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Jurisdictional conflict – Section 11 Arbitration Act & Section 18 MSMED Act

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Jurisdictional Conflict: Section 11 of the Arbitration Act and Section 18 of the MSMED Act

Introduction

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.

Brief Facts

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.

Court Observations

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.

Conclusion

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.