Madras High Court
M/S.Bharat Sanchar Nigam Limited vs Micro And Small Enterprises … on 6 February, 2026
Author: N.Anand Venkatesh
Bench: N. Anand Venkatesh
OP No. 334 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 04.02.2026
PRONOUNCED ON : 06.02.2026
CORAM
THE HONOURABLE Mr JUSTICE N. ANAND VENKATESH
O.P.No.334 of 2021
AND
A.No.1727 of 2021
M/s.BHARAT SANCHAR NIGAM LIMITED
Rep. by its Chief General Manager
Southern Telecom Projects
No.25, BSNL Towers, Greenways Lane
Raja Annamalai Puram, Chennai 600 028
Petitioner(s)
Vs
1. Micro and Small Enterprises Facilitation Council
Jaipur (Third)
Office of Commissioner of Industries
Government of Rajasthan, Udyog Bhavan
Tilak Marg, Jaipur, Rajasthan 302 005
2.M/s.Purma Plast Private Limited,
Rep. by Sri Raghuveer Sharma
B-494, RIICOindustrial Area, Phase I, Bhiwadi
Alwar, Rajasthan.
Respondent(s)
PRAYER
To set aside the impugned Award dated 17/03/2020 made in the Case
No.RJ/02/S/00630 in the Arbitration of the disputes arising of the Agreement in
Tender No.CGMP/CH1/MM/NIT-1/2014-15 is dated 19.05.2014 passed by the
1st respondent.
For Petitioner : Mr.G.Sankaran, Senior Counsel
for Mr.S.Gopinathan
For Respondents : Mr.Jeevan Hari for R2
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ORDER
This petition has been filed under Section 34 of the Arbitration and
Conciliation Act, 1996, (in short “the Act”) against the award passed by the
Micro and Small Enterprises Facilitation Council, Jaipur, dated 17.03.2020,
made in Case No.RJ/02/S/00630 arising out of an agreement in Tender No.
CGMP/CH1/MM/NIT-1/2014-15 dated 19.05.2014.
2.The 2nd respondent was the claimant before the 1st respondent Council.
The petitioner floated a tender for supply of PLB pipes and accessories. The
2nd respondent participated in the said tender and was the L1 bidder. Advance
purchase order was placed on the 2nd respondent and the 2nd respondent was
expected to complete the supplies within a time frame. The time was extended
twice, due to various reasons and the supplies was ultimately completed after
144 days against 57 days allotted by the petitioner. The petitioner chose to
impose liquidated damages contemplated under Clause 16.2(a) of Section 5
Part A of the tender, for the delayed supplies, instead of resorting to forfeiture of
performance security or termination of the contract for the default committed by
the 2nd respondent.
3.The liquidated damages were deducted from the running bills. A notice
dated 13.11.2018 was received from the 1st respondent Council, intimating the
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petitioner that the 2nd respondent has filed a petition to resolve the dispute
regarding delayed payment and recovery of liquidated damages from the
2nd respondent. The 1st respondent Council, through award dated 17.03.2020,
directed the petitioner to pay a total sum of Rs.1,94,34,486/- along with monthly
compound interest of three times per month as per RBI current interest.
Aggrieved by the same, the present petition has been filed by M/s.Bharat
Sanchar Nigam Limited (BSNL).
4.When this petition came up for final hearing on 20.01.2026, this Court
after hearing both sides, passed the following order:
“This Court heard Mr.G.Sankaran, learned Senior Counsel appearing
on behalf of the petitioner and Mr.Jeevanhari, learned counsel appearing on
behalf of the 2nd respondent.
2.In the case in hand, there is no dispute with regard to the fact that the
award under challenge has been passed by the Micro and Small Enterprises
Facilitation Council, Jaipur, Rajasthan. The 2nd respondent had invoked
jurisdiction of the said Council on the ground that the 2nd respondent had
supplied from Jaipur, Rajasthan. Even though the seat of arbitration has been
agreed to be Chennai under the agreement, the 2nd respondent had a statutory
right under the Micro, Small and Medium Enterprises Development
[MSMED] Act, 2006 to invoke the jurisdiction of the 1st respondent Council.
An award has also been passed by the 1st respondent on 17.03.2020.
3.This Court raised the issue of territorial jurisdiction to the learned
Senior Counsel appearing on behalf of the petitioner on the ground that the
award passed by the 1st respondent does not fall within the jurisdiction of this
Court and therefore, the present petition itself is not maintainable.
4.In reply to the above submission, the learned Senior Counsel relied
upon the order passed by the Apex Court in Civil Appeal No.4463 of 2025
dated 28.03.2025 where the same parties were agitating against a different
award. The Apex Court while passing the order remitted the matter back to the
Division Bench of this Court to decide the case on merits except the issue of
territorial jurisdiction. It was therefore contended that the 2nd respondent had
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never questioned the territorial jurisdiction of this Court and the present case
can be heard on merits.
5.On a careful reading of the order passed by the Apex Court, it is seen
that the learned counsel for the 2nd respondent had agreed for the matter being
heard by the Division Bench of this Court and on recording the said
submission, the Apex Court held that the issue of territorial jurisdiction need
not be considered by the Division Bench. This order cannot be taken as a
precedent in this case.
