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The Objection Regarding The Non-Applicability Of The MSMED Act To 'Works Contract' Is To Be Decided In Arbitration By The MSME Council: Calcutta High Court

Ausaf Ayyub
28 May 2022 3:30 AM GMT
The Objection Regarding The Non-Applicability Of The MSMED Act To Works Contract Is To Be Decided In Arbitration By The MSME Council: Calcutta High Court
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The Calcutta High Court held that objections regarding the non-applicability of the MSMED Act to works contract can be decided in arbitration by MSME Council.

The Division Bench of Chief Justice Prakash Shrivastava and Justice Rajarshi Bharadwaj upheld the order of the Single Bench whereby the petitioner was referred to arbitration before the MSME Council with a direction that his objection regarding the non-applicability of the MSMED Act as the contract was a works contract would be decided by the Arbitral Tribunal.

Facts

The appellant awarded five different work contracts to respondent no. 4. In the meantime, respondent no. 4 had registered itself under the MSMED Act. A dispute arose between the parties and the two contracts were terminated by the petitioner. Accordingly, it filed a reference before the Chairman of the West Bengal MSME Council under Section 18 of the MSMED Act. The Conciliation proceedings failed, and accordingly, the council sought to initiate statutory arbitration.

The appellant objected to the jurisdiction of the Council on the ground that 4 of the agreements in question precedes the date of registration of the respondent no. 4 with the Council, therefore, the Council has no jurisdiction over the contracts that are prior to the registration. Moreover, the contract between the parties are works contract and the provisions of the MSMED Act would not apply to a works contract.

By a notice dated 22.09.2021, the Council fixed the date of arbitration hearings. Accordingly, the appellant filed the writ petition against the order dated 22.09.2021. The Court dismissed the petition with a direction to the appellant to raise all the jurisdictional issues in arbitration before the council itself.

Aggrieved by the order of the Court, the appellant preferred an appeal.

The Grounds Of Appeal

The appellant challenged the order of the single bench on the following grounds:

  • The Court erred in not appreciating the fact that the MSME Council has no jurisdiction to adjudicate the matter.
  • Four out of five agreements are prior to the date of registration of the respondent under the MSMED Act.
  • The provisions of MSMED Act do not apply to a works contract, therefore, the MSME Council has wrongly assumed jurisdiction.

Analysis By The Court

The Court observed that MSMED Act is a special legislation that has an overriding effect, therefore, the parties are bound to follow the mechanism provided under Section 18 of the Act.

The Court held that objections regarding the non-applicability of MSMED Act to works contract can be decided in arbitration by MSME Council.

The Court held that the Single Judge rightly rejected the objections of the appellant on the grounds that all such objections are to be raised in the arbitration before the MSME Council and the arbitral tribunal shall decide on these before entering into other questions.

Case Title: NBCC (India) Ltd. v. The State of West Bengal and Ors. A.P.O No. 11 of 2022

Case Citation: 2022 LiveLaw (Cal) 214

Date: 1805.2022

Counsel for the Appellant: Mr. Arnab Chakraborty, Ms. Pragya Bhowmick, Advocates

Counsel for the State of W.B: Mr. Samrat Sen, Sr. Advocate, Mr. Soumitra Mukherjee, Advocate

Counsel for the Resondents: Mr. Jishnu Chowdhury, Mr. Samim Ahmed, Md. Danish Taslim, Mr. Shahrukh Raja, Mr. Souradeep Banerjee, Ms. Somashree Dey, Advocates

Click Here To Read/Download Order

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