Gujarat High Court
Uttar Gujarat Vij Company Limited vs Gupta Power Infrastructure Limited on 24 December, 2024
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
Reserved On : 08/10/2024
Pronounced On : 24/12/2024
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 1728 of 2022
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2022
In R/FIRST APPEAL NO. 1728 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA AGARWAL
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
==========================================================
Approved for Reporting Yes No
==========================================================
UTTAR GUJARAT VIJ COMPANY LIMITED
Versus
GUPTA POWER INFRASTRUCTURE LIMITED
==========================================================
Appearance:
MR. MAULIK G. NANAVATI with MS. MANVI DAMLE AND MR. KISHAN
PATEL FOR NANAVATI & CO.(7105) for the Appellant(s) No. 1
MR SAURABH G AMIN(2168) for the Defendant(s) No. 1
==========================================================
CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
SUNITA AGARWAL
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
CAV JUDGMENT
(PER : HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA AGARWAL)
The present appeal is directed against the judgment and
order dated 5.4.2022 passed by the Commercial Court, 5 th
Additional District Judge, Mehsana in rejecting the application
Page 1 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
filed under Section 34 of the Arbitration and Conciliation Act,
1996 (hereinafter referred to as ‘the Arbitration Act, 1996‘)
challenging the arbitral award dated 30.07.2016 passed by the
Micro, Small and Medium Enterprises Facilitation Council
(MSMEFC) in MSMEFC Case No. 26 of 2014. The application
under Section 34 has been rejected on the ground that the
Court at Mehsana has no jurisdiction to try, entertain and
dispose of the application, inasmuch as, the territorial
jurisdiction to challenge the MSME Facilitation Council’s award
is with the Court in the State of Odisha as the seat of MSMEF
Council would be the seat of arbitration in the spirit of Section
18 read with section 24 of the Micro, Small and Medium
Enterprises Development Act, 2006 (hereinafter referred to as
‘the MSMED Act, 2006).
2. It was held by the Commercial Court that the seat of
arbitration is fixed by virtue of Section 18 of the Act’ 2006 at
a place where MSMEF Arbitrator has jurisdiction, which is the
place where supplier is located. The location of the supplier
Page 2 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
being at Cuttack, Odisha, the District Court at Cuttack, Odisha
alone has jurisdiction to entertain the application under Section
34 of the Arbitration Act’ 1996 to the exclusion of all other
Courts by virtue of Section 18 and 24 of the MSMED
Act’ 2006.
3. Mr. Maulik G. Nanavati, the learned advocate appearing
for the appellant invited attention of the Court to the Clauses
44 and 45 of the contract entered into between the parties,
which read as under:-
“44. Jurisdiction:- All questions, disputes or differences
arising under out of or in connection with the
tender/contract, if concluded, shall be subject to the exclusive
jurisdiction of the Court under whose jurisdiction the place
from which the tender/acceptance of tender is issued, is
situated.”
“45. Arbitration :- All questions, disputes or differences
whatsoever which may at any time arise between the parties
to this agreement touching the agreement or subject matter
thereof, arising out of or in relation there to and whether as
to construction or otherwise, shall be referred to the decision
of this Sole Arbitrator, appointed by the Chairman, UGVCL,
for that purpose, who shall be a retired High Court Judge or
retired District and Sessions Judge, and the decision of the
said Arbitrator shall be final and binding upon the parties.
Reference to the Arbitration shall be governed by the
provisions of Indian Arbitration and Conciliation Act, 1996 as
amended from time to time and the rules made thereunder.”
Page 3 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
4. It was argued that by virtue of Clause 44 read with
Clause 45, only the Court at Mehsana was having jurisdiction
to deal with all questions, disputes or differences arising out of
the or in connection with the tender/contract. The exclusive
jurisdiction is conferred to the Court at Mehsana by the parties
under whose jurisdiction, the place where tender/acceptance of
tender was issued, is situated. It was argued that even though
the venue of arbitration will be at Cuttack, i.e. the place of
location of MSME Facilitation Council, but the seat of the
arbitration cannot be fixed at Cuttack. The learned Commercial
Court at Mehsana has committed an error of law in rejecting
the application under Section 34 for want of jurisdiction.
