10 January 2022, Monday

2 years ago

Substantive liability under the MSMED Act remains even if the arbitrator had been appointed under Section 11 ACA: Delhi High Court

21 December 2021| Indian Highways Management Company Limited v. SOWil Limited | OMP (Comm.) 376 of 2021 | Vibhu Bakhru J | Delhi High Court

SOWil, a supplier and small enterprise under the MSMED Act, had applied to the court for the appointment of an arbitrator and, thus, invoked arbitration under the ACA directly rather than via the procedure under the MSMED Act. The procedure under the MSMED Act is, broadly: the reference of the dispute under Section 18 to a Facilitation Council, followed by an attempt of conciliation, and then, if required, arbitration under the ACA.

The tribunal granted SOWil interest under Section 16 MSMED Act (20.25% per annum compounded annually).

Was SOWil disentitled to interest under the MSMED Act, and the tribunal commit patent illegality or contravened public policy of India? Answering, no, and dismissing the set-aside application, the court ruled that:

  1. Section 15 (buyer's liability to pay) and Section 16 of the MSMED Act create substantive obligations not contingent on the recourse to the (type of) dispute resolution mechanism. There is nothing in either of those provisions making them contingent on a reference under MSMED Act (Section 18).
  2. The ACA applies anyway, even to a tribunal appointed under the MSMED Act.
  3. The MSMED Act overrides any other law (Section 24). So, if repugnant, the MSMED Act (special legislation) would prevail over the ACA.
  4. The set-aside grounds are not attracted. Even if a tribunal errs in law, the court cannot interfere unless the illegality goes to the root of the matter and vitiates the award.

Read the decision here.

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