Arbitration Clause In GeM Contract Becomes Inoperative Once S.18 Of MSMED Act Is Invoked Before MSME Council: Gauhati High Court

The Gauhati High Court has held that once a supplier invokes Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), the statutory dispute-resolution mechanism under the Act overrides the arbitration clause contained in a Government e-Marketplace (GeM) contract, including the agreed seat of arbitration.The ruling was delivered by Justice Manish Choudhury, who observed, “Once the respondent no.1 having located in Delhi, claiming to be a 'supplier', has invoked the jurisdiction of 'MSEFC', Delhi, the statutory provisions contained in Section 18 of 'MSMED Act' would override the Arbitration Clause contained in 16.2 of GeM Contract.”“Though as per Clause 16.2[vi] of the GeM Contract has provided for the Seat of Arbitration at the place where the principal place of business of the buyer is located, such Seat of Arbitration would no longer held sway in view of the overriding provisions contained in Section 18[4] of the MSMED Act…” Justice Chaudhary Court further stated.The order was passed in a writ petition arising from a GeM contract which the petitioner Institute entered into a GeM Contract in 2021 with the respondent for outsourcing manpower services, with a contract value of Rs. 1,30,87,348.56/-. The respondent was required to comply with labour law obligations and timelines under the contract.The petitioner stated that during the contract period the respondent made delayed wage payments, delayed EPF/ESI deposits, and collected Rs. 5,16,000/- from workers unauthorisedly, leading to notices being issued. The petitioner terminated the contract, forfeited the Performance Bank Guarantee, imposed cancellation charges and directly paid certain wages to comply with statutory provisions.After termination, the respondent sought release of withheld amounts and invoked Clause 16 of the contract. A Dispute Resolution Committee was constituted, but no settlement was reached. The respondent thereafter approached the Micro and Small Enterprises Facilitation Council, which registered the claim and later referred the matter to the Delhi International Arbitration Centre. The petitioner challenged the proceedings, asserting that the dispute was governed by Clause 16.2 of the GeM contract and not maintainable before the Council or DIAC.Rejecting the plea, the Court held, “When in the light of such binding precedent and the provisions of the MSMED Act, the relief sought for in the writ petition to declare the arbitration proceedings of Case no. DIAC/9258/09-24 held under the aegis of the Delhi International Arbitration Centre [DIAC] to be without jurisdiction on the ground that it is in violation of Clause 16.2 of the GeM Contract is found not sustainable.”The Court further held that the GeM contract was not a statutory contract and did not raise any question of public law. It stated, “Disputes arising out of such the terms of such a contract or alleged breaches have to be settled by the ordinary principles of law of contract. The disputes about the meaning of a term of such a contract or its enforceability has to be determined according to the usual principles of the Contract Act.”“The disputes relating to interpretation of the terms and conditions of such a contract are ordinarily not be agitated in a writ petition under Article 226 of the Constitution of India and such matters are to be adjudicated by a civil court having jurisdiction or in arbitration, if there is existence of an arbitration agreement as per Section 7 of the Arbitration and Conciliation Act,” it added.The petition was accordingly not entertained. No order was made as to costs.Case Title: Lokopriya Gopinath Bordoloi Regional Institute of Mental Health, Tezpur v. M/s Green Alliance Engineering Services Pvt. Ltd. & Ors.Citation: 2025 LiveLaw (Gau) 70Case Number: Writ Petition (Civil) No. 5962/2025Click here to read the judgment

Arbitration Clause In GeM Contract Becomes Inoperative Once S.18 Of MSMED Act Is Invoked Before MSME Council: Gauhati High Court

Bhavya Singh

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