6.The right of the petitioner to invoke the jurisdiction of the 1st
respondent is sufficiently recognised by the Apex Court in the judgment in
Gujarat State Civil Supplies Corpn. Ltd. v. Mahakali Foods (P) Ltd.,
reported in (2023) 6 SCC 401 and in the later judgment in Harcharan Dass
Gupta v. Union of India reported in (2025) SCC Online SC 1111. In such an
event, if the award has been passed by the Council at Rajasthan, the same
being challenged before this Court in a petition filed under Section 34 of the
Arbitration and Conciliation Act, 1996, becomes questionable. Unless the
petitioner pass muster on this issue, this Court will not go into the merits of
the case.
7.The learned Senior Counsel for the petitioner seeks for sometime to
make his submissions.
8.Post this petition under the caption ‘part heard cases’ on 28.01.2026.”
5.In the light of the above preliminary objection raised on the jurisdiction
of this Court to entertain this petition under Section 34 of the Act, this Court
directed the learned Senior Counsel appearing for the petitioner to first address
the question of jurisdiction and thereafter, to make his submission on merits.
6.Mr.G.Sankaran, learned Senior Counsel appearing for the petitioner
relied upon the following judgments:
(a) Indian Oil Corporation Ltd. Vs. Fepl Engineering (P) Ltd. &
Another reported in 2019 SCC OnLine Del 10265.
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(b) Ircon International Limited Vs. Pioneer Fabricators Private
Limited reported in 2023 SCC OnLine Del 1811.
(c) Gujarat State Civil Supplies Corporation Limited Vs Mahakali
Foods Pvt. Ltd. Unit (2) & Others reported in (2023) 6 SCC 401.
(d) Bombay High Court Division Bench Judgment in Gammon
Engineers and Contractors Pvt. Ltd. Vs. Rohit Sood (Arbitration
Petition (ARBP) (L) No.28089 of 2022 decided on 16.10.2024).
(e) Gujarat High Court Division Bench Judgment in Uttar Gujarat
VIJ Company Ltd. Vs. Gupta Power Infrastructure Limited (First
Appeal No.1728 of 2022 decided on 24.12.2024).
(f)Harcharan Dass Gupta Vs. Union of India reported in 2025 SCC
OnLine SC 1111.
(g)M/s.Larsen & Toubro Ltd., Chennai Vs. M/s.Jain Steels
Industries, Punjab reported in CDJ 2025 MHC 4381.
7.The learned Senior Counsel submitted that the “seat” of arbitration
would continue to be governed in terms of the arbitration agreement between
the parties and that the same will not get dislodged, just because the
1st respondent Council had conducted the arbitration proceedings, in the light of
the special provision contained under Section 18(5) of the Micro, Small and
Medium Enterprises Development Act, 2006, (in short “MSMED Act”). Hence,
it was contended that in the case in hand, the parties had specifically chosen the
seat of arbitration at Chennai and therefore, the present petition filed under
Section 34 of the Act is maintainable before this Court.
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8.Insofar as the merits of the case is concerned, the learned Senior
Counsel submitted that the petitioner was not given opportunity by the
1st respondent Council, in spite of repeated communications made by the
petitioner and that the 1st respondent Council failed to adhere to the procedure
under Sections 18(2) and 18(3) of the Act and therefore, the award passed by
the 1st respondent Council has to be interfered by this Court. To substantiate
this submission, the learned Senior Counsel relied upon the following
judgments:
1. M/s.Ramesh Conductors P. Ltd. Vs. M&SE Facilitation Council
reported in CDJ 2015 MHC 7954.
2. Apex Court Judgment in Jharkhand Urja Vikas Nigam Ltd. Vs. The
State of Rajasthan & Others (Civil Appeal No.2899 of 2021
decided on 15.12.2021).
3. M/s.Super Steam Boilers Engineers Vs. MSE Facilitation Council,
Coimbatore reported in CDJ 2022 MHC 5254.
4. M/s.Sri Valli Process Vs. MSE Facilitation Council, Chennai
Region & Others reported in CDJ 2022 MHC 5271.
5. M/s.Raster Images Pvt. Ltd. Vs. MSE Facilitation Council,
Coimbatore & Another reported in CDJ 2023 MHC 3824.
6. Funskool (Ind) Ltd., Chennai Vs. MSE Facilitation Council and
Another reported in CDJ 2023 MHC 5662.
9.Per contra, learned counsel for the respondent submitted that a petition
under Section 34 of the Act is maintainable only before the Court within whose
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jurisdiction the subject matter of arbitration lies. This term has been interpreted
by the Apex Court in Bharat Aluminium Company (BALCO) Vs Kaiser
Aluminium Technical Services Inc. reported in (2012) 9 SCC 552 and it was
held that the subject matter of arbitration would mean the Court which would
have supervisory control over the arbitration proceedings. The arbitration
proceedings took place in Rajasthan and the only Court which will have
jurisdiction over the subject matter of arbitration, will be the Principal Civil
Court of original jurisdiction at Rajasthan and not this Court. The learned
counsel also relied upon the judgment of the Apex Court in Indus Mobile
Distribution Private Limited Vs Datawind Innovations Private Limited and
Others reported in (2017) 7 SCC 678.
