Gujarat High Court
M/S Samadhan Manpower And Engineering ... vs M/S Associated Power Structures Pvt. ... on 5 February, 2025
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/SCA/888/2025 JUDGMENT DATED: 05/02/2025
undefined
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 888 of 2025
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA AGARWAL
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
==================================================
Approved for Reporting Yes No
==================================================
M/S SAMADHAN MANPOWER AND ENGINEERING SERVICES
Versus
M/S ASSOCIATED POWER STRUCTURES PVT. LTD. & ANR.
==================================================
Appearance:
MR ANILKUMAR ADITYA for URVESH K GOR(7448) for the Petitioner(s) No. 1
==================================================
CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA
AGARWAL
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 05/02/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE PRANAV TRIVEDI)
1. By way of present petition, a challenge is made to the order dated 18.05.2024 passed by the 4 th Additional District Judge, Vadodara (Commercial Court), (hereinafter referred to as the "learned Commercial Court, Vadodara") in Commercial CMA No. 31 of 2021 below Exhibit-12, rejecting the application of the petitioner filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "Act, 1996").
Page 1 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined
2. The facts leading to the filing of the writ petition are that the petitioner is a proprietorship concern and is inter alia engaged in the business of providing manpower for labour work. The petitioner is working on sub-contract basis. The respondent no. 1 herein (hereinafter referred as the "respondent") is a Company incorporated under the Companies Act, 1956 inter alia engaged in the business of constructing and installing heavy electronic cable lines and poll. The respondent had given work order to supply manpower to the petitioner for their work which was going on in the State of Uttar Pradesh. It is the case of the petitioner that there was no written agreement between the petitioner and the respondent or any Memorandum of Understanding (MOU). However, the work was allotted to the petitioner only upon the "work order", issued by the respondent.
2.1. It was the case of the petitioner that the firm had completed the work as per the work order and some payment was made by the respondent. However, part payment was withheld by the respondent on the plea of fabricated allegation against the petitioner. Subsequently, a dispute arose between the parties. It is the case of the petitioner that since the petitioner is a registered firm under the Page 2 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined provisions of Micro, Small and Medium Enterprise Development Act, 2006 (for short "MSMED, Act, 2006"), the petitioner filed reference before the Micro and Small Enterprises Facilitation Council. 2.2. It was further the case of the petitioner that the respondent had failed to pay due bill amount which has resulted into filing of the reference, which came to be numbered as UP03B0047406/S /00001. Pursuant to the filing of the reference, notice was served to the respondent and in response, counter affidavit was filed by the respondent. Upon completion of hearing of both the parties, the Micro and Small Enterprises Facilitation Council passed an award on 23.03.2021 in favour of the petitioner wherein the respondent was directed to pay an outstanding amount of Rs.8,40,041/- along with interest of Rs.4,71,413/- as per Section 16 of the MSMED Act, 2006, totalling to Rs.13,11,454/-. Therefore, the award to the tune of Rs.13,11,454/- was passed in favour of the petitioner.
3. Being aggrieved and dissatisfied by the award passed by the Micro and Small Enterprises Facilitation Council on 23.03.2021, the respondent preferred an application under Section 34 of the Act, 1996, before the learned Commercial Court, at Vadodara, which came to be numbered as Commercial CMA No. 13 of 2021. Pursuant Page 3 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined to filing of the application, notice came to be issued to the petitioner. It was the case of the petitioner that the learned Commercial Court, Vadodara would have no jurisdiction as no arbitral proceedings were conducted within the territory of the State of Gujarat. It was the case of the petitioner that as per the work order, the work was concluded in the State of Uttar Pradesh and the reference was made in the State of Uttar Pradesh and even the arbitral proceedings were concluded in the State of Uttar Pradesh. Therefore, the Court in the State of Gujarat would not have jurisdiction. This stand of the petitioner had led to filing of the application below Exhibit-12 for dismissal of the application under Section 34 of the Act, 1996 on the ground that the learned Commercial Court, Vadodara would not have territorial jurisdiction. The application was filed by the petitioner on 05.09.2021 and the respondent had filed its reply on 14.12.2023 opposing the application below Exhibit-12.
