‘Seat’ Of Arbitration Would Be Where Facilitation Council Under MSMED Act Conducted Arbitral Proceedings Delhi High Court

The bench of Justice Prateek Jalan remarked that since there was no arbitration agreement between the parties containing a jurisdiction clause, and since the Facilitation Council under the MSMED Act had assumed jurisdiction and rendered the arbitral award in Nagpur where the supplier was located, in view of Section 18(4), therefore, the seat of arbitration was in Nagpur.

Thus, the Delhi High Court had no jurisdiction to entertain the petition challenging the arbitral award even though as per the Contract between the parties, all disputes were subject to the jurisdiction in Delhi, the Court observed.

Section 18(4) of the MSMED Act provides that the Facilitation Council or the centre providing alternate dispute resolution services shall have the jurisdiction to act as an Arbitrator or Conciliator in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India.

After certain dispute arose between the parties under a Purchase Order, the respondent / supplier, Ozone Research & Applications (I) Pvt Ltd, filed a claim against the petitioner, Ahluwalia Contracts (India) Ltd, before the Facilitation Council under the MSMED Act. The matter was referred to arbitration and an arbitral award was passed against the petitioner by the Facilitation Council in Nagpur.

Challenging the arbitral award, the petitioner, Ahluwalia Contracts, filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court.

The High Court noted that the relevant Clause of the Purchase Order provided that all disputes under the Purchase Order were subject to the jurisdiction in Delhi.

The bench further observed that although the said Purchase Order did not contain an arbitration clause, the claims of the respondent/supplier were referred for conciliation and arbitration to the Facilitation Council under Section 18 of the MSMED Act. The Facilitation Council in Nagpur, where the respondent/supplier is located, assumed jurisdiction and rendered the arbitral award, it took note.

The respondent, Ozone Research & Applications, raised an objection before the High Court that since the arbitration was conducted under the MSMED Act in Nagpur and the award was rendered in Nagpur, the seat of arbitration was in Nagpur and, therefore, the challenge made under Section 34 of the A&C Act was not maintainable before the Delhi High Court.

The petitioner, Ahluwalia Contracts, in support of its contention that the High Court had jurisdiction over the matter, referred to the judgment of the Division Bench of the Delhi High Court in Indian Oil Corporation Ltd. vs. FEPL Engineering (P) Ltd (2019).

The Division Bench in Indian Oil Corporation Ltd (2019) was dealing with a contract containing an arbitration clause which constituted New Delhi as both the venue and seat of arbitration. The Division Bench had ruled that though the arbitration was conducted by the Facilitation Council under the MSMED Act outside Delhi, in view of Section 18(4) of the MSMED Act, however, the said provision would only have the effect of shifting the venue of arbitration and not its seat.

The High Court noted that the Division Bench in Indian Oil Corporation Ltd (2019) had ruled that though the provisions of the MSMED Act would override the provisions of the Contract between the parties, however, this does not mean that the jurisdiction clause agreed between the parties has to be given a go-by.

Thus, the Division Bench had concluded that the jurisdiction of the Facilitation Council under the MSMED Act, which is decided on the basis of the location of the supplier, would only determine the ‘Venue’, and not the ‘Seat’ of arbitration. The ‘Seat’ of arbitration would continue to be governed in terms of the arbitration agreement between the parties, it had ruled.

The Court observed that the Division Bench in Indian Oil Corporation Ltd (2019) had rendered the decision after interpretating Section 18(4) of the MSMED Act vis-à-vis the contractual provisions and the jurisdiction clause contained in the arbitration agreement between the parties.

Referring to the facts of the case, the High Court reckoned that in the present case, the Purchase Order did not contain any arbitration clause.

The High Court added: “In such circumstances, it is, in my view, not possible to hold that the parties agreed to a particular seat of the arbitration which would vest jurisdiction in this Court despite the provisions of the MSMED Act.”

The bench further referred to the judgment of the Supreme Court in Gujarat State Civil Supplies Corporation Limited vs. Mahakali Foods (P) Ltd (2022), which was rendered after the decision of the Division Bench in Indian Oil Corporation Ltd (2019), where the Apex Court had ruled that an independent arbitration agreement executed between the parties under the A&C Act, would not prevail over the statutory provisions of the MSMED Act.

“Aforesaid being the position of the law laid down by the Supreme Court, in the facts of the present case, I am of the view that the seat of the arbitration, conducted by the Facilitation Council, was in Nagpur and the petition filed before this Court is not maintainable,” the Court concluded.

The Court thus dismissed the petition as not maintainable.

Case Title: Ozone Research & Applications (I) Pvt Ltd versus Ahluwalia Contracts (India) Ltd

Citation: 2023 LiveLaw (Del) 114

Counsel for the Petitioner: Mr. Shashank Garg, Ms. Nishtha Jain, Advocates

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