Bombay High Court Appoints Arbitrator Due to MSME Council's Inaction.
In M B Sugars & Pharmaceuticals Private Limited v/s Micro Small Enterprises Facilitation Council & Another., the Bombay High Court addresses a petition filed under Section 11 of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator. The Petitioner had supplied goods to Respondent No. 2 based on a purchase order from June 8, 2018, but the payments remained outstanding.
Consequently, the Petitioner referred the matter to the Micro Small Enterprises Facilitation Council (MSEFC), Nashik, on April 24, 2023. However, the MSEFC, Nashik, failed to initiate any conciliation proceedings or take steps towards arbitration as mandated by Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act).
The court highlighted that under Section 18 of the MSME Act, an arbitration agreement is statutorily created between the MSME and its counter-party. When the MSEFC fails to perform its duty of initiating conciliation or appointing an arbitrator, the court's jurisdiction under Section 11(6) of the Arbitration Act is triggered. The court noted that the matter had been pending for two years and the MSEFC had not even initiated statutory mediation.
Given that there was no dispute regarding the payment obligation (cheques issued by Respondent No. 2 were dishonored), and citing precedents from Microvision Technologies Pvt. Ltd. v. Union of India and Vallabh Corporation v. SMS India Pvt. Ltd., the court found it appropriate to directly appoint an arbitrator. These decisions affirmed that a court can appoint an arbitrator under Section 11(6)(c) of the Arbitration Act when the Facilitation Council fails to perform its function under Section 18(3) of the MSMED Act.
Accordingly, the court appointed Mr. Rohan Deshpande as the Sole Arbitrator to adjudicate the disputes. The arbitrator is requested to first encourage reconciliation between the parties and, if unsuccessful within four weeks, to proceed with formal arbitration. The order also specifies the arbitrator's contact details, communication protocols, and cost-sharing arrangements, clarifying that this appointment does not express an opinion on the merits of the case.
Section 11, Arbitration and Conciliation Act - 1996
Arbitration and Conciliation Act, 1996
Section 18, Micro, Small and Medium Enterprises Development Act - 2006
Micro, Small and Medium Enterprises Development Act, 2006