Petition dismissed for arbitrator appointment under Section 11 without arbitration agreement in MSMED dispute

Delhi HC dismissed petition seeking arbitrator appointment under Section 11 of Arbitration Act for MSMED dispute. Court held that without arbitration agreement between parties, Section 11(6) jurisdiction cannot be invoked. Under MSMED Act Section 18(3), Arbitration Act provisions apply only after failed conciliation when Facilitation Council takes up arbitration or refers to institution. Since no arbitration agreement existed and proper MSMED procedure not followed, petition was not maintainable and dismissed.

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Issues:
Appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 without a written arbitration agreement.

Analysis:
The petition sought the appointment of an arbitrator under Section 11 of the Arbitration Act due to disputes arising from Purchase Orders without a written arbitration agreement between the parties. The petitioner invoked Section 18(1) of the Micro, Small & Medium Enterprises Development Act, 2006 (MSMED Act) before the Facilitation Council. The Facilitation Council, after failed conciliation, refused to act as an arbitrator due to insolvency proceedings pending at NCLT. The petitioner contested this, arguing that as the moratorium under the Insolvency and Bankruptcy Code, 2016 had not been declared, the refusal was incorrect. The respondent contended that without an arbitration agreement, Section 11 of the Arbitration Act couldn't be invoked.

The Court examined Section 18(3) of the MSMED Act, which allows the Facilitation Council to take up disputes for arbitration if conciliation fails, applying the Arbitration Act as if an arbitration agreement existed. The Court noted that the Arbitration Act provisions apply only when arbitration proceedings are initiated by the Facilitation Council or referred to an institution. The Supreme Court's decision in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Pvt. Ltd. emphasized the overriding effect of MSMED Act provisions on the Arbitration Act, applying after failed conciliation. The Court highlighted that the Arbitration Act's provisions don't apply before this stage.

The Court cited Section 11(6) of the Arbitration Act, stating that jurisdiction under this section requires the existence of an arbitration agreement. As no arbitration agreement existed between the parties, the Court held the petition was not maintainable under Section 11. Consequently, the petition was dismissed, allowing the petitioner to pursue other available legal remedies against the Facilitation Council's order.

In conclusion, the judgment clarifies the application of the Arbitration Act in cases involving the MSMED Act, emphasizing the need for failed conciliation before invoking arbitration provisions. The absence of a written arbitration agreement precluded the petitioner from seeking relief under Section 11 of the Arbitration Act.

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