MSMED Act Overrides Arbitration Act In MSME Cases; 75% Pre-Deposit To Challenge Award Mandatory: Madras HC

The Madras High Court has held that in arbitration under the Micro, Small and Medium Enterprises Development Act, 2006, while the procedure is governed by the Arbitration and Conciliation Act, 1996, key substantive provisions such as the mandatory 75% pre-deposit for challenging an award will prevail in case of conflict.

The court clarified that only those provisions of the Arbitration Act apply which are not inconsistent with the MSMED Act.

Justice Abdul Quddhose observed that "MSMED Act is a special statute that overrides the A&C Act only in case of conflict. While the MSMED Act adopts the procedural framework of A&C Act, its mandatory provisions--specifically regarding jurisdiction and pre-deposits prevail. Section 18 of the MSMED Act begins with a non-obstante clause, meaning, it overrides any other law including the A&C Act regarding the dispute about the unpaid dues payable to an MSME. In order to appeal as against the arbitration award passed under the MSMED Act, the appellant must pre-deposit 75% of the award amount under Section 19 of the MSMED Act, whereas the A&C Act does not mandate any such predeposit."

He further noted that Section 18 of the MSMED Act begins with a non-obstante clause overriding other laws in disputes relating to unpaid dues of MSMEs and that an appellant challenging an award must pre-deposit 75% of the award amount under Section 19, a requirement not found in the Arbitration Act.

The court held that a party aggrieved by an award of the Micro and Small Enterprises Facilitation Council cannot bypass the statutory remedy by invoking writ jurisdiction and must instead challenge the award under Section 34 of the Arbitration Act, subject to the pre-deposit requirement under the MSMED Act.

Dismissing a writ petition filed by Kinetic Industries (P) Ltd against an award in favour of J.S. Masix Tooling Solutions, the Court held that the petition was not maintainable.

The dispute began with a claim by J.S. Masix Tooling Solutions before the Micro and Small Enterprises Facilitation Council, Chennai Region, seeking payment for goods it had supplied to Kinetic Industries. On July 15, 2025, the Council allowed the claim and directed Kinetic Industries to pay ₹5.58 lakh along with compound interest, calculated with monthly rests.

Kinetic Industries moved the High Court under Article 226, asking for the order to be set aside. Its core argument was that the mandatory conciliation step under Section 18(2) of the MSMED Act had not been followed before the matter was taken up for arbitration.

Appearing for the Council, the State maintained that conciliation had in fact been carried out, and that arbitration was initiated only after those efforts failed.

Justice Abdul Quddhose, however, did not go into that question. He held that the writ petition itself was not maintainable, making it unnecessary to examine whether the conciliation process had been properly followed.

The Court pointed out that the MSMED Act creates a statutory mechanism for resolving such disputes, one that overrides private arbitration agreements and requires conciliation before arbitration begins. While the arbitral process under the Act follows the procedure set out in the Arbitration Act, the substantive provisions of the MSMED Act, including the requirement of a 75% pre-deposit, continue to govern.

It also noted that the law already provides remedies to challenge jurisdiction and awards, including under Sections 16 and 34 of the Arbitration Act, and that the MSMED framework itself expects disputes to be resolved within 90 days. Allowing writ petitions at this stage, the Court said, would cut across that structure and undermine the goal of speedy resolution.

“Therefore, when the timelines have been fixed both under the MSMED Act as well as the A&C Act for passing an arbitral award, the question of entertaining this writ petition by giving a go-by to Section 34 of the A&C Act which enables the party aggrieved by any award to challenge the same, does not arise. The very object of arbitration, i.e., for speedy resolution of the dispute, will be defeated, if such kind of writ petitions are entertained by this court," the court said.

Holding the writ petition to be not maintainable, the court dismissed it while granting the petitioner exclusion of the time spent in the writ proceedings for the purpose of limitation, thereby enabling it to pursue the statutory remedy.

For Petitioner (Kinetic Industries (P) Ltd): Advocate I. Mohamed Faizal.

For Respondent (Micro Small Enterprises Facilitation Council & Anr.): Special Government Pleader M. Shahjahan.