3.1. After hearing both the parties and on perusing the record, the learned Commercial Court, Vadodara, vide impugned order dated 18.05.2023, rejected Exhibit-12 application of the petitioner for dismissal of application filed under Section 34 of the Act, 1996, which is impugned in the present writ petition.
Page 4 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined
4. We have heard learned advocate Mr. AnilKumar Aditya, who appeared virtually on hybrid mode on behalf of Mr. Urvesh Gor, learned advocate for the petitioner herein.
5. It was submitted by the learned counsel for the petitioner that the work was done in the State of Uttar Pradesh and in furtherance to that reference was made at the Micro and Small Enterprises Facilitation Council situated in the State of Uttar Pradesh at Kanpur. The arbitration proceedings having been concluded in the State of Uttar Pradesh, the learned Commercial Court, Vadodara has no jurisdiction to entertain the application filed under Section 34 of the Act, 1996.
5.1. It was further submitted that the MSMED Act, 2006 being a Special Act will have an overriding effect on the general enactment, namely the Arbitration and Conciliation Act, 1996. Section 18(4) of the MSMED Act, 2006 confers jurisdiction upon the Micro and Small Enterprises Facilitation Council to act as an Arbitrator or Conciliator in a dispute located within its jurisdiction. Resultantly, any appeal/application against the award passed by the Micro and Small Enterprises Facilitation Council has to be preferred only where the "seat" of the Council as per statute, is decided. In the present case, the "seat" of Arbitration would be at Kanpur in the State of Uttar Page 5 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined Pradesh and the District Court at Kanpur only would have jurisdiction to entertain the application and not the Commercial Court at Vadodara. It was further sought to be submitted that private agreement between the parties cannot obliterate the statutory provisions. Once the statutory mechanism under sub-section (1) of Section 18 of the MSMED Act, 2006 is triggered by any party, it would override any other agreement independently entered into between the parties. In the facts and circumstances of the present case, there was no agreement but only work order was signed, which cannot override the effect of Section 18 of the MSMED Act, 2006. The impugned order dated 18.05.2024 passed by the learned Commercial Court, Vadodara in Commercial CMA No. 31 of 2021, therefore, cannot be sustained.
6. Having heard learned counsels for the petitioner and perused the material on record, one factual aspect which is required to be clarified, at the outset, is with respect to the work order which was signed between the parties which was not placed on the record by the petitioner. However, there is a categorical finding of fact recorded in paragraph '6' of the order that the work order dated 01.09.2017 contains a jurisdiction clause no. 35 which provides :-
"Notwithstanding the place where it is this contract is signed or where the work is executed, it is agreed that the Page 6 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined Vadodara (Gujarat State) Court will be the jurisdiction for any disputes arising in the above contract"; Arbitration proceedings took place at Kanpur and award was also passed there by MSEFC."
7. The content of Clause no. 35 in the work order which provides for jurisdiction of the Court could not be disputed. As per Clause no. 35 of the work order, the learned Commercial Court, Vadodara has been conferred exclusive jurisdiction to deal with the question of dispute or difference arising out in connection with the work order with the consent of the parties. It is well settled that when the clause in the contract/work order vests exclusive jurisdiction over the dispute, it should not be considered as fixing 'seat' and the exclusive Court having jurisdiction to entertain the application under the Act, 1996. Therefore, the terminology of clause no. 35 of the work order would give exclusive jurisdiction to the learned Commercial Court, at Vadodara and such clause would be contra indica as held by the Hon'ble Apex Court in the case of BGS SGS Soma JV vs. NHPC Limited reported in (2020) 4 SCC 234. When the parties agree that the arbitration proceedings will be concluded at Micro and Small Enterprises Facilitation Council, at Kanpur, cannot be read to mean that the place has been designated under the work order as to 'seat' of the arbitration and would operate as exclusive jurisdiction clause. The work order signed by the parties, particularly, clause no. 35 Page 7 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined exclusively confers jurisdiction to the learned Commercial court, Vadodara. The place of arbitration agreed upon at 'Kanpur' is merely a convenient location for holding arbitration proceedings being the venue of the arbitration and the Court at Vadodara selected as having exclusive jurisdiction in all disputes arising out of the work order should be considered as 'Juridical Seat' of the arbitration.
