Summary
Following Gujarat State Civil Supplies Corporation v. Mahakali Foods, the Court held that the MSMED Act, 2006 overrides both the Arbitration and Conciliation Act, 1996 and the parties' own arbitration agreement, and that under Section 18(4) the Facilitation Council where the supplier is located has jurisdiction over a buyer anywhere in India. The Karnataka High Court's order holding that the Delhi Arbitration Centre lacked jurisdiction because the contract fixed the seat at Bengaluru was set aside and the Delhi arbitration restored.
Issues
- Whether a contractual clause fixing the seat of arbitration at Bengaluru ousts the jurisdiction of the Delhi Facilitation Council and the Delhi Arbitration Centre to which it referred the dispute under Section 18(3) of the MSMED Act.
Provisions considered
- Section 18(1), (3) and (4), Micro, Small and Medium Enterprises Development Act, 2006Section 18(1) is an enabling provision giving a supplier a choice to approach the Facilitation Council despite an arbitration agreement; once triggered, its non obstante clauses in sub-sections (1) and (4) override any independent agreement. Under Section 18(3) the Council refers the dispute to arbitration, treated as if under an arbitration agreement under Section 7(1) of the Arbitration Act. Section 18(4), quoted by the Court, vests jurisdiction in the Council where the supplier is located over a buyer located anywhere in India; as the appellant is located in Delhi, the Delhi Council and the Delhi Arbitration Centre validly assumed jurisdiction. (¶¶ 4, 8, 9, 10, 11)
- Section 24, Micro, Small and Medium Enterprises Development Act, 2006Relying on the Mahakali extracts, the Court treated Section 24 as giving Sections 15 to 23 overriding effect over any other law for the time being in force, including the Arbitration Act, 1996, so that Chapter V of the MSMED Act prevails. (¶¶ 8, 9)
- Sections 7(1), 16 and 80 (as discussed in Mahakali), Arbitration and Conciliation Act, 1996The Arbitration Act is a general law that yields to the special and later MSMED Act. Through the Mahakali extracts the Court noted that the Section 80 bar on a conciliator acting as arbitrator is superseded by Section 18 read with Section 24 of the MSMED Act, that the Section 18(3) deeming fiction treats the statutory arbitration as one under a Section 7(1) agreement, and that the Council or centre acting as arbitral tribunal can rule on its own jurisdiction as under Section 16. (¶¶ 2, 8, 9)
Held
- The issue is no longer res integra and is covered by Mahakali: the MSMED Act, being a special law and later in time, prevails over the Arbitration Act, 1996, more particularly because Section 24 gives Sections 15 to 23 overriding effect over any other law; the provisions of Chapter V of the MSMED Act override the Arbitration Act. (¶ 8)
- A private agreement between the parties cannot obliterate the statutory provisions. Once the mechanism under Section 18(1) of the MSMED Act is triggered by any party, it overrides any independent arbitration agreement in view of the non obstante clauses in Sections 18(1) and 18(4); no party to a dispute covered by Section 17 is precluded from referring it to the Facilitation Council merely because an arbitration agreement exists. (¶ 9)
- The question of the seat of arbitration in all cases covered by the MSMED Act is settled by Mahakali and by Section 18(4), which vests jurisdiction in the Facilitation Council where the supplier is located in a dispute with a buyer located anywhere in India. The appellant MSME being located in Delhi, the Delhi Facilitation Council validly entrusted the arbitration to the Delhi Arbitration Centre notwithstanding the contractual clause fixing the seat at Bengaluru. (¶¶ 10, 11)
- The Court did not touch the merits; the arbitrator was directed to permit the parties to raise and argue all questions of law and fact legally permissible. (¶ 12)
Result
Appeal allowed. The Karnataka High Court's order dated 22.04.2024 in W.P. No. 27269 of 2023 was set aside and the arbitral proceedings under the aegis of the Delhi Arbitration Centre restored, with a direction that they be conducted and concluded; all questions of law and fact left open before the arbitrator. No order as to costs.