Itw Catalyst Private Limited vs. Marcadeo Enterprises

Facts

The petitioner, ITW Catalyst Private Limited, filed a Civil Miscellaneous Petition under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator. The petitioner and respondents entered into agreements dated 05.01.2022 and 15.01.2022 for marketing services related to a digital currency platform. The respondents filed an application before the Micro and Small Enterprises Facilitation Council (MSEFC) in Uttar Pradesh, claiming Rs. 31,50,000/- for unpaid invoices, citing Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006. The petitioner raised objections regarding the maintainability of the MSEFC application, including lack of jurisdiction and privity of contract. Despite these objections, the MSEFC passed an order on 29.10.2022 directing the petitioner to make payment. The petitioner contended that the MSEFC order did not consider the subsequent agreement dated 15.01.2022 and that arbitration was the agreed dispute resolution mechanism.

Held

The Court held that the MSMED Act, 2006, being a special law, has precedence over the Arbitration and Conciliation Act, 1996, which is a general law. This overriding effect is further strengthened by Section 24 of the MSMED Act. The Court found that the MSEFC had considered the dispute between the parties, including the petitioner's objections and contentions that the respondent owed money to the petitioner. The Council concluded that the petitioner was liable to pay the respondent and issued a direction for payment. Therefore, it would be illogical to allow the petitioner to invoke arbitration for a dispute already adjudicated. The Court noted that if the petitioner had grievances regarding the MSEFC order, they should have challenged it directly. Since the MSMED Act proceedings have an overriding effect, the petitioner's prayer for appointment of an arbitrator under the arbitration clause was dismissed.

Key Issues

1. Whether the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) has an overriding effect on the Arbitration and Conciliation Act, 1996, in cases where a dispute has been adjudicated by the MSEFC? (Question of law) 2. Whether the petitioner is precluded from invoking the arbitration clause and seeking appointment of an arbitrator when the dispute has already been considered and decided by the MSEFC? Petitioner's Arguments: The petitioner argued that the MSEFC had not considered the subsequent agreement dated 15.01.2022, and therefore, the dispute concerning this agreement remained unresolved and could be referred to arbitration as per the arbitration clause in the agreements. They contended that the MSEFC proceedings were not maintainable due to jurisdictional issues and lack of privity of contract. Respondents' Arguments: The respondents contended that once parties submit to the MSEFC, and the dispute is decided, it is impermissible for one party to seek arbitration for the same dispute. They argued that the MSEFC considered all claims, including those arising from both agreements, and that the petitioner's objections regarding the scope of the MSEFC proceedings were unfounded. They relied on the Supreme Court's decision in Gujarat State Supplies Corporation Ltd. vs. Mahakali Foods Pvt. Ltd. and a Madras High Court decision.