Merely Because The Borrower Is An MSME, It Would Not Be Governed By The Arbitral Mechanism Provided Under MSMED Act: Gujarat High Court

The Gujarat High Court has ruled that merely because the borrower is an MSME, it would not be governed by the provisions of the Micro, Small and Medium Enterprises Development Act, 2006, including the arbitral mechanism envisaged under the said Act. The bench of Justice Biren Vaishnav observed that though, as per the mechanism provided under the MSMED Act, the dispute between the supplier and the buyer of goods or services may be adjudicated through arbitration in accordance with the Arbitration and Conciliation Act, 1996, however, the same does not contemplate adjudication of disputes arising from a loan transaction, which is the subject matter of a special Act such as the SARFAESI Act. The petitioner, Indian Bank, submitted before the Court that the 2nd respondent, without invoking the remedy available to it under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal, invoked the jurisdiction of the Sole Arbitrator. Having failed to invoke the provisions under Section 17 of the SARFAESI Act, it was not open for the 2nd respondent to invoke the jurisdiction of the ‘Sole Arbitrator’, the Court held. Referring to the decision of the Division Bench of Gujarat High Court in Varshaben Naranbhai Dantani vs. Radheshyam Tarachand Agarwal, the Court said, “To borrow the terms of the Division Bench in the case of Varshaben Naranbhai Dantani when it comes to adjudication of such awards passed by this masquerading Arbitrator – respondent no.1, this Court under Article 226 of the Constitution of India has to step in and set aside such award passed by an arbitrator ‘Sole Arbitrator’ who is in fact not ‘Sole’ but ‘Self Appointed Arbitrator’.” The Court thus allowed the petition and set aside the arbitral award.