MSMED Act and section 11 arbitration: written agreement and no automatic bar without a Facilitation Council reference.

Section 18(1) of the MSMED Act is described as a supplier-centric recovery mechanism tied to amounts due under section 17, and its overriding effect under section 24 operates only after a reference is actually made to the Facilitation Council. The commentary states that this framework does not automatically bar a section 11 application under the Arbitration and Conciliation Act where no Council reference has been made. It also notes that a written arbitration agreement may be established through a service order, exchanged emails and a section 21 notice under section 7(4)(b), while objections based on an even number of arbitrators, stamping, and prematurity are treated as unsustainable on the stated facts.

---

---

Issues: (i) Whether a buyer was bound to invoke the Micro and Small Enterprises Facilitation Council under the MSMED Act, 2006 before seeking appointment of an arbitrator when the supplier was claimed to be an MSME; (ii) Whether an arbitration agreement existed in writing between the parties; (iii) Whether the section 11 application was premature or otherwise defeated by objections as to the number of arbitrators and stamping.

Issue (i): Whether a buyer was bound to invoke the Micro and Small Enterprises Facilitation Council under the MSMED Act, 2006 before seeking appointment of an arbitrator when the supplier was claimed to be an MSME.

Analysis: The reference mechanism under section 18(1) is linked to recovery of amounts due under section 17, which concerns goods supplied or services rendered by the supplier. Read with the scheme of the Act, including the liability to pay interest under section 16 and the special treatment afforded to suppliers, the expression "any party to a dispute" in section 18(1) was held to mean the supplier who claims recovery from the buyer. The overriding effect in section 24 operates only where a reference has actually been made under section 18(1), and does not create an automatic bar to proceedings under section 11 of the Arbitration and Conciliation Act, 1996.

Conclusion: The buyer was not required to approach the Facilitation Council, and the MSMED Act did not bar the section 11 application.

Issue (ii): Whether an arbitration agreement existed in writing between the parties.

Analysis: The Service Order contained an arbitration clause, and the existence of the contract was reflected in the exchanged emails and the section 21 notice. Section 7(4)(b) recognises an arbitration agreement contained in an exchange of letters or other electronic communications. The respondent's communications referred to the same Service Order without denying the arbitration clause, which established the written agreement.

Conclusion: A valid arbitration agreement in writing existed between the parties.

Issue (iii): Whether the section 11 application was premature or otherwise defeated by objections as to the number of arbitrators and stamping.

Analysis: The objection that the clause contemplated two arbitrators was contrary to section 10(1), which prohibits an even number of arbitrators. The objection regarding stamping was found to be without substance on the material placed, and the objection of prematurity also failed because invocation had been issued and the application followed the respondent's failure to respond.

Conclusion: The objections as to even-numbered arbitrators, stamping, and prematurity were rejected.

Final Conclusion: The petition for appointment of an arbitrator succeeded, and the disputes between the parties were referred to sole arbitration.

Ratio Decidendi: Under the MSMED Act, 2006, the reference under section 18(1) is available to the supplier seeking recovery of amounts due under section 17, and the existence of such a special statute does not bar a section 11 application where no reference has been made to the Facilitation Council and a written arbitration agreement is otherwise established.

---