Application U/S 34 Of Arbitration Act To Challenge Award Passed U/S 18(4) Of MSMED Act Is Governed By Agreement Between Parties: Bombay HC

Brief Facts

The petitioner was supplied goods and services by a Micro, Small, and Medium Enterprises (MSME) unit, the respondent. In an original agreement executed between the parties, exclusive jurisdiction was given to the court at Mumbai for resolving the disputes. Consequently, the matter was referred to facilitation council under section 18 of Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) when a dispute arose between the parties. The council located in Shimla where the respondent also resides passed an award against the petitioner. This award was challenged by the petitioner under section 34 of the arbitration act in the Bombay High Court. A preliminary objection was raised by the respondent that since the award was passed by the council located in Shimla, the award should be challenged in the Shimla itself and the High Court had no jurisdiction.

The matter was referred to a larger bench in the present case due to contrary views taken by the benches of single judge in two cases. Firstly,the court held in Gammon Engineers and Contractors Pvt. Ltd. Vs. Sahay Industries (2023) that a petition under section 34 should be filed in the court to which exclusive jurisdiction has been conferred through an arbitration agreement and not at the place where the award was passed. In the second case of Microvision Technologies Pvt. Ltd. Vs. Union of India (2023), the court held that the award should be challenged at the place where the supplier is located since the award was passed under the MSMED Act.

Contentions

The petitioner submitted that original exclusive jurisdiction clause in the arbitration agreement should revive after the passing of an award under the MSMED Act. The Bombay High Court will be the right forum to challenge the award under section 34 of the arbitration act as it had been conferred exclusive jurisdiction. It was further contended that no mechanism is provided under the MSMED Act therefore the arbitration act would apply for challenging the award passed. It was further argued that when jurisdiction clause has already been conferred on a particular court, it should not be overridden by statutory provisions under the MSMED Act.

Per contra, the respondent contended that since the MSMED Act is a special statute, it will override all other law for the time being in force. It was further argued that arbitration proceedings conducted under section 18 and 24 of the MSMED Act should take precedence over any previous agreements. Based on this, it was argued that the award should be challenged in Shimla where the proceedings under the MSMED Act was conducted. It was further submitted that once a matter is referred to the council, subsequent proceedings including the challenge to an award should be conducted in the same jurisdiction as per section 18 (4) of the MSMED Act and section 42 of the arbitration act.

Court's Analysis

The court observed the provisions of both the MSMED Act and Arbitration Act. The court noted that the MSMED Act provides for a mechanism to resolve the disputes through Micro and Small Enterprises Facilitation Council (MSEFC) while the arbitration act gives autonomy to the parties in choosing a forum for arbitration related matters. The further observed that the parties are free to choose their venue and jurisdiction for resolving their disputes under the arbitration act. The court further held that in the present case, the parties demonstrated their preference by choosing the exclusive jurisdiction of the Bombay High Court.

The court further noted that there are no provisions in the MSMED Act which override the jurisdictional agreements entered into between the parties. The court further observed that jurisdictional issue should be governed by the arbitration agreement. The court held that the MSMED Act does not provide any mechanism for challenging the award passed under Section 18. The Arbitration Act takes over once an award is passed under Section 18 of the MSMED Act. Therefore, once the award is passed, the provisions of the Arbitration Act would govern for the purpose of challenging the award and ascertaining the Court before such an Application for setting aside the award is to be made. In the instant case, the parties have agreed to be governed by the Courts in Mumbai, and which, as observed by us above is not overridden by any of the provisions of the MSMED Act, the Courts in Mumbai would have jurisdiction to entertain Section 34 application for setting aside the award.

The court noted that in the present case, although arbitration proceedings under section 18 of the MSMED Act were conducted at the location of the supplier, original agreement which conferred exclusive jurisdiction on the Bombay High Court to challenge the award under section 34 of the arbitration act will prevail. This conclusion is reinforced by the fact that there is no mechanism under the MSMED Act to challenge the award.

The court further referred to section 24 of the MSMED Act which gives overriding effect to section 15 to 23 of the act over any other law in conflict with the provisions of the act. The court observed that this precedence is confined to specific provisions and does not cover the challenge to set aside an award under section 34 of the arbitration act. Based on this, the court came to the conclusion that there is no conflict between the provisions of both acts with respect to which court has jurisdiction to challenge the award. Non Obstante clause under section 24 cannot negate jurisdictional clause of the original agreement especially when there is no explicit conflict between the same.

The court further analysed section 42 of the arbitration act which provides that once a court is approached in relation to an arbitration agreement, it will have exclusive jurisdiction over subsequent proceedings. The court noted that facilitation council was approached under section 20 of the MSMED Act but it does not qualify to be a court for the purpose of section 42 of the arbitration act. Since, the council is not a court, exclusive jurisdictional clause will remain applicable.

The court referred to the several judgments delivered by various courts. Firstly, the judgment in Gammon Engineers Case (supra) delivered by the Bombay High Court was referred in which it was held that even if the award was passed at Madurai, the Bombay High Court will have exclusive jurisdiction to regulate the arbitral proceedings including an application under section 34 of the arbitration act.

Secondly, the judgment of the Delhi High Court in Indian Oil Corporation Ltd. Vs. Fepl Engineering (P) Ltd. & Anr. (2019) was also referred in which it was held that once a seat of arbitration is designated in the arbitration agreement, it will act as an exclusive jurisdictional clause. The corresponding court will have exclusive jurisdiction to conduct the proceedings. The court held that jurisdiction of the MSME Council which is decided on the basis of the location of the supplier, would only determine the 'VENUE', and not the 'SEAT' of arbitration. The 'SEAT' of arbitration would continue to be governed in terms of the arbitration agreement between the parties.

Conclusion

The court concluded that court as agreed upon in the arbitration agreement will have jurisdiction to hear the application under section 34 of the arbitration act even if the award was passed under the MSMED Act. Accordingly, the matter was referred to the referral court to decide the case in accordance with law laid down in the present case.

Case Title: Rohit Sood v. Gammon Engineers and Contractors Pvt. Ltd.

Court: Bombay High Court

Case Reference: INTERIM APPLICATION (L) NO.37553 OF 2022, ARBITRATION PETITION (ARBP) (L) NO.28089 OF 2022

Judgment Date: 16/10/2024

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