The case revolves around the issue of whether an application challenging an arbitration award under Section 34 of the Arbitration and Conciliation Act, 1996, following an award passed under Section 18 of the MSMED Act, must be filed at the place of the supplier or as per the jurisdiction agreed in the original contract. The court held that, despite the award being made under the MSMED Act, the original agreement’s jurisdiction clause takes precedence. The arbitration venue under MSMED is treated only as a convenience for the supplier, and post-award challenges must follow the original contract’s jurisdiction.

1. Introduction and Reference:

• The dispute involved Gammon Engineers and Contractors Pvt. Ltd., and the respondent, an MSME unit.
• Disputes were referred to the Micro, Small, and Medium Enterprises Facilitation Council at Shimla under Section 18 of the MSMED Act due to the respondent's MSME status.
• The main question referred to a larger bench was regarding which court has jurisdiction for setting aside an award under Section 34—whether it is the court where the supplier is located or the court as per the original contractual agreement.

2. Jurisdiction Dispute:

• The petitioner argued that, per the original agreement, disputes should be resolved by courts in Mumbai.
• The respondent contended that the MSMED Act confers jurisdiction to the courts where the supplier is located (Shimla in this case), following the award of the Facilitation Council.

3. Section 18 of MSMED Act and Arbitration Agreement:

• Section 18(4) of the MSMED Act allows for statutory arbitration in cases where no prior arbitration agreement exists.
• Even if there is a pre-existing agreement, the Facilitation Council’s arbitration under Section 18(4) overrides the appointment mechanism in the contract, but only for the appointment of the arbitrator.

4. Court's Analysis on Section 18(5) and Jurisdiction:

• Section 18(5) allows the Facilitation Council, located where the supplier is based, to act as arbitrator. However, this only applies to the arbitration process, not for determining the court for challenging the award.
• The non-obstante clause of Section 18(5) does not override the jurisdiction agreed upon in the original contract for the purpose of post-award challenges.

Legal Reasoning (Ratio):

The court observed that the MSMED Act provides mechanisms to protect MSMEs, particularly in arbitration under Section 18(4). However, it does not explicitly define the forum for challenging an award. The court held that once an award is passed, the jurisdiction for setting it aside under Section 34 of the Arbitration Act is governed by the agreement between the parties. In this case, since the original agreement conferred exclusive jurisdiction to Mumbai courts, the challenge must be filed in Mumbai, not Shimla.

Acts and Sections Discussed:

• MSMED Act, 2006:

  • Section 18(4): Empowers the Facilitation Council to arbitrate or appoint an arbitrator in the absence of an arbitration agreement.
  • Section 18(5): Specifies the location of the Facilitation Council as the venue for arbitration but does not confer post-award jurisdiction.
  • Section 19: Pre-condition of depositing 75% of the award amount for setting aside the award.
  • Section 24: Provides overriding provisions for Sections 15-23, but these do not affect jurisdiction clauses in contracts.

• Arbitration and Conciliation Act, 1996:

  • Section 34: Provides for setting aside arbitration awards.
  • Section 42: States that if an arbitration-related application is made in one court, all subsequent applications must be made in the same court.

Conclusion:

The judgment reinforces that the seat of arbitration and the jurisdiction of the court for post-award proceedings remain governed by the original contractual agreement, despite the arbitration being conducted under the MSMED Act. The convenience of the supplier's location does not alter this principle.

Subjects:

#MSMEDAct #Arbitration #Jurisdiction #ContractLaw #Section34 #ExclusiveJurisdiction #MicroSmallEnterprises #FacilitationCouncil