with contractual arbitration clauses.
In M/s Harcharan Dass Gupta v. Union of India, the Supreme Court reaffirmed the importance of the supplier’s location under Section 18(4) and held that a contractual choice of arbitration seat could not defeat the statutory framework in the circumstances before it. <Link url=”https://indiankanoon.org/doc/43551878/” title=”Read the judgment”/>.
The competent Council will ordinarily be the Council whose notified territorial jurisdiction covers the supplier’s relevant location. The supplier should identify the appropriate Council under the applicable state or Union Territory framework before filing a reference.
The following examples illustrate the general principle.
| Situation | General jurisdictional position |
| Supplier is located in Delhi; buyer is in Mumbai | The competent Delhi Council may entertain the reference. |
| Supplier is located in Gujarat; buyer is in Delhi | The competent Gujarat Council may entertain the reference. |
| Supplier is located in Uttar Pradesh; buyer is in Haryana | The competent Council covering the supplier’s location in Uttar Pradesh may entertain the reference. |
| Supplier is located in Maharashtra; contract specifies Delhi courts | The supplier’s competent Council may still have jurisdiction under Section 18(4), subject to the applicable law and facts. |
| Supplier has multiple offices in different states | The relevant establishment, registration details and applicable territorial notifications require examination. |
These examples explain the statutory principle, not the notified territorial limits of every individual Council. A supplier should verify the Council’s official jurisdiction, particularly where a state has established multiple regional or district-level Councils.
Does the buyer’s registered office determine jurisdiction?
Not ordinarily. Section 18(4) expressly contemplates a buyer located anywhere in India. Therefore, the buyer’s registered office, branch office or principal place of business does not automatically determine the territorial jurisdiction of the MSME Facilitation Council.
Does the place of delivery determine jurisdiction?
The place of delivery may be relevant to contractual disputes and ordinary civil or commercial jurisdiction. However, it does not ordinarily displace the specific rule under Section 18(4) for determining the competent MSME Facilitation Council.
Does the place of execution of the agreement determine jurisdiction?
The place where the parties signed their agreement is not, by itself, the decisive factor under Section 18(4). The statutory location of the supplier and the territorial limits of the competent Council remain central to the inquiry.
One of the most significant judgments on the territorial jurisdiction of the MSME Facilitation Council is M/s Harcharan Dass Gupta v. Union of India, decided by the Supreme Court in May 2025.
Read the official Supreme Court judgment (2025 INSC 689).
Facts of the case
The dispute involved a supplier registered under the MSMED Act and ISRO, which was based in Bengaluru. The construction project concerned staff quarters in New Delhi. The parties’ contract provided for Bengaluru as the arbitration seat.
The supplier approached the Delhi MSME Facilitation Council. The Council initiated proceedings and referred the dispute to arbitration through the Delhi Arbitration Centre. The buyer challenged the jurisdiction of the Delhi Arbitration Centre because the contract designated Bengaluru as the arbitration seat.
Supreme Court’s decision
The Supreme Court set aside the Karnataka High Court’s decision and restored the arbitral proceedings under the Delhi Arbitration Centre.
The Court reaffirmed that the statutory framework under the MSMED Act overrides an inconsistent contractual arrangement in a dispute covered by the Act. It also recognised the jurisdiction of the Facilitation Council where the supplier was located.
Legal principles established
The judgment clarifies several important issues:
This judgment is particularly relevant where the buyer and supplier operate in different states or the contract specifies an arbitration seat outside the supplier’s state.
Commercial contracts frequently contain clauses specifying exclusive jurisdiction of courts in a particular city. They may also provide for arbitration at a designated seat.
For example, a contract between a supplier in Delhi and a buyer in Gujarat may state that all disputes will be subject to the exclusive jurisdiction of courts in Ahmedabad.
The question is whether this clause prevents the supplier from approaching the MSME Facilitation Council in Delhi.
The answer generally depends on the applicability of the MSMED Act and the statutory requirements for invoking its dispute resolution mechanism. Where the dispute falls within the Act, the parties cannot ordinarily use a private agreement to defeat the statutory remedy.
In Harcharan Dass Gupta v. Union of India, the Supreme Court confirmed that the contractual choice of arbitration seat did not displace the statutory framework in the circumstances before it.
However, parties should distinguish between three separate questions:
These questions are related but not identical. A proper legal assessment should consider the statutory framework, the facts of the dispute and the relevant judicial precedents.
Businesses sometimes maintain a registered office, corporate office, manufacturing unit, branch office or warehouse in different states. This arrangement can create uncertainty about the competent MSME Facilitation Council.
The correct approach is to examine the supplier’s relevant registered address and the applicable statutory provisions.
The following factors may require consideration:
A supplier should not assume that it can select any Council merely because it has a branch or commercial connection with that location. The applicable registration details and statutory jurisdiction must support the choice of forum.
Equally, a buyer should not assume that the Council lacks jurisdiction merely because the supplier executed the contract, delivered the goods or performed the services in another state.
The territorial jurisdiction of an MSME Facilitation Council must be distinguished from the juridical seat of arbitration and the territorial jurisdiction of a court.
The Council may conduct conciliation and then take up arbitration itself or refer the matter to an appropriate institution or center under the statutory framework.
In Harcharan Dass Gupta, the Supreme Court upheld the continuation of arbitration through the Delhi Arbitration Centre, notwithstanding the contractual provision identifying Bengaluru as the arbitration seat.
This decision reinforces the importance of the statutory framework when determining the forum for MSME arbitration.
Nevertheless, the jurisdiction of a court hearing a challenge to an award requires a separate analysis. The court must consider the applicable arbitration law, the relevant seat-related principles, the location of the statutory proceedings and binding judicial precedents.
A party should therefore avoid assuming that the court having jurisdiction over the buyer’s registered office will necessarily have jurisdiction over a challenge to the award.
A buyer receiving a notice from an MSME Facilitation Council in another state should examine the jurisdictional issue promptly.
The buyer may consider the following steps:
Step 1: Examine the MSME registration. Verify the supplier’s registration status, official address and relevant registration details.
Step 2: Verify the Council’s territorial limits. Check the state notification or other applicable instrument establishing the Council and defining its jurisdiction.
Step 3: Examine the contract. Review the arbitration clause, jurisdiction clause, place of performance, delivery terms and dispute resolution provisions.
Step 4: Review the statutory eligibility of the claim. Determine whether the supplier and the disputed transactions fall within the MSMED Act.
Step 5: Raise appropriate objections. If the buyer has a sustainable jurisdictional objection, it should raise the issue before the Council or arbitral tribunal at the appropriate stage and preserve the objection in the proceedings.
A mere difference between the supplier’s location and the buyer’s location will not ordinarily establish that the Council lacks territorial jurisdiction. Section 18 expressly contemplates disputes involving buyers located anywhere in India.
The buyer should also assess whether any challenge requires proceedings before a competent court and whether the applicable law imposes procedural requirements or limitations.
Legal articles and judgments frequently refer to Section 18(4) of the MSMED Act because that was the provision governing territorial jurisdiction in the earlier statutory framework, including the Supreme Court’s 2025 decision in Harcharan Dass Gupta.
However, the statutory text available in updated legal sources reflects amendments to the dispute resolution mechanism, including changes relating to mediation. In that amended text, the jurisdiction provision appears as Section 18(5) and refers to the supplier’s official address as recorded in the registration under Section 8. Consult the updated statutory text of Section 18.
Accordingly, practitioners should verify the applicable statutory version and commencement provisions when advising on a current dispute. Older judgments may use the earlier subsection numbering, even though their interpretation remains relevant to the underlying jurisdictional principle.
For present-day filings, the supplier’s official registered address deserves particular attention. The applicable statutory text and the notification establishing the relevant Council should be checked before filing.
Before filing an MSME payment recovery claim, a supplier should review the following documents and facts.
A buyer defending an MSME reference should independently verify these issues and assess any available objections concerning registration, the nature of the claim, territorial jurisdiction and the merits of the dispute.
Q1. Which MSME Facilitation Council has territorial jurisdiction?
Ordinarily, the competent Council is the one whose notified territorial jurisdiction covers the supplier’s relevant official location under the applicable version of the MSMED Act. The buyer may be located anywhere in India.
Q2. Can an MSME supplier file a case against a buyer in another state?
Yes. The statutory framework permits a qualifying supplier to invoke the jurisdiction of its competent Facilitation Council against a buyer located in another Indian state, subject to the applicable statutory conditions.
Q3. Can a buyer challenge the jurisdiction of an MSME Facilitation Council?
Yes. A buyer may raise a legally sustainable jurisdictional objection. However, the fact that the buyer is located outside the supplier’s state does not, by itself, invalidate the proceedings.
