- In M/s SGM Packaging Industries versus M/s Goyal Plywood LLP, the Punjab and Haryana High Court has held that a matter can be referred to arbitration under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) even if the parties have not signed an arbitration agreement.
- Justice Lisa Gill while noting that the MSMED Act is a Special Act and shall be given precedence over the Arbitration and Conciliation Act, 1996 (A&C Act) held that even if there was an agreement between the parties for resolution of disputes by arbitration, if a vendor was covered under the MSMED Act, the arbitration agreement, if any, between the parties would be ignored as provided under the MSMED Act.
- The background of this case is that the respondent used to supply goods to the petitioner who failed to clear the dues for months.
- The respondent approached the Haryana Micro and Small Enterprises Facilitation Council (HMSEFC) where the parties were referred to arbitration.
- Thereafter, the petitioner moved the Punjab and Haryana High Court u/s 14 of the A&C Act r/w Section 152 of CPC praying to set aside the mandate for an arbitrator.
- The counsel for the petitioner contended that he did not sign any arbitration agreement with the respondent and therefore, the matter could not be referred to arbitration. However, this application was rejected by the arbitrator.
- The counsel for the respondent contended that when they filed their claim before the HMSEFC, the petitioners were instructed by the HMSEFC itself to clear the dues. However, when they failed to do so, the matter was referred to an arbitrator.
- The respondent further contended that the arbitration proceedings are maintainable and that an arbitration agreement is not a prerequisite for the matter to be referred to arbitration.
- The Court observed that since the respondent was registered under the MSMED, they were entitled to approach the HMSEFC.
- The Court took note of the Supreme Court judgement in M/s Silpi Industries versus Kerala State Road Transport Corporation (2021), where it was held that MSMED is a Special Act and has an overriding effect over the A&C Act.
- The Court further noted that section 18 of the MSMED Act which deals with disputes pertaining to MSEFC and begins with a non-obstante clause, meaning that even in absence of an arbitration agreement, the matter can be referred to arbitration.
- The Court held that even in absence of an agreement between the parties for dispute resolution by means of arbitration, if a vendor is covered under the MSMED Act, the matter can be referred to arbitration.
- The Court further held that the sole remedy that the petitioner has is to challenge the arbitral award once it's made.
- Accordingly, the petition was dismissed.
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