Application U/S 34 Of Arbitration Act To Challenge Award Passed U/S 18(4) Of MSMED Act Is Governed By Agreement Between Parties: Bombay HC

The Bombay High Court Bench of Justice Jitendra S. Jain And M.S. Sonak, held that the jurisdiction of the Court to hear the application under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) to challenge the award passed under Section 18(4) of the MSMED Act would be governed by the agreement between the parties which has conferred exclusive jurisdiction to a particular Court. In this case, a case was referred to the High Court to resolve the conflict between two judgments. Brief Facts The petitioner was supplied goods and services by a Micro, Small, and Medium Enterprises (MSME) unit, the respondent. In an original agreement executed between the parties, exclusive jurisdiction was given to the court at Mumbai for resolving the disputes. Consequently, the matter was referred to facilitation council under section 18 of Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) when a dispute arose between the parties. The council located in Shimla where the respondent also resides passed an award against the petitioner. This award was challenged by the petitioner under section 34 of the arbitration act in the Bombay High Court. A preliminary objection was raised by the respondent that since the award was passed by the council located in Shimla, the award should be challenged in the Shimla itself and the High Court had no jurisdiction. The matter was referred to a larger bench in the present case due to contrary views taken by the benches of single judge in two cases. Firstly,the court held in Gammon Engineers and Contractors Pvt. Ltd. Vs. Sahay Industries (2023) that a petition under section 34 should be filed in the court to which exclusive jurisdiction has been conferred through an arbitration agreement and not at the place where the award was passed. In the second case of Microvision Technologies Pvt. Ltd. Vs. Union of India (2023), the court held that the award should be challenged at the place where the supplier is located since the award was passed under the MSMED Act. Contentions The petitioner submitted that original exclusive jurisdiction clause in the arbitration agreement should revive after the passing of an award under the MSMED Act. The Bombay High Court will be the right forum to challenge the award under section 34 of the arbitration act as it had been conferred exclusive jurisdiction. It was further contended that no mechanism is provided under the MSMED Act therefore the arbitration act would apply for challenging the award passed. It was further argued that when jurisdiction clause has already been conferred on a particular court, it should not be overridden by statutory provisions under the MSMED Act. Per contra, the respondent contended that since the MSMED Act is a special statute, it will override all other law for the time being in force. It was further argued that arbitration proceedings conducted under section 18 and 24 of the MSMED Act should take precedence over any previous agreements. Based on this, it was argued that the award should be challenged in Shimla where the proceedings under the MSMED Act was conducted. It was further submitted that once a matter is referred to the council, subsequent proceedings including the challenge to an award should be conducted in the same jurisdiction as per section 18 (4) of the MSMED Act and section 42 of the arbitration act. Court's Analysis The court observed the provisions of both the MSMED Act and Arbitration Act. The court noted that the MSMED Act provides for a mechanism to resolve the disputes through Micro and Small Enterprises Facilitation Council (MSEFC) while the arbitration act gives autonomy to the parties in choosing a forum for arbitration related matters. The further observed that the parties are free to choose their venue and jurisdiction for resolving their disputes under the arbitration act. The court further held that in the present case, the parties demonstrated their preference by choosing the exclusive jurisdiction of the Bombay High Court. The court further noted that there are no provisions in the MSMED Act which override the jurisdictional agreements entered into between the parties. The court further observed that jurisdictional issue should be governed by the arbitration agreement. The court held that the MSMED Act does not provide any mechanism for challenging the award passed under Section 18. The Arbitration Act takes over once an award is passed under Section 18 of the MSMED Act. Therefore, once the award is passed, the provisions of the Arbitration Act would govern for the purpose of challenging the award and ascertaining the Court before such an Application for setting aside the award is to be made. In the instant case, the parties have agreed to be governed by the Courts in Mumbai, and which, as observed by us above is not overridden by any of the provisions of the MSMED Act,...

Application U/S 34 Of Arbitration Act To Challenge Award Passed U/S 18(4) Of MSMED Act Is Governed By Agreement Between Parties: Bombay HC

Mohd Malik Chauhan

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