10.Insofar as the merits of the case is concerned, it was submitted that the
petitioner did not choose to appear before the 1st respondent Council and
therefore, the 1st respondent Council had no other alternative, except to deal
with the claim made by the 2nd respondent and passed the award.
11.This Court has carefully considered the submissions and the materials
available on record.
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12.Two issues arise for consideration in this petition and they are:
i.Whether this Court has the territorial jurisdiction to deal
with the award passed by the 1st respondent Council; and
ii.Whether the award passed by the 1 st respondent Council is
in consonance with Section 18 of the MSMED Act.
13.Insofar as the 1st issue is concerned, the crux of that issue has been
captured in the order passed on 20.01.2026 and which has been extracted supra.
In the case in hand, the 2nd respondent had made the supplies from Rajasthan.
Therefore, in the light of the judgment of the Apex Cout in Mahakali case
referred supra, the private agreement between the parties cannot obliterate the
statutory provisions and consequently, in the light of Section 18(4) of the
MSMED Act, the 2nd respondent was entitled to raise the dispute before the
1st respondent Council and the 1st respondent Council will be entitled to act as
the Arbitrator. There is no difficulty till this stage, in the light of the judgment
of the Apex Court in Mahakali and Harcharan Dass Gupta cases referred
supra.
14.The crucial issue is, as to whether the award passed by the
1st respondent Council can become the subject matter of challenge before this
Court under Section 34 of the Act.
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15.The learned counsel for the respondent by relying upon the judgment
of the Apex Court in BALCO case referred supra, submitted that the subject
matter of the arbitration was before the 1st respondent and therefore, only that
Court which has a supervisory control over the arbitration proceedings, can
entertain a petition under Section 34 of the Act. The relevant portion relied
upon by the learned counsel for the respondent is extracted hereunder:
“96. Section 2(1)(e) of the Arbitration Act, 1996 reads as under:
“2. Definitions.—(1) In this Part, unless the context
otherwise requires-
(a)-(d) … ….
(e) ‘Court’ means the Principal Civil Court of Original
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;”
We are of the opinion, the term “subject-matter of the arbitration” cannot
be confused with “subject-matter of the suit”. The term “subject-matter” in
Section 2(1)(e) is confined to Part I. It has a reference and connection
with the process of dispute resolution. Its purpose is to identify the
courts having supervisory control over the arbitration proceedings .
Hence, it refers to a court which would essentially be a court of the
seat of the arbitration process. In our opinion , the provision in Section
2(1)(e) has to be construed keeping in view the provisions in Section 20
which give recognition to party autonomy. Accepting the narrow
construction as projected by the learned counsel for the appellants
would, in fact, render Section 20 nugatory. In our view, the legislature
has intentionally given jurisdiction to two courts i.e. the court which
would have jurisdiction where the cause of action is located and the
courts where the arbitration takes place. This was necessary as on many
occasions the agreement may provide for a seat of arbitration at a place
which would be neutral to both the parties. Therefore , the courts where
the arbitration takes place would be required to exercise supervisory
control over the arbitral process. For example, if the arbitration is held
in Delhi, where neither of the parties are from Delhi , (Delhi having been
chosen as a neutral place as between a party from Mumbai and the
other from Kolkata) and the tribunal sitting in Delhi passes an interim
order under Section 17 of the Arbitration Act, 1996, the appeal against
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OP No. 334 of 2021
such an interim order under Section 37 must lie to the courts of Delhi
being the courts having supervisory jurisdiction over the arbitration
proceedings and the tribunal. This would be irrespective of the fact that
the obligations to be performed under the contract were to be
performed either at Mumbai or at Kolkata, and only arbitration is to
take place in Delhi. In such circumstances, both the courts would have
jurisdiction i.e. the court within whose jurisdiction the subject -matter of
the suit is situated and the courts within the jurisdiction of which the
dispute resolution i.e. arbitration is located.”
16.The learned counsel for the respondent also relied upon the judgment
in Indus Mobile case referred supra and placed specific reliance upon the
following paragraphs:
“16. It may be mentioned, in passing, that the Arbitration and
Conciliation Act, 1996 has been amended in 2015 pursuant to a detailed
Law Commission Report. The Law Commission specifically adverted to
the difference between “seat” and “venue” as follows:
“40. The Supreme Court in BALCO [BALCO v. Kaiser Aluminium
Technical Services Inc., (2012) 9 SCC 552 : (2012) 4 SCC (Civ) 810]
decided that Parts I and II of the Act are mutually exclusive of each
other. The intention of Parliament that the Act is territorial in nature
and Sections 9 and 34 will apply only when the seat of arbitration is
in India. The seat is the “centre of gravity” of arbitration , and even
where two foreign parties arbitrate in India, Part I would apply and , by
virtue of Section 2(7), the award would be a “domestic award”. The
Supreme Court recognised the “seat” of arbitration to be the juridical
seat; however, in line with international practice, it was observed that
the arbitral hearings may take place at a location other than the seat
of arbitration. The distinction between “seat” and “venue ” was ,
therefore, recognised. In such a scenario, only if the seat is
determined to be India, Part I would be applicable. If the seat was
foreign, Part I would be inapplicable. Even if Part I was expressly
included ‘it would only mean that the parties have contractually
imported from the Arbitration Act, 1996, those provisions which are
concerned with the internal conduct of their arbitration and which are
not inconsistent with the mandatory provisions of the [foreign]
Procedural law/Curial law.’ The same cannot be used to confer
jurisdiction on an Indian Court. However, the decision
in BALCO [BALCO v. Kaiser Aluminium Technical Services Inc., (2012) 9
SCC 552 : (2012) 4 SCC (Civ) 810] was expressly given prospective
effect and applied to arbitration agreements executed after the date of
the judgment.
