Facilitation Council under MSMED Act can act as arbitrator despite bar u/s 80 of Arbitration Act: Supreme Court

The Supreme Court on Monday held that no party to a dispute with regard to any amount due under Section 17 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) would be precluded from making a reference to the MSME Facilitation Council even in the presence of an independent arbitration agreement. (Gujarat State Civil Supplies Co v. Mahakali Foods and anr).A Bench of Chief Justice of India UU Lalit and Bela M Trivedi ruled that Chapter V of the MSMED Act would override Section 80 of the Arbitration Act in this regard."The Facilitation Council, which had initiated the Conciliation proceedings under Section 18(2) of the MSMED Act, 2006 would be entitled to act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act...The proceedings before the Facilitation Council/institute/centre acting as an arbitrator/arbitration tribunal under Section 18(3) of MSMED Act, 2006 would be governed by the Arbitration Act, 1996," the judgment stated..The Bench clarified that such a Facilitation Council acting as an arbitral tribunal under Section 18(3) of the MSMED Act would be competent to rule on its own jurisdiction as also the other issues, in view of Section 16 (competence of arbitral tribunal to rule on its jurisdiction) of the Arbitration Act.Further, it was made clear that firms not deemed "suppliers" under Section 2(n) of the MSMED Act on the date of entering into contracts could not seek supplier benefits under any other provisions of the Act. The verdict said,"If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration.".The top court was hearing a batch of civil appeals arising out of High Court rulings that had given conflicting opinions on the jurisdiction of Facilitation Councils under the MSMED Act where parties also entered into separate agreements for arbitration proceedings. .Counsel for the buyers (purchasing companies) before the Supreme Court argued that the legislative intent stressed the need to not supersede contracts. They added that Section 18 of MSMED Act did not grant any substantive right to suppliers and was merely a procedure available to make reference to the Facilitation Council for disputes.Further, commercial contracts must be construed with care as they affect the country’s economy as well.Counsel for the suppliers argued that the object and purpose of Section 18 is to create a cost-effective and expeditious dispute resolution mechanism for the recovery of unpaid dues under Section 17. The same cannot be done away with citing an arbitration agreement, it was submitted..At the outset, the Bench observed,"It is trite to say that the provisions of the special statute would override the provisions of the general statute. It is also well settled that while determining the effect of a statute overriding the other statute, the purpose and policy underlying the two statutes and the clear intendment conveyed by the language of the relevant provisions therein would be the relevant consideration."Thus, any interpretation in derogation of the special law would frustrate its object, the judges stated, and noted that while interpreting a statute, if two interpretations are possible, the one which enhances the object of the Act should be preferred.It thus held,"Thus, the Arbitration Act, 1996 in general governs the law of Arbitration and Conciliation, whereas the MSMED Act, 2006 governs specific nature of disputes arising between specific categories of persons, to be resolved by following a specific process through a specific forum. Ergo, the MSMED Act, 2006 being a special law and Arbitration Act, 1996 being a general law, the provisions of MSMED Act would have precedence over or prevail over the Arbitration Act, 1996.".It was further held that a private agreement between parties cannot obliterate statutory provisions. "Once the statutory mechanism under subsection (1) of Section 18 [of MSMED Act] is triggered by any party, it would override any other agreement independently entered into between the parties, in view of the non obstante clauses contained in sub-section (1) and sub-section (4) of Section 18.".[Read judgment]