MSMED Act Prevails Over Arbitration Act: Telangana High Court

New Delhi, Jul 8 (KNN) In a significant ruling, the Telangana High Court bench led by Justice B. Vijaysen Reddy held that the provisions of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 take precedence over the Arbitration and Conciliation Act, 1996.

This landmark judgment clarifies the relationship between the MSMED Act and the Arbitration Act, providing guidance for future disputes involving micro, small, and medium enterprises.

Justice Reddy, in his ruling, emphasised that the MSMED Act is a special statute with overriding effect on the Arbitration Act, which is a general enactment.

The High Court noted that even if parties have an arbitration agreement, a seller falling under the MSMED Act's purview can approach the competent authority to pursue their claim, superseding any agreement between the parties.

This ruling aims to prevent conflicting findings and parallel proceedings by allowing counterclaims by buyers before the Facilitation Council.

Justice Reddy stressed the importance of harmonising the statutory obligations provided by the MSMED Act with the dispute resolution mechanisms outlined in the Arbitration Act.

The case arose from a dispute between Lignite Power, an electricity producer in Rajasthan, and Totale Global, a Chennai-based refractory products manufacturer.

Lignite Power sought to appoint an arbitrator under the Arbitration Act, citing delays and poor workmanship by Totale Global. However, Totale Global contested this, arguing that proceedings were already underway before the Micro and Small Enterprises Facilitation Council (MSEFC) in Chennai under the MSMED Act.

The court dismissed Lignite Power's application, stating that both the applicant's claim and the respondent's counterclaim stemmed from disputes arising out of the same work order.

(KNN Bureau)