Court Appoints Sole Arbitrator for Dispute Over Defective Supplies, Ruling MSMED Act Inapplicable for Damage Claims
In a significant ruling on July 31, 2026, the Madras High Court addressed the ongoing legal battle between TI Clean Mobility Pvt Ltd. and M/s Senatla Innovative EV Components Pvt. Ltd. Justice K. Kumaresh Babu presided over the case, which centered around a dispute concerning defective supplies and the applicability of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.
The crux of the dispute arose from a basic purchase agreement dated July 5, 2024, wherein TI Clean Mobility alleged that the defective chargers supplied by Senatla had severely impacted its brand reputation. As a result, TI Clean Mobility issued a debit note amounting to Rs. 7,08,98,892/- for the replacement costs of the defective chargers, with Rs. 5,08,15,264/- remaining unpaid after adjustments.
Senatla, on the other hand, had invoked the MSMED Act for dispute resolution, arguing that the Act's provisions supersede those of the Arbitration and Conciliation Act, 1996. However, the Court ruled that claims for damages due to defective supply fall outside the MSMED Act's scope, which is limited to the recovery of dues under Section 17 for goods supplied or services rendered.
Justice Babu emphasized that the MSMED Act, while providing a framework for timely payments to micro and small enterprises, does not extend to disputes regarding defective supplies. As such, the Court appointed Hon'ble Mr. Justice V. Sivagnanam, a former judge of the Madras High Court, as the sole arbitrator to resolve the disputes independently of the MSMED Act proceedings.
Additionally, the Court granted an injunction under Section 9 of the Arbitration and Conciliation Act, making it absolute pending arbitration proceedings. This decision was based on evidence of liability, including a letter from the garnishee refusing to pay any further amounts to Senatla without a court order.
This ruling underscores the judiciary's role in delineating the boundaries of legislative acts and ensuring that contractual disputes are resolved through appropriate legal frameworks.
Bottom Line :
Disputes falling outside the purview of Section 17 of the MSMED Act, 2006, such as claims for damages due to defective supply, cannot be resolved under the Act. An independent arbitration agreement can be enforced to resolve such disputes.
Statutory provision(s): MSMED Act, 2006 Section 17, MSMED Act, 2006 Section 18, Arbitration and Conciliation Act, 1996 Section 9, Arbitration and Conciliation Act, 1996 Section 11
