SC Leaves Open Buyer’s Right to Invoke Arbitration Outside MSMED Act

Patel Infrastructure Limited Vs Aditya Construction (Supreme Court of India)

Supreme Court Leaves Open Whether a Buyer Can Invoke Arbitration Against an MSME Outside the MSMED Act Framework

The Supreme Court disposed of the appeal by recording the parties’ consent to resolve their disputes through arbitration under the Arbitration and Conciliation Act, 1996, while leaving open the important legal question of whether a buyer of goods or services from an MSME can independently invoke arbitration under the Arbitration Act instead of proceeding under the MSMED Act, 2006.

The appellant sought adjudication of the legal issue regarding the interplay between the MSMED Act, 2006 and the Arbitration and Conciliation Act, 1996, relying upon decisions of the Delhi High Court in Uniseven Engineering and Infrastructure Pvt. Ltd. and the Calcutta High Court in Essar Oil and Gas Exploration and Production Ltd..

During the hearing, however, the respondent-MSME agreed to have the disputes resolved through arbitration under the Arbitration and Conciliation Act, 1996, with the arbitrator to be appointed through the Delhi International Arbitration Centre (DIAC). Considering the consensus between the parties, the Supreme Court accepted the proposal and directed the DIAC to appoint a suitable arbitrator, fixing New Delhi as the venue of arbitration.

The Court expressly clarified that, since the dispute had been resolved by consent, it was not deciding the larger question of law regarding a buyer’s right to independently invoke arbitration against an MSME outside the mechanism contemplated under the MSMED Act. The issue was kept open for determination in an appropriate future case. The appeal was accordingly disposed of without any adjudication on the legal issue.

Cases Discussed

• Uniseven Engineering and Infrastructure Pvt. Ltd. vs. Micro and Small Enterprises Facilitation (MSEF) Council, District (South), and another (Delhi HC), W.P. (C) 11233/2021 and CM Appl. 34581, decided on July 5, 2023
• Essar Oil and Gas Exploration and Production Limited vs. Gargi Travels Private Limited (Calcutta HC), A.P. No. 73 of 2023, decided on April 20, 2023

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

1. Leave granted.