Delhi High Court: Arbitrator Can Be Appointed Under Section 11(6) If MSME Council Fails to Initiate Mediation Under Section 18 of MSMED Act
Sanchayita Lahkar
The Delhi High Court, Single Bench of Justice Jasmeet Singh, has allowed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, appointing a sole arbitrator to adjudicate disputes arising out of a Service Order and a Purchase Order between two contracting parties. The Court recorded, “the MSME Facilitation Council did not initiate the process of mediation under section 18 of MSME Act and hence, the present petition filed under section 11(6) of 1996 Act needs to be allowed.”
The case involves a contractual relationship concerning civil and associated works for a construction project, with the petitioner asserting entitlement to outstanding contractual payments under the aforementioned orders. The petitioner, registered under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act), moved the High Court after the MSME Facilitation Council in Gandhinagar did not proceed further following the petitioner’s reference under Section 18 of the MSME Act.
Justice Jasmeet Singh directed the appointment of a sole arbitrator under Section 11(6) of the Arbitration Act, ordering that “Ms. Justice Rekha Palli, (Retd. Judge Delhi High Court) is appointed as a Sole Arbitrator to adjudicate the disputes between the parties.” The Court further directed that “the arbitration will be held under the aegis of the Delhi International Arbitration Centre, Delhi High Court, Sher Shah Road, New Delhi.”
The dispute arises from contracts relating to civil works executed for the construction of the New Flash Butt Weld Engineering Workshop at Sabarmati. The petitioner, a Micro, Small and Medium Enterprise, was awarded work pursuant to a Letter of Intent issued by the respondent on 06.11.2018, followed by a revised Letter of Intent on 14.11.2018. Subsequently, a Service Order dated 31.12.2018 and a Purchase Order dated 08.01.2019 were executed between the parties.
The dispute centers around non-payment under these contracts despite completion of work. The respondent issued a Provisional Completion Certificate on 25.03.2021, stating that the contracted work was completed satisfactorily. Thereafter, the petitioner sought release of outstanding dues amounting to Rs. 37,20,31,671 on 06.08.2023 under both the Service Order and Purchase Order. The disputes between the parties remained unresolved despite efforts, leading the petitioner to invoke arbitration on 29.02.2024 by proposing five names of potential arbitrators.
The arbitration clause, identical in both the Service Order and Purchase Order, is contained in Clause 34 and states, “In the event of any dispute or differences arising from or in connection with this Purchase Order, the same shall be resolved amicably in good faith, failing which the dispute or differences shall be referred to Arbitration. The Managing Director of the Purchaser or his nominee shall, be the sole Arbitrator. The arbitration shall be governed by the Arbitration and conciliation Act, 1996. The Arbitrator shall give reasoned award. The venue of Arbitration shall be Delhi.”
The petitioner, having unsuccessfully sought to resolve the dispute, moved the MSME Facilitation Council, Gandhinagar, under Section 18 of the MSME Act, but did not receive any subsequent response. The petitioner, therefore, approached the Delhi High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996.
The petitioner’s counsel submitted that there was no dispute regarding the arbitration clause or the arbitrability of the subject matter. It was further submitted that mediation, as required under Section 18 of the MSME Act, was initiated and failed. The petitioner thus invoked Section 11(6) seeking judicial intervention for the appointment of an arbitrator. Reliance was placed on the decision in Microvision Technologies (P) Ltd. v. Union of India, 2023 SCC OnLine Bom 1848.
The respondent, through its counsel, submitted that once the petitioner had invoked the MSME Act by making a reference under Section 18, the process required finalization under that Act. It was argued that the petitioner could not midway switch to invoking Section 11(6) of the Arbitration Act without completing proceedings under Section 18 of the MSME Act. The respondent further contended that following the reference made on 16.05.2024, there had been no follow-up by the petitioner before the MSME Facilitation Council and that the petitioner could not benefit from its own lapse. The respondent also relied on Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods (P) Ltd., (2023) 6 SCC 401 to support its argument.
The Court examined the statutory framework under Section 18 of the MSME Act and Section 11(6) of the Arbitration and Conciliation Act. Justice Singh recorded, “Sub section 2 quoted above states that the Facilitation Council upon receiving reference under sub-section (1) shall either conduct mediation itself or refer the matter to any mediation service provider as provided under the Mediation Act, 2023. Sub section 3 quoted above clearly states that when the mediation is not successful or stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternative dispute resolution services.”
The Court further observed, “Section 11(6) says that if any institution fails to appoint any arbitrator, as the case may be, the Supreme Court or High Court will appoint the same.”
Justice Singh referred to the Supreme Court's decision in Gujarat State Civil Supplies Corpn. Ltd., noting, “the MSMED Act, 2006 being a special law and the Arbitration Act, 1996 being a general law, the provisions of the MSMED Act would have precedence over or prevail over the Arbitration Act, 1996.” The Court observed that this principle was reaffirmed in Silpi Industries v. Kerala SRTC, (2021) 18 SCC 790.
The Court also recorded, “the legislature had consciously made applicable the provisions of the Arbitration Act, 1996 to the disputes under the MSMED Act, 2006 at a stage when the conciliation process initiated under sub-section (2) of Section 18 of the MSMED Act, 2006 fails and when the Facilitation Council itself takes up the disputes for arbitration or refers it to any institution or centre for such arbitration.”
The Court further relied on Section 2(4) of the Arbitration Act and noted that the provisions of the Arbitration Act are applicable to arbitrations conducted under other enactments unless they are inconsistent.
Justice Singh noted that in the present matter, the petitioner wrote to the MSME Council on 16.05.2024 for mediation under Section 18 of the MSME Act. However, the MSME Facilitation Council did not act upon the reference, and as of the date of filing the petition, no response had been received from the Council.
The Court also took note of the fact that mediation was conducted before the Delhi High Court Mediation and Conciliation Centre on 27.01.2025 but did not result in a settlement.
In conclusion, the Court allowed the petition under Section 11(6) and directed that the arbitration be conducted under the aegis of the Delhi International Arbitration Centre (DIAC). The Court directed, “The remuneration of the learned Arbitrator shall be in terms of DIAC (Administrative Cost and Arbitrators’ Fees) Rules, 2018.” The Court also directed that “the learned Arbitrator is requested to furnish a declaration in terms of Section 12 of 1996 Act prior to entering into the reference.”
Finally, it was directed that “all the rights and contentions of the parties, including as to the arbitrability of any of the claim, any other preliminary objection, as well as claims/counter-claims and merits of the dispute of either of the parties, are left open for adjudication by the learned arbitrator.”
Advocates Representing the Parties
For the Petitioner: Mr. Ramesh Singh, Senior Advocate, Ms. Monisha Nanda, Advocate and Mr. Rajul Shrivastav, Advocate.
For the Respondent: Mr. Sujoy Datta, Advocate, Mr. Surekh Kani Baxy, Advocate and Mr. Aarsheya Sharda, Advocate.
Case Title: M/s Vallabh Corporation v. SMS India Pvt Ltd
Neutral Citation: 2025: DHC: 1851
Case No.: ARB.P. 1119/2024
Bench: Justice Jasmeet Singh
[Read/Download order]
