Dead End Or Detour? Reference To Arbitration In MSE Disputes

Timely payments are essential for the survival and smooth functioning of Micro and Small Enterprises ('MSEs'), as delays can seriously disrupt their operations and finances. To address this, the Micro, Small and Medium Enterprises Development Act, 2006 ('MSMED Act') offers a framework for quick resolution of payment disputes.

Section 18 of the MSMED Act sets out a two-step process — conciliation followed by arbitration, both facilitated by the Micro and Small Enterprises Facilitation Council ('MSEFC') — providing MSEs with a faster alternative to traditional litigation.

In practice, delays or inaction by the MSEFC after conciliation often leave MSEs without a clear way forward. This raises the question of whether courts can appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 ('Arbitration Act') when MSEFC fails to act. The article examines the legal framework, rulings, and remedies available to MSEs in these cases.