Arbitration For MSEs: Mandatory Fast-Track Procedure, Legal Aid Provisions Introduced

In a bid to streamline the dispute resolution process for micro and small enterprises, the India International Arbitration Centre, in consultation with the government, has introduced regulations that will govern the conduct of arbitrations pertaining to MSEs.

As per the regulations, once a dispute pertaining to MSEs is referred for arbitration to the IIAC, it will have to be resolved through a mandatory fast-track procedure.

The arbitral tribunal or the appointed arbitrator will be required to resolve disputes on the basis of written pleadings, documents, and submissions filed by the parties. In essence, an oral hearing will not be conducted routinely in arbitrations pertaining to micro and small enterprises.

An oral hearing may be held only if the parties make a specific request or if the arbitral tribunal considers it necessary for clarifying certain issues. Even in such cases, the tribunal should dispense with any technical formalities that may stall the process.

Additionally, the tribunal must render its decision within six months of its constitution for the specified dispute. This six-month timeline can be extended only after reasons for the same are recorded in writing.

However, the tribunal may eliminate this fast-track procedure if a party submits an application and the tribunal finds it appropriate to do so.

For MSEs that have been facing financial difficulties during the years preceding the commencement of arbitration, a provision for legal aid has been inserted in the regulations.

An MSE facing continuous financial difficulties in the year preceding the commencement of arbitration can apply for legal aid if the disputed amount is less than Rs 20 lakh. If, however, this disputed amount is more than Rs 20 lakh, the MSE can apply for legal aid, citing continuous financial difficulties, even for three years prior to the initiation of arbitration.

These applications for legal aid will then be either rejected or accepted by the IIAC. If accepted, the IIAC could waive up to 50% of the administration fee and even provide counsel at no cost, subject to other regulations.

The government first envisioned the concept of micro and small enterprises in 2006. The Micro, Small, and Medium Enterprises Development (MSMED) Act of 2006 was brought in to act as a comprehensive one-stop shop for the growth and regulation of such enterprises.

To support MSEs, the Ministry of MSME establishes policies, promotes and facilitates programmes, initiatives and schemes, and oversees their implementation.

As long as they satisfy the investment and turnover threshold, the ministry states that all forms of business, including manufacturing and services, are included in the MSE sector.

Currently, micro-industry investment requirements are less than Rs 1 crore and turnover requirements are less than Rs 5 crore. These limits are higher for small enterprises, at less than Rs 10 crore and less than Rs 50 crore, respectively.