Facts: Bharat Sanchar Nigam Ltd. (Petitioner) issued purchase orders to Microtex Energy Pvt. Ltd. (Respondent), a registered MSME, for the supply of batteries. Following delays in delivery, the Petitioner claimed a price reduction based on lower rates in another circle and encashed the Respondent's Performance Bank Guarantee (PBG) to recover alleged overpayments. The Petitioner unilaterally appointed an arbitrator under the contract's arbitration clause. This appointment was challenged, and the High Court subsequently appointed a substitute sole arbitrator with the Petitioner's consent. The Arbitral Tribunal awarded the Respondent outstanding dues, refund of the PBG amount, and interest under the MSMED Act. The Petitioner challenged this award primarily on the grounds that the arbitrator lacked jurisdiction, as Section 18 of the MSMED Act mandates arbitration only through the Facilitation Council.
Procedural Posture: The Petitioner filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, before the Bombay High Court to set aside the arbitral award dated 3 May 2024.
Issue: Whether an arbitral award is void for lack of jurisdiction if the dispute involves an MSME but was resolved by an ad hoc arbitrator instead of the Facilitation Council under Section 18 of the MSMED Act, and whether interest under Section 16 of the MSMED Act can be awarded by such an ad hoc arbitrator.
Holding: No, the award is not invalid. The Court held that the remedy under Section 18 of the MSMED Act is an option that must be "triggered" by a party, and in the absence of such invocation, ad hoc arbitration remains valid. Furthermore, an ad hoc arbitrator is competent to award interest under Section 16 of the MSMED Act.
Reasoning: The Court reasoned that while the MSMED Act has an overriding effect, this dominance is only activated once the statutory mechanism under Section 18(1) is triggered by a reference to the Facilitation Council. Since neither party made such a reference and both participated in the ad hoc proceedings (with the Petitioner even agreeing to the Court-appointed arbitrator), the arbitrator did not lose jurisdiction. Regarding interest, the Court held that Sections 15 and 16 of the MSMED Act create substantive rights for MSMEs that are independent of the dispute resolution forum. Therefore, any arbitrator, whether ad hoc or statutory, must grant interest at the rate prescribed by Section 16 to protect the MSME's statutory entitlement to timely payment.