41. While the decision in BALCO [BALCO v. Kaiser Aluminium
Technical Services Inc., (2012) 9 SCC 552 : (2012) 4 SCC (Civ) 810] is a
step in the right direction and would drastically reduce judicial
intervention in foreign arbitrations, the Commission feels that there are
still a few areas that are likely to be problematic.
(i) Where the assets of a party are located in India, and there is a
likelihood that that party will dissipate its assets in the near future , the
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OP No. 334 of 2021
other party will lack an efficacious remedy if the seat of the arbitration
is abroad. The latter party will have two possible remedies, but neither
will be efficacious. First, the latter party can obtain an interim order
from a foreign court or the Arbitral Tribunal itself and file a civil suit
to enforce the right created by the interim order. The interim order
would not be enforceable directly by filing an execution petition as it
would not qualify as a “judgment” or “decree” for the purposes of
Sections 13 and 44-A of the Code of Civil Procedure (which provide a
mechanism for enforcing foreign judgments). Secondly, in the event
that the former party does not adhere to the terms of the foreign
order, the latter party can initiate proceedings for contempt in the
foreign Court and enforce the judgment of the foreign Court under
Sections 13 and 44-A of the Code of Civil Procedure. Neither of these
remedies is likely to provide a practical remedy to the party seeking
to enforce the interim relief obtained by it.
That being the case, it is a distinct possibility that a foreign party
would obtain an arbitral award in its favour only to realise that the
entity against which it has to enforce the award has been stripped of
its assets and has been converted into a shell company .
(ii) While the decision in BALCO [BALCO v. Kaiser Aluminium
Technical Services Inc., (2012) 9 SCC 552 : (2012) 4 SCC (Civ) 810] was
made prospective to ensure that hotly negotiated bargains are not
overturned overnight, it results in a situation where courts, despite
knowing that the decision in Bhatia International [Bhatia
International v. Bulk Trading S.A., (2002) 4 SCC 105] is no longer good
law, are forced to apply it whenever they are faced with a case arising
from an arbitration agreement executed pre-BALCO [BALCO v. Kaiser
Aluminium Technical Services Inc., (2012) 9 SCC 552 : (2012) 4 SCC (Civ)
810] .
42. The above issues have been addressed by way of proposed
amendments to Sections 2(2), 2(2-A), 20, 28 and 31.”
17. In amendments to be made to the Act, the Law Commission
recommended the following:
“Amendment of Section 20
12. In Section 20, delete the word “Place” and add the words
“Seat and Venue” before the words “of arbitration”.
(i) In sub-section (1), after the words “agree on the” delete the
word “place” and add words “seat and venue”.
(ii) In sub-section (3), after the words “meet at any” delete the
word “place” and add word “venue”.
[Note.—The departure from the existing phrase “place” of
arbitration is proposed to make the wording of the Act consistent with
the international usage of the concept of a “seat” of arbitration , to
denote the legal home of the arbitration. The amendment further
legislatively distinguishes between the “[legal] seat ” from a “[mere ]
venue” of arbitration.]
Amendment of Section 31
17. In Section 31
(i) In sub-section (4), after the words “its date and the” delete the
word “place” and add the word “seat”.”
18. The amended Act, does not, however, contain the aforesaid
amendments, presumably because the BALCO [BALCO v. Kaiser
Aluminium Technical Services Inc., (2012) 9 SCC 552 : (2012) 4 SCC (Civ)
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OP No. 334 of 2021
810] judgment in no uncertain terms has referred to “place” as “juridical
seat” for the purpose of Section 2(2) of the Act. It further made it clear
that Sections 20(1) and 20(2) where the word “place” is used, refers to
“juridical seat”, whereas in Section 20(3), the word “place” is equivalent
to “venue”. This being the settled law, it was found unnecessary to
expressly incorporate what the Constitution Bench of the Supreme Court
has already done by way of construction of the Act.
19. A conspectus of all the aforesaid provisions shows that the
moment the seat is designated, it is akin to an exclusive jurisdiction
clause. On the facts of the present case, it is clear that the seat of
arbitration is Mumbai and Clause 19 further makes it clear that
jurisdiction exclusively vests in the Mumbai courts. Under the Law of
Arbitration, unlike the Code of Civil Procedure which applies to suits
filed in courts, a reference to “seat” is a concept by which a neutral
venue can be chosen by the parties to an arbitration clause . The neutral
venue may not in the classical sense have jurisdiction — that is, no part
of the cause of action may have arisen at the neutral venue and neither
would any of the provisions of Sections 16 to 21 of CPC be attracted . In
arbitration law however, as has been held above, the moment “seat ” is
determined, the fact that the seat is at Mumbai would vest Mumbai
courts with exclusive jurisdiction for purposes of regulating arbitral
proceedings arising out of the agreement between the parties .”
