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MSMED Act override arbitration clause of any agreement

 Cause Title : Numaligarh Refinery Limited vs Union Of India, WP(C)/7217/2022, Gauhati High Court

Date of Judgment/Order : 

Corum : 

Gujarat State Civil Supplies Corporation Limited vs. Mahakali Foods Private Limited (Unit 2) & Anr., reported in AIR 2022 SC 5545

Citied: 

Background

The petitioner prayed for setting aside the case filed by the respondent No. 3 for non-payment of his contractual bills, which is pending before the Joint Director & Head of Office, Micro, Small and Medium Enterprises (MSME) Development and Facilitation Office, Ministry of MSME, Government of India, on the ground that the Micro, Small and Medium Enterprises (MSME) Facilitation Council does not have the jurisdiction to entertain the said case while the Respondent argued that as per the Supreme Court judgment in Gujarat State Civil (supra), MSMED Act, 2006 has an overriding effect over the Arbitration and Conciliation Act, 1996.

Judgment

The High Court agreeing with the Respondent observed that the Supreme Court in Gujarat State Civil (supra) has clearly observed that :
  1. Chapter-V of the MSMED Act, 2006 would override the provisions of the Arbitration Act, 1996.
  2. No party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council, though an independent arbitration agreement exists between the parties.
  3.  The Facilitation Council, which had initiated the Conciliation proceedings under Section 18(2) of the MSMED Act, 2006 would be entitled to act as an arbitrator despite the bar contained in Section 80 the Arbitration Act.
  4. The proceedings before the Facilitation Council/institute/centre acting as an arbitrator/arbitration tribunal under Section 18(3) of MSMED Act, 2006 would be governed by the Arbitration Act, 1996.
  5. The Facilitation Council/institute/centre acting as an arbitral tribunal by virtue of Section 18(3) of the MSMED Act, 2006 would be competent to rule on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration Act, 1996.
  6. A party who was not the ‘supplier’ as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract cannot seek any benefit as the ‘supplier’ under the MSMED Act, 2006. If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration.

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