The Bombay High Court observed that the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 (MSMED Act) has an overriding effect over Arbitration and Conciliation Act, 1996 (A&C Act) only when the disputes between MSMEs are covered under Section 17 of the MSMED Act. The Court clarified that the dispute between the parties was not in the nature of recovery of money between buyer and seller, but related to non-performance of the terms of the contract and specific performance of the contract. Section 17 of the MSMED Act provided that the recovery of amount due for any goods supplied or services rendered by the supplier, the buyer is said to be liable to pay the amount with interest thereon as provided under Section 16. It is thus clear that when there is a dispute between the buyer and seller with regard to the amount payable by the buyer to the seller, Section 17 would come into play and in consequence Section 18 would apply. On the basis of the submissions made across the bar by the learned Counsel for the Petitioner therein and a general proposition that the provisions of the MSMED Act would have overriding effect is accepted.
An application was filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) for the appointment of an Arbitrator on the ground that there was a dispute between the parties. Both the applicant and the respondent companies claimed to have been duly registered under the MSMED Act. The respondent company argued that the MSMED Act provided that no arbitration could be held except before the Micro and Small Enterprises Facilitation Council (facilitation council) and that the provisions of the A&C Act were not applicable to their case. On the other hand, the applicant argued in view of the arbitration clause in the agreement between Applicant and the Respondent, the application under Section 11(6) of the A&C Act was maintainable. It was further argued that irrespective of the registration of both companies under the MSMED Act, the application under Section 11 of the Act was still maintainable. This argument was opposed by the Respondent on the ground that the provisions of MSMED Act came in at a later in point of time and hence would prevail upon the A&C Act. Since both the companies were registered under the MSMED Act, the procedure laid down under the said Act only would apply. The question for determination was whether the dispute between the parties would be covered by the provisions of MSMED Act or A&C Act. Notwithstanding anything contained in any other law for the time being in force, any dispute covered only by Section 17 is referred to Micro and Small Enterprises Facilitation Council. Consequently, the aforesaid discussion clearly shows that there is arbitrable dispute between the parties under the Act of 1996. Accordingly, the High Court allowed the application.
