![MSME Unit Opting for Regular Arbitration Cannot Claim MSMED Act Benefits, Sole Arbitrator Appointed: Supreme Court in M/s Indo Engineering Works v. RINL [2026 INSC 874]](/assets/images/article-corporate.svg)
Quick Answer: A small scale industry that agrees to ordinary arbitration, instead of going before the MSME Facilitation Council, cannot later claim the benefits of the MSMED Act, 2006 in that arbitration. The Supreme Court appointed a former Andhra Pradesh High Court Judge as sole arbitrator in a dispute between M/s Indo Engineering Works and Rashtriya Ispat Nigam Limited (RINL). The Court offered this route because the question decided in Silpi Industries is pending before a larger Bench, and the reference could delay the supplier's claim further.
In M/s Indo Engineering Works v. Rashtriya Ispat Nigam Limited (RINL) & Ors. (2026 INSC 874), the Supreme Court held that, as notice was issued only on the appellant's consent to arbitrate in the normal mode rather than through the Facilitation Council, the appellant cannot claim any benefit under the Micro, Small and Medium Enterprises Development Act, 2006 in that arbitration (paras 4, 6–7). A Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran declined to interfere with the High Court's approach since the ratio of Silpi Industries on filing a memorandum under Section 8 is pending before a larger Bench, and appointed Justice R. Raghunandan Rao, former Judge of the Andhra Pradesh High Court, as sole arbitrator, leaving all merits open (paras 3–4, 8).
Status: Appeal disposed of; sole arbitrator appointed on consent; appellant not entitled to MSMED Act benefits in the arbitration; merits left open (paras 7–8, 10).
Headnote: Regular Arbitration Instead of MSME Facilitation Council
Micro, Small and Medium Enterprises Development Act, 2006 – Section 8 – Memorandum not filed – MSME Facilitation Council – Works contract – Silpi Industries v. Kerala State Road Transport Corporation – Reference to larger Bench pending – Consent to regular arbitration – Benefits of the Act of 2006 not available – Appointment of sole arbitrator – Merits left open.
Held: (i) With a reference on the Silpi Industries ratio pending before a larger Bench, the Court was not convinced that it could interfere with the High Court's decision to keep the appeal in abeyance (paras 3–4).
(ii) To avoid further delay of the claim of a small scale industry, the Court suggested arbitration in the normal mode, outside the Act of 2006, and issued notice only on the appellant's consent (paras 4, 6).
(iii) Having opted for arbitration in the normal mode, the appellant cannot claim any benefit provided under the Act of 2006 (para 7).
(iv) A former Judge of the Andhra Pradesh High Court was appointed sole arbitrator, free to fix his fee in consultation with the parties (para 8).
(v) The Court expressed no opinion on the merits, leaving every aspect open for the parties to urge before the arbitrator (para 8).
(paras 3–8)
Case Details: M/s Indo Engineering Works v. RINL (2026 INSC 874)
Final Outcome: Appeal disposed of; Justice R. Raghunandan Rao (former Judge, Andhra Pradesh High Court) appointed sole arbitrator; appellant held not entitled to benefits under the Act of 2006 in the arbitration.
Case: M/s Indo Engineering Works v. Rashtriya Ispat Nigam Limited (RINL) & Ors.
Neutral Citation: 2026 INSC 874
Case No.: Civil Appeal No. 10750 of 2026 (arising out of SLP (C) No. 24388 of 2026)
Court: Supreme Court of India (Civil Appellate Jurisdiction) – Non-Reportable
Date of Decision: 13 August 2026
Bench: Justice J.B. Pardiwala and Justice K. Vinod Chandran (order; no named author)
Relevant Acts & Sections: Micro, Small and Medium Enterprises Development Act, 2006 – Section 8 (memorandum) and reference to the Micro and Small Enterprises Facilitation Council; arbitration clause in the parties' agreement
Impugned Order(s): Order of a Division Bench of the High Court keeping the appellant's appeal in abeyance, against a learned Single Judge's order (Annexure P-7) allowing RINL's writ petition against the Facilitation Council proceedings; the order does not give the dates (paras 2–3)
Source: Supreme Court of India (official website)
Key Holdings of the Supreme Court
- No interference was warranted while the reference on the Silpi Industries ratio is pending before a larger Bench (paras 3–4).
- Notice was issued only on the appellant's consent to regular arbitration outside the Act of 2006, recorded in the order dated 17.07.2026 (para 4).
- The procedure was adopted because awaiting the larger Bench could further delay the claim of a small scale industry that had not filed a Section 8 memorandum (para 6).
- An MSME supplier that seeks arbitration in the normal mode cannot claim benefits under the Act of 2006 (para 7).
- A former High Court Judge was appointed sole arbitrator, with liberty to fix his fee in consultation with the parties (para 8).
- All merits are left open before the arbitrator (para 8).
Brief Facts of the Case
The appellant approached the Andhra Pradesh Micro and Small Enterprises Facilitation Council for arbitration under an agreement with RINL. When the Council took up the matter, RINL filed a writ petition before the High Court, which a learned Single Judge allowed (para 2).
The Single Judge found that the contract was a works contract and that the appellant had not filed a memorandum under Section 8 of the Act of 2006, as required by Silpi Industries v. Kerala State Road Transport Corporation (para 3).
In the appellant's appeal, a Division Bench kept the matter in abeyance, because the Silpi Industries ratio on filing a Section 8 memorandum by already registered small scale industries had been referred to a larger Bench of three Judges (para 3).
