Party Cannot Bypass MSMED Act Mechanism To Seek Arbitrator Appointment: Delhi High Court

The Delhi High Court on 9 April 2026 held that once a party invokes the dispute resolution mechanism under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 and the matter is pending before the Micro and Small Enterprises Facilitation Council, it cannot bypass that process by approaching the Court under Section 11(6) of the Arbitration and Conciliation Act, 1996.

A Bench of Justice Mini Pushkarna clarified that even where the Council delays in initiating arbitration, the statutory mechanism under the MSMED Act cannot be sidestepped, as conciliation must first conclude before arbitration can commence. The Court observed:

“Once a party initiates the mechanism envisaged under Section 18 of the MSMED Act, it is bound to adhere to the statutory framework and cannot be permitted to abandon the process midway. Further, the proceedings initiated thereunder must necessarily be taken to their logical conclusion. Such party cannot seek recourse under Section 11(6) of the Arbitration Act, for appointment of an arbitrator.”

The dispute arose from a commercial arrangement that began in January 2018, when Jubilant Marketing Pvt. Ltd., a registered MSME, started supplying conveyor structures to Robbins Tunneling and Trenchless Technology India Pvt. Ltd. pursuant to work orders.

Payments were made intermittently, including a sum of Rs. 8 lakh on 6 June 2023. However, Jubilant alleged that Robbins subsequently defaulted, leaving unpaid dues of Rs. 77,04,901 across 14 invoices.

Seeking recovery, Jubilant invoked the statutory mechanism under Section 18(1) of the MSMED Act by approaching the Micro and Small Enterprises Facilitation Council, New Delhi.

The Council issued a notice on 24 June 2024 directing payment and later converted the matter into a formal case on 2 September 2024. Thereafter, conciliation proceedings followed.

By order dated 22 April 2025, the Council granted Robbins a final opportunity to respond, indicating that failure would result in the matter being forwarded to arbitration.

With no arbitrator appointed thereafter, Jubilant moved the High Court under Section 11(6), contending that the Council's inaction entitled it to seek judicial intervention for appointment of an arbitrator. It argued that the MSMED Act does not provide a remedy where the Council fails to act, and therefore recourse must be taken to the Arbitration Act.

Robbins, on the other hand, argued that there was no independent arbitration agreement between the parties and that once the statutory mechanism under the MSMED Act had been invoked, the entire process must be followed strictly. It contended that the Arbitration Act would apply only after conciliation fails and arbitration is formally initiated under Section 18(3) of the MSMED Act.

Agreeing with Robbins, Justice Pushkarna held that the statute provides a self-contained two-stage mechanism: conciliation under Section 18(2), followed by arbitration under Section 18(3) only upon its failure and formal reference.

The Court noted that while Section 18(1) uses the word “may”, giving a party the option to approach the Council, that choice, once exercised, makes the statutory process binding. Stressing the expression “shall then” in Section 18(3), the Court held that the Arbitration Act applies only after conciliation ends and the dispute is formally referred to arbitration.

It observed:

“It is evident that the provisions of the Arbitration Act shall only be applicable once the conciliation proceedings under Section 18(2) of the MSMED Act stand terminated, and the MSEF Council refers the disputes between the parties to arbitration. Prior to that stage, the provisions of the Arbitration Act shall not be applicable to any proceedings under the MSMED Act.”

It further held that delay by the Council does not justify abandonment of the statutory route, nor can arbitration be invoked in the absence of a valid arbitration agreement.

Accordingly, the Court dismissed the petition as premature and not maintainable.

Appearances for petitioner (M/s Jubilant Marketing Pvt. Ltd.): Advocates Sonal Sarda, Sunidhi Gupta, Jayantika Singh.

Appearances for respondent (M/s Robbins Tunneling and Trenchless Technology India Pvt. Ltd.): Advocates Utsav Saxena, Kartikey Singh.