Arbitral Tribunal Need Not Seek MSME Council Approval Before Passing Final Award: Delhi High Court

The Delhi High Court has held that the MSMED Act and the Arbitration and Conciliation Act do not envisage any intermediary mechanism requiring an arbitral institution to submit a recommendatory report to a Micro and Small Enterprises Facilitation Council for approval or confirmation.

Once a dispute is referred by the Council under the MSMED Act, the arbitral institution can independently render a final arbitral award, the Court held.

Justice Harish Vaidyanathan Shankar dismissed a challenge to an award passed through the Delhi International Arbitration Centre (DIAC) in an MSME payment dispute between M/s Harsh International and M/s Dewan and Sons.

“Neither the MSMED Act nor the provisions of the A&C Act envisage any intermediate or hybrid procedure whereby the arbitral institution merely renders a recommendatory report or opinion to the Council for eventual approval, confirmation, or pronouncement of an award by the Council itself No such statutory requirement, procedure, or supervisory mechanism can be culled out either from the language of Section 18(3) of the MSMED Act or from the scheme of the A&C Act," the Court said.

The dispute arose after Harsh International supplied stainless-steel utensils to Moradabad-based partnership firm Dewan and Sons, which exported the goods to Walmart Inc. in the United States.

Harsh International claimed that invoice amounts totalling ₹2.05 crore remained unpaid.

Dewan and Sons contended that Walmart later rejected the goods as defective, causing business losses and forcing it to settle Walmart's claims by paying ₹2.29 crore. The firm also relied on debit notes allegedly issued against returned goods.

Harsh International approached the Delhi Micro and Small Enterprises Facilitation Council seeking recovery of the unpaid dues. After conciliation proceedings failed, the Council referred the dispute to DIAC under Section 18(3) of the MSMED Act.

The arbitral award dated December 11, 2025, as amended on February 9, 2026, directed Dewan and Sons and its partners to pay ₹1,90,37,979.82 after rejecting the defence that the goods supplied were defective.

Challenging the award under Section 34 of the Arbitration and Conciliation Act, Dewan and Sons argued that under the Delhi Micro and Small Enterprises Facilitation Council Rules, only the Council could render the final award and that the arbitrator could merely submit a report.

Rejecting this contention, the Court held that once a dispute is referred under Section 18(3) of the MSMED Act to an arbitral institution, the arbitral proceedings continue independently under the Arbitration and Conciliation Act, with the institution deriving authority directly from the statutory reference.

"Such an interpretation would defeat the legislative object of enabling specialized arbitral institutions to independently undertake adjudicatory functions in disputes arising under the MSMED Act and would amount to reading into the statute a procedure which the legislature has consciously not provided,” the court ruled.

Dewan and Sons also argued that Harsh International was not registered under the MSMED Act when the dispute arose and therefore could not invoke the statutory dispute resolution mechanism.

Rejecting this objection as well, the Court held that filing the statutory memorandum under Section 8 is sufficient for a micro or small enterprise to invoke the protections available under the MSMED Act.

On merits, the Court found no reason to interfere with the arbitral tribunal's findings that the goods had been accepted, were never returned, and that the Walmart transaction was independent of the supplier's contractual claim.

Holding that the challenge effectively sought a reappreciation of evidence beyond the limited scope of Section 34 review, the Court dismissed the petition.

For Petitioners (Dewan and Sons and Ors.): Advocates Gaurav Gaur, Nitin K Gupta, Punit Singla, Prasoon Kumar, Pranjal Vyas, Ayushi Arya, Samriddhi Tiwari, Sanchay Mehrotra and Parth Kansal.

For Respondent (Harsh International): Advocates Nitin Mittal and Kailash Chander.