MSME Council Would Have No Jurisdiction To Resolve Dispute If Party Not Registered Under MSME Act - SC
A two-judge Bench of Justice MR Shah and Justice B.V. Nagarathna while dismissing an appeal held that the MSME Council would have no jurisdiction to entertain a dispute between a foreign entity and an Indian MSME if at the time of the execution of the contract the latter was not registered under the Micro, Small and Medium Enterprises Act, 2006.
In this case, the Buyer was located outside India having its registered office in Switzerland. A contractual dispute arose between the parties. As the dispute arose between the parties, the appellant approached the MSME Council. The buyer contended that MSME Act would not be applicable to companies located outside the country and the Council had no jurisdiction.
Against the notices, a writ petition was filed before the High Court and the Single Judge allowed the writ petition and set aside the notices issued by the Council by observing that the Council has no jurisdiction to resolve the dispute between the parties. The order was further challenged before the Division Bench which confirmed the order of the Single Judge.
Aggrieved, the Appellant preferred an appeal before the Supreme Court.
The issue which was dealt with by the Court was -
Whether the MSME Council had the jurisdiction to resolve the dispute between the parties under the MSME Act.
It was argued by the appellant that the agreements were executed between the parties at Delhi and the services were rendered by the appellant in India. It was conducting its business in India through registered service centers in New Delhi, Mumbai, Kolkata, Bangalore and it had appointed a power of attorney/special agent based in Delhi, and after having availed the services rendered by the appellant and doing business in India, thereafter it was not open for the Respondent to contend that with respect to the dispute between the appellant and the respondent, the Council would have no jurisdiction under the MSME Act.
Supreme Court relied on clause 9 of the agreement between the Parties which read as:
"CHOICE OF LAW: This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of India. The parties agree to resolve their differences, disputes, if any, mutually, within 30 days of the initiation of the dispute which can be extended by the mutual consent of the parties, if necessary. In the event the parties are not able to resolve the differences by way of the said mutual dialogues, they are at a liberty to initiate appropriate actions as per law."
The Bench held that it is admitted position that on the date on which a contract was executed, the appellant was not a registered MSME. when the contract was entered into the appellant was not an MSME registered entity and therefore the parties would not be governed by the MSME Act and the parties shall be governed by the laws of India applicable and prevailing at the time of execution of the contract. If that be so the Council would have no jurisdiction to entertain the dispute between the appellant and the Respondent.
"...Therefore, when the contract was entered into the appellant was not MSME and therefore the parties would not be governed by the MSME Act and the parties shall be governed by the laws of India applicable and/or prevailing at the time of execution of the contract. If that be so the Council would have no jurisdiction to entertain the dispute between the appellant and the Respondent no.1, in exercise of powers under Section 18 of the MSME Act. Therefore, in the aforesaid peculiar facts and circumstances of the case, more particularly the terms of the Agreement, the order passed by the learned Single Judge confirmed by the Division Bench holding the Council would have no jurisdiction with respect to Respondent No.1 is not required to be interfered with," the Court noted.
Additionally, the Court observed that in a case where the buyer is located outside India but has availed the services in India and done business in India with the Indian supplier and the contract was executed in India whether the MSME Act would be applicable or not, and another larger issue that in case the supplier is subsequently registered as MSME, would the Council would still have jurisdiction or not is to be considered in an appropriate case.
Accordingly, the Court dismissed the appeal.