The Gujarat High Court recently observed once the parties have agreed to submit to the jurisdiction of Court at Mehsana in respect of the disputes arising out of the agreement, one contracting party can’t be permitted to argue that since the arbitration proceedings had been conducted at Cuttack, Odisha because of the location of MSME Felicitation Council by virtue of Section 18(4) of the MSMED Act, the Civil Court at Cuttack will have exclusive jurisdiction to deal with the challenge to the arbitral award under Section 34 of the Arbitration Act.

The Appeal before the High Court was filed against the judgment of the Commercial Court in rejecting the application filed under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the arbitral award passed by the Micro, Small and Medium Enterprises Facilitation Council (MSMEFC).

The Division Bench comprising Chief Justice Sunita Agarwal and Justice Pranav Trivedi said, “Once the parties have consciously agreed to confer jurisdiction to the Court at Mehsana in exclusion to any other Court having jurisdiction, the respondent cannot be permitted to turn around to contend that the exclusive jurisdiction due under clause 44 (contained in the agreement signed and agreed by it), will not be applicable.”

Advocate Maulik G. Nanavati represented the Appellant while Advocate Saurabh G Amin represented the Defendants.

The application under Section 34 was rejected on the ground that the Court at Mehsana had no jurisdiction to try, entertain and dispose of the application, since, the territorial jurisdiction to challenge the MSME Facilitation Council’s award was with the Court in the State of Odisha as the seat of MSMEF Council would be the seat of arbitration in the spirit of Section 18 read with section 24 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act, 2006).

It was held by the Commercial Court that the seat of arbitration is fixed by virtue of Section 18 of the Act’ 2006 at a place where MSMEF Arbitrator has jurisdiction, which is the place where supplier is located. The location of the supplier being at Cuttack, Odisha, the District Court at Cuttack, Odisha alone had the jurisdiction to entertain the application under Section 34 of the Arbitration Act,1996 to the exclusion of all other Courts by virtue of Section 18 and 24 of the MSMED Act.

It was the case of the appellant that by virtue of Clause 44 read with Clause 45, only the Court at Mehsana was having jurisdiction to deal with all questions, disputes or differences arising out of or in connection with the tender/contract. The exclusive jurisdiction was conferred to the Court at Mehsana by the parties under whose jurisdiction, the place where tender/acceptance of tender was issued, was situated.It was argued that even though the venue of arbitration would be at Cuttack, i.e. the place of location of MSME Facilitation Council, but the seat of the arbitration couldn’t be fixed at Cuttack.

On the contrary, the Respondent contended that the seat of arbitration was at Cuttack and the Court at Mehsana had no jurisdiction to entertain the application under Section 34, inasmuch as, it was settled position of law that only the District Court having jurisdiction over the seat of arbitration has jurisdiction to entertain the application under Section 34 to the exclusion of all other Courts.

On a perusal of the provisions of both the Acts, the Bench said, “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-deposit laid down in Section 19 of the MSMED Act’ 2006.”

The Bench explained that 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 whom the challenge to an award is laid under Section 34.

The Court discussed in detail Section 18 of the MSMED Act and observed that 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”, the Bench said.

It was further noticed that at the time of execution of the agreement, both the parties were aware that the Courts at Mehsana other than the Court at the location of the supplier, where MSME Felicitation Council has jurisdiction to arbitrate, will have jurisdiction to decide the dispute arising out of the arbitration proceedings or the agreement between the parties.

Reference was also made to the judgment of the Division Bench of the Bombay High Court passed on October 16, 2024 wherein it was held that the jurisdiction of the Court to hear the application under Section 34 of the Arbitration Act, 1996 as to challenge the award passed under Section 18(4) of the MSMED Act’ 2006, would be governed by the agreement between the parties which has conferred exclusive jurisdiction to a particular Court

As per the Bench, when the parties once have agreed to submit to the jurisdiction of Court at Mehsana in respect of the disputes arising out of the agreement, one contracting party cannot be permitted to argue that since the arbitration proceedings had been conducted at Cuttack, Odisha because of the location of MSME Felicitation Council by virtue of Section 18(4) of the MSMED Act’ 2006, the Civil Court at Cuttack, Odisha will have exclusive jurisdiction to deal with the challenge to the arbitral award under Section 34 of the Arbitration Act.

The Bench further discarded the distinction sought to be drawn by the counsel for the respondent between an order passed under Section 34 on merits and the rejection of Section 34 application on the ground of lack of jurisdiction. It was explained that any order of refusal to set aside an arbitral award under Section 34 on any ground, will give rise to a remedy of appeal under Section 37, to the Court authorized by law to hear the appeals from the original decree of the Court.

Thus, allowing the instant appeal filed under Section 13 of the Commercial Courts Act read with Section 37 of the Arbitration and Conciliation Act, the Bench set aside the judgment of the Commercial Court and held, “The competent court at Mehsana is directed to decide the same on merits, as expeditiously as possible.”

Cause Title: Uttar Gujarat Vij Company Limited v. Gupta Power Infrastructure Limited (Case No.: R/FIRST APPEAL NO. 1728 of 2022)

Appearance:

Appellant: Advocates Maulik G. Nanavati, Manvi Damle, Kishan Patel

Defendants: Advocate Saurabh G Amin

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Chief Justice Sunita AgarwalJustice Pranav TrivediGujarat High CourtMicro Small and Medium Enterprises Development ActArbitration Act

Tulip Kanth

Assistant Editor

Tulip Kanth is an Assistant Editor at Verdictum having over 5 years of experience in the field of legal journalism and editing. She extensively covers judgments of the Supreme Court, High Courts as well as Tribunals. She has previously worked with a legal publishing website where she oversaw the work of other editors and has also created updates on notifications of different Government Ministries. She holds an English Honours Degree from SGTB Khalsa College, Delhi University and has completed her LLB course with specialisation in Corporate Law from Amity University.