Statutory MSME arbitration prevails after Council conciliation, overriding a separate contractual arbitration clause

Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 creates a self-contained dispute resolution mechanism: once a party invokes the statutory reference and participates in conciliation before the Facilitation Council, the dispute must proceed through the Act's statutory arbitration route if conciliation fails. The Arbitration and Conciliation Act, 1996 applies to that arbitration as if there were an arbitration agreement. An independent contractual arbitration clause does not displace this statutory sequence after the Act is invoked, so the objection based on the contract clause was rejected and the statutory reference for arbitration was treated as valid.

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Issues: Whether, after invoking the statutory mechanism under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 and participating in conciliation before the Facilitation Council, the appellant could insist on arbitration only under the contractual arbitration clause instead of the statutory arbitration route under the Act.

Analysis: Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 creates a self-contained dispute resolution mechanism. On a reference under sub-section (1), the Council may conduct conciliation under sub-section (2), and if conciliation fails, sub-section (3) requires the dispute to proceed to arbitration either by the Council itself or through an ADR institution or centre. The provisions of the Arbitration and Conciliation Act, 1996 apply to such arbitration as if it were pursuant to an arbitration agreement. Having voluntarily invoked the statutory remedy and participated in conciliation, the appellant was bound by the full statutory sequence under Section 18, and the existence of an independent contractual arbitration clause did not displace that statutory mandate.

Conclusion: The objection based on the contractual arbitration clause was rejected, and the statutory reference for arbitration under the Micro, Small and Medium Enterprises Development Act, 2006 was held to be valid.

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