Before the Supreme Court, notice was issued on 17.07.2026 after the appellant consented to regular arbitration outside the Act of 2006 (para 4). At the final hearing, RINL argued that the arbitration clause required institutional arbitration and that the appellant should not get the benefit of the Act of 2006 in any arbitration; the appellant opposed the second point (para 5).
Issues Before the Supreme Court
- Whether the Court should interfere while the Silpi Industries reference is pending before a larger Bench (paras 3–4).
- Whether the appellant, having consented to arbitration in the normal mode, can claim benefits under the Act of 2006 (paras 5–7).
- How the arbitrator should be appointed (para 8).
Court's Findings and Reasoning
Pending reference (paras 3–4): The Court was not convinced that any interference could be made, since a reference on the Silpi Industries ratio was admittedly pending before it.
Consent-based route (paras 4, 6): The Court had suggested regular arbitration, other than that provided by the Act of 2006, and issued notice only on the appellant's consent. It adopted this course because the disposal of the reference might further delay the claim of the appellant, a small scale industry that admittedly had not filed a Section 8 memorandum.
No MSMED Act benefits (para 7): Rejecting the appellant's opposition, the Court held that if arbitration is sought in the normal mode, the appellant cannot claim any benefit provided under the Act of 2006.
Appointment of arbitrator (para 8): The Court appointed Justice R. Raghunandan Rao, former Judge of the Andhra Pradesh High Court, as sole arbitrator to decide the disputes. The order does not separately discuss RINL's plea for institutional arbitration.
Final Outcome and Directions
- Justice R. Raghunandan Rao, former Judge of the Andhra Pradesh High Court, appointed sole arbitrator; he will issue notices to the parties and may determine his fee in consultation with them (para 8).
- No opinion expressed on the merits, which are left open before the arbitrator (para 8).
- The Registry to inform the arbitrator (para 9).
- Appeal disposed of; pending applications disposed of (paras 10–11).
Legal Principle Laid Down
Where an MSME supplier, to avoid delay from a pending larger Bench reference, consents to arbitration in the normal mode instead of proceedings before the Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006, it is bound by that choice and cannot claim the benefits of the Act of 2006 in the arbitration. The order applies to the facts of this case and leaves the Silpi Industries question to the larger Bench.
Precedents Relied Upon
- Silpi Industries & Ors. v. Kerala State Road Transport Corporation & Anr., (2021) 18 SCC 790 – Referred to – relied on by the Single Judge on the need for a Section 8 memorandum; its ratio is under reference to a larger Bench of three Judges. Discussed at paras 3–4.
Important Paragraphs of the Judgment
Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.
Para 4: "However, we suggested to the appellant that if they were willing to go under regular arbitration, other than that provided by the Act of 2006, notice could be issued."
Para 6: "We adopted such procedure only reckoning the fact that the disposal of the reference by a larger bench may further delay the claim as raised by the appellant, which is a small scale industry, who, admittedly has not filed the memorandum under Section 8 of the Act of 2006."
Para 7: "Hence, we are of the definite opinion that if arbitration is sought on the normal mode, the appellant cannot claim any benefits as provided under the Act of 2006."
Para 8: "The learned Arbitrator is free to determine his fee in consultation with the parties."
Para 8: "We make it clear that we have expressed no opinion on the merits of the case which aspect is left open for the parties to urge before the learned Arbitrator."
Para 9: "The Registry of the Court shall inform the Learned Arbitrator."
Practical Impact of the Ruling
- For MSME suppliers: Agreeing to regular arbitration to avoid delay means giving up MSMED Act benefits in that arbitration (paras 6–7).
- For units without a Section 8 memorandum: While the Silpi Industries reference is pending, claims blocked before the Facilitation Council may be pursued through ordinary arbitration by consent (paras 3–4, 6).
- For buyers such as RINL: A supplier's consent to normal-mode arbitration shuts out claims under the Act of 2006 in that forum (para 7).
- For arbitration practitioners: The Supreme Court may itself appoint a sole arbitrator on consent in an appeal, leaving merits fully open (para 8).
FAQs on MSME Claims and Regular Arbitration
1. What did the Supreme Court decide in M/s Indo Engineering Works v. RINL?
It appointed a former Andhra Pradesh High Court Judge as sole arbitrator on consent and held that the appellant cannot claim benefits under the Act of 2006 in that arbitration (paras 7–8).
2. Why did the Court not decide the Section 8 memorandum issue?
Because the ratio of Silpi Industries on filing a memorandum under Section 8 has been referred to a larger Bench of three Judges (paras 3–4).
3. Why did the Court suggest regular arbitration?
Waiting for the larger Bench could further delay the claim of the appellant, a small scale industry that had not filed the Section 8 memorandum (para 6).
4. Can the appellant claim MSMED Act benefits in this arbitration?
No. Notice was issued only on its consent to arbitration in the normal mode, so it cannot claim any benefit under the Act of 2006 (paras 6–7).
5. Did the Court express any view on the merits of the dispute?
No. All merits are left open for the parties to urge before the arbitrator (para 8).
Keywords: 2026 INSC 874, M/s Indo Engineering Works v. Rashtriya Ispat Nigam Limited, RINL arbitration, MSMED Act 2006, Section 8 memorandum, MSME Facilitation Council, Silpi Industries reference, works contract, regular arbitration, sole arbitrator appointed, Justice R. Raghunandan Rao, Justice J.B. Pardiwala, Justice K. Vinod Chandran, Supreme Court non-reportable judgment, arbitration law
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Download Judgment PDF – M/s Indo Engineering Works v. RINL
Source: Supreme Court of India (official website).