A party pursuing ordinary arbitration cannot claim benefits under the MSMED Act.

The appellant approached the Andhra Pradesh Micro and Small Enterprises Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”) for arbitration concerning an agreement with RINL

RINL challenged the Facilitation Council proceedings through a writ petition, which was allowed by a learned Single Judge on the grounds that the contract was a works contract and that the appellant had not filed a memorandum under Section 8 of the MSMED Act, as required under Silpi Industries v. Kerala State Road Transport Corporation, (2021) 18 SCC 790

The Division Bench kept the matter in abeyance because the relevant principle in Silpi Industries had been referred to a larger Bench

Before the Supreme Court, the appellant consented to pursuing arbitration through the ordinary contractual mechanism rather than through the Facilitation Council under the MSMED Act, in order to avoid further delay

Whether, on the appellant’s consent to proceed through ordinary arbitration rather than through the Facilitation Council under the MSMED Act, the appellant could continue to claim the benefits available under that Act?

Whether the disputes should be referred to institutional arbitration or to an independent sole arbitrator under the ordinary arbitration mechanism?

The Court applied the MSMED Act, particularly Section 8, concerning filing of the requisite memorandum by an enterprise seeking recognition under the statutory framework

It relied on Silpi Industries v. Kerala State Road Transport Corporation, (2021) 18 SCC 790, which had held that filing of the Section 8 memorandum was material for claiming the statutory benefits and remedies under the MSMED Act

The Court further applied the principle that a party which consents to ordinary arbitration, instead of invoking the special statutory mechanism before the Facilitation Council, cannot simultaneously claim the benefits provided by the MSMED Act

The appellant had admittedly not filed the memorandum under Section 8 of the MSMED Act, and the legal issue concerning the applicability of Silpi Industries was pending before a larger Bench

To prevent further delay in adjudicating the appellant’s claim, the Supreme Court offered ordinary arbitration, which the appellant accepted by consent

The Court held that this consent was the basis on which notice had been issued and that the appellant could not subsequently oppose the consequence of proceeding outside the Facilitation Council mechanism—namely, the loss of benefits under the MSMED Act

Although RINL raised the question of institutional arbitration, the Court proceeded to appoint an independent sole arbitrator for adjudication of the disputes

The Court appointed Hon’ble Mr. Justice R. Raghunandan Rao, former Judge of the Andhra Pradesh High Court, as the sole arbitrator to adjudicate the disputes.

The arbitrator was directed to issue notices and was permitted to determine his fee in consultation with the parties

The Court expressly left the merits of the disputes open and disposed of the appeal and pending applications accordingly