Q4. Does an arbitration clause prevent an MSME supplier from approaching the Council?
Not ordinarily, where the dispute qualifies for relief under the MSMED Act. The Supreme Court in Harcharan Dass Gupta v. Union of India reaffirmed that an inconsistent contractual arbitration arrangement cannot automatically defeat the statutory mechanism.
Q5. Does the place of delivery determine the Council’s jurisdiction?
Not ordinarily. The place of delivery may be relevant to other jurisdictional questions, but the statutory rule governing the competent MSME Facilitation Council focuses on the supplier’s relevant location.
Q6. Can a buyer seek transfer of MSME proceedings to its own state?
A buyer cannot ordinarily demand transfer merely because it operates in another state or considers the supplier’s state inconvenient. Any challenge must rest on a legally sustainable ground and follow the applicable procedure.
Q7. What is the difference between territorial jurisdiction and the seat of arbitration?
Territorial jurisdiction identifies the competent statutory forum or court. The seat of arbitration identifies the arbitration’s juridical location and may determine the supervisory court. The MSMED Act creates a special statutory framework that must be considered alongside the general arbitration law.
No. The supplier must identify the competent Council under the applicable statutory provisions, registration details and territorial notifications. A commercial presence in a state does not automatically establish jurisdiction.
The territorial jurisdiction of the MSME Facilitation Council plays a decisive role in payment recovery disputes involving micro and small enterprises. The governing principle under Section 18 of the MSMED Act is that the competent statutory forum is linked to the supplier’s relevant location, while the buyer may be located anywhere in India.
The Supreme Court’s decision in Harcharan Dass Gupta v. Union of India reinforces the statutory framework and clarifies that a contractual arbitration seat cannot automatically override the applicable MSMED Act mechanism.
Businesses should nevertheless verify the current statutory text, the supplier’s official registered address, the relevant Council notification and the applicable judicial precedents before commencing or defending proceedings.
About NB Associates – Advocates & Legal Consultants
NB Associates advises businesses on MSME disputes, MSME Facilitation Council proceedings, commercial arbitration, delayed payment claims, debt recovery and enforcement of arbitral awards.
Our legal team assists suppliers and buyers with jurisdictional objections, preparation of claims and defences, MSME Samadhaan proceedings, arbitration strategy and related commercial litigation.
Phone: 9811899279
Email: mail@nbassociates.net
Client may contact NB Associates for legal assistance concerning the territorial jurisdiction of the MSME Facilitation Council and MSME payment recovery disputes.
Bombay High Court on MSME Procurement Policy: Benefits Not Applicable to Composite Works Contracts
Case Name: Sterling and Wilson Private Limited and Another v. Union of India and Others
Court: High Court of Judicature at Bombay
Case Number: Writ Petition (L) No. 1261 of 2017 with Notice of Motion (L) No. 288 of 2017
Date of Judgment: 25 July 2017
Bench: Hon’ble Mr. Justice Anoop V. Mohta and Hon’ble Ms. Justice Anuja Prabhudessai
Equivalent Citations: AIR 2017 Bombay 242; 2017 (5) ABR 454
Relevant Provisions: Sections 2(e), 2(f), 9 and 11 of the Micro, Small and Medium Enterprises Development Act, 2006; Public Procurement Policy for Micro and Small Enterprises Order, 2012
Judgment Source: Read the full judgment on Indian Kanoon
The Bombay High Court delivered an important judgment in Sterling and Wilson Private Limited v. Union of India and Others concerning the applicability of the Public Procurement Policy for Micro and Small Enterprises, 2012, to composite engineering, procurement and construction (EPC) contracts.
The dispute arose after Nuclear Power Corporation of India Limited (NPCIL) invited tenders for the design, engineering, manufacture, procurement, supply, installation and commissioning of fire-water spray systems for its nuclear power plants.
Sterling and Wilson Private Limited emerged as the lowest bidder (L1), quoting approximately ₹21.81 crore. Technico India Private Limited, a registered micro and small enterprise, emerged as the second-lowest bidder (L2), quoting approximately ₹23.19 crore. NPCIL subsequently allowed Technico India to match the L1 price under the MSME procurement preference policy and decided to award it the contract.
Sterling and Wilson challenged that decision before the Bombay High Court.
The Court held that the tender involved an indivisible composite works contract rather than a simple procurement of goods or services. It concluded that the MSMED Act and the applicable procurement policy did not provide the claimed purchase preference for that contract. The Court quashed NPCIL’s decision to award the tender to Technico India but did not cancel the entire tender process.
The dispute concerned the award of a public-sector tender under the Public Procurement Policy for Micro and Small Enterprises, 2012.
NPCIL invited bids for a fire-water spray system for two nuclear power projects. The tender covered design, engineering, manufacturing, procurement, supply, testing, erection, installation, commissioning and handing over of the completed system.
Sterling and Wilson was declared the lowest bidder. However, NPCIL subsequently permitted Technico India, a registered micro and small enterprise that had quoted a higher price, to match Sterling and Wilson’s price under the MSME purchase preference clause.
Sterling and Wilson challenged this decision, arguing that the tender involved a composite works contract and therefore did not qualify for the purchase preference under the applicable MSME procurement policy.
The judgment recorded the following bid values:
Sterling and Wilson had submitted the lowest financial bid and was not disqualified on technical or other eligibility grounds.
NPCIL nevertheless decided to permit Technico India to match the lower price because of its MSME registration and the purchase preference clause in the tender documents.
The legal question was whether that preference could lawfully apply to the nature of the contract in question.
The Public Procurement Policy for Micro and Small Enterprises Order, 2012, was notified under Section 11 of the MSMED Act, 2006.
The policy sought to promote the procurement of goods produced and services provided by micro and small enterprises through government ministries, departments and public-sector undertakings.
The policy prescribed procurement targets and price-preference mechanisms for eligible MSE bidders. Under Clause 6, an eligible MSE bidder quoting within the prescribed price band could be permitted to match the L1 price and supply a specified portion of the tendered value.
The dispute in this case concerned whether those benefits extended to a composite EPC contract involving both the supply of goods and extensive installation, engineering and commissioning obligations.
Section 11 empowers the Central Government or a State Government to notify procurement preference policies for goods and services produced or provided by micro and small enterprises.
The provision supports the promotion and development of MSEs through government procurement.
However, the Bombay High Court interpreted Section 11 in conjunction with the applicable procurement policy and the nature of the tender. It held that the preference in question was intended for eligible goods and services, not the composite works contract before it.
The judgment therefore emphasizes that an enterprise cannot establish eligibility for a procurement preference merely by showing that it holds MSME registration. The nature of the procurement and the applicable policy conditions also matter.
A composite works contract combines several interdependent obligations into one contractual arrangement.
These obligations may include designing a system, manufacturing equipment, procuring materials, supplying goods, transporting them to the project site, installing the equipment, carrying out testing, commissioning the system and handing over an operational facility.
In this case, the contractor had to deliver a functioning fire-water spray system for nuclear power facilities. The contract involved much more than the sale of equipment.
The Court examined the tender documents and concluded that the contract was an indivisible EPC package involving the supply and installation of a complete system.
The Court examined the tender’s technical requirements and contractual obligations.
The contractor had to undertake design and engineering, manufacture and procure equipment, supply materials, perform quality assurance and testing, carry out installation and erection, complete commissioning and ensure that the fire-water spray system became operational.
The contract also involved specialised engineering, seismic qualification, inspection, performance testing and integration of multiple components.
The Court concluded that these obligations formed a composite and indivisible works contract rather than a contract for the simple sale of goods or provision of services.
No. The judgment makes clear that MSME registration alone does not establish an unconditional entitlement to purchase preference.
The enterprise must satisfy the eligibility conditions under the applicable procurement policy, and the nature of the procurement must fall within the policy’s scope.
In this case, Technico India was registered as an MSE, but the Court held that the composite EPC contract did not qualify for the purchase preference relied upon by NPCIL.
The decision therefore distinguishes the status of an enterprise from its eligibility for a particular procurement benefit.
The Court held that NPCIL could not lawfully extend the purchase preference to Technico India for the particular composite works contract.
NPCIL had relied on the MSME procurement preference clause to allow Technico India to match Sterling and Wilson’s lower bid. However, the Court found that the policy did not cover the tender in question.
It therefore quashed the decision to award the contract to Technico India on that basis.
The judgment does not mean that L2 bidders can never receive purchase preference. Rather, the preference must be available under the applicable policy and the relevant procurement must qualify.
In the context of the Public Procurement Policy at issue, the Court held that the purchase preference applied to goods produced and services provided by MSEs, and not to the composite works contract before it.