8. On the question of "seat" and "venue", the law laid down by the Apex Court as to what constitutes the 'juridical seat' or arbitration proceedings and whether once the seat is delineated by the arbitration agreement, the Court at the place of the seat will alone have exclusive jurisdiction over the arbitral proceedings have been placed before us. Where the clause in the contract vests exclusive jurisdiction over the disputes, it should be considered as fixing "seat" and the exclusive Court having jurisdiction to entertain the application under the Act' 1996. Where the parties have agreed that all actions and proceedings arising out/related to the contract shall lie in the Courts of competent jurisdiction at place 'A' and have agreed to conduct the arbitration proceedings at place 'B', the expression in the agreement that the Court at place 'A' will have jurisdiction, would be a contrary indicator as held by the Apex Court in the case of BGS SGS Soma (supra).
Page 8 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined
9. In the decision of the Apex Court in Ravi Ranjan Developers Pvt. Ltd. vs. Aditya Kumar Chatterjee [(2022 SCC OnLine SC 568] emphasis has been laid down that "seat of arbitration" and "venue of arbitration" cannot be used interchangeably. Mere expression "place of arbitration" can not be made basis to determine the intention of the parties that they have intended that place as the "seat of arbitration". The intention of the parties as to the "seat" should be determined from the clauses in the agreement and the conduct of the parties. It is well settled principle of law that when two or more Courts have jurisdiction to adjudicate the disputes arising out of an arbitration agreement, the parties might, by agreement decide to refer all disputes to any one Court to the exclusion of all other Courts, which might otherwise have had jurisdiction to decide the disputes. The parties cannot, however, by consent confer jurisdiction on a Court which inherently lacks jurisdiction.
10. The fact that the arbitral proceedings "shall be held" at a particular venue would also indicate that the parties intended to anchor the arbitral proceedings to a particular place, signifying their intention that the place is the seat of the arbitral proceedings. This Page 9 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined coupled with there being no other contra indicia that stated venue is merely a "venue" and not "seat" of the arbitral proceedings, would then conclusively show that such a clause designates the "seat" of the arbitral proceedings.
11. In the instant case, there is a categorical clause in the work order signed by the parties to confer exclusive jurisdiction to the Court at Vadodara. There being a sufficient contra indica to confer exclusive jurisdiction upon the Court, the 'juridical seat' for all court proceedings would be the Court at Vadodara. The fact that the MSME Felicitation Council located at Kanpur in the State of Uttar Pradesh had passed the award and the opponent unit which is a MSME unit is situated at Kanpur, State of Uttar Pradesh, "the juridical seat" cannot be fixed at Kanpur, State of Uttar Pradesh to confer exclusive jurisdiction upon the Court of the said place.
12. To examine the issue, this Court is required to note the decision of the Apex Court in the case of BGS SGS Soma (supra), Mankastu Impex Private Limited versus Airvisual Limited reported in (2020) 5 SCC 399, wherein the question of "seat" and "venue" with reference to the arbitration proceedings has been decided. In the case of BGS SGS Soma (supra), the issue was Page 10 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined pertaining to maintainability of appeal under Section 37 of the Act, 1996, on the premise that in view of the arbitration clause, whether the seat of arbitration proceedings was New Delhi or Faridabad, consequent upon which the petition under Section 34 of the Act, 1996 may be filed depending on where the seat of arbitration was located.
