The Supreme Court reiterated that the Micro, Small and Medium Enterprises (Development) Act, 2006 has an overriding effect over the Arbitration and Conciliation Act, 1996 and that even the agreement between the parties stands overridden by the statutory provisions under the MSMED Act.

The appeal before the Apex Court was directed against the order passed by the Karnataka High Court whereby the writ petition filed by the respondent was allowed, and it was held that the Delhi Arbitration Centre lacks jurisdiction to manage arbitral proceedings as the contract between the appellant and the respondent provides that the seat for arbitration shall be at Bengaluru.

The Division Bench of Justice Pamidighantam Sri Narasimha and Justice Joymalya Bagchi said, “For the reasons to follow and in view of the overriding effect of Micro, Small and Medium Enterprises (Development) Act, 2006 over the Arbitration and Conciliation Act, 19963 as affirmed by this Court in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., we have allowed the appeal and restored the arbitral proceedings under the aegis of Delhi Arbitration Centre.”

Senior Advocate Priya Kumar represented the Appellant while Additional Solicitor General Vikramjit Banerjee represented the Respondent.

Factual Background

The respondent herein, the Indian Space and Research Organisation (ISRO), based in Bengaluru, invited bids for the construction of staff quarters in New Delhi. The Appellant, a registered supplier under the MSMED Act, was selected, leading to an agreement for the execution of the project. In view of certain disputes between the parties, the appellant invoked the jurisdiction of the Facilitation Council at Delhi under Section 18 of the MSMED Act. In exercise of powers under Section 18, the Facilitation Council issued a notice to the respondent for conciliation, but the respondent refused to participate in the said proceedings.

As the arbitration was to be conducted through the Delhi Arbitration Centre, the Centre appointed a sole arbitrator by way of a notice. The respondent filed a Petition before the Karnataka High Court challenging the assumption of jurisdiction by the Delhi Arbitration Centre and also the conduct of arbitral proceedings in Delhi. The High Court declared that the Delhi Arbitration Centre, at the instance of the Facilitation Council, Delhi, could not have assumed jurisdiction as it was contrary to the agreement between the parties. Aggrieved thereby, the appellant approached the Apex Court.

Reasoning

The Bench referred to the judgment in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (2023) wherein it has been observed that the MSMED Act, 2006 being a special law and the Arbitration Act, 1996 being a general law, the provisions of the MSMED Act would have precedence over or prevail over the Arbitration Act, 1996.

Referring to Mahakali (Supra), the Bench said, “Further, the Court proceeds to hold that even the agreement between the parties stands overridden by the statutory provisions under the MSMED Act.”

The Bench further explained that the issue relating to ‘seat of arbitration’ in all cases covered under the MSMED Act is settled in view of the pronouncement of this Court in Mahakali. “This position is also true by virtue of the specific provision of the MSMED Act, that is, sub-Section (4) of Section 18, which vests jurisdiction for arbitration in the Facilitation Council where the supplier is located”, it added.

The Court further took note of the fact that the appellant-MSME is located in Delhi and, as such the Facilitation Council (SouthWest), GNCTD, Old Terminal Tax Building, Kapashera, New Delhi, entrusted the conduct of arbitration through the institutional aegis of the Delhi Arbitration Centre.

Thus, allowing the appeal & setting aside the impugned order of the Karnataka High Court, the Bench directed the conduct and conclusion of arbitral proceedings.

Cause Title: M/s Harcharan Dass Gupta v. Union of India (Neutral Citation: 2025 INSC 689)

Appearance:

Appellant: Senior Advocate Priya Kumar, Advocates Renuka Arora, Gaurav Prakash Pathak, Ashutosh Anand, Nishant Kumar

Respondent: Additional Solicitor General Vikramjit Banerjee, Advocates Abhishek Singh, Raghav Sharma, Ishaan Sharma, C.K. Sharma, Archana Shurve Shinde, Dr. N. Visakamurthy

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Justice Pamidighantam Sri NarasimhaJustice Joymalya Bagchi

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.