The Court examined Section 11 of the MSMED Act, the 2012 policy and the nature of the tender. It concluded that the contract involved an integrated package of supply, installation, erection and commissioning.
The judgment should be read in its specific statutory and procurement-policy context. It should not be treated as a universal ruling that every contract involving both goods and services falls outside every MSME-related benefit under all laws.
The Bombay High Court relied on the principles discussed by the Supreme Court in Kone Elevator India Private Limited v. State of Tamil Nadu concerning the classification of composite works contracts.
Those principles recognize that a works contract may be indivisible and may combine the supply of goods with labour and services. The nature of the contract must be determined from its terms and the obligations undertaken by the parties.
The Bombay High Court applied these principles when examining the NPCIL tender and concluded that the integrated EPC package was a works contract rather than a simple sale of goods.
The Court held that participation in the tender did not prevent Sterling and Wilson from challenging a decision that allegedly violated the applicable law and procurement policy.
NPCIL and Technico India argued that Sterling and Wilson had participated in the tender and should not subsequently challenge the procurement arrangement.
The Court rejected that objection in the circumstances of the case. It observed that participation in a tender does not, by itself, prevent a party from challenging an unlawful or arbitrary decision by a public authority.
This principle does not remove the general restrictions applicable to tender challenges. A bidder must still establish a legally sustainable ground for judicial intervention.
The Court considered the principles laid down by the Supreme Court in decisions including Tata Cellular v. Union of India, Air India Ltd. v. Cochin International Airport Ltd. and Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corporation Ltd.
These authorities recognize that courts ordinarily exercise restraint in reviewing government procurement decisions. The tendering authority is generally best placed to understand the technical and commercial requirements of a project.
However, judicial review remains available where the decision-making process is arbitrary, discriminatory, mala fide, irrational or otherwise unlawful.
In this case, the Court found that NPCIL had extended a purchase preference to a contract that did not qualify under the applicable policy. It therefore intervened to quash the award decision.
No. The Court did not direct NPCIL to award the contract automatically to Sterling and Wilson merely because it was the L1 bidder.
The Court acknowledged that Sterling and Wilson had submitted the lowest bid. However, the tender conditions reserved NPCIL’s right to accept or reject bids in accordance with the terms of the tender.
The Court therefore left NPCIL free to take an appropriate decision regarding the award of the contract to an eligible and suitable bidder.
This distinction is important: being the lowest bidder does not necessarily create an indefeasible right to receive a government contract.
The Bombay High Court partly allowed the writ petition.
It quashed and set aside NPCIL’s decision to award the tender to Technico India on the basis of the MSME purchase preference.
However, the Court expressly clarified that it had not quashed the entire tender process. NPCIL remained free to take an appropriate decision concerning the award of the contract to any eligible bidder.
The Court made the rule absolute in those terms and passed no order as to costs.
The judgment highlights several important considerations for MSE bidders.
First, enterprises should verify whether the procurement policy applies to the particular goods or services being tendered.
Second, MSME registration alone may not be sufficient to obtain price preference. The enterprise must also satisfy the policy’s eligibility requirements.
Third, where a tender combines supply, engineering, installation and commissioning, the enterprise should examine whether the contract is classified as a composite works contract under the applicable procurement framework.
Finally, bidders should review the tender conditions and applicable procurement policy before relying on purchase preference provisions.
The judgment underscores the need for public-sector undertakings to apply procurement preferences consistently with the governing legislation and policy.
A public-sector undertaking should assess the nature of the contract, the eligibility of participating enterprises and the scope of the relevant purchase preference before permitting an L2 bidder to match the L1 price.
The decision also illustrates that government procurement decisions remain subject to judicial review where the authority applies a preference in a manner that conflicts with the governing policy.
The Bombay High Court’s judgment in Sterling and Wilson Private Limited v. Union of India and Others, dated 25 July 2017, clarifies the limits of purchase preference under the Public Procurement Policy for Micro and Small Enterprises, 2012, in the context of composite EPC contracts.
The Court held that the tender for the design, manufacture, supply, installation and commissioning of a fire-water spray system was a composite works contract. It concluded that the MSME procurement preference could not be used to award the contract to Technico India by allowing it to match Sterling and Wilson’s L1 price.
The Court quashed the disputed award decision but preserved the overall tender process, leaving NPCIL free to select an eligible bidder in accordance with the law and the tender conditions.
For enterprises participating in government procurement, the judgment reinforces the importance of examining the nature of the contract, the precise terms of the applicable policy and the legal basis for any claimed MSME purchase preference.
NB Associates provides legal assistance in MSME law, government procurement disputes, tender challenges, commercial contracts, arbitration and public-sector contract litigation.
For legal assistance concerning MSME purchase preference, eligibility under procurement policies or challenges to government tender decisions, contact our team.
Phone: 9811899279
Email: mail@nbassociates.net
Offices: New Delhi and Ghaziabad, Delhi-NCR
Disclaimer: This article is for general informational and educational purposes only and does not constitute legal advice. It summarises the Bombay High Court judgment dated 25 July 2017. The full judgment, applicable procurement policy and subsequent legal developments should be reviewed before relying on the decision in legal proceedings.
Madras High Court on Section 19 of the MSMED Act: 75% Pre-Deposit Is Mandatory and Cannot Be Waived
Case Name: Ved Prakash (Authorised Representative of M/s Karmic Energy Private Limited) v. P. Ponram, Managing Partner, M/s Unicon Engineers
Court: High Court of Judicature at Madras
Case Number: O.S.A. No. 96 of 2017 and C.M.P. Nos. 6698 and 8485 of 2017
Date of Judgment: 25 October 2017
Bench: Hon’ble Mr. Justice M.M. Sundresh and Hon’ble Mr. Justice M. Sundar
Relevant Provisions: Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006; Sections 34 and 37 of the Arbitration and Conciliation Act, 1996
Judgment Source: Read the full judgment on Indian Kanoon
The Madras High Court delivered an important judgment in Ved Prakash v. P. Ponram concerning the mandatory pre-deposit requirement under Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).
The dispute arose after the Micro and Small Enterprises Facilitation Council, Coimbatore Region, passed an award dated 5 August 2016. M/s Karmic Energy Private Limited challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, and sought a waiver of the statutory requirement to deposit 75% of the awarded amount.
The Single Judge declined to waive the deposit but permitted payment in three equal instalments. The appellant challenged that order before the Division Bench.
The Madras High Court held that Section 19 creates a mandatory condition precedent for entertaining a challenge to an award covered by the provision. The Court refused to waive or reduce the statutory deposit and extended the time for payment through three equal fortnightly instalments.
The judgment is relevant to buyers and other non-supplier parties challenging awards passed by the Facilitation Council under the MSMED Act.
The dispute concerned the statutory requirement to deposit 75% of an arbitral award before a court can entertain an application challenging an award passed by the Micro and Small Enterprises Facilitation Council.
The Facilitation Council, Coimbatore Region, passed an award dated 5 August 2016 in favour of M/s Unicon Engineers. M/s Karmic Energy Private Limited subsequently challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.
Along with its challenge, the appellant sought a waiver of the 75% pre-deposit required under Section 19 of the MSMED Act.
The Single Judge refused to waive the requirement and instead permitted the appellant to deposit the amount in three equal fortnightly instalments. The appellant then approached the Division Bench seeking relief against that order.2. What is Section 19 of the MSMED Act?
Section 19 of the MSMED Act governs applications seeking to set aside decrees, awards or other orders made by the Facilitation Council or by an institution or centre providing alternative dispute-resolution services to which the Council has referred the dispute.
It provides that a court cannot entertain such an application unless the appellant, where it is not the supplier, deposits 75% of the amount awarded or ordered in the manner directed by the court.
The provision also allows the court to direct payment of an appropriate portion of the deposited amount to the supplier during the pendency of the challenge, subject to conditions considered necessary.
The statutory deposit requirement is designed to protect eligible micro and small enterprise suppliers from the difficulties associated with prolonged challenges to awards.
Yes. The Madras High Court held that the 75% pre-deposit requirement under Section 19 is mandatory.
The Court observed that the provision uses negative language prohibiting a court from entertaining an application to set aside a covered award unless the required deposit has been made.
It treated the requirement as a condition precedent and a threshold barrier that an appellant must satisfy before proceeding with its challenge to the award.
The Court consequently refused to waive the deposit or interfere with the Single Judge’s order requiring compliance with Section 19.
The Madras High Court refused to grant a waiver in this case.
It held that the statutory requirement was mandatory and could not be treated as a discretionary condition that the court could simply dispense with.
The appellant had to comply with Section 19 before its challenge to the Facilitation Council’s award could proceed.
