Supreme Court Leaves Open Question Whether Buyer Of Goods Or Services Can Independently Invoke Arbitration Against MSME Under 1996 Act

"Question of law raised in this appeal is, however, left open to be considered in an appropriate case in future." Supreme Court, in a ruling dated August 5, 2026, disposed of a civil appeal raising a significant question on whether a buyer of goods or services from a micro or small enterprise governed by the MSMED Act can independently initiate arbitration under the Arbitration and Conciliation Act, 1996, while leaving the core legal issue open for future adjudication.

A bench of Justices Sanjay Kumar and Sanjeev Sachdeva observed that the parties had arrived at a mutually agreeable resolution for the appointment of an arbitrator through institutional arbitration.

The appellant, M/s Patel Infrastructure Limited, had approached the Apex Court challenging proceedings and raising an intricate question regarding statutory arbitration mechanics under the Micro, Small and Medium Enterprises Development Act, 2006, and the Arbitration and Conciliation Act, 1996. The appellant relied upon prior judicial precedents from the Delhi High Court in Uniseven Engineering and Infrastructure Pvt. Ltd. vs. Micro and Small Enterprises Facilitation (MSEF) Council and the Calcutta High Court in Essar Oil and Gas Exploration and Production Limited vs. Gargi Travels Private Limited.

The primary question before the court was whether a buyer of goods or services from a micro or small enterprise governed by the MSMED Act can seek to initiate arbitration proceedings in respect of its claim against such MSME by independently taking recourse to the Arbitration and Conciliation Act, 1996. The court was also called upon to determine the appropriate forum and mechanism for resolving inter se disputes between the contracting entities.

Respondent Consents To Institutional Arbitration

During the hearing, Mr. Sanjay Bhaseen, learned senior counsel appearing for the respondent MSME, stated on instructions that his client was fully agreeable to the appointment of an arbitrator through the aegis of the Delhi International Arbitration Centre. The senior counsel submitted that the inter se disputes between the parties should be resolved through arbitration governed by the provisions of the Arbitration and Conciliation Act, 1996.

Agreement On Venue For Convenience

Addressing logistical concerns, the respondent pointed out that the appellant has its registered office at Ahmedabad, Gujarat, while the respondent proprietorship has its office at Basti in Uttar Pradesh. To balance the convenience of both contesting parties, it was proposed that the venue of the ensuing arbitration proceedings be fixed at New Delhi.

Court Accepts Fair Offer To Give Quietus

"Accepting the fair offer made by the learned senior counsel so as to give a quietus to the matter without further ado, the appeal is disposed of requesting the Delhi International Arbitration Centre to appoint a suitable arbitrator..." noted the bench, formally structuring the settlement agreed upon by both sides to bring a prompt end to the litigation.

Directions For Institutional Reference

The bench directed that the arbitration shall be conducted under the provisions of the Arbitration and Conciliation Act, 1996, with New Delhi designated as the official venue. The appellant was instructed to approach the Delhi International Arbitration Centre within two weeks from the date of receipt of a certified copy of the order to set the machinery in motion.

Legal Question Left Open

"The question of law raised in this appeal is, however, left open to be considered in an appropriate case in future," the Supreme Court explicitly clarified, ensuring that the larger statutory interpretation regarding independent buyer-initiated arbitration against MSMEs remains undecided for a more appropriate future contest. The appeal was accordingly disposed of with parties directed to bear their own costs.

Date of Decision: 05 August 2026