13. The Apex Court has noted therein that in the judgment impugned, the Punjab and Haryana High Court referred two earlier decisions of the Apex Court in Bharat Aluminum Co.(BALCO) vs. Kaiser Aluminum reported in (2012) 9 SCC 522 and Indus Mobile Distribution (P) Ltd. versus Datawind Innovations (P) Ltd. reported in (2017) 7 SCC 678, along with other decisions to arrive at a conclusion that the arbitration clause in that case did not refer to the seat of arbitration, but only referred to the "venue" of arbitration. Consequently, since a part of the cause of action had arisen in Faridabad, the Faridabad Commercial Court alone would have jurisdiction over the arbitral proceedings, and the Courts at New Delhi would have no such jurisdiction. The correctness of the said proposition was assailed before the Apex Court. The Apex Court has proceeded to lay down the law on what constitutes the "juridical seat" of arbitration proceedings, and whether, once the seat is Page 11 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined delineated by the arbitration agreement, courts at the place of the seat would alone, thereafter, have exclusive jurisdiction over the arbitral proceedings.
14. Considering the scheme of the old Arbitration Act 1940, it was observed therein that it did not refer to the juridical seat of the arbitration proceedings at all. The UNCITRAL Model of International Commercial Courts as adopted by the United Nations Commission on International Trade Law on 21.06.1985, introduced the concept of "place" or "seat" of the arbitral proceedings, which has been adopted by our country. The Arbitration Act, 1996 which repealed the Arbitration Act, 1940, adopted provisions of UNCITRAL Model and refers to "the place" of arbitration and defines "Courts", and indicates which Courts have jurisdiction in relation to arbitral proceedings. The provisions in Part - I in Section 2(1)(e), 2(2), Section 20, Section 31(4) and 42 of the Act, 1996, noted therein are relevant to be extracted as under : -
"2.Definitions. -
(1) In this Part, unless the context otherwise requires,-
(a) to (d) - xxxxxx...xxxxxx...xxxxxx
(e)"Court" means-
(i) in case of an arbitration other than international commercial arbitration, the principal Civil Court of original Page 12 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-
matter of the arbitration if the same had been the subject- matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes;
(ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of a suit if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court;
(f) to (h) -xxxxxx...xxxxxx...xxxxxx (2) This part shall apply where the place of arbitration is in India. Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of Section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award or to be made in such place is enforceable and recognised under the provisions of Part II of this Act."
20. Place of Arbitration.-
(1)The parties are free to agree on the place of arbitration. (2)Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.
(3)Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property." "
31. Form and contents of arbitral award.-
Page 13 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined (1) to (3) - xxxxxx...xxxxxx...xxxxxx
(4) The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and the award shall be deemed to have been made at that place."
"42. Jurisdiction.- Notwithstanding anything contained elsewhere in this Part or any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in any Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and no other Court."
15. It was further discussed in paragraph '31' and '32' in BGS SGS Soma (supra) that from the above noted provisions, the new concept of "juridical seat" of the arbitration proceedings has been given by the Act, 1996 and the arbitral award is now not only to state its date, but also the place of arbitration as determined in accordance with Section 20. However, the definition of "Court" has been narrowed down to mean only principal civil court and the High Court in exercise of their original ordinary civil jurisdiction. Thus, the concept of "juridical seat" of the arbitral proceedings, and its relationship to the jurisdiction of the courts which are then to look into matters relating to the arbitral proceedings including challenges to arbitral awards had to be developed in accordance with international practice on a case by case basis by the Apex Court.