5. On the question of “seat” and “venue”, the law laid
down by the Apex Court as to what constitutes the ‘juridical
seat’ or arbitration proceedings and whether once the seat is
delineated by the arbitration agreement, the Court at the place
of the seat will alone have exclusive jurisdiction over the
arbitral proceedings have been placed before us. It was
Page 4 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
argued that this Court in the judgment and order dated
13.10.2023 passed in Arbitration Petition No. 159 of 2022,
noted the law on “seat” and “venue” of the arbitration
proceedings and stated that it is fairly well settled in cases
where the parties have determined the ‘seat’ in their
agreement, the same is akin to conferring exclusive jurisdiction
on the Court(s) thereof. Where the clause in the contract vests
exclusive jurisdiction over the disputes, it should be considered
as fixing “seat” and the exclusive Court having jurisdiction to
entertain the application under the Act’ 1996. Where the
parties have agreed that all actions and proceedings arising out
/ related to the contract shall lie in the Courts of competent
jurisdiction at place ‘A’ and have agreed to conduct the
arbitration proceedings at place ‘B’, the expression in the
agreement that the Court at place ‘A’ will have jurisdiction,
would be a contrary indicator as held by the Apex Court in
the case of BGS SGS Soma JV vs. NHPC Limited [(2020) 4 SCC
234].
Page 5 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
6. It was held by this Court that the words ‘the parties
agreed that the arbitration proceedings will be conducted at
Bangalore cannot be read to mean that the place ‘Bangalore’
has been designated under the contract as the ‘seat’ of
arbitration and would operate as a exclusive jurisdiction clause
to decide the jurisdiction of the High Court under Section 11
of the Act’ 1996. It was noted that in the agreement signed by
the parties, clause 25(iii) exclusively confers jurisdiction to the
Courts at Ahmedabad in all matters arising out of the
agreement. The agreement was signed at Ahmedabad between
the parties; it was executed and stamped in the State of
Gujarat. The place of arbitration mentioned in Clause 25(ii) of
the said agreement at ‘Bangalore’ is merely a convenient
location for holding the arbitration proceedings being the
“venue” of the arbitration and the Courts at Ahmedabad
selected as having exclusive jurisdiction in all disputes arising
out the lease agreement should be considered as the ‘seat of
arbitration’.
Page 6 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
7. The judgment of the Apex Court in Ravi Ranjan
Developers Pvt. Ltd. vs. Aditya Kumar Chatterjee (2022 SCC
OnLine SC 568] has been placed before us to argue that “seat
of arbitration” and “venue of arbitration” cannot be used
interchangeably. Mere expression “place of arbitration” can
not be made basis to determine the intention of the parties
that they have intended that place as the “seat of arbitration”.
The intention of the parties as to the “seat” should be
determined from the clauses in the agreement and the conduct
of the parties. It is well settled principle of law that when two
or more Courts have jurisdiction to adjudicate the disputes
arising out of an arbitration agreement, the parties might, by
agreement decide to refer all disputes to any one Court to the
exclusion of all other Courts, which might otherwise have had
jurisdiction to decide the disputes. The parties cannot,
however, by consent confer jurisdiction on a Court which
inherently lacks jurisdiction.
8. The decision of the Delhi High Court in O.M.P.(Misc.)
Page 7 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
Commercial Petition No. 161 of 2020 dated 14.08.2023 has
been placed to submit that the Apex Court in BGS SGS Soma
JV (supra) has laid down the test for determination of “seat”
in paragraph No. 82, wherein it was concluded that whenever
there is designation of a place of arbitration in an arbitration
clause as being the “venue” of the arbitration proceedings, the
expression “arbitration proceedings” would make it clear that
the “venue” is really the “seat” of the arbitral proceedings,
inasmuch as, the said expression does not include just one or
more individual or particular hearing, but the arbitral
proceedings as a whole, including the making of an award at
that place. Further, the fact that the arbitral proceedings “shall
be held” at a particular venue would also indicate that the
parties intended to anchor the arbitral proceedings to a
particular place, signifying their intention that the place is the
seat of the arbitral proceedings. This coupled with there being
no other contra indicia that stated venue is merely a “venue”
and not “seat” of the arbitral proceedings, would then
conclusively show that such a clause designates the “seat” of
Page 8 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
the arbitral proceedings.
