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  • Writer's pictureChambers of Daksha Kumar

Does the MSMED act have an overriding effect on the arbitration agreement signed between the parties

Updated: May 12, 2022

The overriding effect only applies if the two acts are inconsistent, but there is no inconsistency between section 18 of the arbitration act and an individual arbitration agreement. Both clauses are governed by the provision of the Arbitration Act, 1996.

Almost every business contract has an arbitration clause. This clause assists them in resolving the dispute using arbitration principles and laws. Indian courts even made this rule a norm in most of the cases.

The parties had two arbitration agreements to resolve disputes in the case of Bharat Sanchar Nigam Ltd versus Maharashtra micro and small enterprises, however, they later withdrew them. The respondent then filed a referral with the facilitation court.

In response, the petitioner went to the Bombay High Court. After reviewing the entire case, the court concluded that there is no clause in the parties' agreement that renders the arbitration statute useless. Section 18 is also based on the same Arbitration and Conciliation Act, of 1996.

However, one of the parties has already filed a reference in facilitation court under section 18 sub-sections 1. As a result, they must follow the procedures outlined in section 18 sub-section 2. They can, however, use their arbitration act afterwards.

The respondent in the case of GET & D India Limited versus reliable engineering approached the facilitation council because the petitioner had not paid him for his services. After hearing the entire case, the facilitation council ruled against the petitioner.

The petitioner went to the High Court to challenge the constitutionality of section 18. The petitioner stated when the arbitration agreement was in existence, implying that article 18 is valid in resolving the dispute between the petitioner and the respondent.

The Delhi High Court held a different view than the Bombay High court on this issue. According to the court, a contractual clause cannot trump statutory provisions. The court also stated that the MSMED Act is a special act created for the benefit of micro, small, and medium businesses and that there is a statute that establishes a standard mechanism for resolving disputes.

As a result, we can conclude that the overriding impact only occurs when the arbitration agreement and the MSMED act are in conflict. But there is no overriding impact if there is no contradiction.

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