Supreme Court Paves Way for Expeditious Adjudication: Sole Arbitrator Appointed in MSME Dispute Upon Express Consent to Regular Arbitration

 Citation: Civil Appeal No. 10750 of 2026 (arising out of SLP (C) No. 24388 of 2026); 2026 INSC 874 (Non-Reportable).

Coram: Hon’ble Mr. Justice J.B. Pardiwala and Hon’ble Mr. Justice K. Vinod Chandran.
Date of Final Disposition: 13 August 2026.

 Introduction

In a noteworthy exercise of its plenary powers under Article 136 of the Constitution of India, the Supreme Court has facilitated the expeditious resolution of a commercial dispute involving a micro/small enterprise by appointing a sole arbitrator, while concurrently delineating the legal consequences flowing from a party’s express consent to opt out of the statutory adjudicatory mechanism under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act” or “the Act of 2006”). The order underscores the doctrine of waiver and the principle that benefits under a special statute cannot be claimed de hors the statutory scheme once a party has consciously elected an alternative forum.

 Factual Matrix and Procedural History

The appellant, M/s Indo Engineering Works, a small-scale industry, invoked the jurisdiction of the Andhra Pradesh Micro and Small Enterprises Facilitation Council for arbitration of disputes arising out of its contractual engagement with Rashtriya Ispat Nigam Limited (RINL). The Facilitation Council having taken cognizance, the respondent preferred a writ petition under Article 226 of the Constitution, which came to be allowed by a learned Single Judge of the High Court of Andhra Pradesh. The Single Judge held, inter alia, that the contract in question was a works contract and that the appellant stood disentitled to the beneficial provisions of the MSMED Act by reason of non-filing of the memorandum under Section 8 thereof, as mandated by the ratio decidendi of Silpi Industries & Ors. v. Kerala State Road Transport Corporation & Anr., (2021) 18 SCC 790.

In the intra-court appeal (WA No. 716/2022), the Division Bench kept the proceedings in abeyance, taking judicial notice of the fact that the precise applicability of the Silpi Industries requirement of filing a Section 8 memorandum to already-registered small-scale industries stood referred to a larger Bench of three Judges of this Court.

 Relevant Orders of 17 July 2026 and 24 July 2026

The special leave petition first came up for consideration on 17 July 2026. The operative portion of the order dated 17 July 2026 reads thus:

“1. Delay condoned.

2. We heard Ms. Swati Surbhi, the learned Advocate-on-Record appearing for the petitioner.

3. The learned counsel would submit that her client is ready and willing to go for regular arbitration other than through the Facilitator under the Micro, Small and Medium Enterprises Act, 2006 (MSME).

4. Issue notice, returnable on 24-7-2026.

Dasti service, in addition, is permitted.”

 When the matter was next listed on 24 July 2026, the Court recorded the following:

“1. Our Order dated 17-7-2026 reads thus:-
[reproducing the earlier order]

2. Today, when the matter was taken up for further hearing, Ms. Swati Surbhi, the learned Advocate-on-Record appearing for the petitioner, after taking instructions from her client, makes a Statement that her client is ready and willing to go for regular arbitration other than through the Facilitator under the Micro, Small and Medium Enterprises Act, 2006 (MSME).
3. Mr. K. Nataraj, the learned Additional Solicitor General has appeared on behalf of the Respondent No.2 - Union of India.

4. We find that the Respondent Nos.1 and 4 respectively have been directly served by the petitioner duly served with the dasti service. However, none is present on behalf of the Respondent Nos.1 and 4 respectively today. Mr. Dhruv Mehta, the learned counsel has entered his appearance on behalf of the Respondent No.3.

5. As a last chance, post it on 13-8-2026.”

 These orders crystallise the appellant’s unequivocal and informed consent, recorded after due instructions, to submit to regular arbitration dehors the Facilitation Council mechanism under the MSMED Act.

 Issues for Determination

The principal questions that fell for consideration were:

 (a) Whether the pendency of a larger Bench reference on the ratio of Silpi Industries operated as a complete bar to the grant of any interim or final relief?

(b) Whether the appellant’s express consent to regular arbitration ipso facto disentitled it from claiming the protective and beneficial provisions of the MSMED Act?

Contentions and the Court’s Reasoning

On 13 August 2026, learned counsel for the respondent advanced the dual submission that the arbitration agreement mandated institutional arbitration and that, upon reference either to an institutional forum or to an independent arbitrator, the appellant stood precluded from availing itself of the benefits under the Act of 2006. This was stoutly opposed on behalf of the appellant.

 The Court, however, held that notice itself had been issued only upon the appellant’s consent that the arbitral process would proceed in the “normal mode” and not through the Facilitation Council. The Court had consciously adopted this course of action to obviate the further delay that would inevitably ensue from the larger Bench reference, particularly in a claim preferred by a small-scale industry that had admittedly not filed the memorandum under Section 8 of the Act of 2006.

 The Court, therefore, recorded its definite opinion that once arbitration is sought and proceeded with on the normal mode pursuant to such consent, the appellant cannot claim any of the benefits provided under the Act of 2006. The principle of waiver and the doctrine of approbate and reprobate stand attracted: a party that has elected to abandon the statutory forum cannot thereafter claim the concomitant statutory advantages.

 In exercise of its powers, the Court appointed Hon’ble Mr. Justice R. Raghunandan Rao, Former Judge of the Andhra Pradesh High Court, as the Sole Arbitrator. The learned Arbitrator was directed to issue notices to the parties, and was left free to determine his fee in consultation with the parties. The Court expressly clarified that it had expressed no opinion on the merits of the underlying claims, which remain res integra for adjudication before the learned Arbitrator. The Registry was directed to communicate the order to the learned Arbitrator, and the appeal, together with pending applications, stood disposed of.

-- AI Assisted