Kolhar India Private Ltd (KIPL) and Oswaj Private Ltd (OPL), were both registered under Micro, Small and Medium Enterprises Development Act, 2006. The Companies, entered into an agreement for providing raw materials and

The Legislature has passed several laws mandating disputing parties to go through mandatory conciliation or mediation processes before starting arbitration or going to court as a result of the growing pressure on civil courts. With the intention of relieving the Civil Courts of some of their workload by weeding out issues that can be settled through conciliation or mediation, these regulations act as a necessary prerequisite to initiating arbitration or court procedures. One of the most important sectors for India's economic growth is the Micro, Small, and Medium-Sized Enterprises (MSMEs) sector, especially in light of the COVID-19 pandemic's difficult circumstances, which led to the Central Government's implementation of specific financial stimulus programs for this industry. The Micro, Small and Medium Enterprises Development Act of 2006 (the "Act") governs MSMES which increases the scope of Mediation for resolution of disputes under MSMEs. However in case of BSNL vs. Maharashtra Micro and Small Enterprises, the Bombay High Court found that Section 18 (1) of the Act, in terms allows any party to a dispute relating to the amount due under Section 17 i.e. an amount due and payable by buyer to seller; to approach the facilitation Council. It is rightly contended by the learned Addl. Government Pleader, that there can be variety of disputes between the parties such as about the date of acceptance of the goods or the deemed day of acceptance, about schedule of supplies etc. because of which a buyer may have a strong objection to the bills raised by the supplier in which case a buyer must be considered eligible to approach the Council. Further, the Court found that we find that Section 18(1) clearly allows any party to a dispute namely a buyer and a supplier to make reference to the Council. However, the question is; what would be the next step after such a reference is made, when an arbitration agreement exists between the parties or not. The court found that there is no provision in the Act, which negates or renders an arbitration agreement entered into between the parties ineffective. Moreover, Section 24 of the Act, which is enacted to give an overriding effect to the provisions of Section 15 to 23-including section 18, which provides for forum for resolution of the dispute under the Act-would not have the effect of negating an arbitration agreement since that section overrides only such things that are inconsistent with Section 15 to 23 including Section 18 notwithstanding anything contained in any other law for the time being in force. Section 18(3) of the Act in terms provides that where conciliation before the Council is not successful, the Council may itself take the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution and that the provisions of the Arbitration and Conciliation Act, 1996 shall thus apply to the disputes as an arbitration in pursuance of arbitration agreement referred to in Section 7 (1) of the Arbitration and Conciliation Act, 1996. This procedure for arbitration and conciliation is precisely the procedure under which all arbitration agreements are dealt with. The court, thus found that it cannot be said that because Section 18 provides for a forum of arbitration an independent arbitration agreement entered into between the parties will cease to have effect. In view of the above, it can be said that KIPL will likely succeed in approaching the Facilitation Council despite having an arbitration agreement with OPL. The judicial pronouncement in BSNL vs. Maharashtra Micro and Small Enterprises indicates that Section 18(1) of the Micro, Small And Medium Enterprises Development Act, 2006 allows any party to a dispute to approach the Council, and this does not negate an existing arbitration agreement. Therefore, KIPL's recourse to the Facilitation Council is valid.