MSME Council Has Power To Decide Issue Of Its Own Jurisdiction Under MSMED Act: Bombay High Court

The Bombay High Court has observed that the Micro and Small Enterprises Facilitation Council has the authority to determine its jurisdiction over disputes under Section 18 of the Micro, Small Medium Enterprises Development Act, 2006 (MSMED).

A Single Judge Bench of Bharat P. Deshpande was considering the petitioner's challenge to a notice issued by the Nodal Officer for Micro and Small Enterprises Facilitation Council ('Council') dated 04.01.2024, which stated that as conciliation between the petitioner and the respondent no. 2 was not possible, the Council invoked its authority under Section 18 (3) of MSMED Act to refer the matter to arbitration.

Following the notice, the petitioner objected to the Council's jurisdiction to entertain conciliation proceedings initiated on behalf of respondent no. 2 on the ground that respondent no. 2 was not registered under the MSMED Act at the time of contract. However, the Council failed to decide its jurisdiction for conciliation or arbitration referral. The petitioner contended that the Council lacked jurisdiction to entertain the conciliation proceedings, let alone refer the matter to arbitration.

The High Court noted that the Council has the power to decide on the question of its own jurisdiction. It referred to Section 18 of the MSMED Act, which provides that any dispute between the buyer and seller can be referred the Council, and on such reference, the Council can either conduct conciliation or refer the matter for arbitration.

“The power of the Facilitation Council clearly runs under the provisions of Section 18 of the said act and therefore, if the party raises such jurisdiction, the Council is duty-bound to give its verdict on its own jurisdiction” it stated.

The Court explained that the MSMED Act outlines a procedure where both parties are called before the Council for conciliation. It stated that conciliation requires mutual consent, whereas arbitration involves adjudicating claims raised by both parties, by an arbitrator appointed by the Council. It noted “The object and propose of such procedure is to consider first whether the matter could be conciliated between the parties and only if it is not possible to give a failure report and then ask the Council to refer it to the panel of arbitrators.”

Thus, the Court stated that even when the issue of jurisdiction is raised at the conciliation stage, the Council must “at least prima facie prima facie give its verdict about the jurisdiction even to refer the matter to Arbitrator, so that the aggrieved party could take proper recourse.”

It observed that the Notice issued by the Nodal Officer was merely a failure report, indicating that conciliation was not possible between the parties. However, the Council did not consider the jurisdictional issue raised by the portioner.

The High Court thus set-aside the Notice issued by the Nodal Officer. It directed the Officer to determine whether the Council has jurisdiction to entertain conciliation proceedings initiated on behalf of respondent no. 2 and then to determine whether the Council has power to refer the dispute to arbitration.

Case title: M/S Bharat Kolkata Container Terminals Pvt. Ltd vs. Goa Micro and Small Enterprises Facilitation Council & Anr. (WP.555 OF 2024(F))

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