Delhi High Court Clarifies MSME Arbitration Authority Under Section 18(3)
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TL;DR
- Delhi High Court ruled arbitral tribunals do not need MSME Council approval before issuing final awards under Section 18(3) of the MSMED Act.
- The dispute involved Harsh International and Dewan and Sons over unpaid dues for supplied goods.
- The Court rejected the argument that arbitral institutions act as advisors, confirming they have full authority to make binding awards after referral.
- The ruling clarifies procedure and aims to prevent delays in MSME payment dispute resolutions.
Overview
The Delhi High Court has issued a ruling clarifying that, following a referral by the MSME Facilitation Council under Section 18(3) of the MSMED Act, arbitral tribunals or institutions are not required to obtain further approval from the Council before issuing a final arbitral award. The dispute in question involved M/s Harsh International and M/s Dewan and Sons in connection with payment for goods supplied.
What Happened
Harsh International supplied stainless steel utensils to Dewan and Sons and claimed that payment amounting to approximately ₹2.05 crore was not received. Dewan and Sons contested the claim, asserting that the goods were defective and rejected by Walmart US, resulting in financial loss and the issuance of debit notes.
Conciliation proceedings led by the Delhi MSME Facilitation Council did not resolve the matter, prompting a referral to the Delhi International Arbitration Centre (DIAC) for arbitration under Section 18(3) of the MSMED Act.
In December 2025, the arbitral tribunal awarded Harsh International about ₹1.90 crore. Dewan and Sons challenged the process, arguing that final approval from the MSME Council was required before enforcing the award.
The Delhi High Court ruled that after referral, the arbitral institution has full authority to decide and issue binding awards, with no statutory requirement to submit recommendations back to the Council for approval.
Context
Indian law, under the Micro, Small and Medium Enterprises Development Act (MSMED Act), allows payment disputes involving MSMEs to be brought before a Facilitation Council for conciliation and possible arbitration.
Section 18(3) of the Act permits the Council to refer disputes to arbitration, where the Arbitration and Conciliation Act then provides the governing framework.
Previously, some parties argued that arbitral tribunals needed to submit recommendations for MSME Council approval before an award could be finalized, potentially creating additional procedural barriers and delays.
Why It Matters
- This judgment clarifies procedural steps in MSME arbitration, confirming that arbitral institutions have direct authority to issue binding awards without further Council involvement.
- The decision seeks to accelerate dispute resolution for MSMEs, reducing opportunities for procedural challenges and delays that could disadvantage small suppliers.
- The ruling reinforces confidence in institutional arbitration and clarifies the legal process under the MSMED Act, benefitting both suppliers and buyers by establishing a clear dispute resolution route.