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2025 (3) TMI 622 - HC - Indian LawsInitiation of arbitration proceedings under Section 18(3) of the Micro Small Medium Enterprises Development (MSMED) Act 2006 and the Arbitration Conciliation Act 1996 - HELD THAT - This Court is of the view that Section 18 of the MSMED Act 2006 is not akin to Section 11(6) of the Arbitration and Conciliation Act 1996. It is pertinent to mention that while the power under Section 11(6) is exercised by a referral court the reference under the MSMED Act is exercised by the council. Further the Supreme Court in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods (P) Ltd. 2022 (11) TMI 91 - SUPREME COURT has categorically held that the issue of lack of inherent jurisdiction can be decided by the Arbitral Tribunal appointed under the MSMED Act which by virtue of Section 18(3) of MSMED Act is competent to rule on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration and Conciliation Act 1996. Consequently the sequitur is that the decision of the Arbitral Tribunal on the issue of jurisdiction would be amendable to challenge under Section 34 of the Arbitration and Conciliation Act 1996. Conclusion - MSEFC has the jurisdiction to refer disputes to arbitration under the MSMED Act and the arbitral tribunal is competent to rule on its own jurisdiction. Appeal dismissed.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include: 1. Whether the Micro Small & Medium Enterprises Development (MSMED) Act, 2006 applies to the contract in question, given the nature of the contract and the registration status of the parties involved. 2. Whether the Micro Small & Medium Enterprises Facilitation Council (MSEFC) has the jurisdiction to refer the matter to arbitration under Section 18(3) of the MSMED Act, 2006, in light of the alleged absence of privity of contract between the appellant and respondent No. 2. 3. Whether the learned Single Judge was correct in referring the matter to the Delhi International Arbitration Centre (DIAC) for arbitration proceedings. 4. The role and jurisdiction of the referral court under Section 11(6) of the Arbitration and Conciliation Act, 1996, particularly in relation to the existence and validity of an arbitration agreement. ISSUE-WISE DETAILED ANALYSIS 1. Applicability of the MSMED Act, 2006 The appellant contended that the MSMED Act does not apply to the contract in question, arguing that it is a works contract and that respondent No. 2 was not registered as an MSME at the time of entering into the contract. The respondent countered by asserting that respondent No. 2 was registered as an MSME in 2016 and that there was a privity of contract, as evidenced by direct payments from the appellant to respondent No. 2. The Court noted that the applicability of the MSMED Act hinges on the registration status of the parties and the nature of the contract. The Court did not find merit in the appellant's argument, as the registration of respondent No. 2 as an MSME was established, and the nature of the contract did not preclude the application of the MSMED Act. 2. Jurisdiction of the MSEFC and Referral to Arbitration The appellant argued that the MSEFC lacked jurisdiction to refer the matter to arbitration, citing the absence of privity of contract between the appellant and respondent No. 2. The Court, however, emphasized that the MSEFC's role under Section 18(3) of the MSMED Act is distinct from that of a referral court under Section 11(6) of the Arbitration and Conciliation Act. The MSEFC, as per the Supreme Court's decision in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods (P) Ltd., has the authority to refer disputes to arbitration, and the arbitral tribunal can rule on its own jurisdiction. The Court found that the MSEFC acted within its jurisdiction by referring the matter to arbitration, and any challenge to the tribunal's jurisdiction could be addressed under Section 34 of the Arbitration and Conciliation Act. 3. Referral to DIAC by the Learned Single Judge The learned Single Judge's decision to refer the matter to DIAC for arbitration was challenged by the appellant. The Court upheld the referral, noting that the existence of disputed questions of fact warranted arbitration. The Court found that the learned Single Judge correctly applied the provisions of the MSMED Act and the Arbitration and Conciliation Act, ensuring that the matter was directed to the appropriate forum for resolution. 4. Role and Jurisdiction of the Referral Court under Section 11(6) of the Arbitration and Conciliation Act The appellant relied on the Supreme Court's decision in Magic Eye Developers Pvt. Ltd. v. M/s. Green Edge Infrastructure Pvt. Ltd. to argue that the referral court must conclusively decide on the existence and validity of an arbitration agreement at the pre-referral stage. The Court distinguished the role of the MSEFC under the MSMED Act from that of a referral court under Section 11(6), emphasizing that the MSEFC's referral to arbitration does not require a conclusive determination of the arbitration agreement's existence at the pre-referral stage. SIGNIFICANT HOLDINGS The Court held that the MSEFC has the jurisdiction to refer disputes to arbitration under the MSMED Act, and the arbitral tribunal is competent to rule on its own jurisdiction, as reinforced by the Supreme Court in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods (P) Ltd. The Court also clarified that the role of the MSEFC is distinct from that of a referral court under Section 11(6) of the Arbitration and Conciliation Act. The Court concluded that the appeal and applications lacked merit and dismissed them, affirming the learned Single Judge's order to refer the matter to DIAC for arbitration proceedings.
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