Page 14 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined
Noticing that in some of the earlier decisions of the Apex Court, no proper distinction between the "seat" and "venue" of arbitral proceedings was made, the observations in the judgment in the case of Union of India versus McDonnell Douglas Corporation reported in (1993) 2 Lloyd's Rep 48, were noted that the provisions of Section 2(1)(e) of the Act, 1996 had been considered therein to provide jurisdiction of the original Civil Court and the High Court to decide the question forming "the subject matter of the arbitration". It was further noted that a plain reading of the Section 20 leaves no room for doubt that where the place of arbitration is in India, the parties are free to agree to any "place" or "seat" within India. In absence of the agreement of the parties thereto, Sub-section (2) of Section 20 authorizes the tribunal to determine the place / seat of such arbitration. Section 20(3), however, enables the tribunal to meet at any place for conducting hearings at a place of convenience in matters such as consultations among its members for hearing witnesses, experts or the parties. The observations in paragraph 99 in McDonnell Douglas Corporation (supra), emphasis to which is supplied therein, are relevant to be extracted hereinunder : -
"99. The fixation of the most convenient "venue" is taken care of by Section 20(3). Section 20, has to be read in the context of Section 2(2), which places a threshold limitation on the applicability of Part I, where the place of arbitration is in India. Therefore, Section 20 would also not support the submission of Page 15 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined the extra-territorial applicability of Part I, as canvassed by the Learned Counsel for the Appellants, so far as purely domestic arbitration is concerned." (emphasis in original and supplied) 15.1 While examining the concept of "juridical seat" of the arbitral proceedings and the important test laid down in the decision of the English Courts and the Apex Court, in order to determine whether the "seat" of the arbitral proceedings has, in fact, been indicated in the agreement between the parties, it was observed by the Apex Court in BGS SGS Soma (supra), in paragraph '82' as under : -
"82. On a conspectus of the aforesaid judgments, it may be concluded that whenever there is the designation of a place of arbitration in an arbitration clause as being the "venue"
of the arbitration proceedings, the expression "arbitration proceedings" would make it clear that the "venue" is really the "seat" of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place. This language has to be contrasted with language such as "tribunals are to meet or have witnesses, experts or the parties" where only hearings are to take place in the "venue", which may lead to the conclusion, other things being equal, that the venue so stated is not the "seat" of arbitral proceedings, but only a convenient place of meeting. Further, the fact that the arbitral proceedings "shall be held" at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. This, coupled with there being no other significant contrary indicia that the stated venue is merely a "venue" and not the "seat" of the arbitral proceedings, would then conclusively show that such a clause designates a "seat" of the arbitral proceedings. In an International context, if a supranational body of rules is to govern the arbitration, this would further be an indicia that "the venue", so stated, would be the seat of the arbitral Page 16 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined proceedings. In a national context, this would be replaced by the Arbitration Act, 1996 as applying to the "stated venue", which then becomes the "seat" for the purposes of arbitration."
16. The decision in the case of BGS SGS Soma (supra), has been considered to note that it was held therein that in absence of contrary expression expressed by the parties, the conclusion has to be drawn that the parties have chosen the place where arbitration proceedings were held as the seat of arbitration under Section 20(1) of the Act. From the reading of the above noted decisions, it can be seen that mere designation of a place of arbitration in arbitration clause as being "venue of the arbitration proceedings", would not be determinative factor to decide the "seat of the arbitral proceedings". The language of the arbitral agreement has to be read on case by case basis to determine as to whether "venue" so stated is "seat" of arbitral proceedings, or it is only convenient place of meeting. The moment the seat is designated, it is akin to an exclusive jurisdiction clause for the purpose of regulating arbitral proceedings arising out of the agreement between the parties. In the instant case there being specific clause being clause no. 35 giving jurisdiction to Vadodara Court would clinch the issue.
17. The second limb of argument canvassed by the learned counsel Page 17 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined for the petitioner was that Section 18(4) of the MSMED Act, 2006 fixes 'seat' of arbitration being place where Micro and Small Enterprises Facilitation Council is situated at the location of the supplier i.e. Kanpur. The contention is that Section 18(4) of the MSMED Act, 2006 fixes the 'seat' of arbitration which further decides location of the supplier and location of the buyer has no relevance to decide the jurisdiction of the Micro and Small Enterprises Facilitation Council. The submission is that the provisions of the MSMED Act, 2006 would have an overriding effect on the provisions of the Act, 1996.
