MSME Counter Claim Maintainable Without Prior Reference to Conciliation

Judgment dated 1.10.2026 of the LXXXVIII Additional City Civil & Sessions Judge (Exclusive – Commercial Court), Bengaluru City (CCH 89) in Com. A.P. No.103 of 2023 of Department of State Education Research and Training  Vs.   Puthur Infotech Private Limited and another

On 2.4.2014, the respondent – claimant was given tender work for Annual Maintenance Contract of UPSs systems with batteries, MFD Printers and LCD projectors in the schools.

In 2018, the respondent approached the MSME Facilitation Council for failure to make payment of bills.

The petitioner filed statement of objections and also counter claim.

The petitioner has filed this petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging the Arbitral Award dated 26.05.2023 and additional award dated 12.06.2023 passed in Arbitration Case No. 4/2022, whereby the learned Sole Arbitrator partly allowed the claim of Respondent No.1 and rejected the counter-claim filed by the petitioner. By the said award, the learned Sole Arbitrator directed the petitioner to pay a sum of 7,75,17,356/- along ₹ ₹ with interest at the rate of 18% per annum and a further sum of 1,27,90,319/- along with interest @ 6% p.a., besides ₹5,00,000/- towards legal fee and 1,00,000/- as ₹ miscellaneous expenses. Subsequently, by an Additional Award dated 12.06.2023, the learned Sole Arbitrator directed the petitioner to issue an NOC and hand over the original bank guarantee documents to the claimant.

This Court has carefully considered the rival contentions. As rightly contended by the learned Additional Advocate General, the scheme of the MSMED Act does not require a buyer to refer its independent counter-claim to the MSME Council. Section 18(1) of the MSMED Act permits any party to a dispute to make a reference to the Facilitation Council with regard to any amount due under Section 17. Though Section 18(1) employs the expression “any party to a dispute”, what is material is the subsequent requirement that such reference must be with regard to an amount due under Section 17. 56. Section 17 of the MSMED Act specifically provides for the liability of a buyer to pay the amount due to a supplier in respect of goods supplied or services rendered by the supplier, together with interest. Thus, Section 17 is confined to a claim made by a supplier in respect of goods supplied or services rendered. It does not contemplate an independent counter claim raised by a buyer.

Therefore, the finding recorded by the Arbitral Tribunal that the respondent was not entitled to maintain its counter-claim in the absence of a pre-mediation reference to the MSME Council is contrary to the scheme of the MSMED Act. This cannot be characterised as a mere erroneous application of law. The finding goes to the very maintainability of the counter-claim. The Arbitral Tribunal has neither adjudicated the counter-claim on its merits nor assigned any reasons with regard to the merits thereof.