Date:April 8, 2023
MSME Arbitration Procedure: A Step Towards Speedy Resolution of Disputes
Micro and Small Enterprises (MSEs) form the backbone of the Indian economy. They contribute significantly to the country’s GDP and provide employment opportunities to a large section of the population. However, these enterprises often face a variety of challenges, including the non-payment of dues by their clients. Delayed payments lead to a severe cash crunch and hinder the growth and expansion of SMEs. To address this issue, the government introduced the MSME arbitration procedure.
The MSME arbitration procedure is a legal mechanism designed to resolve disputes between Micro and Small (MSEs) and their clients. It is a cost-effective and time-efficient alternative to traditional litigation. The procedure is governed by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, which was enacted to promote and develop (MSEs) in India.
Under the MSMED Act, a Micro or Small Enterprise can initiate the arbitration process against a buyer who has failed to make payment for the goods or services supplied within the stipulated time period.
The arbitration process is conducted by an arbitrator appointed by the Micro and Small Enterprises Facilitation Council (MSEFC). The MSEFC is a statutory body set up by the government to facilitate the resolution of disputes between MSMEs and their clients. The council has the power to appoint an arbitrator under section 18(3) of MSMED Act.
However, there is a process for the appointment of an arbitrator. The process starts with the filing of the claim with the MSME Facilitation Council, thereafter conciliation proceedings under section 18(2) of the MSMED Act, and once conciliation fails the provisions for the appointment of arbitrator by MSME Facilitation Council under section 18(3) of MSMED Act is triggered.
The MSME arbitration procedure is a speedy and efficient way of resolving disputes. The arbitrator is required to pass an award within 90 days of receiving the reference.
The award is final and binding on both parties and can only be challenged in court on limited grounds. This ensures that the dispute is resolved in a timely manner, and the MSME is not left waiting for an indefinite period to receive payment.
Another advantage of the MSME arbitration procedure is that it is a cost-effective alternative to traditional litigation.
The fees for the arbitration process are minimal, the stamp duty paid on arbitration award is also minimal, which reduces the overall cost of the process.
The procedure is also conducted in an informal manner, which makes it less intimidating for MSEs, who may not have extensive legal knowledge.
However, the MSME arbitration procedure is not without its challenges.
One of the main issues is the enforcement of the award. In many cases, the buyer may refuse to comply with the award, which leaves the MSME with no option but to approach the court for enforcement. This defeats the purpose of the arbitration process, which was designed to provide a speedy resolution of disputes.
Another challenge faced by MSMEs is the lack of awareness about the arbitration process. Many MSMEs are not aware of their rights under the MSMED Act, and they continue to suffer due to delayed payments. The government has taken several steps to increase awareness about the procedure, including the launch of an online portal for MSMEs to file their grievances. The portal provides information on the claim process and facilitates the resolution of disputes between MSMEs and their clients.
the MSME arbitration procedure is a step towards ensuring the timely resolution of disputes between MSMEs and their clients. It is a cost-effective and efficient alternative to traditional litigation and has the potential to benefit a large number of MSMEs in India. The government has taken several steps to increase awareness about the procedure and to address the challenges faced by MSMEs in enforcing the awards.
However, more needs to be done to promote the MSME arbitration procedure and to ensure that MSMEs are aware of their rights under the MSMED Act. The government can consider launching awareness campaigns to educate MSMEs about the benefits of the procedure and the steps involved in initiating the arbitration process. This will go a long way in promoting the use of the procedure and in reducing the number of delayed payments faced by MSMEs.
Furthermore, the government can consider setting up more MSEFCs across the country to facilitate the resolution of disputes between MSMEs and their clients. This will make the procedure more accessible to MSMEs in remote areas and will reduce the time taken to resolve disputes.
The MSME arbitration procedure is a significant development in the legal landscape of India. It provides a much-needed mechanism for MSMEs to resolve disputes with their clients and ensures that they receive timely payment for their goods and services.
The procedure has the potential to benefit a large number of MSMEs in India and can play a crucial role in the growth and development of the sector.