9. It was argued that, in the instant case, there is a
categorical clause in the agreement signed by the parties to
confer exclusive jurisdiction to the Court at the place from
which tender / acceptance of tender was issued. There being a
sufficient contra indica to confer exclusive jurisdiction upon the
Court, the ‘juridical seat’ for all court proceedings would be
the Court at Mehsana. The fact that the MSME Felicitation
Council located at Cuttack, Odisha had passed the award and
the opponent unit which is a MSME unit is situated at Cuttack,
Odisha, “the juridical seat” cannot be fixed at Cuttack, Odisha
to confer exclusive jurisdiction upon the Court of the said
place.
10. The judgment and order dated 16 th October, 2024 of the
Division Bench of the Bombay High Court has been placed to
submit that in a reference on the issue, as has been raised
herein, about the place where exclusive jurisdiction as agreed
Page 9 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
upon would confer jurisdiction to the Court at that place to
entertain the application under Section 34 of the Act’ 1996 and
not at the place where the award under Section 18 was
passed, was considered therein. It was argued by
Mr. Nanavati that the Division Bench of the Bombay High
Court having exhaustively considered the provisions of the
Arbitration Act‘ 1996 and MSMED Act‘ 2006, reached at the
conclusion that the application under Section 34 of the
Arbitration Act’ 1996 to challenge the award passed under
Section 18(4) of the MSMED Act’ 2006 would be covered by
the agreement between the parties which has conferred
exclusive jurisdiction to a particular Court, and would not lie
to the Court at a place where award has been passed under
Section 18 of the MSMED Act’ 2006 which is guided by the
location of the supplier.
11. In rebuttal, Mr. Saurabh Amin, the learned counsel for
the respondent would vehemently argue that the respondent
herein is a ‘buyer’ within the meaning of Section 2(d) and
Page 10 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
‘supplier’ as also a ‘small enterprise’ within the meaning of
Section 2(n) and 2(m) of MSMED Act’ 2006. The disputed
claim falls under Section 17 of the MSMED Act for which a
special mechanism has been provided under Section 18 of the
said Act. The respondent availed the remedy under Section 18
by making a reference to the MSME Felicitation Council at
Cuttack for recovery of the claim covered by Section 17. The
MSEFC Case No. 26/14 was registered and MSME Council
passed arbitral award dated 30.07.2016, which was challenged
before the Commercial Court at Mehsana by moving
application under Section 34 of the Arbitration Act, registered
as Civil Misc. Application No. 131 of 2019. By the impugned
judgment and order dated 05.04.2022, the Commercial Court
has held that as the entire arbitration proceedings had taken
place at Cuttack and the award was passed at Cuttack, the seat
of arbitration shall be at Cuttack as the Court at Mehsana did
not have jurisdiction to entertain the application under
Section 34.
Page 11 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
12. The first point of argument of Mr. Amin, the learned
advocate for the respondent is that the present appeal under
Section 37 of the Act’ 1996 is not maintainable, inasmuch as,
the Commercial Court has not entered into the merits of the
case and hence the challenge would not fall within the scope
of powers conferred under Section 37 of the Arbitration
Act’ 1996 to challenge the order passed by the Commercial
Court, inasmuch as, it would not amount to refusal to set
aside the arbitral award applying the grounds available under
Section 34. As the Commercial Court has held that it lacks
jurisdiction and has reserved the liberty to the appellant to
approach the Court of proper jurisdiction, the impugned order
does not fall within the narrow ambit of Section 37. The
appeal under Section 37 being a creature of a statute, a party
does not have inherent right to appeal on any issue beyond
the scope of Section 37. Reliance is placed on the decision of
the Apex Court in BGS SGC Soma (supra) to substantiate the
said point.
Page 12 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
13. On the issue of jurisdiction, on merits of the appeal, i.e.
it was argued that the seat of arbitration is at Cuttack and the
Court at Mehsana has no jurisdiction to entertain the
application under Section 34, inasmuch as, it is settled position
of law that only the District Court having jurisdiction over the
seat of arbitration has jurisdiction to entertain the application
under Section 34 to the exclusion of all other Courts. The
aspects of cause of action or consent of the parties does not
confer jurisdiction upon a Court. Reliance is placed on the
decisions in 2021 SCC online SC 448 (Inox Renewables Limited
vs. Jayesh Electricals Limited) and (2020) 4 SCC 310
(Hindustan Construction Company Limited vs. NHPC Limited
and Another.