18. Taking note of the above arguments, we have to examine the interplay between the Arbitration Act' 1996 and MSMED Act' 2006 by going through the relevant provisions of both the enactments. When we go through the provisions of the MSMED Act' 2006, it can be discerned that the overriding effect has been given by virtue of Section 18(4) read with Section 24 of the MSMED Act' 2006 over any agreement between the parties in relation to the dispute covered by the MSMED Act' 2006 and in so far as the claim under Section 17, where it has been kept open to the parties to refer the dispute to the MSME Facilitation Council. From the procedure prescribed in Chapter-V of the MSMED Act' 2006, it is evident that the forum Page 18 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined namely, MSME Facilitation Council provided in Section 18, is in replacement of 'arbitration agreement' as contained in Section 7 of the Arbitration Act' 1996, which covers the dispute resolution mechanism of arbitration between the parties. Sub-section(4) of Section 2 of the Arbitration Act' 1996 provides that Part-I of the Arbitration and Conciliation Act' 1996 shall apply to every arbitration including statutory arbitration, and every arbitration under any other enactment for the time being in force shall be deemed to be the arbitration pursuant to the arbitration agreement within the meaning of the Arbitration Act' 1996.
19. Thus, by virtue of Section 2(4) read with Section 7, in so far as the arbitration proceedings are concerned, they shall be governed by the statutory enactment, which would result in replacing the mode and manner of appointment of arbitral tribunal under the Arbitration Act' 1996. The provisions of the Arbitration Act' 1996 which are inconsistent with the statutory enactment shall not apply. With the commencement and conclusion of the arbitral proceedings under the statute namely the MSMED Act' 2006, at both the stages, the Arbitrator and the parties would have to refer to the provisions of the Arbitration Act' 1996. For any dispute pertaining to the correctness or validity of the arbitral award, execution and implementation Page 19 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined thereof, no other procedure have been provided under the MSMED Act' 2006, and the provisions of the Arbitration Act' 1996 are applicable.
20. Further, we may also note from the language employed in sub- section (3) of Section 18 that where the conciliation initiated under sub-section (2) of Section 18 is not successful, the Council is empowered to take up the dispute for arbitration onto itself or refer to it any institution or center providing alternate dispute resolution services for such arbitration. In both eventuality, the arbitration proceedings would be governed by the provisions of the Arbitration and Conciliation Act, 1996 in dealing with the dispute as if the arbitration was pursuant to an arbitration agreement referred to in sub-section(1) of Section 7 of the Arbitration Act' 1996. With the language employed under sub-section (3) of Section 18, if the provisions of sub-section (4) of Section 18 are read and understood, it would mean that the provisions of subsection (4) of Section 18 would have an overriding effect only with respect to the jurisdiction of the MSME Felicitation Council in adjudication of the dispute as an Arbitrator and has no application beyond that point.
21. We may further look into the provisions of the Section 19 of Page 20 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined the MSMED Act' 2006, which provides the manner in which the application can be moved for setting aside the decree, award or order made either by the Council itself or by any institution or center providing alternative dispute resolution services to which a reference is made by the Council. Section 19 contemplates pre-deposit of certain amount before any such application is entertained by any Court. The word 'Court' is not defined under the MSMED Act' 2006. The phrase 'any court' contained in Section 19 of the MSMED Act' 2006, thus, has to be understood to mean the 'court' defined under Section 2 (1)(e)of the Arbitration Act, 1996, which applies to the arbitration proceedings conducted by the MSME Facilitation Council or a institute or center referred to by it, by virtue of sub-section (3) of Section 18. The resultant effect would be that the Court having jurisdiction to entertain the challenge to an arbitral award within the meaning of Section 34 of the Arbitration Act, 1996 shall be able to adjudicate the challenge to an arbitral award within the scope of the said provisions. A conjoint reading of Section 19 of the MSMED Act' 2006 and Section 34 of the Arbitration Act' 1996 makes it clear that the 'Court' defined in Section 2(1)(e)of the Arbitration Act' 1996 will have the jurisdiction to entertain the challenge to any award of the MSME Felicitation Council or the institution to whom the dispute is referred by the Council, subject to fulfillment of the condition of pre-
Page 21 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined
deposit laid down in Section 19 of the MSMED Act' 2006.
