Court Cannot Appoint Arbitrator Under Section 11 Of The A&C Act When The Dispute Is Covered Under MSMED Act: Gujarat HC Reiterates

The High Court of Gujarat has reiterated that the petition under Section 11 of the A&C Act for the appointment of the arbitrator by the Court would not be maintainable if the dispute is covered under the MSMED Act, 2006 and the provisions of the act are invoked.

The bench of Justice Biren Vaishnav followed a line of earlier precents wherein the High Court has held that the provisions of MSMED Act prevail over the A&C Act and the resolution of dispute covered under the MSMED Act has to be in terms of Section 18 of the Act only and the procedure for the appointment of arbitrator under the A&C Act would have to give way to the special mechanism provided under the MSMED Act.

Facts

The parties entered into an agreement dated 20.08.2018 whereby the petitioner placed upon the respondent orders for purchase of insulation kits and similar products. The agreement provided for an arbitration clause. However, the respondent being and MSME was covered under the MSMED Act of 2006.

A dispute arose between the parties regarding the total weight of the items delivered under the purchase orders, consequently, the petitioner demanded the return of the advance deposit. On refusal of the respondent to return the amount, the petitioner issued a notice of arbitration and requested it to mutually appoint the arbitrator, however, by that time the respondent had already made a reference to facilitation council under Section 18 of the MSMED Act.

On failure of the respondent to reply to its notice of arbitration, the petitioner approached the Court for the appointment of arbitrator under Section 11 of the A&C Act.

Contention of the Parties

The petitioner made the following submissions in favour of the appointment of the arbitrator:

• The agreement between the parties has an arbitration clause and the Court should refer the parties to arbitration.
• The nature of the dispute between the parties is such that is does not fall within the rubric of dispute contemplated under Section 17 of the MSMED Act, therefore, the reference under Section 18 would be of no consequence.

The respondent opposed the petition and made the following arguments:

• The respondent is an MSME and covered under the provisions of MSMED Act.
• It has already invoked the jurisdiction of the facilitation council under Section 18 of the Act and the provisions of MSMED Act have a superseding effect over the provisions of the A&C Act, therefore, the Court cannot appoint the arbitrator for disputes covered under the MSMED Act.

Analysis by the Court

The Court referred to its earlier judgment in Samrat Furnaces Pvt. Ltd. v. State of Gujarat, SCA 7006 of 2020 wherein it had observed that petition under Section 11 of the A&C Act for the appointment of the arbitrator by the Court would not be maintainable if the dispute is covered under the MSMED Act, 2006 and the provisions of the act are invoked.

It held that the parties must approach the MSME Council and there is no room for the appointment of the arbitrator when the dispute is covered under the MSMED Act. It observed that in terms of Section 18(3), if the conciliation fails, the parties would be relegated to arbitration and the arbitration would continue as if were an arbitration pursuant to an agreement under Section 7 of the A&C Act, however, the A&C Act starts applying at this stage and not before.

The Court followed a line of its earlier judgments wherein the High Court has held that the provisions of MSMED Act prevail over the A&C Act and the resolution of dispute covered under the MSMED Act has to be in terms of Section 18 of the Act only and the procedure for the appointment of arbitrator under the A&C Act would have to give way to the special mechanism provided under the MSMED Act. Accordingly, the Court dismissed the petition with the liberty to the petitioner to approach the Council for the redressal of its grievances.

Case Details: TBEA Energy v. R K Engineering, R/PETN. UNDER ARBITRATION ACT NO. 25 of 2020

Case Citation: 2023 Livelaw (Guj) 111

Counsel for the Petitioner: Mr. Hardik A Shah and Mr. Mihir H Pathak

Counsel for the Respondent: Mr. Pratik Y Jasani

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