Pending Registration Of Company Under MSMED Act, Council Has No Jurisdiction To Initiate Conciliation And Refer Dispute For Arbitration: Karnataka HC

The Karnataka High Court has held that a company which at the time of raising a money claim dispute has not been registered under the Micro Small And Medium Enterprises Development Act, 2006, it then cannot approach the Micro and Small Enterprises Facilitation Council, seeking to initiate conciliation proceedings over the dispute and on failure of the same the Council cannot refer the matter for Arbitration.

A single judge bench of Justice M Nagaprasanna allowed the petition filed by M/s. NORTHROOF VENTURES PRIVATE LIMITED and quashed the order passed by the Arbitral Tribunal dated 07.01.2023 and 22.02.2023, rejecting its application to decide the issue of jurisdiction and maintainability of the proceedings.

The bench said “The very proceedings instituted before the Council and the Council referring the matter to the arbitral Tribunal and the second respondent conducting arbitration proceedings, are all acts dehors jurisdiction. Therefore, reserving liberty to the first respondent to agitate its claim, before any appropriate fora, the petition deserves to succeed.”

The petitioner company and M/s. XYNC Structural Solutions Pvt Ltd entered into a contract, pursuant to which, the petitioner issued a work order to the first respondent for painting and scaffolding on 10.05.2018. An invoice of Rs.6,04,870 is also raised on 22.05.2018 for payment of the said amount. Therefore, the issuance of the work order and execution of work begins on 10.05.2018 and the invoice for such work is raised on 22.05.2018. After the aforesaid events, the first respondent registers itself to be a Micro Enterprise under the Micro, Small And Medium Enterprises Development Act, 2006. Thereafter, with regard to certain payment, dispute arose between the petitioner and the first respondent an application before the Council was filed.

The council on failure of the conciliation proceedings referred the matter to the Arbitrator and pending the same the petitioner filed the application raising ground of jurisdiction. It was argued that “When Council itself had no jurisdiction to entertain the petition, as the registration of the first respondent as a Micro Enterprise takes place long after the execution of work was over and invoice had been raised, between the two.”

The respondent contended that petitioner at no point in time had raised any objection with regard to the Council having no jurisdiction in the matter. He has acquiesced his rights by continuing the proceeding and at the fag end of the proceeding before the Arbitral Tribunal, has knocked at the doors of this Court and would seek dismissal of the petition.

The bench noted that respondent filed an application under Section 8 of the Act before the competent authority on 30.06.2018 for registration. This is accepted and a certificate of registration is issued on 16.07.2021. Between the two dates, the petitioner had preferred an application before the Council seeking jurisdiction of the Council to entertain the dispute between the two i.e., the petitioner and the first respondent. Long thereafter, the Council renders a failure of conciliation report and refers the matter to Arbitration.

Then it held “The transactions between the two were over on raising of the invoice on 22.05.2018, till that date the first respondent was not a Micro, Small or Medium Enterprise, as no application was even filed seeking registration as a Micro, Small or Medium Enterprise. The application is filed on 30.06.2018, it is considered and registration certificate is issued on 16.07.2021, declaring the first respondent to be a Micro Enterprise. Since all the transactions between the parties was long over before the submission of the application, in the considered view of this Court, the Council would not get jurisdiction to entertain the application.”

Court observed “An issue of jurisdiction would always cut at the root of the matter, as the answer to the question of jurisdiction is always a 'yes' or a 'no' and can never be a 'may be'. Therefore, if the first respondent was not even registered as a Micro, Small or Medium Enterprise, on the dates between which the transactions taken place, the Council did not have jurisdiction to adjudicate upon the dispute between the two.”

It held “If the Council did not have jurisdiction to conciliate, it could not have referred the matter to the arbitral Tribunal. Since the reference is made by the Council, to the arbitral Tribunal, which by itself had no jurisdiction, the proceedings before the arbitral Tribunal on such incompetent reference would be a nullity in law.”

Rejecting the contention of the respondents the court said “It is trite that no amount of consent of the parties can confer jurisdiction on any fora. Therefore, merely because the petitioner has not objected to it, would not mean it would clothe jurisdiction upon the Council, which under the statute did not have one. Therefore, the very proceedings instituted before the Council and the Council referring the matter to the arbitral Tribunal and the second respondent conducting arbitration proceedings, are all acts dehors jurisdiction.”

Accordingly it allowed the petition.

Appearance: Advocate Vikram Unni Rajagopal for Petitioner.

Advocate Akash R. Rao FOR R1.

Citation No: 2024 LiveLaw (Kar) 60

Case Title: M/S. NORTHROOF VENTURES PRIVATE LIMITED AND M/S. XYNC STRUCTURAL SOLUTIONS PVT. LTD.,

Case No: Writ Petition No 5509 OF 2023.