Reference to Arbitral Institution Under Section 18(3) MSMED Act Empowers the Institution to Render Final Award

The Petitioners challenged an Arbitral Award dated 11.12.2025 (amended 09.02.2026) passed by a Sole Arbitrator.

The dispute arose from invoices for stainless steel utensils supplied by the Respondent (Seller) to the Petitioners (Buyer).

The Petitioner claimed the goods were defective after rejection by a sub-buyer (Walmart USA), while the Respondent sought unpaid dues.

The matter was referred to arbitration by the Delhi Micro and Small Enterprises Facilitation Council (Council) via the Delhi International Arbitration Centre (DIAC) under the MSMED Act.

The Petitioners challenged the award on grounds of lack of arbitrator competence, the Respondent's lack of MSME registration at the time of the contract, and patent illegality regarding the acceptance of goods.

1. Whether an award rendered by an arbitral institution (DIAC) is valid under Rule 4 of the DMSEFC Rules, or if the Council alone must pronounce the final award.

2. Whether a supplier must be registered under the MSMED Act at the time of the contract to invoke Section 18 jurisdiction.

3. Whether the findings regarding the "acceptance" of goods and liability for invoices were patently illegal or perverse.

Section 18(3) of the MSMED Act, 2006, which stipulates that upon failure of conciliation, the Council may refer the dispute to an institution for arbitration, whereafter the Arbitration and Conciliation Act, 1996 applies as if there were a Section 7 agreement.

Section 2(n) and Section 8 of the MSMED Act, defining a "supplier" as an entity that has filed a memorandum, noting that the Act does not mandate a separate "registration" certificate beyond this filing.

Judicial review restricted under Section 34 to patent illegality or conflict with fundamental policy, prohibiting re-appreciation of evidence, as per OPG Power Generation (P) Ltd. v. Enexio Power Cooling Solutions and Ssangyong Engg. & Construction Co. Ltd. v. NHAI.

The Court rejected the argument that the Arbitrator only had the power to submit a "report" to the Council, reasoning that Section 18(3) of the MSMED Act provides two distinct paths: the Council acting as an arbitrator itself OR referring it to an institution like DIAC; once referred, the institution operates independently under the A&C Act.

The court held that interpreting the DMSEFC Rules to require a "report" back to the Council would render the statutory reference to institutions redundant and violate the parent Act.

On the registration issue, the court found that filing a memorandum under Section 8 is the sole requirement to be a "supplier," and the Arbitrator’s factual determination of the Respondent's status was not subject to review.

Regarding the merits, the court noted the Arbitrator found that the goods were accepted, property passed under the Sale of Goods Act, and no timely rejection was made; since this was a "possible view" based on evidence (including witness testimony that no defects were noticed upon receipt), the court cannot sit in appeal.

The Court dismissed the petition and the Arbitral Award dated 11.12.2025 was upheld.