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Gauhati High Court Upholds Dispute Resolution Mechanism Under MSMED Act

Updated: Jun 19, 2024 05:53:13pm

Gauhati High Court Upholds Dispute Resolution Mechanism Under MSMED Act

New Delhi, Jun 19 (KNN) In a significant ruling, the Gauhati High Court has reinforced the importance of adhering to the dispute resolution mechanism prescribed under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

The court dismissed a writ petition filed by a buyer challenging an order from the MSMED Facilitation Council to settle outstanding dues with a supplier.

In its ruling, the High Court upheld the provisions of the MSMED Act, which mandate a specific procedure for resolving payment disputes.

The court noted that Section 18 outlines a two-step process: first, conciliation proceedings initiated by the Council or with the assistance of an alternate dispute resolution institution, and second, if conciliation fails, the Council either takes up the dispute for arbitration or refers it to an institution under the Arbitration and Conciliation Act, 1996.

The High Court observed that the petitioner, as the buyer, had bypassed this statutory remedy and approached the court prematurely.

Consequently, the court dismissed the writ petition and directed the petitioner to either avail the remedy provided under Section 18 or respond to the Council's intimation notice within one month.

Failure to do so would empower the authorities to proceed in accordance with the law.

This ruling reinforces the importance of adhering to the dispute resolution mechanism established under the MSMED Act, aimed at providing a dedicated framework for resolving payment disputes between micro, small, and medium enterprises and their buyers or suppliers.

It underscores the need for parties to exhaust the prescribed statutory remedies before seeking judicial intervention.

The case involved a dispute over non-payment for non-woven geo-textile materials worth Rs. 29.12 lakh purchased by the petitioner from the respondent supplier in 2015. The petitioner had paid only Rs. 50,000, leaving a substantial balance of Rs. 28.62 lakh unpaid.

The supplier subsequently approached the MSMED Facilitation Council to recover the outstanding amount under Section 18(1) of the Act. The Council, after scrutinising the documents, issued an order instructing the petitioner to settle the dues within 15 days, failing which legal action would ensue.

Instead of following the statutory dispute resolution mechanism, the petitioner approached the Gauhati High Court, contending that the Council's order lacked procedural fairness as no conciliation proceedings were conducted prior to its issuance.

Legal experts have hailed the court's decision as a step towards ensuring the effective implementation of the MSMED Act and fostering a conducive environment for the growth and development of small businesses in the country.

(KNN Bureau)


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