17.This Court has to now deal with the judgments relied upon by the
learned Senior Counsel appearing for the petitioner. The 1 st judgment is the
judgment of the Division Bench of the Delhi High Court in Indian Oil
Corporation Limited case referred supra and the relevant portion is extracted
hereunder:
“23. Undoubtedly, the MSME Act is a special legislation dealing
with Micro, Small and Medium Enterprises and would have precedence
over the general law. There are decisions of several Courts holding that
the provisions of MSME Act would override the provisions of the
Contract between the parties. However, we are not engaged with the
said controversy and, in fact, we had made it clear to the learned
counsel for the Appellant, during the course of arguments , that the
questions relating to the jurisdiction of the MSME Council to act as an
Arbitrator and other similar issues will not be examined by us , as the
learned Single Judge has not considered any of those aspects and has
decided the objection petition only on the ground of territorial
jurisdiction. However, this does not mean that the jurisdiction clause
agreed between the parties has to be given a go -by . The overriding12/26
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OP No. 334 of 2021effect of the MSME Act, cannot be construed to mean that the terms of
the agreement between the parties have also been nullified . Thus ,
jurisdiction of the MSME Council 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 ,
which in the present case as per jurisdiction Clause No . 35 is New Delhi .
As a result, in terms of the decision of the Supreme Court in Indus
Mobile (supra), it would be the Courts at New Delhi that would have
exclusive jurisdiction to entertain the petition under Section 34 of the
Act.”In the above judgment, the Delhi High Court had also taken into consideration
the judgment of the Apex Court in Indus Mobile and BALCO cases referred
supra.
18.The next judgment is the judgment of the Division Bench of the Delhi
High Court in Ircon International case and the relevant portions are extracted
herein:
“2. The facts which led to the filing of the present appeal are as
follows:
2.1 … …
2.8 To challenge the aforesaid award passed against the
appellant, the appellant filed a petition under Section 19 of
the MSMED Act read with Section 34 of the Act of 1996, bearing
number OMP (Comm.) No. 1 of 2022, before the District Judge,
Commercial Court, Shahdara, Karkardooma, Delhi.
2.9 Aggrieved by the impugned order dated 29-11-2022,
passed in the aforesaid case, whereby the said petition was
dismissed by the District Court on the ground of lack of
territorial jurisdiction to entertain the petition , the appellant has
filed the instant FAO.
3. … …
20. With respect, we are not in agreement with the view taken by
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OP No. 334 of 2021Judge of the Bombay High Court in para 16 of the judgment, which we
have reproduced above, which we reiterate in the following manner :
(i) Once the arbitral award is pronounced, and there is an
exclusionary clause of jurisdiction agreed between the parties ,
thereby, agreeing upon the jurisdiction of only one court , in
exclusion to others, the challenge initiated by the aggrieved
party under the Act of 1996, even against an award passed by
the Facilitation Council under the MSMED Act, will lie only before
the court upon which the parties have agreed to place exclusive
jurisdiction.
(ii) Similar is the conclusion of the Division Bench of this
Court in Indian Oil Corpn. Ltd. case [Indian Oil Corpn.
Ltd. v. FEPL Engg. (P) Ltd., 2019 SCC OnLine Del 8007] , to the
effect that arbitration proceedings undertaken before the
Facilitation Council under Section 18 of the MSMED Act, are
undertaken at the “venue” where the Facilitation Council is
located.
(iii) The place of the arbitration continues to be the place
over which the court has exclusive jurisdiction, as agreed
between the parties.
(iv) By operation of the provisions of the MSMED Act, only the
procedure of constitution of the Arbitral Tribunal is obliterated
in terms of the law laid down by the Supreme Court in Gujarat
State Civil Supplies Corpn. Ltd. case [Gujarat State Civil Supplies
Corpn. Ltd. v. Mahakali Foods (P) Ltd., 2019 SCC OnLine Guj
4302] .
(v) The same does not eclipse the agreement between the
parties of foisting exclusive jurisdiction on a particular court .”
19.Even in the above judgment, the Division Bench had taken note of the
judgment of the Apex Court in Indus Mobile, BALCO and Mahakali cases
referred supra.
