Supreme Court Directs DIAC To Appoint Arbitrator For Patel Infrastructure

• The Supreme Court directed the Delhi International Arbitration Centre (DIAC) to appoint an arbitrator for a dispute between M/s Patel Infrastructure Limited and M/s Aditya Construction.
• The arbitration proceedings will be conducted under the Arbitration and Conciliation Act, 1996.
• The Court explicitly left open the significant legal question of whether a buyer can independently initiate arbitration against an MSME under the Arbitration Act, 1996, rather than the MSMED Act, 2006.
• M/s Aditya Construction, an MSME, agreed to the DIAC appointment, leading to the resolution of the immediate appeal without a ruling on the broader legal issue.
• New Delhi was designated as the arbitration venue for the convenience of both parties, with the appellant instructed to approach DIAC within two weeks.

The Supreme Court explicitly left open the significant question of whether a buyer can independently initiate arbitration against an MSME under the Arbitration Act, 1996, rather than the MSMED Act, 2006.

The Supreme Court recently issued a directive for the Delhi International Arbitration Centre (DIAC) to appoint an arbitrator, aiming to resolve a commercial dispute between M/s Patel Infrastructure Limited and M/s Aditya Construction. This decision came in the context of an appeal filed by Patel Infrastructure Limited, which sought to initiate arbitration against Aditya Construction, an entity classified as a Micro, Small, and Medium Enterprise (MSME). The Court's order mandates that the arbitration proceedings will be conducted under the framework of the Arbitration and Conciliation Act, 1996.

The case, titled M/s. Patel Infrastructure Limited Vs M/s Aditya Construction, involved a buyer (Patel Infrastructure) seeking to resolve differences with a supplier (Aditya Construction). During the proceedings, the respondent MSME, represented by senior counsel Sanjay Bhaseen, indicated its willingness to proceed with arbitration through the DIAC. This agreement facilitated a swift resolution to the immediate appeal, allowing the Supreme Court to dispose of the matter without delving into a complex legal question that had been raised.

A significant legal point emerged during the Supreme Court's consideration of the appeal, which the bench, comprising Justices Sanjay Kumar and Sanjeev Sachdeva, acknowledged as an "interesting question of law." The central inquiry revolved around whether a buyer of goods or services from an MSME, whose operations are governed by the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), possesses the right to independently initiate arbitration proceedings against the MSME by invoking the Arbitration and Conciliation Act, 1996. This distinction is crucial as the MSMED Act provides a specific mechanism for dispute resolution involving MSMEs.

Counsel for the appellant, Advocate Tanyiya Bansal, presented arguments supporting Patel Infrastructure Limited's position, citing previous judgments from other high courts. These included the Delhi High Court's 2023 decision in Uniseven Engineering and Infrastructure Pvt. Ltd. vs. Micro and Small Enterprises Facilitation (MSEF) Council, District (South), and another, as well as the Calcutta High Court's 2023 ruling in Essar Oil and Gas Exploration and Production Limited vs. Gargi Travels Private Limited. These precedents were put forth to bolster the argument for buyer independent arbitration MSME under the general arbitration law.

Despite the complex legal question presented, the Supreme Court opted for a pragmatic approach to conclude the immediate dispute. Senior counsel Sanjay Bhaseen, acting on instructions from the respondent MSME, M/s Aditya Construction, conveyed the company's agreement to the appointment of an arbitrator by the Delhi International Arbitration Centre. This "fair offer," as noted by the Bench, allowed for a "quietus" to the matter, preventing further protraction of the appeal.

Consequently, the Supreme Court directs DIAC appoint arbitrator Patel Infrastructure to resolve the inter se disputes between Patel Infrastructure Limited and Aditya Construction under the Arbitration and Conciliation Act, 1996. For the convenience of both parties, considering Patel Infrastructure's registered office in Ahmedabad, Gujarat, and Aditya Construction's office in Basti, Uttar Pradesh, the Court fixed New Delhi as the venue for the arbitration. The appellant was further instructed to approach the Delhi International Arbitration Centre within a two-week timeframe to commence the process.

Crucially, while disposing of the appeal and facilitating the arbitration, the Supreme Court explicitly clarified that it had not rendered a decision on the fundamental legal question raised. The issue of whether a buyer can independently initiate arbitration against an MSME under the Arbitration Act, 1996, rather than adhering to the specific provisions of the MSME Development Act, 2006 arbitration, remains an open question. The Court, in its judgment dated August 5, 2026, stated that this significant point of law is "left open to be considered in an appropriate case in future."

This deliberate non-decision means that the jurisdictional ambiguity surrounding dispute resolution mechanisms involving MSMEs persists. Legal professionals advising clients, particularly buyers engaging with micro and small enterprises, must continue to navigate this uncertainty. The Supreme Court's stance underscores that the interplay between the general arbitration law and the specialized MSMED Act in such scenarios is yet to be definitively settled, leaving room for future litigation and judicial interpretation.

The Supreme Court explicitly left open the significant question of whether a buyer can independently initiate arbitration against an MSME under the Arbitration Act, 1996, rather than the MSMED Act, 2006. This means legal professionals must continue to navigate this jurisdictional ambiguity when advising clients on dispute resolution strategies involving MSMEs, as the issue remains undecided and could arise in future cases.

Source: Reporting based on a recent Supreme Court judgment.