Location Of Facilitation Council Under MSMED Act Would Remain The ‘Venue’ Of Arbitration When The Agreement Confers Jurisdiction On The Courts In A Different Place: Delhi High Court

The bench of Justices V. Kameshwar Rao and Anoop Jairam Bhambhani held that by virtue of the provisions of the MSMED Act, only the procedure of constitution of the Arbitral Tribunal is obliterated and the same does not eclipse the agreement between the parties of foisting exclusive jurisdiction on a particular Court.

The Court disagreed with the view taken by a single bench in Ahluwalia Contracts v. Ozone Research, 2023 LiveLaw (Del) 114 wherein the Court held that the location of the Facilitation Council would be the seat of arbitration despite the agreement between the parties conferring exclusive jurisdiction on a court in a different place.

Facts

The parties entered into an agreement dated 25.09.2013 for Supply, Erection, testing & commissioning of 02 nos. 20 MT Mounded underground LPG Storage Bullet & Pipeline for a Rail Coach Factory, Rae Bareli (U.P).

The project work was completed on 21.07.2015 and the respondent issued a ‘No Claim Certificate’ for Rs. 1,12,95,207/-. As against the agreed payment, the appellant withheld an amount of Rs. 11,13,858/- subject to the respondent submitting proof of actual tax paid by it.

Aggrieved by the action of the appellant withholding the payment, the respondent filed a reference before the MSME Facilitation Council, Kanpur. After the failure of the conciliation, the parties were referred to arbitration.

An award amounting to Rs. 63,35,077/- was made in favour of the respondent. Aggrieved by the award, the petitioner challenged it under Section 34 of the A&C Act before the District Judge, Commercial Court, Shahdara, Karkardooma, Delhi.

The Ld. District Judge dismissed the challenge petition for want of territorial jurisdiction on the ground that the Facilitation Council that administered the arbitration was located in Kanpur, thus, the seat of arbitration was Kanpur and only the Courts in Kanpur would have the jurisdiction to decide the challenge petition.

Aggrieved with the dismissal of its petition, the appellant approached the High Court in appeal.

Grounds of Appeal

The appellant challenged the order on the following grounds:

• The impugned order has been passed in complete disregard to the fact that the parties have conferred exclusive jurisdiction on the Court in New Delhi.
• The terms of the agreement between the parties would not eclipse merely because the arbitration took place under the MSMED Act.
• The location of the Facilitation Council is merely the venue of arbitration and not the seat as the parties conferred exclusive jurisdiction on the Courts in a place different from the place of location of the Facilitation Council.

Analysis by the Court

The Court took note of the fact that the agreement between the parties confers exclusive jurisdiction for any dispute arising out of the agreement on the Courts in New Delhi.

The Court held that the location of the Facilitation Council administering arbitration under Section 18 of the MSMED Act, 2006 would remain the ‘Venue’ of arbitration when the parties have conferred exclusive jurisdiction on a Court situated in a different place.

The Court held that by virtue of the provisions of the MSMED Act, only the procedure of constitution of the Arbitral Tribunal is obliterated and the same does not eclipse the agreement between the parties of foisting exclusive jurisdiction on a particular Court. (Reliance placed on the judgement of a coordinate bench in IOCL v. FEPL Engineering, MANU/DE/3140/2019 and the judgment of the High Court of Bombay in Gammon Engineers v. Sahay Industries, MANU/MH/0217/2023)

The Court disagreed with the view taken by a single bench in Ahluwalia Contracts v. Ozone Research, 2023 LiveLaw (Del) 114 wherein the Court held that the location of the Facilitation Council would be the seat of arbitration despite the agreement between the parties conferring exclusive jurisdiction on a court in a different place.

Consequently, the Court held that only the Courts in New Delhi would have the exclusive jurisdiction to entertain the challenge application and not the Courts in Kanpur (U.P.) where the arbitration was administered by the Facilitation Council, hence, the Court set aside the impugned order and restored the challenge petition.

Case Title: IRCON INTERNATIONAL v. PIONEER FABRICATORS, FAO(COMM) 200/2022

Citation: 2023 LiveLaw (Del) 287

COUNSEL FOR THE PETITIONER: MR. CHANDAN KUMAR AND MS. KIRTI ATRI

COUNSEL FOR THE RESPONDENT: MR. VILAS SHARMA, MR, AJAY SHARMA AND MR. MOHIT SIWACH

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