Notice Of Dispute To MSEF Council Under Section 18 Of MSMED Act Can Be Considered As Notice Of Arbitration Under Section 21 Of The A&C Act: Delhi High Court

The bench of Justice Pratibha M. Singh held that prior to the judgment of the Supreme Court in Gujarat State Civil Supplies Corporation and M/S Silpi Industries, the position of law with respect to an entity not registered under the MSMED Act at the time of contract was not clear, therefore, the party wrongly invoking jurisdiction of MSEF Council cannot be faulted if it was due to uncertainty in law.

Facts

The parties entered into an agreement dated 14.10.2011 for execution of work related to pipeline laying. The petitioner was to complete the project work within 6 months, however, the project work could only be completed with substantial delay. The petitioner got itself registered under the MSMED Act on 14.05.2015 which is after the date of the agreement and the completion of the majority of the project work.

A dispute arose between the parties with respect to compensation for the prolonged period and additional work. Accordingly, the petitioner filed a reference before the MSEF Council under Section 18 of the MSMED Act. The conciliation failed before the council and the parties were referred to arbitration before the DIAC.

In the meantime, the judgments of the Supreme Court in Gujarat State Civil Supplies and M/s Silpi Industries were delivered clarifying that benefit of MSMED Act would not be available if the entity was not registered at the time of the agreement or when the supplies were made therein. Accordingly, the petitioner withdrew reference before the DIAC and invoked the contractual arbitration by filing an application under Section 11(6) of the A&C Act.

Submissions by the Parties

The respondent made the following objections to the maintainability of the petition:

• The petition is not maintainable as mandatory notice of arbitration required under Section 21 of the A&C Act was not issued.
• The claims are barred by barred by limitation.

Analysis by the Court

The Court observed that before prior to the judgment of the Supreme Court in Gujarat State Civil Supplies Corporation and M/S Silpi Industries, the position of law with respect to an entity not registered under the MSMED Act at the time of contract was not clear and the petitioner invoked the jurisdiction due to this uncertainty. It held that the petitioner cannot be faulted for it.

Further, the Court observed that the petitioner at the time of invoking jurisdiction of MSEF Council had issued notice to the respondent along with a statement of claim wherein arbitration was expressly mentioned.

The Court held that once a notice given by a party invoking jurisdiction of MSEF Council under Section 18 of the MSMED Act can be considered to be a notice of arbitration required under Section 21 of the A&C Act.

Next, the Court dealt with the objection regarding bar of limitation. It observed that the claims were pending before the MSEF Council and DIAC from 21.11.2018 till 17.11.2022 due to the uncertainty in law, therefore, the petitioner would be entitled to benefit of Section 14 of the Limitation Act which exempts the bond fide time spent before wrong forum.

The Court held that the period spent before MSEF Council would not be counted for calculating limitation.

Accordingly, the Court rejected both the objections and allowed the petition.

Case Title: M/s Advance Stimul v. GAIL India

Citation: 2024 LiveLaw (Del) 457

Date: 10.04.2024

Counsel for the Petitioner: Mr. Abhay Raj Varma, Mr. Arjun Rekhi & Mr. Anshay Dhatwalia, Advs., Advs.

Counsel for the Respondent: Mr. Gopal Jain, Sr. Adv. with Mr. Kapil Sankhla, Mr. Akhilesh Aggarwal, Ms. Fagun Sharma, Mr. Hanish Phogat, Ms. Suvarna Kashyap & Mr. Gopesh Jindal, Advs.

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