Court dismisses petition challenging arbitral award, emphasizes independent authority of arbitral institutions under MSMED Act.
In a significant ruling, the Delhi High Court has upheld an arbitral award favoring M/s Harsh International, dismissing the challenge posed by M/s Dewan and Sons. The judgment, delivered by Justice Harish Vaidyanathan Shankar, emphasizes the independent authority of arbitral institutions once disputes are referred to them under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.
The case involved a dispute over the supply of goods, with M/s Dewan and Sons contesting the validity of an arbitral award rendered in favor of M/s Harsh International. The petitioners argued that the arbitral institution, Delhi International Arbitration Centre (DIAC), overstepped its authority by independently rendering the award without the Council’s confirmation, as per their interpretation of the Delhi Micro and Small Enterprises Facilitation Council Rules, 2007.
However, the Court clarified that once disputes are referred to an arbitral institution under Section 18(3) of the MSMED Act, the proceedings are governed by the Arbitration and Conciliation Act, 1996. The Court noted that the arbitral tribunal derives its authority directly from the statutory reference under Section 18(3) of the MSMED Act, allowing it to conduct arbitration and render the final award independently.
Justice Shankar highlighted that the statutory framework under the MSMED Act does not envisage a hybrid procedure requiring arbitral institutions to merely submit reports to the Council for approval. The Court dismissed the petitioners' reliance on a Punjab and Haryana High Court judgment, stating that the context and facts of the present case were materially distinct.
Additionally, the petitioners' contention regarding the respondent's MSME registration at the time of dispute was also rejected. The Court clarified that the filing of a memorandum under Section 8 of the MSMED Act suffices for recognition as a "supplier," and no additional registration is mandatory for invoking the Act’s benefits.
The Court's decision underscores the limited scope of judicial intervention under Section 34 of the Arbitration and Conciliation Act, 1996, affirming that interference with an arbitral award is permissible only on grounds such as patent illegality, perversity, or conflict with the fundamental policy of Indian law.
This ruling reaffirms the autonomy of arbitral institutions in adjudicating disputes under the MSMED Act, providing clarity on the procedural framework governing arbitration in such cases.
Bottom line:-
Arbitration under MSMED Act, 2006 - Once disputes are referred to an arbitral institution under Section 18(3) of the MSMED Act, 2006, the arbitral proceedings proceed independently under the Arbitration and Conciliation Act, 1996, and the institution is empowered to render the final award.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Sections 34, Micro, Small and Medium Enterprises Development Act, 2006 Sections 2(n), 8, 18(3)
M/s Dewan and Sons v. M/s Harsh International, (Delhi) : Law Finder Doc id # 2903666
