Once MSEFC statutory arbitration commences, courts cannot appoint a parallel contractual arbitrator under Section 11.

The Applicant and Respondent executed a Purchase Agreement dated 11 December 2022 containing an arbitration clause under Clause 6.9, providing for arbitration and stipulating Mumbai as the venue/seat, with Mumbai courts having supervisory jurisdiction.

The Respondent subsequently instituted a commercial suit before the Commercial Court, Saket, New Delhi, concerning disputes arising from the Agreement.

On the Applicant’s application under Section 8 of the Arbitration and Conciliation Act, 1996, the Respondent’s authorised representative stated that the Respondent was willing to proceed to arbitration and had no objection to the application.

The Commercial Court consequently allowed the Section 8 application and disposed of the suit, granting the Respondent liberty to refer its disputes to arbitration.

Thereafter, the Respondent invoked Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 before the Micro and Small Enterprises Facilitation Council, Meerut.

After conciliation did not take place, the Council, by order dated 20 February 2026, proceeded to take up the dispute as statutory arbitration under Section 18(3) of the MSMED Act.

The Applicant objected to the Council’s jurisdiction, filed a writ petition before the Allahabad High Court, and subsequently filed its Statement of Defence before the Council expressly under protest and without prejudice.

The Applicant nevertheless filed the present application under Section 11(6) of the Arbitration and Conciliation Act seeking appointment of a sole arbitrator under Clause 6.9.

The Respondent opposed the application, contending that the statutory arbitration before the MSEFC had commenced and that two parallel arbitral proceedings concerning the same dispute could not be permitted.

1. Whether the High Court could appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act pursuant to the contractual arbitration clause when the MSEFC had already commenced statutory arbitration under Section 18(3) of the MSMED Act?

2. Whether the Respondent’s earlier statement before the Commercial Court consenting to arbitration, and the order allowing the Section 8 application, precluded the Respondent from subsequently invoking the statutory mechanism under Section 18 of the MSMED Act?

3. Whether the Applicant waived its objection to the MSEFC’s jurisdiction by filing its Statement of Defence before the Council?

The Court applied Section 11(6) of the Arbitration and Conciliation Act, 1996 concerning appointment of an arbitrator; Sections 8, 16 and 21 of that Act concerning reference to arbitration, competence of the arbitral tribunal to rule on its jurisdiction, and commencement of arbitral proceedings; and Sections 18(2) and 18(3) of the MSMED Act, under which the MSEFC must first undertake conciliation and, if unsuccessful, may itself arbitrate or refer the dispute for arbitration.

Relying on Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., (2023) 6 SCC 401, particularly paragraphs 52.1–52.5, the Court held that Chapter V of the MSMED Act overrides the Arbitration and Conciliation Act; a party is not precluded from approaching the MSEFC merely because an independent arbitration agreement exists; the MSEFC may act as arbitrator after unsuccessful conciliation; and proceedings under Section 18(3) are governed by the Arbitration Act, with the MSEFC competent to rule on its own jurisdiction.

The Court further applied the principle that contractual arbitration arrangements, including an agreed seat, cannot displace the overriding statutory mechanism under Chapter V of the MSMED Act.

The Court accepted that the Purchase Agreement contained a valid arbitration clause and that the Respondent had earlier expressed its willingness to arbitrate before the Commercial Court.

However, the Section 8 order did not constitute any arbitral tribunal; it merely allowed the application and granted the Respondent liberty to refer the dispute to arbitration.

Before the Applicant’s Section 11 application was filed, the MSEFC had completed the conciliation stage and expressly proceeded under Section 18(3) as a statutory arbitral tribunal.

In view of Mahakali Foods, the contractual arbitration clause and the Respondent’s earlier consent to arbitration could not nullify or prevent the statutory jurisdiction of the MSEFC.

Appointing another arbitrator would create two arbitral tribunals adjudicating the same dispute, which the Court held should not be permitted.

The Court further held that the Applicant’s filing of its Statement of Defence did not amount to waiver because the filing was expressly made under protest and without prejudice, and the Applicant had consistently challenged the MSEFC’s jurisdiction.

Nevertheless, absence of waiver did not confer a right to obtain a second arbitral tribunal under Section 11.

The MSEFC was competent to determine its own jurisdiction under Section 16 of the Arbitration Act, subject to the Applicant’s remedies before the appropriate forum.

The Respondent’s earlier consent to arbitration before the Commercial Court did not permanently forfeit its statutory remedy under the MSMED Act, and the contractual stipulation of Mumbai as the seat could not override the statutory mechanism.

The Applicant had not waived its jurisdictional objections by filing its Statement of Defence, but it was nevertheless not entitled to a parallel arbitral tribunal.

The Section 11 application was accordingly dismissed, without deciding the ultimate validity or continuation of the MSEFC proceedings, which were left to be addressed before the competent forum.