Mandatory institutional arbitration under the MSMED Act overrides a buyer's contractual arbitrator clause after failed conciliation.

Where conciliation under the MSMED Act fails, Section 18 requires the Facilitation Council to move the dispute to arbitration, either by taking it up itself or by referring it to an arbitral institution or centre. That statutory mechanism is mandatory and institutional in nature, so a contractual clause allowing the buyer to appoint an arbitrator cannot displace it because Sections 18 and 24 give the special procedure overriding effect. The buyer's objection to the statutory referral was therefore not sustainable, particularly where its own response before the Council proceeded on the basis that the matter would move to arbitration under the Act.

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Issues: Whether, after conciliation failed under the Micro, Small and Medium Enterprises Development Act, 2006, the Facilitation Council could refer the dispute to an arbitral institution notwithstanding an existing contractual arbitration clause appointing an arbitrator chosen by the buyer, and whether the buyer was entitled to object to such statutory reference at that stage.

Analysis: Section 18(1) enables a reference to the Council in respect of amounts due under Section 17. Under Section 18(2), the Council may itself conduct conciliation or seek assistance of an institution or centre providing alternate dispute resolution services. Where conciliation fails, Section 18(3) requires the Council either to take up the dispute for arbitration itself or to refer it to an institution or centre providing alternate dispute resolution services, and the arbitration is then to proceed as if it were in pursuance of an arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996. The statutory scheme contemplates institutional arbitration and does not permit an ad hoc mechanism contrary to that framework. Section 24 gives overriding effect to Sections 15 to 23, so the contractual clause providing for appointment of an arbitrator by the buyer cannot displace the statutory mechanism. Section 19 further reinforces the special procedure by imposing a pre-deposit requirement for challenge to the award. The buyer's reply before the Council also proceeded on the basis that, if conciliation failed, the matter would move to arbitration under the Act, and the objection that the statutory reference was impermissible was not taken then.

Conclusion: The statutory reference to arbitration by the Facilitation Council was valid, the contractual arbitration clause could not override Section 18(3), and the buyer's challenge to the referral failed.

Ratio Decidendi: Where the MSMED Act provides a mandatory institutional arbitration mechanism after failed conciliation, that special statutory procedure overrides any inconsistent contractual arbitration clause by virtue of its non obstante and overriding provisions.

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