Court affirms buyer's right to file counterclaims in proceedings under MSMED Act, emphasizing its overriding effect over Arbitration and Conciliation Act.
In a significant judgment, the Calcutta High Court has upheld the supremacy of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) over the Arbitration and Conciliation Act, 1996 (ARC Act) in disputes involving suppliers and buyers under the MSMED Act. Justice Shampa Sarkar presided over the case between Macmet Engineering Ltd. and Mecgale Pneumatics Pvt. Ltd., delivering a verdict that reinforces the rights of buyers to file counterclaims in proceedings initiated by suppliers under the MSMED Act.
The case stemmed from disputes over contractual obligations related to purchase orders between the two companies, which led Mecgale Pneumatics Pvt. Ltd., a registered MSME, to seek redress under the MSMED Act. Macmet Engineering Ltd. contended that the arbitration clause in their contract should lead to separate proceedings, but the court ruled otherwise, emphasizing that the MSMED Act's provisions prevail.
The judgment highlighted that the MSMED Act, being a special statute, provides a statutory arbitration mechanism that overrides any existing arbitration agreements between the parties. The court noted that allowing separate arbitral proceedings would lead to inefficiencies and potential conflicting decisions, contrary to the objectives of the MSMED Act, which aims to protect and promote the interests of micro, small, and medium enterprises.
The ruling aligns with previous Supreme Court decisions, notably in Silpi Industries v. Kerala SRTC and Gujarat State Civil Supplies Corporation v. Mahakali Foods Private Limited (UNIT -2), which affirmed the MSMED Act's precedence over the ARC Act. These decisions underscored that the MSMED Act facilitates prompt and effective dispute resolution, ensuring that all claims and counterclaims are adjudicated within the same proceeding to prevent multiplicity of litigation.
In its detailed judgment, the court also clarified that the MSMED Act's provisions concerning delayed payments and dispute resolution mechanisms serve as a comprehensive framework for addressing disputes involving MSMEs. This ensures that the buyer's counterclaims are considered within the same arbitration proceedings initiated by the supplier under the MSMED Act.
The court's decision reinforces the legislative intent behind the MSMED Act to provide an expeditious remedy for MSMEs, while also safeguarding the rights of buyers to present their grievances within the same legal framework. The judgment is expected to have significant implications for future disputes involving MSMEs, emphasizing the importance of the MSMED Act in the Indian legal landscape.
Bottom Line:
The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) has overriding effect over the Arbitration and Conciliation Act, 1996 (ARC Act). Claims of a buyer against a supplier can be adjudicated as counter-claims within proceedings initiated by the supplier under the MSMED Act.
Statutory provision(s): Micro, Small and Medium Enterprises Development Act, 2006 Sections 15 to 24, Arbitration and Conciliation Act, 1996 Sections 7, 23
Macmet Engineering Ltd. v. Mecgale Pneumatics Pvt. Ltd., (Calcutta) : Law Finder Doc Id # 2826352
