Miss. Sunwin Papers (the respondent) supplied waste paper to M/s. Sivadarshini Papers (appellant). The defendant registered as SMEs on 9.11.2016 under the MSMED Law.

As it is alleged that the complainant has not made payments to the respondent for the supplies made by the respondent, the respondent made a reference to the Micro and Small Enterprise Facilitation Council (MSEFC), Madurai on 16.08.2018. MSEFC performed reconciliation. The conciliation did not culminate in a settlement of the dispute between the appellant and the respondent. On 26.07.2019, MSEFC recorded that a consensus was reached between the parties to refer the case to arbitration in accordance with Article 18(3) of the MSMED Law.

The case was transferred to the Arbitration Center attached to the Court for the appointment of an Arbitrator. Pursuant to the same, the Single Arbitrator referred to the case where the appellant filed an application under Section 18(3) of the MSMED Act r/w Section 16 of the Arbitration and Conciliation Act, 1996 questioning the arbitrability of the dispute between the appellant . and the respondent.

The case of the appellant was that the defendant was not a registered SME neither at the time of the transaction that is the subject of the litigation, nor at the time of the referral to the Arbitral Tribunal.

The Sole Arbitrator accepted the appellant’s claims that the respondent was not validly registered as SMEs under the MSMED Law, according to the Office’s Memorandum of 27.06.2017. The arbitrator proceeded to determine the issue on the merits as well as on the issue of whether there was a dispute between the parties and whether the appellant was liable to pay any outstanding amount to the respondent.

Aggrieved by the sentence dated 01.10.2020, the respondent filed a request to challenge it. In its order dated 11.08.2022, the court observed that the Office Memorandum of 27.06.2017 states that the activities listed in Table I shall not be included in the manufacture and production of goods or the rendering or input of services under Section 7. of the MSMED Act. It was noted that the Office Memorandum is prospective.

The Court held that the dispute must be resolved through arbitration. It noted that the award of the Arbitral Tribunal constituted a “patent illegality” under Section 34(2A) of the Arbitration and Conciliation Act, 1996 and was also in conflict with the public policy of India under Section 34( 2)(b)(ii). The court annulled the decision.

The appellant filed an appeal under Order XXXVI Rule XI of the original Secondary Rules r/w Section 37 of the Arbitration and Conciliation Act, 1996 (under section 13(1) of the Commercial Courts Act, 2015) against the impugned Order dated 11.08. 2022.

Observations

The court held that the contested ordinance did not suffer from any jurisdictional error. The court noted that the respondent was an SME within the meaning of the MSMED Act and therefore the respondent was entitled to invoke the jurisdiction of the MSEFC under Section 18 of the MSMED Act.

The court noted that before the MSEFC, the appellant accepted proceedings under the MSMED Act and then filed an application under section 18(3) of the MSMED Act r/w section 16 of the Arbitration Act questioning the respondent’s standing to invoke the jurisdiction/machinery in accordance with the provisions of section 18 of the MSMED Act.

The court held that the defendant was entitled to relief, if any, in respect of the supplies made under the provisions of the MSMED Act.

The court concluded that the arbitrator should not have decided the case on the merits after concluding that the respondent was not an SME and was therefore not entitled to invoke the mechanism under the MSMED Act.

The court referred the case to a new arbitrator appointed by the High Court Mediation and Conciliation Centre. He rejected the appeal.

Case Title: MISS. Sivadarshini Papers Limited Vs. M/S. Sunwin Papers
Case number: OSA (Comm.App.Div.) No.7 of 2023 and CMPNo.2407 of 2023 and CMPNo.16053 of 2024

Citation: 2024 LiveLaw (Crazy) 420

For the appellant: Mr. Anirudh Krishnan

For the respondent: Mr. P.Rajasekaran (Party in person)

Judgment date: 30.10.2024