20.The Division Bench of the Bombay High Court has also taken a
similar view in Gammon Engineers case referred supra. The relevant portions
are extracted hereunder:
“2. Respondent is a Micro, Small and Medium Enterprises Unit
[‘MSME Unit’] and has supplied goods and rendered services to the14/26
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OP No. 334 of 2021Petitioner. As per the original agreement between the Petitioner and the
Respondent, the Courts at Mumbai would have exclusive jurisdiction for
resolving the disputes between them. Disputes arose between the
Petitioner and the Respondent, and since the Respondent was a MSME
Unit, a reference was made under Section 18 of the MSMED Act to
decide the disputes between them. The Micro, Small and Medium
Enterprises Facilitation Council [‘Facilitation Council’] at Shimla , where the
Respondent was located, adjudicated the disputes between the parties ,
and an award was passed against the Petitioner. The Petitioner has
challenged the said award under Section 34 of the Arbitration Act by
applying to this Court. The Respondent has raised a preliminary
objection on the maintainability of the application under Section 34 of
the Arbitration Act on the ground that since the Facilitation Council at
Shimla has adjudicated the disputes between the parties under Section
18(4) of the MSMED Act, the Court at Mumbai do not have the
jurisdiction and Section 34 application ought to have been filed in the
Court at Shimla.
49. In our view, none of the decisions relied upon by the
Respondents has laid down that the application under Section 34 of the
Arbitration Act to challenge an award passed under Section 18 of the
MSMED Act would lie before the Court where the supplier is located or
where the Facilitation Council has passed an award when there exists an
exclusive jurisdiction clause conferring jurisdiction to a particular Court
by the parties.
50. In view of the above, we answer the question raised for our
consideration by holding that the jurisdiction of the Court to hear the
application under Section 34 of the Arbitration Act to challenge the
award passed under Section of the MSMED Act would be governed by
the agreement between the parties which has conferred exclusive
jurisdiction to a particular Court, which in the instant case is Courts in
Mumbai.”In the above judgment, the Bombay High Court has taken into consideration the
judgment of the Delhi High Court and also the judgment of the Apex Court in
Mahakali case referred supra.
21.Closer home, there is a judgment of the learned Single Judge of this
Court in the case of M/s.Larsen & Toubro Ltd. referred supra. The learned
Single Judge has held as follows:
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OP No. 334 of 2021“16. A preliminary objection has been raised by the respondent
that this Court lacks territorial jurisdiction to decide this petition filed
under Section 34 of the Act by contending that since the arbitral award
has been passed in Punjab, the petitioner ought to have filed this
petition before Punjab Courts. This preliminary objection raised by the
respondent has to be rejected by this Court for the following reasons :
MSMED Act only provides for a mechanism to protect
MSME-s, particularly, through arbitration initiated under Section
18 of the MSMED Act. In the instant case, the impugned
arbitral award has been passed under the MSMED Act in
Punjab. The jurisdiction clause mentioned in the purchase
orders, which have to be read in conjunction with the original
agreement, namely, LOI dated 10.09.2016, takes precedence, once
the arbitral award is passed under the MSMED Act . The
arbitration venue under the MSMED Act, which, in the instant
case, is at Punjab, is treated only as convenience for the
supplier, namely, the respondent herein, and post~award
challenges must follow the jurisdiction clause contained in the
original contract (LOI). Therefore, challenge initiated by the
petitioner aggrieved by the order passed by the Council will lie
only before the Court upon which the parties agreed to place
exclusive jurisdiction. In the case on hand, as seen from the
terms and conditions of the purchase orders, which have to be
read in conjunction with the original agreement , namely , LOI
dated 10.09.2016, the jurisdiction is vested exclusively with the
Courts at Chennai. The Bombay High Court, in its decision
rendered in the case of Gammon Engineers (cited supra), relied
upon by the learned counsel for the petitioner, has also taken
the same view. Hence, the respondent cannot contend that this
Court lacks territorial jurisdiction to decide this petition under
Section 34 of the Act.”
22. The ratio decidendi that can be deduced from the above judgments
are:
i.The overriding effect of MSMED Act cannot be construed to
mean that the terms of the agreement between the parties will be
nullified.
ii.The interpretation given by the Apex Court in Mahakali and
Harcharan Dass Gupta cases referred supra, on the scope and
ambit of Section 18 of MSMED Act, merely reiterates the
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OP No. 334 of 2021overriding effect on the procedure for constitution of the Arbitral
Tribunal, by tracing the jurisdiction from the place where the
supply was made by the party.
iii.The provisions of Section 18 and 19 of MSMED Act does not
provide to determine which Court would have jurisdiction for
entertaining an application for setting aside the award under
Section 34 of the Act. Hence, post award, only the provisions
under the Act, will come into play.
iv.If the parties have chosen exclusive jurisdiction as per the
agreement, the same will revive, post the award and the same will
determine the jurisdiction of the Court, where the petition has to be
filed under Section 34 of the Act, challenging the award.
v.Arbitration proceedings undertaken before the Facilitation
Council under Section 18 of the MSMED Act, can at the best,
taken to be the venue where the Facilitation Council is located and
the seat agreed between the parties, will not get shifted to the venue
where the arbitration proceedings are conducted, in the light of the
special overriding provision available under the MSMED Act. The
place of arbitration continues to be the place for which the Court
has exclusive jurisdiction, as agreed between the parties.
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OP No. 334 of 2021vi.By operation of the provisions of the MSMED Act and in the
light of the judgment of the Apex Court in Mahakali and
Harcharan Dass Gupta cases referred supra, the constitution of
the Arbitral Tribunal is obliterated, but the same does not eclipse
the agreement between the parties agreeing to the exclusive
jurisdiction, post award.