The judgment therefore supports the proposition that a non-supplier cannot claim an unrestricted right to seek waiver of the statutory pre-deposit.
The Court held that the 75% requirement under Section 19 was non-negotiable and declined to interfere with the Single Judge’s order.
It did not permit the appellant to deposit a smaller percentage of the awarded amount. Instead, it granted limited procedural relief by extending the time for payment through instalments.
The distinction is important: the Court allowed flexibility in the schedule for depositing the amount, but did not reduce the statutory percentage.
The Facilitation Council passed an award dated 5 August 2016 in favour of M/s Unicon Engineers.
The judgment primarily concerned the appellant’s request for waiver of the 75% pre-deposit rather than the merits of the underlying award. The Division Bench did not undertake a final determination of the substantive grounds raised against the award.
Accordingly, the principal legal issue decided was whether the appellant could avoid the statutory pre-deposit requirement.
The appellant contended that the Facilitation Council lacked jurisdiction to pass the award because the parties’ contract contained an arbitration clause.
The clause provided for reference of disputes to an arbitrator nominated by the purchaser, with New Delhi specified as the place of arbitration.
The appellant argued that the contractual arbitration arrangement affected the validity of the Facilitation Council’s award.
However, the Division Bench confined its consideration to the pre-deposit requirement and the maintainability of the intra-court appeal. It did not finally adjudicate the merits of the jurisdictional objection to the award.
The judgment should not be read as establishing that a contractual arbitration clause automatically excludes the jurisdiction of the Facilitation Council.
The appellant relied on its contractual arbitration clause to question the Council’s authority. The Division Bench, however, did not finally decide that substantive issue in this appeal.
The case principally concerned Section 19 and the mandatory pre-deposit required before a covered challenge to an award could be entertained.
The applicability of Section 18 of the MSMED Act in a dispute containing a contractual arbitration clause must be assessed in light of the statutory framework and the relevant judicial precedents.
The Court expressly characterized the requirement under Section 19 as a condition precedent and a threshold barrier.
It explained that the appellant had to satisfy this requirement before advancing its challenge to the Facilitation Council’s award.
The provision therefore does not merely regulate the eventual payment of money after the challenge is decided. It determines whether the court can entertain the challenge in the first place.
This interpretation emphasizes the importance of addressing the pre-deposit requirement at the beginning of proceedings challenging an award covered by Section 19.
Yes. The Court permitted the appellant to deposit 75% of the awarded amount in three equal fortnightly instalments.
The first instalment was to be deposited within a fortnight from receipt of a copy of the judgment dated 25 October 2017.
The Court otherwise confirmed the Single Judge’s order.
This relief concerned the timing of payment and did not amount to a waiver or reduction of the statutory deposit.
No. The judgment distinguishes between the mandatory percentage and the procedural schedule for making the deposit.
The Court maintained the requirement to deposit 75% of the awarded amount but permitted the appellant to comply through three equal fortnightly instalments.
It expressly stated that the statutory requirement was non-negotiable and declined to interfere with the deposit order.
Therefore, the decision should not be cited as authority for a general power to waive or reduce the statutory percentage.
Section 34 of the Arbitration and Conciliation Act, 1996, provides the procedure for challenging an arbitral award before a competent court.
However, where the award falls within Section 19 of the MSMED Act, the appellant must satisfy the statutory pre-deposit requirement before the court can entertain the challenge.
The Madras High Court recognized that Section 19 imposes an additional statutory condition on a non-supplier challenging an award passed through the MSMED Act’s dispute-resolution mechanism.
Thus, a party cannot rely solely on the general availability of a Section 34 challenge to bypass the special requirement imposed by Section 19.
The appellant initially invoked Clause 15 of the Letters Patent to challenge the Single Judge’s order.
The Division Bench indicated that such an intra-court appeal was impermissible in light of the Supreme Court’s decision in Fuerst Day Lawson Limited v. Jindal Exports Limited.
The appellant then requested the Court to treat the appeal as one under Section 37 of the Arbitration and Conciliation Act.
Considering the peculiar facts, the proposed course of action and the consent of both parties, the Court proceeded on that basis. It expressly cautioned that this approach should not be quoted as a precedent.
This procedural aspect should be read narrowly and should not be treated as a general declaration that every order concerning a Section 19 deposit is appealable under Section 37.
No. The Division Bench expressly declined to examine the merits of the challenge to the award dated 5 August 2016.
It confined its consideration to the Section 19 deposit requirement and the procedural question concerning the appeal.
The Court did not finally determine whether the award should be set aside under Section 34 of the Arbitration and Conciliation Act.
The substantive challenge therefore remained distinct from the issue decided in this judgment.
The Madras High Court refused to interfere with the Single Judge’s order requiring the appellant to deposit 75% of the awarded amount.
It extended or modified the payment schedule by directing that the amount be deposited in three equal fortnightly instalments, with the first instalment payable within a fortnight from receipt of a copy of the judgment.
The Court also directed that the interim order dated 10 August 2017 would continue for eight weeks from receipt of a copy of the judgment.
The appeal was disposed of without an order as to costs.
The Madras High Court’s judgment in Ved Prakash v. P. Ponram, dated 25 October 2017, reinforces the mandatory character of the 75% pre-deposit requirement under Section 19 of the MSMED Act.
The Court held that the statutory deposit is a condition precedent to entertaining a challenge to an award covered by the provision. It refused to waive or reduce the required percentage but allowed the appellant to make the deposit in three equal fortnightly instalments.
The judgment is relevant to buyers and other non-supplier parties challenging awards passed by the Facilitation Council. It emphasizes that parties must address the statutory deposit requirement before proceeding with a challenge under Section 34 of the Arbitration and Conciliation Act.
The decision should be cited for its specific findings on Section 19 and not as a final determination of the merits of the underlying award or the effect of the contractual arbitration clause.
NB Associates provides legal assistance in MSME disputes, MSME Facilitation Council proceedings, challenges to MSME awards, Section 19 pre-deposit applications, arbitration and award execution.
For assistance concerning challenges to Facilitation Council awards or compliance with the statutory pre-deposit requirement, contact our team.
Phone: 9811899279
Email: mail@nbassociates.net
Offices: New Delhi and Ghaziabad, Delhi-NCR
Disclaimer: This article is for general informational and educational purposes only and does not constitute legal advice. It summarizes the Madras High Court judgment dated 25 October 2017. The full judgment, subsequent judicial developments and the applicable statutory framework should be reviewed before relying on the decision in legal proceedings.
Gujarat High Court on Section 19 of the MSMED Act: Is 75% Pre-Deposit Mandatory for Every Arbitral Award?
Case Name: Gujarat Energy Transmission Corporation Ltd. (GETCO) v. Deora Wires N Machines Pvt. Ltd.
Court: High Court of Gujarat at Ahmedabad
Case Number: Appeal from Order No. 98 of 2017 with Civil Application No. 4374 of 2017
Date of Judgment: 10 April 2017
Bench: Hon’ble Mr. Justice M.R. Shah and Hon’ble Mr. Justice B.N. Karia
Equivalent Citation: AIR 2017 Gujarat 85
Relevant Provisions: Sections 18 and 19 of the Micro, Small and Medium Enterprises Development Act, 2006; Sections 11 and 34 of the Arbitration and Conciliation Act, 1996
Judgment Link: https://indiankanoon.org/doc/3401017/
The Gujarat High Court delivered an important judgment in Gujarat Energy Transmission Corporation Ltd. v. Deora Wires N Machines Pvt. Ltd. concerning the applicability of the mandatory 75% pre-deposit requirement under Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).
The dispute arose after an arbitral tribunal passed an award in favour of Deora Wires N Machines Pvt. Ltd. The arbitration had commenced following the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. GETCO subsequently challenged the award under Section 34 of that Act.
The Commercial Court directed GETCO to deposit 75% of the awarded amount by relying on Section 19 of the MSMED Act. GETCO challenged that direction before the Gujarat High Court.
The Division Bench held that Section 19 did not apply because the award had been made through arbitration proceedings under the Arbitration and Conciliation Act, 1996, rather than by the Facilitation Council or an arbitral institution to which the Council had referred the dispute under Section 18 of the MSMED Act.
The Court set aside the deposit direction but clarified that its order did not grant a stay of execution of the arbitral award or affect the supplier’s other rights under the Arbitration and Conciliation Act.
The dispute arose from a commercial contract between Gujarat Energy Transmission Corporation Ltd. (GETCO) and Deora Wires N Machines Pvt. Ltd.
After the parties failed to resolve their dispute, Deora Wires invoked the contractual arbitration clause and approached the Gujarat High Court under Section 11 of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator.
