Micro, Small and Medium Enterprises Development Act overrides Arbitration Act under Section 24

The Allahabad HC dismissed a writ petition challenging orders dated 11.6.2019 by the U.P. State Micro and Small Enterprises Facilitation Council. The court held that the Micro, Small and Medium Enterprises Development Act, 2006 is a special law with overriding effect under Section 24. The Council's discretion under Section 18(3) to select arbitration forums is absolute and overrides Section 80 of the Arbitration Act, 1996. The court rejected petitioners' arguments that the Council lacked expertise for arbitration, finding no illegality in the Council's orders.

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Issues Involved:

1. Jurisdiction of the U.P. State Micro and Small Enterprises Facilitation Council to arbitrate disputes under the Micro, Small and Medium Enterprises Development Act, 2006.
2. Applicability of Section 80 of the Arbitration and Conciliation Act, 1996, which prohibits a conciliator from acting as an arbitrator.
3. Overriding effect of the MSMED Act, 2006 over the Arbitration and Conciliation Act, 1996.
4. Discretion of the Facilitation Council in choosing the forum for arbitration.
5. Competence of the Facilitation Council versus institutional arbitration centers like the Delhi International Arbitration Centre.

Detailed Analysis:

1. Jurisdiction of the Facilitation Council:
The petitioners challenged the Facilitation Council's decision to arbitrate the dispute, arguing that the arbitration should be conducted by an institution like the Delhi International Arbitration Centre. The court reiterated that the MSMED Act, 2006 provides the Facilitation Council with the jurisdiction to arbitrate disputes between micro, small, and medium enterprises and buyers, overriding any pre-existing arbitration agreements between the parties. The court emphasized that the MSMED Act is a special law with provisions that override other laws, including the Arbitration and Conciliation Act, 1996.

2. Applicability of Section 80 of the Arbitration Act, 1996:
The petitioners argued that since the Facilitation Council acted as a conciliator, it could not also act as an arbitrator due to the prohibition in Section 80 of the Arbitration Act, 1996. However, the court held that the MSMED Act, being a special law, has provisions that override the general provisions of the Arbitration Act. The court affirmed that the Facilitation Council could act as an arbitrator even if it had previously conducted conciliation proceedings.

3. Overriding Effect of the MSMED Act:
The court emphasized that the MSMED Act, 2006, particularly Sections 15 to 23, has an overriding effect over any other law due to the non-obstante clause in Section 24. This means that the MSMED Act takes precedence over the Arbitration Act, allowing the Facilitation Council to arbitrate disputes irrespective of any existing arbitration agreements.

4. Discretion of the Facilitation Council:
The court noted that the Facilitation Council has absolute discretion under Section 18(3) of the MSMED Act to either arbitrate the dispute itself or refer it to an institution providing alternate dispute resolution services. This discretion is not subject to the provisions of the Arbitration Act, 1996, regarding the selection of the arbitration forum.

5. Competence of the Facilitation Council:
The petitioners contended that the Facilitation Council was not well-equipped to handle the arbitration and that an institutional arbitrator would be more suitable. The court rejected this argument, stating that the Facilitation Council is composed of experts in the field of micro, small, and medium enterprises and is fully competent to arbitrate the disputes under the MSMED Act.

Conclusion:
The court dismissed the writ petition, upholding the orders of the Facilitation Council to arbitrate the dispute. It reaffirmed the overriding effect of the MSMED Act over the Arbitration Act and the Facilitation Council's discretion to arbitrate disputes directly. The court found no merit in the petitioners' arguments against the competence of the Facilitation Council and the applicability of Section 80 of the Arbitration Act.

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