23.Having captured the ratio from the above judgments, this Court will
deal with the issue raised by the learned counsel for the respondent, by relying
upon the judgment in BALCO and Indus Mobile cases referred supra. To start
with, these two judgments were also taken into consideration by the Delhi High
Court and the Bombay High Court, while arriving at the above ratio. I am also
bound by the judgment passed by the Co-ordinate Bench in M/s.Larsen &
Toubro Limited case referred supra. Hence, the only question to be considered
is, as to whether the ground raised by the learned counsel for the 2 nd respondent
will require re-consideration of the judgment in M/s.Larsen & Toubro Limited
case referred supra and consequently, must be referred to a Division Bench.
24.The pith and substance of the ground raised by the learned counsel for
the 2nd respondent is that a petition under Section 34 of the Act can be filed
before the Court and the term “Court” has been defined under Section 2(1)(e) of
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OP No. 334 of 2021
the Act and which states that the Court would mean the Court of Principal Civil
Court of original jurisdiction having jurisdiction to decide the questions forming
“the subject matter of arbitration”. According to the learned counsel for the
2nd respondent, the subject matter of arbitration is the award passed by the
1st respondent Council and therefore, only the Principal Civil Court of original
jurisdiction at Rajasthan can entertain the petition under Section 34 of the Act.
25.The relevant portion relied upon by the learned counsel for the
2nd respondent in BALCO case has been referred supra.
26.The Courts should guard against the danger of mechanical application
of an observation made by the Apex Court, without ascertaining the context in
which it was made. Useful reference can be made to the judgment of the Apex
Court in CIT Vs. Sun Engineering Works (P) Ltd. reported in (1992) 4 SCC
363 and the relevant portion is extracted hereunder:
“39. The principle laid down by this Court in Jagan Mohan Rao
case [(1969) 2 SCC 389 : (1970) 75 ITR 373] therefore, is only to the
extent that once an assessment is validly reopened by issuance of notice
under Section 22(2) of the 1922 Act (corresponding to Section 148 of
the Act) the previous under-assessment is set aside and the ITO has the
jurisdiction and duty to levy tax on the entire income that had escaped
assessment during the previous year. What is set aside is, thus, only the
previous under-assessment and not the original assessment proceedings.
An order made in relation to the escaped turnover does not effect the
operative force of the original assessment, particularly if it has acquired
finality, and the original order retains both its character and identity . It
is only in cases of “under-assessment” based on clauses (a) to (d) of
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OP No. 334 of 2021recomputed on the entire taxable income. The judgment in Jagan
Mohan Rao case [(1969) 2 SCC 389 : (1970) 75 ITR 373] therefore, cannot
be read to imply as laying down that in the reassessment proceedings
validly initiated, the assessee can seek reopening of the whole
assessment and claim credit in respect of items finally concluded in the
original assessment. The assessee cannot claim recomputation of the
income or redoing of an assessment and be allowed a claim which he
either failed to make or which was otherwise rejected at the time of
original assessment which has since acquired finality. Of course , in the
reassessment proceedings it is open to an assessee to show that the
income alleged to have escaped assessment has in truth and in fact not
escaped assessment but that the same had been shown under some
inappropriate head in the original return, but to read the judgment
in Jagan Mohan Rao case [(1969) 2 SCC 389 : (1970) 75 ITR 373] as if
laying down that reassessment wipes out the original assessment and
that reassessment is not only confined to “escaped assessment ” or
“under assessment” but to the entire assessment for the year and start
the assessment proceedings de novo giving right to an assessee
to reagitate matters which he had lost during the original assessment
proceeding, which had acquired finality, is not only erroneous but also
against the phraseology of Section 147 of the Act and the object of
reassessment proceedings. Such an interpretation would be reading that
judgment totally out of context in which the questions arose for
decision in that case. It is neither desirable nor permissible to pick out a
word or a sentence from the judgment of this Court, divorced from the
context of the question under consideration and treat it to be the
complete ‘law’ declared by this Court. The judgment must be read as a
whole and the observations from the judgment have to be considered in
the light of the questions which were before this Court . A decision of
this Court takes its colour from the questions involved in the case in
which it is rendered and while applying the decision to a later case , the
courts must carefully try to ascertain the true principle laid down by the
decision of this Court and not to pick out words or sentences from the
judgment, divorced from the context of the questions under
consideration by this Court, to support their reasonings . In Madhav Rao
Scindia v. Union of India [(1971) 1 SCC 85 : (1971) 3 SCR 9] this Court
cautioned:
“It is not proper to regard a word, a clause or a sentence
occurring in a judgment of the Supreme Court, divorced from
its context, as containing a full exposition of the law on a
question when the question did not even fall to be answered in
that judgment.”
27.The Apex Court cautioned that the judgment must be read as a whole
and the observations made from the judgment have to be considered, in the light
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OP No. 334 of 2021of the questions involved in the case in which it is rendered and while applying
the decision to a later case, the Courts must carefully try to ascertain the true
principle laid down by the decision of the Court and not pick out words or
sentences from the judgment, divorced from the context of the question under
consideration. In short, the ratio or the obiter dicta will turn on facts. Even a
small change or variation in facts, will make the judgment inapplicable to the
given facts of the case.