The arbitral tribunal subsequently passed an award dated 25 June 2016 in favour of Deora Wires for ₹1,38,64,606.89.
GETCO challenged the award before the Commercial Court, Vadodara, under Section 34 of the Arbitration and Conciliation Act, 1996. During those proceedings, Deora Wires sought a direction requiring GETCO to deposit 75% of the awarded amount under Section 19 of the MSMED Act.
The resulting dispute concerned whether the statutory pre-deposit requirement applied to an award made under the ordinary arbitration framework.
Section 19 of the MSMED Act prescribes a pre-deposit requirement for a non-supplier seeking to set aside a decree, award or other order covered by the provision.
The section requires the applicant to deposit 75% of the amount awarded before the court can entertain the application. It also empowers the court to direct payment of an appropriate portion of the deposited amount to the supplier during the proceedings, subject to suitable conditions.
The provision seeks to protect eligible micro and small enterprise suppliers against prolonged non-payment while buyers challenge awards passed through the statutory MSME dispute-resolution mechanism.
The principal question in the GETCO judgment was whether this requirement also applied when the award arose from arbitration conducted independently under the Arbitration and Conciliation Act, 1996.
GETCO argued that the arbitral award had been made under the Arbitration and Conciliation Act, 1996, rather than under Section 18 of the MSMED Act.
The supplier had invoked Section 11 of the Arbitration and Conciliation Act to obtain the appointment of an arbitrator. The tribunal then conducted the arbitration and delivered its award under that Act.
GETCO therefore contended that the Commercial Court could not impose the 75% deposit requirement under Section 19 when the award did not originate from the Facilitation Council’s statutory reference mechanism.
Deora Wires argued that the purpose of the MSMED Act was to protect micro and small enterprises against delayed payments.
The supplier submitted that Section 19 should receive an interpretation that advanced this protective objective. It contended that the statutory deposit requirement should apply when a buyer challenged an award even if the award had been delivered under the Arbitration and Conciliation Act.
The supplier also relied on the wording of Section 19 and the legislative objective of ensuring prompt payment to small enterprises.
The Gujarat High Court rejected this interpretation in the circumstances of the case.
No. The Court held that Section 19 did not apply to the particular award challenged by GETCO.
The decisive consideration was the source of the award. The parties had pursued arbitration under the Arbitration and Conciliation Act, 1996, after the supplier obtained the appointment of an arbitrator under Section 11.
The award had not been made by the Facilitation Council or by an institution or centre providing alternative dispute-resolution services to which the Council had referred the dispute under Section 18 of the MSMED Act.
The Court therefore held that the Commercial Court had erred in applying Section 19.
The GETCO judgment held that Section 19 did not apply to the award before it because the arbitration had proceeded independently under the Arbitration and Conciliation Act, 1996.
The Court emphasized that the award did not arise from a reference made by the Facilitation Council under Section 18 of the MSMED Act.
However, the judgment should not be interpreted as an unconditional rule governing every arbitration in which an arbitrator is appointed under Section 11. The applicability of Section 19 depends on the statutory basis of the award and the relevant proceedings.
The facts and the legal framework governing the particular award must be examined before relying on this decision.
Section 18 of the MSMED Act establishes a special dispute-resolution mechanism for qualifying disputes involving micro and small enterprise suppliers.
Under this mechanism, the Facilitation Council first undertakes conciliation or refers the matter to an appropriate institution or centre. If conciliation fails, the Council proceeds with arbitration itself or refers the dispute for arbitration in accordance with the statutory framework.
Ordinary contractual arbitration, by contrast, proceeds under the Arbitration and Conciliation Act, 1996, based on the parties’ arbitration agreement and the applicable provisions of that Act.
The GETCO judgment distinguished these two routes. Since the award before it arose from ordinary arbitration rather than a reference under Section 18, the Court held that the special deposit requirement under Section 19 did not apply.
The Court examined the text of Section 19 and found that it expressly covered decrees, awards and orders made by the Facilitation Council or by an institution or centre providing alternative dispute-resolution services to which the Council had referred the dispute.
The Court treated this wording as decisive. It declined to extend the pre-deposit requirement to an award made independently under the Arbitration and Conciliation Act, 1996.
The judgment illustrates the importance of interpreting a statutory provision in accordance with its language and the specific category of proceedings it covers.
Yes. The Gujarat High Court allowed GETCO’s appeal and quashed the Commercial Court’s order dated 14 March 2017 insofar as it directed GETCO to deposit 75% of the awarded amount by applying Section 19 of the MSMED Act.
The Court held that the Commercial Court had materially erred in applying Section 19 to the ordinary arbitral award.
The appeal succeeded to that extent, and the connected civil application was disposed of accordingly.
No. The Gujarat High Court expressly clarified that its order did not amount to a stay of execution of the arbitral award.
The Court confined its decision to the deposit direction made by the Commercial Court under Section 19 of the MSMED Act.
It also clarified that the order would not affect the supplier’s rights under the Arbitration and Conciliation Act, 1996.
Accordingly, the decision removed the particular pre-deposit direction without deciding that the award was unenforceable or that GETCO had succeeded in its substantive challenge to the award.
No. The judgment concerned the appeal against the Commercial Court’s order requiring a 75% deposit.
The High Court did not finally determine whether the arbitral award should be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Instead, it directed the Commercial Court to decide and dispose of the Section 34 application at the earliest and, in any event, within one year.
The substantive challenge to the arbitral award therefore remained separate from the issue decided in the appeal.
The Commercial Court had relied on an earlier decision in JMC Projects (India) Ltd. v. Mechtech Engineers when directing GETCO to deposit 75% of the award.
The Gujarat High Court noted that the earlier decision had subsequently been set aside by the Supreme Court.
It therefore did not accept that decision as a basis for sustaining the impugned deposit direction in GETCO’s case.
The judgment highlights the importance of checking the subsequent judicial history of a precedent before relying on it in litigation.
The judgment demonstrates that a buyer should identify the statutory basis of the award before determining the pre-deposit requirements applicable to a challenge.
Where the award arises from an ordinary contractual arbitration under the Arbitration and Conciliation Act, 1996, the GETCO decision supports the proposition that Section 19 does not automatically impose a 75% deposit merely because the supplier is a small-scale enterprise.
However, the buyer must examine the actual proceedings, the origin of the award and subsequent developments in the law before relying on this proposition.
The decision also illustrates that setting aside a deposit direction does not automatically stay enforcement of the award.
MSME suppliers should identify the legal route through which their disputes proceed and understand the procedural protections available under the MSMED Act.
Where the Facilitation Council refers a dispute for arbitration under Section 18, Section 19 may become relevant when a non-supplier challenges the resulting award.
However, a supplier should not assume that every award involving an MSME automatically attracts the 75% pre-deposit requirement. The statutory basis of the award and the applicable legal position must be examined.
Suppliers should also distinguish between a challenge to an award, a deposit order and a stay of execution because each raises a separate procedural question.
No. The judgment decided the applicability of Section 19 to the particular award before the Gujarat High Court.
Its reasoning focused on the fact that the arbitration had been conducted independently under the Arbitration and Conciliation Act, 1996, rather than through a reference by the Facilitation Council under Section 18 of the MSMED Act.
The judgment should therefore be cited for that specific proposition and read alongside subsequent judicial developments and the facts of the case in which it is relied upon.
The Gujarat High Court’s judgment in Gujarat Energy Transmission Corporation Ltd. v. Deora Wires N Machines Pvt. Ltd., dated 10 April 2017, addresses an important procedural question concerning the 75% pre-deposit requirement under Section 19 of the MSMED Act.
The Court held that the provision did not apply to the arbitral award in that case because the arbitration had proceeded under the Arbitration and Conciliation Act, 1996, and not through a reference made by the Facilitation Council under Section 18 of the MSMED Act.
The Court accordingly set aside the Commercial Court’s deposit direction. It clarified, however, that its order did not stay execution of the award or prejudice the supplier’s rights under the Arbitration and Conciliation Act.
For buyers and MSME suppliers, the judgment underscores the importance of identifying the statutory basis of an arbitral award before determining the procedural requirements governing a challenge.
NB Associates provides legal assistance in MSME disputes, MSME Facilitation Council proceedings, arbitration, challenges to arbitral awards under Section 34, statutory pre-deposit disputes and award execution.
For assistance concerning Section 19 of the MSMED Act or challenges to arbitral awards, contact our team.
Phone: 9811899279
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Disclaimer: This article is for general informational and educational purposes only and does not constitute legal advice. It summarises the Gujarat High Court judgment dated 10 April 2017. The full judgment, subsequent judicial developments and the applicable statutory framework should be reviewed before relying on the decision in legal proceedings.