14. It was further submitted that it is not in dispute that the
entire arbitral proceedings has been held at Cuttack and the
award has been signed and declared at Cuttack. Not a single
hearing had taken place at Mehsana. Clauses 44 or 45 of the
contract do not designate Mehsana as the seat of arbitration.
Page 13 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
Mehsana is neither the “seat” of arbitration nor the designated
“venue” of arbitration.
15. It was argued that Section 18 of the MSMED Act’ 2006
denotes the “seat”. Under Section 2(4) of the Act’ 1996, the
arbitration agreement gets substituted by Section 18 of the
MSME Act’ 2006 which talks of the substitution of the
arbitration agreement with the statutory enactment. Section
2(4) provides that the provisions of the enactment will replace
the arbitration agreement and the provisions of Part-I of the
Arbitration Act‘ 1996 shall apply to every arbitration under
any statutory enactment for the time being in force to the
extent of there being no inconsistency with the enactment.
Section 18 (2) & (3) talk of the application of Arbitration Act‘
1996 to the limited extent of conciliation sittings. Sub-section
(4) of Section 18, however, fixes the seat of arbitration and is
an exception to party autonomy contemplated under the
Arbitration Act, 1996. Sub-section (4) of Section 18 begins with
a non-obstente clause by providing that the MSME Felicitation
Page 14 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
Council or the centers providing alternative dispute resolution
services or conciliation under Section 18, shall have jurisdiction
to act as an Arbitrator or Conciliator in a dispute between the
supplier located within its jurisdiction and the buyer located
anywhere in India.
16. It was argued that Section 18 of the special enactment
namely MSMED Act‘ 2006 provides mechanism to recover the
claim amount with respect to which liability is created under
Section 17. Section 15 creates a statutory liability upon the
buyer and Section 16 provides for rate of interest payable. The
MSMED Act‘ 2006 being a special enactment where the dispute
of the above stated categories is to be settled through the
process of arbitration by MSME Felicitation Council, would
have an overriding effect on the general principles of the
Arbitration Act, 1996 based on a party autonomy or the
overriding effect of fixing the “seat” to confer exclusive
jurisdiction upon the Civil Courts by agreement of the parties.
The “seat” as contemplated in the arbitration agreement has
Page 15 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
been replaced by Section 18 (4) of the MSME Act’ 2006 and
the “seat of arbitration” has been fixed at the location of
supplier. The Court at the said location will have exclusive
jurisdiction irrespective of the location of the buyer anywhere
in India in light of the provisions of sub-section (4) of Section
18 of the MSMED Act’ 2006.
17. It was argued that Section 18 of the MSMED Act’ 2006
providing for adjudication of disputes with regard to any
amount due under Section 17 is party specific. The remedy is
limited to unpaid amount only and any other dispute arising
out of the contract is not adjudicated by the Facilitation
Council under the MSMED Act‘ 2006. Section 18(3) and (4)
anchor the arbitration proceedings at the place where the
supplier is located. The Special Act fixing the place for
conducting arbitration proceedings in turn fixes the seat of
arbitration. Whereas sub-section(1) of Section 20 of the
Arbitration Act’ 1996 speaks of party autonomy giving freedom
to the parties to agree on the place of arbitration and choice
Page 16 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
given to the arbitral tribunal to determine a convenient place
as the place of arbitration under sub-section(2) of Section 20.
Such an autonomy has been specifically taken away with the
non-obstante clause contained in sub-section(4) of Section 18 of
the MSMED Act’ 2006. The MSMED Act‘ 2006 being a special
Act beneficial to small enterprises has overriden Section 20 of
the Act’ 1996 in a case of arbitration by the MSME Felicitation
Council. Section 2(4) of the Arbitration Act’ 1996 by deeming
fiction has replaced the arbitration clause completely by the
statutory provisions.