28.In the judgments in BALCO and Indus Mobile cases referred supra,
the Apex Court was dealing with the scope of Section 2(1)(e) of the Act. These
judgments did not encounter a situation, where a special enactment was
involved and a special provision was created to benefit the supplier, who can
institute arbitration proceedings in the Facilitation Council available in the place
of supply. Hence, the ratio in the above judgments, cannot be mechanically
applied to the facts of the present case.
29.As held by the Delhi High Court, Bombay High Court and the learned
Single Judge of this Court, the arbitration clause as agreed by the parties, would
be superseded by Section 18(4) of the MSMED Act and it will confine itself
only to those arbitration proceedings and it will come to an end, once the award
is passed by the Facilitation Council. Post award, the exclusive jurisdiction
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OP No. 334 of 2021conferred in the agreement by the parties, which is also termed as the seat will
revive and that will determine within which jurisdiction the petition under
Section 34 of the Act has to be filed. Hence, I am in complete agreement with
the above ratio.
30.Ex consequenti, I hold that this Court has the jurisdiction to entertain
the petition under Section 34 of the Act. The 1st issue is answered accordingly.
31.Insofar as the 2nd issue is concerned, this Court has to see, if the
1st respondent has followed the mandate provided under Section 18 of the
MSMED Act. What was claimed by the 2 nd respondent was, the amount that
was retained by the petitioner towards liquidated damages for the delay in
supplies. On going through the award, it is seen that the award has been passed
ex parte on the ground that there was no representation for the petitioner.
32.It is seen from the records that the petitioner was repeatedly informing
the 1st respondent Council, right from 05.03.2020 onwards, that they are not
properly receiving the communication from the 1 st respondent Council on time
and on certain occasions, the communication was received after the hearing
date. Therefore, the petitioner was requesting for an advance notice to enable
the petitioner to attend the proceedings. Three communications are available in
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OP No. 334 of 2021this regard made on 05.03.2020, 07.03.2020 and 21.03.2020. When the
communication was made on 21.03.2020, the petitioner was not even aware that
the 1st respondent Council had already passed an award on 17.03.2020. Thus,
sufficient opportunity was not given to the petitioner by serving advance notice
and hence, there is violation of Section 18 of the MSMED Act.
33.Insofar as the procedure adopted by the 1 st respondent Council, it is in
violation of the mandate of Section 18 of the MSMED Act. Useful reference
can be made to the judgment in Raster Images Pvt. Ltd. case referred supra and
the relevant portion is extracted hereunder:
“10.A plain reading of Section 18 of MSMED Act shows that the
Council is obliged to conduct conciliation as mandated under Section
18(2) and 18(3) of the Act for which Sections 65 to 81 of the Arbitration
and Conciliation Act, 1996 will apply and it will be construed as if the
conciliation was initiated under Part III of the 1996 Act . When the
conciliation fails under Section 18(3), the dispute between the parties
must thereafter be resolved by arbitration. At that juncture , the Council
is empowered either to take up arbitration on its own or to refer the
arbitration proceedings to any other institution as specified in the very
same provision. If the Council decides to conduct the arbitration , it has
to enquire the parties and deal with the materials placed before them
and thereafter, pass an Award. It goes without saying that while
undertaking this exercise, the relevant provisions under the Arbitration
and Conciliation Act, 1996 will apply and the procedure contemplated
under Section 20, 23, 24 and 25 must be followed.”
34.All the other judgments relied upon by the learned Senior Counsel
appearing for the petitioner are to the same effect and it has been repeatedly
held that the Council is obliged to conduct conciliation as mandated under
Section 18(2) of the MSMED Act and only when the conciliation fails, under
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OP No. 334 of 2021Section 18(3) of the MSMED Act, the dispute between the parties should be
resolved by arbitration either by the Council on its own or by referring the
arbitration proceedings to any other institution.
35.In the case in hand, there is not even an indication that conciliation
proceedings were conducted. Nothing to that effect is recorded in the award.
Therefore, the 1st respondent Council proceeding further with the arbitration
proceedings clearly stands vitiated. As a result, the same is liable to be
interfered by this Court under Section 34(2)(b)(ii) of the Act.
36.In the result, the award passed in Case No.RJ/02/S/00630 dated
17.03.2020 by the 1st respondent, is hereby set aside. Considering the facts,
there will be no order as to costs. Connected application is closed.
06.02.2026
gya
Index:Yes
Neutral Citation:Yes
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OP No. 334 of 2021
To
1. Micro and Small Enterprises Facilitation Council
Jaipur (Third)
Office of Commissioner of Industries
Government of Rajasthan, Udyog Bhavan
Tilak Marg, Jaipur, Rajasthan 302 005
2.M/s.Purma Plast Private Limited
Rep. by Sri Raghuveer Sharma
B-494, RIICOindustrial Area, Phase I, Bhiwadi
Alwar, Rajasthan.
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OP No. 334 of 2021
N.ANAND VENKATESH, J.
gya
Pre-Delivery Order in
O.P.No. 334 of 2021
06.02.2026
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