Case Name: M/s. Innprint and Others v. State of Odisha and Others
Court: High Court of Orissa at Cuttack
Case Numbers: W.P.(C) Nos. 11817 and 12427 of 2016
Date of Judgment: 13 January 2017
Bench: Full Bench comprising the Hon’ble Chief Justice Vineet Saran, Dr. Justice A.K. Rath and Dr. Justice B.R. Sarangi
Relevant Law: Micro, Small and Medium Enterprises Development Act, 2006; Section 11; Odisha Industrial Policy Resolutions; Odisha MSME Development Policy, 2009
Judgment Source: https://indiankanoon.org/doc/2838379/
The Orissa High Court’s Full Bench judgment in M/s. Innprint and Others v. State of Odisha and Others examines whether small-scale printing presses and bookbinding units could claim an exclusive right to undertake government printing and binding work under the MSMED Act, 2006, and the industrial policies of the State of Odisha.
The petitioners challenged a national tender issued by the State Government for printing and binding nationalised textbooks for the academic session 2017–18. They argued that the State had historically awarded this work to local small-scale industries and that the government’s procurement policies and the MSMED Act supported the continuation of that preference.
The Full Bench rejected these arguments. It held that the petitioners were not covered by the applicable rate-contract or exclusive-purchase lists and could not claim a legally enforceable right to exclusive government work merely because the State had awarded them such work in previous years.
The judgment clarifies the distinction between procurement preference and exclusive reservation. It also explains that a government’s earlier discretionary support does not necessarily create a permanent entitlement to preferential procurement.
The dispute concerned the State Government’s decision to invite a national tender for printing and binding nationalised textbooks for the academic session 2017–18.
The petitioners operated small bookbinding units and printing presses in Odisha. They challenged the tender notice dated 9 June 2016, arguing that the State should continue awarding the work to local small-scale industries rather than invite nationwide competition.
They relied on the Industrial Policy Resolutions issued by Odisha, the Odisha MSME Development Policy, 2009, and the MSMED Act, 2006.
The central question was whether these laws and policies entitled the petitioners to exclusive government printing and binding work.
The petitioners argued that the State Government had awarded textbook printing and binding work to local small-scale industries for nearly two decades.
They contended that this longstanding practice had provided marketing support, protected local enterprises from competition with larger businesses and supported the livelihoods of workers employed by those units.
They also argued that the State’s procurement policies and the objectives of the MSMED Act required the continuation of this support.
However, the State maintained that printing presses and bookbinding units were not included in the relevant rate-contract or exclusive-purchase lists and that the applicable policies permitted open tendering for such work.
The Court considered three principal questions:
The Court answered all three questions in favour of the State Government and against the petitioners.
No. The Court did not accept that the MSMED Act automatically grants every micro or small enterprise an exclusive right to government contracts.
Section 11 of the MSMED Act empowers the Central or State Government to notify procurement preference policies for goods and services produced or provided by micro and small enterprises.
The provision does not, by itself, reserve every government contract exclusively for such enterprises. The availability and extent of procurement preference depend on the applicable policy and its terms.
The Court therefore examined the relevant Odisha industrial policies and procurement lists rather than treating the petitioners’ small-scale industry status as sufficient to establish an exclusive entitlement.
Procurement preference means that eligible enterprises may receive an advantage in government purchasing under an applicable policy. Depending on the policy, this may include price preference or other specified benefits.
Exclusive reservation is different. It restricts particular procurement to designated suppliers or categories of enterprises.
The Court held that the petitioners could not convert a general policy objective of supporting small industries into a right to exclusive government procurement when the relevant policies did not include their businesses in the applicable rate-contract or exclusive-purchase lists.
This distinction is important for businesses seeking government contracts under MSME procurement policies.
No. The Court recorded that the petitioners’ units were not included in the relevant rate-contract or exclusive-purchase lists under the applicable policies.
The Odisha MSME Development Policy, 2009, permitted government departments and agencies to procure goods and services through open tender where the relevant items did not fall within the specified lists.
The Court therefore rejected the petitioners’ claim that their status as small-scale enterprises entitled them to the exclusive allocation of textbook printing and binding work.
No. The Court held that the petitioners could not claim a permanent entitlement merely because the State had awarded them government work for many years.
The Court found that the earlier procurement support had been provided through independent decisions of the State Government rather than under a policy that gave the petitioners a legally enforceable right to exclusive work.
It further observed that circumstances can change over time. A government may revise its procurement arrangements to address financial considerations, timely delivery requirements and the need for fair competition.
Accordingly, the historical practice did not prevent the State from inviting a national tender.
The petitioners relied on the longstanding practice of awarding textbook printing and binding work to local units.
However, the Court held that an earlier benefit does not automatically become a permanent entitlement where the applicable policy does not confer such a right.
The judgment emphasizes that past administrative practice cannot, by itself, compel the government to continue a procurement arrangement indefinitely, particularly when the relevant policies permit competitive tendering.
A claim based on legitimate expectation must therefore be assessed against the applicable policy, the nature of the earlier decisions and the legal rights actually created.
Yes. The Court held that the State Government had the power and discretion to invite a national tender in the circumstances of the case.
It considered the increased volume and cost of textbook printing and binding work, as well as the need to ensure timely distribution of textbooks to schools.
The Court concluded that the State could adopt an open tendering process in which local enterprises and other eligible businesses could compete.
It found no sufficient ground to interfere with the government’s procurement decision through judicial review.
No. The Court rejected the petitioners’ argument that printing presses and bookbinding units fell within the category of “paper and paper products” appearing in the relevant procurement lists.
It reasoned that printing and bookbinding constitute distinct business activities. The fact that these activities use paper does not automatically bring them within the category of paper and paper products.
The Court therefore declined to extend the exclusive-purchase benefits associated with that category to the petitioners’ businesses.
The Odisha MSME Development Policy, 2009, was an important part of the dispute because it addressed marketing support and government procurement involving micro and small enterprises.
The Court considered the policy’s provisions concerning the rate-contract list and exclusive-purchase list. It noted that goods and services outside those lists could be procured through open tender.
Since the petitioners’ printing and bookbinding units were not included in the relevant lists, the Court held that they could not claim exclusive procurement protection under the policy.
The Full Bench held that the earlier judgments did not have binding force on the legal questions before it because they had not properly decided those questions after considering the relevant legal objections.
The Court examined the reasoning in the earlier cases and concluded that the disputed legal issues had not been fully addressed.
It therefore declined to treat those decisions as binding authorities establishing an exclusive right to government printing and binding work.
The judgment illustrates the principle that a judicial decision is authoritative for the legal principle it actually decides, rather than for every observation appearing in the judgment.
The Court applied established principles governing judicial review of government procurement decisions.
It observed that courts generally do not substitute their own commercial assessment for that of the government. Interference may be justified where a tender process or decision is arbitrary, discriminatory, mala fide, irrational or otherwise unlawful.
In this case, the Court found that the petitioners had not established sufficient grounds for judicial intervention.
The decision reinforces the limited nature of judicial review in commercial tender matters.
Yes. The petitioners argued that withdrawing the longstanding procurement arrangement would adversely affect small entrepreneurs and workers employed in printing and bookbinding units.
The Court acknowledged the background of the dispute but held that sympathy and employment concerns could not substitute for a legally established entitlement to exclusive government contracts.
It also observed that the petitioners remained free to undertake private work and compete in the wider market.
The Court concluded that the government could not be compelled to maintain an exclusive procurement arrangement indefinitely when the applicable law and policies did not require it.
The Full Bench answered all three referred questions in favour of the State Government and against the petitioners.
It held that:
The Court consequently dismissed both writ petitions. It made no order as to costs.
The Orissa High Court’s Full Bench judgment in M/s. Innprint and Others v. State of Odisha and Others, dated 13 January 2017, clarifies the limits of procurement benefits available to small enterprises under the MSMED Act and the applicable state industrial policies.
The Court held that small-scale printing and bookbinding units could not claim an exclusive right to government textbook printing and binding work merely because the State had awarded them such work in previous years.
The judgment distinguishes procurement preference from exclusive reservation and confirms that the government may invite competitive tenders where the applicable policies do not provide an enforceable right to exclusive procurement.
For businesses participating in government tenders, the decision highlights the importance of examining the relevant procurement policy, eligibility conditions and notified purchase lists before asserting a legal entitlement to preferential treatment.
NB Associates provides legal assistance in MSME law, government procurement disputes, commercial contracts, tender challenges, arbitration, MSME Facilitation Council proceedings and commercial litigation.
For legal assistance concerning MSME procurement policies or disputes involving government tenders, Client may contact our team.