18. Placing reliance on the judgment of the Apex Court in
Gujarat State Civil Supplies Corporation Limited vs. Mahakali
Foods Private Limited (Unit 2) [(2023) 6 SCC 401], it was
argued that the issue as to whether Chapter-V of the MSMED
Act‘ 2006, which contains Section 18 as well, would have an
effect overriding the provisions of the Arbitration Act‘ 1996
has been settled by the Apex Court. It is held therein that
Section 18 is a substantive law as it provides rights and the
Page 17 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
remedies of an MSME for resolution of dispute being beneficial
statute. The MSMED Act‘ 2006 should be given a liberal and
not a strict interpretation. Section 18 starts with a non-
obstante clause which means that the said provision has been
enacted with the aim to supersede other laws for the time
being in force and statutory forum namely MSME Felicitation
Council has been conferred jurisdiction to act as an Arbitrator
or the Conciliator in a dispute between supplier located within
its jurisdiction and a buyer located anywhere in India.
19. It was noted therein that Chapter-V is “Parties specific”,
inasmuch as, the party i.e. “the buyer” and “supplier”
defined in Sections 2(d) and 2(n); respectively, are covered
under the said Chapter. A special procedure has been
prescribed to be followed by the Facilitation Council after the
reference is made to it at the instance of any party to the
dispute. As per Section 24 of the MSMED Act’ 2006, the
provisions of Sections 15 to 23 contained in Chapter-V of the
MSMED Act‘ 2006 shall have an effect overriding the other
Page 18 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
law for the time being in force.
20. Considering the scheme of the Arbitration Act, 1996 and
the MSMED Act‘ 2006, it was held by the Apex Court therein
that the Arbitration Act‘ 1996 is a general law relating to
domestic as well as international commercial arbitration and
for conciliation. It does not specify any specific dispute or
specific class or category of persons to which the Act’ 1996
shall apply in comparison to the provisions of the MSMED
Act‘ 2006. The provisions of the MSMED Act‘ 2006 do have
precedence over or prevail over the Arbitration Act‘ 1996
because of the nature of dispute being specific between specific
categories of persons, to be resolved by following a specific
process through a specific forum. The submission made on
behalf of the buyer that there is a conscious omission of the
word ‘agreement’ in sub-section(1) of Section 18 as against the
use of the said word in Section 16 of the MSMED Act’ 2006,
which implies that the arbitration agreement independently
entered into between the parties as contemplated under
Page 19 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
Section 7 of the Arbitration Act’ 1996 was not intended to be
superseded by the provisions contained under Section 18 of the
MSMED Act’ 2006, was not accepted therein. It was held by
the Apex Court that once the statutory mechanism under sub-
section(1) of Section 18 is triggered by any party, it would
override any other agreement independently entered into
between the parties.
21. It was, thus, argued that in view of the law laid down
by the Apex Court in Mahakali Foods Private Limited (supra),
the Clause 44 of the agreement providing exclusion of
jurisdiction of Civil Court other than the Court at the place
wherefrom the tender/acceptance of tender issued, cannot be
pressed into service, inasmuch as, the said provision became
redundant in so far as the proceedings of Arbitration conducted
under the MSMED Act‘ 2006.
22. Even otherwise, as per the concept of determination of
“venue” as “seat” being the juridical seat for conducting of
Page 20 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
arbitration proceedings, the “venue” becomes “seat” in
absence of any contra indica. As far as the agreement
executed between the parties, Clause 45 quoted hereinabove
pertains to the arbitration, which does not contain any
statement as to the place of arbitration as “venue” or “seat”.
In absence of any such contra indica in Clause 45 which does
not fix either the venue or seat of arbitration, the place where
arbitration proceedings have been conducted as per Section 18
(4) of the MSMED Act’ 2006 will be the “seat” of arbitration.
The jurisdiction of any other Civil Court other than the Court
within the jurisdiction of which the arbitration proceedings
have been conducted, will have to be excluded. The question
as to “venue” and “seat” being distinct is not automatic, but
has to be culled out from the agreement between the parties.