22. We may further note that except Section 19 contained in Chapter-V of the MSMED Act' 2006, there is no other provision which would deal with the procedure or the manner or even the jurisdiction of the Court where challenge to an award by the Council can be laid. Section 24 of the MSMED Act' 2006 which gives overriding effect to the provisions of Sections 15 to 23 contained in Chapter-V of the MSMED Act' 2006, thus, would not apply beyond the provisions contained therein. Meaning thereby, once the challenge is put forth before the 'Court' defined in Section 2(1)(e) of the Arbitration Act, 1996 by making pre-requisite deposit as per Section 19 of the MSMED Act' 2006, the interplay between the MSMED Act' 2006 and the Arbitration Act' 1996 would come to an end.
23. The Court before which the challenge is laid, once entertained the challenge by ensuring compliance of Section 19 of the MSMED Act' 2006, would have to deal with the challenge within the purview of Section 34 of the Arbitration Act, 1996. The MSMED Act' 2006 cannot be read and applied to determine the jurisdiction of the Court defined in Section 2(1)(e) of the Arbitration Act' 1996 before which the challenge to an award is laid under Section 34. The limited scope Page 22 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined of Section 19 of the MSMED Act' 2006 is clear with the conjoint reading of Section 19 of the MSMED Act' 2006, Section 2(1)(e) and Section 34 of the Arbitration Act' 1996. The interplay between Section 18 of the MSMED Act' 2006, Section 2(4) and Section 7 of the Arbitration Act' 1996, has already been discussed hereinbefore in detail.
24. The Legislature which fixes the jurisdiction of the MSME Facilitation Council by virtue of sub-section (4) of Section 18, has not prescribed any provision dealing with the jurisdiction of the Courts entertaining application for setting aside any decree, award or other order made either by the Council itself or by any institution or center referred to by the Council, in view of the fact that the provisions of the Arbitration and Conciliation Act, 1996 are applicable at both the stages of making of the award and post-passing of the award. The only mode and manner of referring the dispute for conciliation and arbitration and appointment of an arbitrator in case of disagreement between the parties, as governed by the Arbitration Act' 1996 has been replaced by the statutory scheme of the MSMED Act' 2006.
25. In view of the above discussion, the contention of the learned counsel for the respondent that by virtue of the overriding effect of sub-section (4) of Section 18 read with Section 24 of the MSMED Page 23 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025 NEUTRAL CITATION C/SCA/888/2025 JUDGMENT DATED: 05/02/2025 undefined Act' 2006, the juridical seat of arbitration proceedings has been fixed and it would result in exclusion of the jurisdiction of the Civil Court anywhere else in India where cause of action for adjudication of the dispute lies, is untenable. This, issue of interpretation between MSMED, Act, 2006 and the Act of 1996 was categorically decided by this Court in the case of Uttar Gujarat Vij Company Limited v. Gupta Power Infrastructure Limited rendered in First Appeal No. 1728 of 2022 dated 24.12.2024. Therefore, the provisions of Section 18(4) of the MSMED Act, 2006 cannot be read to exclude the jurisdiction of the Civil Court at Vadodara which otherwise has jurisdiction to deal with the dispute being the Civil Court within which the jurisdiction of the work order was executed.
26. In view of the aforesaid observations, we do not find any infirmity in the order dated 18.05.2024 passed by the learned Commercial Court, at Vadodara in Commercial CMA No. 31 of 2021.
The petition being devoid of merits is, accordingly dismissed. No order as to cost.
(SUNITA AGARWAL, CJ ) (PRANAV TRIVEDI,J) phalguni Page 24 of 24 Uploaded by PHALGUNI PATEL(HC00175) on Tue Feb 18 2025 Downloaded on : Sat Feb 22 00:12:10 IST 2025