MSMED Act Chapter V Overrides Private Arbitration Clauses & Empowers MSEFC to Act as Conciliator and Arbitrator
Parties: Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. & Anr.
Corporate and PSU buyers challenged references made by Micro and Small Enterprises to State Micro and Small Enterprises Facilitation Councils (MSEFCs) under Section 18 of the MSMED Act. Buyers argued that where a commercial Purchase Order contained an independent arbitration agreement under the Arbitration and Conciliation Act, 1996, or designated a specific distant city's courts as having exclusive jurisdiction, the MSEFC could not entertain the supplier's claim.
The Supreme Court dismissed the buyers' objections and held that Chapter V (Sections 15 to 23) of the MSMED Act is a special beneficial legislation that overrides the general provisions of the Arbitration Act, 1996 by virtue of Section 18(1) and Section 24. Private contractual clauses cannot take away an MSE supplier's statutory right to approach the MSEFC in the supplier's own state under Section 18(4). Furthermore, the Court held that the MSEFC (or its designated ODR/ADR institution) is expressly empowered to conduct arbitration even after mediating or conciliating the dispute, overriding Section 80 of the Arbitration Act.