Phone: 9811899279
Email: mail@nbassociates.net
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Disclaimer: This article is for general informational and educational purposes only and does not constitute legal advice. It summarises the Orissa High Court judgment dated 13 January 2017. The full judgment, relevant procurement policy and subsequent legal developments should be reviewed before relying on the decision in legal proceedings.
Case Name: GE T&D India Limited v. Reliable Engineering Projects and Marketing
Court: High Court of Delhi at New Delhi
Case Number: O.M.P. (COMM) 76/2016
Date of Decision: 15 February 2017
Judge: Hon’ble Mr. Justice S. Muralidhar
Relevant Provisions: Sections 2(n), 8, 15, 16, 18, 19 and 24 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act)
Judgment: Read the full judgment on Indian Kanoon
The Delhi High Court delivered an important judgment in GE T&D India Limited v. Reliable Engineering Projects and Marketing concerning the applicability of the MSMED Act, 2006, to supplies made under a purchase order issued before the supplier obtained MSME registration.
The dispute also raised questions about the effect of a contractual arbitration clause and the mandatory deposit required under Section 19 of the MSMED Act when a buyer challenges an award passed in favour of a registered micro or small enterprise.
The Court rejected GE T&D India Limited’s contention that the MSMED Act did not apply merely because the original purchase order predated the supplier’s registration. It found that supplies had continued after registration and held that the supplier could avail itself of the Act’s beneficial provisions in relation to claims arising from the original purchase order.
The Court also held that the MSMED Act’s special dispute-resolution mechanism overrides a contractual arbitration clause in the circumstances considered. It directed the buyer to deposit 75% of the awarded amount in four equal instalments, holding that the Court had no discretion to reduce the statutory percentage.
The dispute arose from work undertaken by Reliable Engineering Projects and Marketing (REPM), a proprietorship concern, for Alstom T&D India Limited, subsequently known as GE T&D India Limited.
REPM undertook work connected with the installation and commissioning of a power transformer package for the Jhajjhar power project. The parties subsequently disputed amounts payable for the work, including excess digging work, outstanding contractual amounts and interest.
REPM approached the Facilitation Council under the MSMED Act and obtained awards in its favour. GE T&D challenged those awards before the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, 1996.
At the stage addressed by the judgment dated 15 February 2017, the principal issue was whether the MSMED Act applied to the transactions and whether GE T&D could obtain a waiver of the statutory pre-deposit required under Section 19.
The material dates were:
The Court attached significance to the fact that the supply relationship continued after REPM obtained registration.
The Delhi High Court answered this question in favour of the supplier in the circumstances of this case.
The Court observed that REPM obtained registration on 4 April 2012, while the original purchase order had been issued in September 2009. However, supplies continued even after registration, including under the subsequent purchase order and the continuing contractual arrangement.
The Court held that the supplier could avail itself of the beneficial provisions of the MSMED Act in relation to its claims arising from the original purchase order.
The judgment therefore demonstrates that the date of the original purchase order, by itself, does not necessarily exclude the application of the MSMED Act where the relevant supply relationship continues after registration.
No. The judgment should not be interpreted as holding that MSME registration automatically operates retrospectively for every transaction undertaken before registration.
The Court distinguished between a transaction completed before registration and a continuing supply relationship in which supplies continued after the supplier obtained registration.
In REPM’s case, the continuation of supplies after registration was material to the Court’s conclusion. The Court relied on the circumstances of the case rather than laying down an unrestricted rule of retrospective application.
Accordingly, suppliers and buyers should examine the registration date, the dates of actual supply, the continuity of the contractual relationship and the relevant documents before determining whether the MSMED Act applies.
Section 8 of the MSMED Act concerns the filing of a memorandum by micro, small and medium enterprises in accordance with the applicable statutory framework.
The Court examined Section 8 while considering the argument that REPM could not claim the Act’s benefits because it obtained registration after commencing its business activities.
The Court recognized that the Act did not intend to exclude an existing enterprise from obtaining registration merely because it had not registered earlier. It also examined whether the supplier qualified for the Act’s benefits in light of the continuing supplies after registration.
The decision highlights the need to distinguish the commencement of business operations from the date on which an enterprise obtains registration under the relevant statutory framework.
The Delhi High Court held that the dispute-resolution mechanism under Section 18 of the MSMED Act overrides a contractual arbitration clause in the circumstances considered in this case.
The Court treated the MSMED Act as special legislation providing a dedicated mechanism for resolving disputes involving qualifying suppliers.
It held that the statutory dispute-resolution mechanism could not be displaced merely because the parties had agreed to arbitrate their disputes under the contract.
This aspect of the judgment is particularly relevant to commercial contracts containing arbitration clauses where one party subsequently invokes the MSMED Act.
The Court held that the MSMED Act, to the extent that it provides a special forum for adjudicating disputes involving a qualifying supplier, overrides the Arbitration and Conciliation Act, 1996.
The Court considered the statutory scheme under Section 18, which requires the Facilitation Council to undertake conciliation and, if conciliation fails, proceed with arbitration or refer the dispute to an appropriate institution.
Section 24 of the MSMED Act reinforces the overriding effect of the specified provisions of the Act over inconsistent provisions of other laws.
The judgment therefore recognizes the special statutory character of the MSMED Act in disputes falling within its scope. The precise application of this principle must still be assessed against the facts and the relevant statutory requirements.
Section 18 establishes a two-stage dispute-resolution process.
First, the Facilitation Council must undertake conciliation itself or refer the matter to an appropriate institution or centre providing alternative dispute-resolution services.
If conciliation fails and the proceedings terminate without settlement, the Council must either take up the dispute for arbitration itself or refer it to an appropriate institution or centre for arbitration.
The Court examined this statutory mechanism while considering whether the MSMED Act’s procedure could be displaced by the arbitration clause contained in the parties’ contractual documents.
Section 24 provides that Sections 15 to 23 of the MSMED Act have overriding effect notwithstanding anything inconsistent contained in any other law for the time being in force.
The Delhi High Court considered the special statutory framework created by the MSMED Act and held that its dispute-resolution mechanism prevailed over the contractual arbitration arrangement in the circumstances of the case.
For businesses dealing with registered micro and small enterprises, this means that a contractual dispute-resolution clause should not be assumed to exclude the statutory remedy available under Section 18.
Section 19 governs applications to set aside decrees, awards or orders passed by the Facilitation Council or an institution or centre providing alternative dispute-resolution services to which the Council has referred the dispute.
Under this provision, a buyer or other appellant who is not the supplier must deposit 75% of the amount awarded before a court can entertain an application challenging the award.
The provision also allows the court to direct payment of an appropriate portion of the deposit to the supplier during the pendency of the challenge, subject to conditions the court considers necessary.
In this case, GE T&D sought a waiver of the 75% deposit. The Court rejected the argument that the MSMED Act did not apply and proceeded to consider the manner in which the statutory deposit was to be made.
The Delhi High Court held that the Court had no discretion to reduce the statutory percentage of the pre-deposit required under Section 19.
The Court relied on the Supreme Court’s decision in Goodyear India Ltd. v. Norton Intech Rubbers Pvt. Ltd. and held that the 75% requirement could not be waived or reduced.
However, the Court considered the amount involved and permitted the deposit to be made in four equal instalments.
The important distinction is that the Court allowed flexibility in the timing and manner of depositing the amount, but did not reduce the statutory percentage itself.
The judgment records multiple awards and claims arising from the dispute.
The Facilitation Council’s order dated 29 June 2015 awarded ₹26,29,375 for excess digging work. A subsequent award dated 22 November 2015 required payment of ₹2,24,23,454 towards interest.
The Court also recorded that, in terms of the orders dated 29 June 2015 and 13 August 2015, the amount required to be paid to REPM was ₹4,08,56,470.
For purposes of the Section 19 application, the Court directed GE T&D to deposit 75% of the amount awarded by the Facilitation Council in favour of REPM.
These figures relate to the procedural history of the dispute and should not be conflated with a final determination of every issue raised in the Section 34 challenge.
The Court directed GE T&D to deposit 75% of the amount awarded by the Facilitation Council in four equal instalments.
Each instalment was to be deposited before the 10th of every succeeding month, in accordance with the Court’s directions.
The amount deposited was to be kept by the Registry in a fixed deposit initially for six months and renewed during the pendency of the petition.
The Court also directed that the hearing of the main petition would be subject to compliance with the deposit directions.
The judgment dated 15 February 2017 did not finally decide the entire Section 34 challenge to the awards.
The Court expressly confined its consideration to the applicability of the MSMED Act and the associated application seeking waiver of the Section 19 deposit.
After holding that the MSMED Act applied and directing the 75% deposit in instalments, the Court disposed of the deposit application and listed the main petition for further hearing.
