MSME Act Will Override Arbitration Law, Supreme Court Says
MSME disputes have to be resolved under the specific statute meant for them even if an arbitration agreement exists, SC says.
The Supreme Court has held that the Micro, Small and Medium Enterprises Development Act will have overriding powers over the Arbitration Act. When a specific legislation exists, the apex court pointed out, no agreement between private parties can have primacy over it.
Parties will continue to have access to Micro and Small Enterprises Facilitation Council, even if an arbitration agreement exists, a bench of Chief Justice UU Lalit and Justice Bela Trivedi, held.
The MSME Act provides for a Facilitation Council for those seeking recovery of dues. This council will have authority to act as an arbitrator despite restrictions imposed by the Arbitration Act, the judgement clarified.
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.Supreme Court
Section 17 provides for recovery of amount from the buyer of goods or services.
The apex court was hearing a bunch of appeals from various high courts in the country. While some had ruled that MSME law would prevail over the arbitration law, others had concluded that the former would not be applicable where an arbitration agreement exists.
Delving into various aspects of both the laws, the bench pointed out that while parties to an agreement have the right to decide how they want to solve a dispute that may arise, the agreement cannot have primacy over an existing statute.
When the Special Act i.e., MSMED Act, 2006 has been created for ensuring timely and smooth payment to the suppliers, who are the micro and small enterprises, and there's a legal framework for resolving the dispute with regard to the recovery of dues between the parties... any interpretation in derogation thereof would frustrate the very object of the Act. - Supreme Court
While arbitration law is general in nature, the MSME law is aimed at a specific set of cases, therefore it should have primacy over the arbitration law, the bench concluded.