Court's Jurisdiction U/S 34 Of Arbitration Act Against Award Under MSMED Act Is Determined By Agreement Between Parties: Gujarat HC

Brief Facts

The present appeal is directed against the judgment and order dated 5.4.2022 passed by the Commercial Court, 5th Additional District Judge, Mehsana in rejecting the application filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Arbitration Act, 1996') challenging the arbitral award dated 30.07.2016 passed by the Micro, Small and Medium Enterprises Facilitation Council (MSMEFC).

The application under Section 34 has been rejected on the ground that the Court at Mehsana has no jurisdiction to try, entertain and dispose of the application, inasmuch as, the territorial jurisdiction to challenge the MSME Facilitation Council's award is with the Court in the State of Odisha as the seat of MSMEF Council would be the seat of arbitration.

It was held by the Commercial Court that the seat of arbitration is fixed by virtue of Section 18 of the Act' 2006 at a place where MSMEF Arbitrator has jurisdiction, which is the place where supplier is located. The location of the supplier being at Cuttack, Odisha, the District Court at Cuttack, Odisha alone has jurisdiction to entertain the application under Section 34 of the Arbitration Act' 1996 to the exclusion of all other Courts by virtue of Section 18 and 24 of the MSMED Act' 2006.

Contentions:

The appellant argued that the exclusive jurisdiction is conferred to the Court at Mehsana by the parties under whose jurisdiction, the place where tender/acceptance of tender was issued, is situated.

It was also submitted that even though the venue of arbitration will be at Cuttack, i.e. the place of location of MSME Facilitation Council, but the seat of the arbitration cannot be fixed at Cuttack.

It was further contended that it is fairly well settled in cases where the parties have determined the 'seat' in their agreement, the same is akin to conferring exclusive jurisdiction on the Court(s) thereof. Where the clause in the contract vests exclusive jurisdiction over the disputes, it should be considered as fixing “seat” and the exclusive Court having jurisdiction to entertain the application under the Act' 1996.

While placing reliance on the the judgment of the Apex Court in Ravi Ranjan Developers Pvt. Ltd. vs. Aditya Kumar Chatterjee (2022 )it was submitted that “seat of arbitration” and “venue of arbitration” cannot be used interchangeably. Mere expression “place of arbitration” can not be made basis to determine the intention of the parties that they have intended that place as the “seat of arbitration”.

It was also argued that in BGS SGS Soma JV (supra), the Supreme Court has laid down the test for determination of “seat” in paragraph No. 82, wherein it was concluded that whenever there is designation of a place of arbitration in an arbitration clause as being the “venue” of the arbitration proceedings, the expression “arbitration proceedings” would make it clear that the “venue” is really the “seat” of the arbitral proceedings, inasmuch as, the said expression does not include just one or more individual or particular hearing, but the arbitral proceedings as a whole, including the making of an award at that place.

Based on the above, it was submitted that in the instant case, there is a categorical clause in the agreement signed by the parties to confer exclusive jurisdiction to the Court at the place from which tender / acceptance of tender was issued. There being a sufficient contra indica to confer exclusive jurisdiction upon the Court, the 'juridical seat' for all court proceedings would be the Court at Mehsana.

While relying on the Bombay High Court judgment, it was submitted that the application under Section 34 of the Arbitration Act' 1996 to challenge the award passed under Section 18(4) of the MSMED Act' 2006 would be covered by the agreement between the parties which has conferred exclusive jurisdiction to a particular Court, and would not lie to the Court at a place where award has been passed under Section 18 of the MSMED Act' 2006 which is guided by the location of the supplier.

Per contra, the respondent submitted that as the Commercial Court has held that it lacks jurisdiction and has reserved the liberty to the appellant to approach the Court of proper jurisdiction, the impugned order does not fall within the narrow ambit of Section 37. The appeal under Section 37 being a creature of a statute, a party does not have inherent right to appeal on any issue beyond the scope of Section 37. Reliance is placed on the decision of the Apex Court in BGS SGS Soma JV vs. NHPC Limited (2020) to substantiate the said point.

It was also argued that the MSMED Act' 2006 being a special enactment where the dispute of the above stated categories is to be settled through the process of arbitration by MSME Felicitation Council, would have an overriding effect on the general principles of the Arbitration Act, 1996 based on a party autonomy or the overriding effect of fixing the “seat” to confer exclusive jurisdiction upon the Civil Courts by agreement of the parties.

It was further submitted that the Supreme Court in Gujarat State Civil Supplies Corporation Limited vs. Mahakali Foods Private Limited (Unit 2) (2023) that once the statutory mechanism under subsection(1) of Section 18 is triggered by any party, it would override any other agreement independently entered into between the parties.

