MSME Registration Does Not Automatically Override Existing Arbitration Agreement: Bombay High Court

The Bombay High Court on 25 August held that registration under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) does not by itself override an agreed contractual arbitration mechanism, where the statutory process before the Micro and Small Enterprises Facilitation Council has not actually been invoked.

Justice Amit Borkar allowed Qwik Supply Chain Private Limited's application under Section 11 of the Arbitration and Conciliation Act, 1996 and appointed Advocate Vikramjit Grewal as sole arbitrator in its Rs. 76.67 lakh dispute with CRPL Infra Private Limited. The Bench observed:

“Position cannot be understood to mean that registration as MSME removes every arbitration agreement contained in contract. Statutory conditions and factual position have to be considered. A statement that party intends to approach Facilitation Council is different from actual reference under Section 18(1). Statutory process cannot be treated as having commenced merely because one party expressed intention to invoke such remedy.”

The dispute arose from a Cold Storage Facility Service Agreement dated 27 April 2021 between Qwik Supply Chain and CRPL Infra, which contained an arbitration mechanism under Clause 19. The parties subsequently executed amendment agreements dated 20 April 2022 and 14 November 2022. Certain crates and pallets went missing in February 2023. CRPL Infra lodged a police complaint on 11 February 2023, resulting in an FIR.

In an email dated 28 February 2023, CRPL Infra acknowledged the shortage, attributed it to theft and expressed willingness to compensate uncovered losses through adjustments against its monthly service bills. Qwik Supply Chain later quantified its claim at Rs. 76,67,613 and demanded payment on 27 April 2024. It invoked arbitration on 24 June 2024 and nominated an arbitrator under Clause 19.

CRPL Infra declined the proposed appointment on 29 July 2024, stating that, being registered as an MSME, it intended to approach the Facilitation Council. However, on 26 August 2024, CRPL Infra itself issued a notice under Section 21 of the Arbitration and Conciliation Act invoking arbitration and nominated another arbitrator. Qwik Supply Chain objected and eventually approached the Bombay High Court under Section 11 on 4 July 2025.

The key issue before the Court was whether CRPL Infra's MSME registration and its stated intention to approach the Facilitation Council were sufficient to displace the contractual arbitration mechanism.

The Court held that MSME registration alone did not override the existing arbitration agreement. It noted that there was no material showing that CRPL Infra had actually made a reference under Section 18(1) of the MSMED Act before the Section 11 proceedings.

It also noted that Qwik Supply Chain's Rs. 76.67 lakh claim concerned compensation for the alleged loss of crates and pallets, rather than a straightforward claim for unpaid dues for goods supplied or services rendered. It therefore left open whether Sections 17 and 18 of the MSMED Act applied to the dispute.

On Clause 19, the Bench held that the word “may” did not make arbitration optional or require fresh consent after a dispute arose, as the clause contained a complete arbitration mechanism. It also rejected the objection based on the theft proceedings, holding that possible criminal liability for theft was distinct from CRPL Infra's alleged civil or contractual liability for the loss.

Further, the Bench found that CRPL Infra had failed to nominate an arbitrator within 30 days of Qwik Supply Chain's 24 June 2024 notice. Under Clause 19.3, the agreed consequence was that the arbitrator nominated in the original request would act as sole arbitrator. CRPL Infra's later arbitration notice could not undo that consequence.

Accordingly, the High Court allowed the application and appointed Advocate Vikramjit Grewal as sole arbitrator, while leaving questions concerning jurisdiction, arbitrability, applicability of the MSMED Act and maintainability open for determination by the Tribunal.

Appearances for Qwik Supply Chain Private Limited: Advocates Ankit Lohia, Kshitij Madekar, Gaurav Thakur and Aditi Kambli, instructed by A. S. Dayal & Associates.

Appearances for CRPL Infra Private Limited: Advocate Krupa R. Parekh, instructed by Ankit Agarwalla.