The Supreme Court has left unresolved a significant legal question concerning the interplay between the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 and the Arbitration and Conciliation Act, 1996, while disposing of a commercial dispute through mutual consent of the parties. 

The bench Justice Sanjay Kumar and Justice Sanjeev Sachdeva refrained from deciding whether a buyer of goods or services from an MSME can independently initiate arbitration proceedings under the Arbitration Act instead of resorting to the dispute resolution mechanism under the MSMED Act. 

The principal question before the Supreme Court was whether a purchaser dealing with an MSME can bypass the statutory dispute resolution framework under the MSMED Act and independently invoke arbitration under the Arbitration and Conciliation Act for claims against the MSME.

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The appellant argued that such recourse should be permissible and relied upon decisions of the Delhi High Court and the Calcutta High Court supporting its contention. Those judgments were cited before the Supreme Court in support of the proposition that arbitration under the Arbitration Act could be initiated independently in appropriate circumstances. 

Before the Supreme Court could examine the legal issue in detail, the respondent MSME informed the Court that it was willing to resolve the dispute through arbitration administered by the Delhi International Arbitration Centre (DIAC).

Senior counsel appearing for the respondent submitted that although the respondent operated from Basti, Uttar Pradesh, and the appellant’s registered office was in Ahmedabad, Gujarat, the arbitration proceedings could conveniently be conducted in New Delhi. 

Accepting this consensual proposal, the Supreme Court disposed of the appeal by requesting the Delhi International Arbitration Centre to appoint an appropriate arbitrator for adjudicating the disputes between the parties under the Arbitration and Conciliation Act, 1996. The Court further directed that the venue of arbitration would be New Delhi and asked the appellant to approach the DIAC within two weeks from receiving the certified copy of the order. 

Although the dispute itself has been referred to arbitration, the Supreme Court consciously refrained from deciding the broader legal controversy.

The Bench expressly recorded that the question of law raised in the appeal has been left open for consideration in an appropriate future case. Consequently, the judgment does not settle the ongoing debate regarding whether buyers can independently invoke the Arbitration and Conciliation Act against MSMEs without following the mechanism contemplated under the MSMED Act. 

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