Finally, it was submitted that Clause 45 quoted hereinabove pertains to the arbitration, which does not contain any statement as to the place of arbitration as “venue” or “seat”. In absence of any such contra indica in Clause 45 which does not fix either the venue or seat of arbitration, the place where arbitration proceedings have been conducted as per Section 18 (4) of the MSMED Act' 2006 will be the “seat” of arbitration.

Observations:

The court at the outset while noting the interplay between the MSMED Act and the Arbitration Act observed that the overriding effect has been given by virtue of Section 18(4) read with Section 24 of the MSMED Act' 2006 over any agreement between the parties in relation to the dispute covered by the MSMED Act' 2006 and in so far as the claim under Section 17, where it has been kept open to the parties to refer the dispute to the MSME Facilitation Council.

It further added that by virtue of Section 2(4) read with Section 7, in so far as the arbitration proceedings are concerned, they shall be governed by the statutory enactment, which would result in replacing the mode and manner of appointment of arbitral tribunal under the Arbitration Act' 1996. The provisions of the Arbitration Act' 1996 which are inconsistent with the statutory enactment shall not apply.

The court further noted that With the language employed under sub-section(3) of Section 18, if the provisions of sub-section(4) of Section 18 are read and understood, it would mean that the provisions of subsection(4) of Section 18 would have an overriding effect only with respect to the jurisdiction of the MSME Felicitation Council in adjudication of the dispute as an Arbitrator and has no application beyond that point.

It also added that a conjoint reading of Section 19 of the MSMED Act' 2006 and Section 34 of the Arbitration Act' 1996 makes it clear that the Court defined in Section 2(1)(e)of the Arbitration Act' 1996 will have the jurisdiction to entertain the challenge to any award of the MSME Felicitation Council or the institution to whom the dispute is referred by the Council, subject to fulfillment of the condition of pre-deposit laid down in Section 19 of the MSMED Act' 2006.

Having noted the scheme of both the Acts, the court observed that “once the challenge is put forth before the Court defined in Section 2(1)(e) of the Arbitration Act, 1996 by making pre-requisite deposit as per Section 19 of the MSMED Act' 2006, the interplay between the MSMED Act' 2006 and the Arbitration Act' 1996 would come to an end.”

It further observed that The Legislature which fixes the jurisdiction of the MSME Facilitation Council by virtue of sub-section(4) of Section 18, has not prescribed any provision dealing with the jurisdiction of the Courts entertaining application for setting aside any decree, award or other order made either by the Council itself or by any institution or center referred to by the Council, in view of the fact that the provisions of the Arbitration and Conciliation Act, 1996 are applicable at both the stages of making of the award and post-passing of the award.

“The only mode and manner of referring the dispute for conciliation and arbitration and appointment of an arbitrator in case of disagreement between the parties, as governed by the Arbitration Act' 1996 has been replaced by the statutory scheme of the MSMED Act' 2006.” the court added

Based on the above, the court observed that the contention of the learned counsel for the respondent that by virtue of the overriding effect of sub-section(4) of Section 18 read with Section 24 of the MSMED Act' 2006, the juridical seat of arbitration proceedings has been fixed and it would result in exclusion of the jurisdiction of the Civil Court anywhere else in India where cause of action for adjudication of the dispute lies, is untenable.

It further observed that the provision of Section 18(4) of the MSMED Act' 2006 cannot be read to exclude the jurisdiction of the Civil Court at Mehsana which otherwise has jurisdiction to deal with the dispute being the Civil Court within the jurisdiction of which the tender / contract was executed and supply was made. There is no bar, express or implied, for section 9 of the CPC to be attracted which can be read into under Section 18 or 24 of the MSMED Act' 2006.

“Once the parties have consciously agreed to confer jurisdiction to the Court at Mehsana in exclusion to any other Court having jurisdiction, the respondent cannot be permitted to turn around to contend that the exclusive jurisdiction due under clause 44 (contained in the agreement signed and agreed by it), will not be applicable.” the court observed

In Indian Oil Corporation Limited vs. Fepl Engineering (P) Limited & Anr. (2019) the Delhi High Court has held that the place of arbitration for the parties, to entertain and challenge to an arbitral award continues to be the place over which the Court has been conferred with exclusive jurisdiction, as agreed between the parties.

Accordingly, the impugned order was set aside.

Case Title: UTTAR GUJARAT VIJ COMPANY LIMITED Versus GUPTA POWER INFRASTRUCTURE LIMITED

Case Number: R/FIRST APPEAL NO. 1728 of 2022 With CIVIL APPLICATION (FOR STAY) NO. 1 of 2022 In R/FIRST APPEAL NO. 1728 of 2022

Judgment Date: 24/12/2024

Click Here To Read/Download The Order