Accordingly, this judgment should be cited for its findings on the applicability of the MSMED Act and the mandatory pre-deposit requirement, rather than as a final adjudication upholding or setting aside the awards on every ground.
The judgment provides several important lessons for micro and small enterprise suppliers.
First, suppliers should maintain their registration records and supporting documents showing when their business activities commenced and when registration was obtained.
Second, suppliers should preserve purchase orders, invoices, delivery records, minutes of meetings, reconciliation statements and correspondence establishing that supplies continued after registration.
Third, where a buyer disputes the applicability of the MSMED Act because the original purchase order predates registration, the supplier should obtain legal advice on whether the facts support reliance on the principles discussed in this judgment.
Finally, suppliers should understand the importance of Section 19, which creates a mandatory pre-deposit requirement for non-supplier appellants challenging awards under the MSMED Act.
Buyers should verify their suppliers’ registration status and maintain accurate records of the dates of supply, contractual amendments and payments.
They should also carefully review contractual arbitration clauses in agreements with micro and small enterprises because those clauses may not exclude the statutory mechanism under Section 18.
If a buyer intends to challenge an award passed under the MSMED Act, it should assess the financial implications of the mandatory pre-deposit under Section 19 at an early stage.
The judgment also demonstrates the importance of preserving evidence relating to the continuation or completion of supplies before and after registration.
The Delhi High Court’s judgment in GE T&D India Limited v. Reliable Engineering Projects and Marketing, dated 15 February 2017, is an important authority on the applicability of the MSMED Act to continuing supplies and the mandatory pre-deposit required when a buyer challenges an award.
The Court held that the supplier could rely on the beneficial provisions of the MSMED Act where supplies continued after registration, notwithstanding that the original purchase order predated registration. It also held that the statutory dispute-resolution mechanism could override the contractual arbitration clause in the circumstances of the case.
Further, the Court rejected the request to waive the 75% pre-deposit and directed payment in four equal instalments. The judgment remains relevant to MSME suppliers and buyers dealing with disputes involving registration, arbitration clauses and challenges to Facilitation Council awards.
NB Associates provides legal assistance in MSME disputes, MSME Samadhaan proceedings, MSEFC references, statutory interest claims, arbitration, challenges to MSME awards and award execution.
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Disclaimer: This article is intended for general informational and educational purposes and does not constitute legal advice. It summarises the Delhi High Court judgment dated 15 February 2017, particularly its findings concerning the applicability of the MSMED Act and the Section 19 pre-deposit application. The full judgment and subsequent applicable legal developments should be reviewed before relying on the decision in legal proceedings.
Is Section 18 of the MSMED Act Mandatory or Optional?
Introduction
The Micro, Small and Medium Enterprises Development Act, 2006 was enacted to protect micro and small enterprises, particularly in matters relating to delayed payments and dispute resolution. Section 18 of the Act provides a mechanism through the Micro and Small Enterprises Facilitation Council (MSEFC) for resolving disputes between suppliers and buyers. However, in commercial contracts, parties often include arbitration clauses under the Arbitration and Conciliation Act, 1996.
A legal question frequently arises as to whether disputes involving MSME suppliers must necessarily be referred to the Facilitation Council under Section 18 or whether parties can resolve such disputes through contractual arbitration. This issue was addressed by the Delhi High Court in Shristi Infrastructure Development v. Scorpio Engineering Pvt. Ltd., where the Court examined whether arbitration proceedings would be invalid if the dispute was not referred to the MSME Facilitation Council.
Brief Facts
The dispute arose between Shristi Infrastructure Development and Scorpio Engineering Pvt. Ltd. in relation to payments under a commercial contract. The agreement between the parties contained an arbitration clause providing that disputes would be resolved through arbitration.
Scorpio Engineering initiated arbitration proceedings in accordance with the contractual arbitration clause. A sole arbitrator was appointed and an arbitral award was eventually passed in favour of Scorpio Engineering.
Aggrieved by the award, Shristi Infrastructure challenged it before the Delhi High Court. The petitioner argued that Scorpio Engineering was registered as an MSME and therefore any dispute relating to payment should have been referred to the MSME Facilitation Council under Section 18 of the MSMED Act. According to the petitioner, arbitration conducted outside this statutory mechanism was invalid and the arbitral tribunal lacked jurisdiction.
Court’s Observations
The Delhi High Court examined the language of Section 18 of the MSMED Act. The Court noted that the provision states that a party to a dispute “may” refer the matter to the Micro and Small Enterprises Facilitation Council.
The Court emphasized that the use of the word “may” indicates that the provision is directory and not mandatory. Therefore, the Act does not compel parties to approach the Facilitation Council in every dispute involving an MSME supplier.
The Court further observed that the mechanism under Section 18 becomes applicable only when a party chooses to invoke the jurisdiction of the Facilitation Council. If the parties have agreed to resolve disputes through arbitration under their contract and neither party approaches the Facilitation Council, the arbitral tribunal will have valid jurisdiction to decide the dispute.
Conclusion
The decision in Shristi Infrastructure Development v. Scorpio Engineering Pvt. Ltd. clarifies the relationship between arbitration law and the dispute resolution mechanism under the MSMED Act. The Delhi High Court held that reference to the Facilitation Council under Section 18 is optional and not mandatory. Therefore, arbitration proceedings conducted under a contractual arbitration clause remain valid even when the dispute involves an MSME supplier, provided the parties have not invoked the jurisdiction of the Facilitation Council. The judgment reinforces the principle of party autonomy in arbitration while ensuring that the statutory rights of MSMEs remain protected.
Jurisdictional Conflict: Section 11 of the Arbitration Act and Section 18 of the MSMED Act
Disputes involving Micro, Small, and Medium Enterprises (MSMEs) often raise questions about the appropriate dispute resolution mechanism. While commercial contracts commonly contain arbitration clauses governed by the Arbitration and Conciliation Act, 1996, MSME disputes are also governed by the special statutory framework under the Micro, Small, and Medium Enterprises Development Act, 2006. A jurisdictional conflict may arise when a party approaches the court under Section 11 of the Arbitration Act for the appointment of an arbitrator while the MSME supplier invokes Section 18 of the MSMED Act before the Micro andSmall Enterprises Facilitation Council.
This issue was examined by the Delhi High Court in Idemia Syscom India Private Limited v. M/S Conjoinix Total Solutions Private Limited, where the Court clarified whether the MSMED Act would still prevail even when a Section 11 petition had been filed earlier.
In this case, the petitioner approached the High Court under Section 11 of the Arbitration Act seeking the appointment of an arbitrator based on the arbitration clause contained in the agreement between the parties. However, the respondent, being a registered MSME, subsequently invoked the jurisdiction of the Micro and Small Enterprises Facilitation Council under Section 18 of the MSMED Act for recovery of its dues.
The main argument of the petitioner was that since the Section 11 petition had been filed first, the contractual arbitration process should continue, and the MSMED proceedings should not override it. The Delhi High Court rejected this contention.
Referring particularly to paragraph 12 of the judgment, the Court observed that the Arbitration Act is a general law governing arbitration, whereas the MSMED Act is a special legislation enacted to protect MSMEs and ensure timely payment for goods and services supplied by them. The Court emphasized that the MSMED Act contains non-obstante clauses, particularly under Section 18 and Section 24, which provide that the statutory mechanism under the Act will prevail over any inconsistent provisions in other laws.
The Court further noted that the legislative intent behind the MSMED Act is to provide MSMEs with a speedy and effective remedy for recovery of delayed payments. Allowing parties to rely on private arbitration clauses to bypass the statutory mechanism would defeat this objective. Importantly, the Court clarified that the timing of the Section 11 petition does not create any exception. Even if a party files a petition under Section 11 of the Arbitration Act before the MSME invokes Section 18, the statutory provisions of the MSMED Act will still prevail once the dispute is referred to the Facilitation Council.
The Court also relied on Supreme Court decisions such as Silpi Industries v. Kerala State Road Transport Corporation and Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., which affirm that the MSMED Act, being a special and beneficial legislation, overrides the general provisions of the Arbitration Act.
The judgment of the Delhi High Court clarifies the jurisdictional conflict between Section 11 of the Arbitration Act and Section 18 of the MSMED Act. The Court held that the MSMED Act has an overriding effect due to its special nature and the presence of non-obstante clauses within the statute.
Consequently, even if a Section 11 petition for appointment of an arbitrator is filed first, the provisions of the MSMED Act will prevail once the MSME invokes the statutory mechanism before the Facilitation Council.
This interpretation ensures that the protective purpose of the MSMED Act is preserved and that MSMEs are not deprived of the statutory remedies specifically designed for their benefit.
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