23. Heard learned counsels for the parties and perused the
record. To deal with the arguments of the learned counsels
for the parties, we may note that the agreements covering the
transactions between the parties by way of the purchase orders
Page 21 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
were entered into in the year 2009-2010. Pursuant to the claim
put up by the respondent herein, the proceedings of
conciliation commenced under the MSMED Act‘ 2006 and after
termination of conciliation, award was passed by the MSME
Facilitation Council on 30.07.2006. The challenge to the
award was brought by moving an application under Section 34
by the appellant herein invoking Clause 44 of the Agreement
which talks of exclusive jurisdiction conferred upon the Courts
at Mehsana wherefrom tender/acceptance of tender was issued.
There is no dispute about the abovenoted factual aspects.
24. The argument of the learned counsel for the respondent
that Section 18(4) fixes the “seat” of arbitration being the
place where the MSME Felicitation Council is situated at the
location of the supplier, is to be examined by us. The
contention is that Section 18 (4) fixes the seat of arbitration at
the place within the jurisdiction of MSME Felicitation Council,
which is further decided by the location of the supplier. The
location of the buyer has no relevance to decide the
Page 22 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
jurisdiction of the MSME Felicitation Council. The submission
is that the Clause 44 of the Arbitration Agreement stood
replaced by Section 18(4) of the MSMED Act’ 2006.
25. Taking note of the above arguments, we have to examine
the interplay between the Arbitration Act‘ 1996 and MSMED
Act‘ 2006 by going through the relevant provisions of both
the enactments. When we go through the provisions of the
MSMED Act‘ 2006, it can be discerned that the overriding
effect has been given by virtue of Section 18(4) read with
Section 24 of the MSMED Act’ 2006 over any agreement
between the parties in relation to the dispute covered by the
MSMED Act‘ 2006 and in so far as the claim under Section 17,
where it has been kept open to the parties to refer the dispute
to the MSME Facilitation Council. From the procedure
prescribed in Chapter-V of the MSMED Act‘ 2006, it is evident
that the forum namely MSME Facilitation Council provided in
Section 18, is in replacement of ‘arbitration agreement’ as
contained in Section 7 of the Arbitration Act’ 1996, which
Page 23 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
covers the dispute resolution mechanism of arbitration between
the parties. Sub-section(4) of Section 2 of the Arbitration
Act’ 1996 provides that Part-I of the Arbitration and
Conciliation Act‘ 1996 shall apply to every arbitration
including statutory arbitration, and every arbitration under any
other enactment for the time being in force shall be deemed to
be the arbitration pursuant to the arbitration agreement within
the meaning of the Arbitration Act‘ 1996. Thus, by virtue of
Section 2(4) read with Section 7, in so far as the arbitration
proceedings are concerned, they shall be governed by the
statutory enactment, which would result in replacing the mode
and manner of appointment of arbitral tribunal under the
Arbitration Act‘ 1996. The provisions of the Arbitration Act‘
1996 which are inconsistent with the statutory enactment shall
not apply. With the commencement and conclusion of the
arbitral proceedings under the statute namely the MSMED
Act‘ 2006 at both the states, the Arbitrator and the parties
have to refer to the provisions of the Arbitration Act‘ 1996.
For any dispute pertaining to the correctness or validity of the
Page 24 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
arbitral award, execution and implementation thereof, no other
procedure have been provided under the MSMED Act‘ 2006,
and the provisions of the Arbitration Act‘ 1996 are applicable..
26. Further, we may also note from the language employed
in sub-section (3) of Section 18 that where the conciliation
initiated under sub-section(2) of Section 18 is not successful,
the Council is empowered to take up the dispute for
arbitration onto itself or refer to it any institution or center
providing alternate dispute resolution services for such
arbitration. In both eventuality, the arbitration proceedings
would be governed by the provisions of Arbitration and
Conciliation Act, 1996 in dealing with the dispute as if the
arbitration was pursuant to an arbitration agreement referred
to in sub-section(1) of Section 7 of the Arbitration Act’ 1996.
With the language employed under sub-section(3) of Section
18, if the provisions of sub-section(4) of Section 18 are read
and understood, it would mean that the provisions of sub-
section(4) of Section 18 would have an overriding effect only
Page 25 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
with respect to the jurisdiction of the MSME Felicitation
Council in adjudication of the dispute as an Arbitrator and has
no application beyond that point.
27. We may further look into the provisions of the Section 19
of the MSMED Act’ 2006, which provides the manner in which
the application can be moved for setting aside the decree,
award or order made either by the Council itself or by any
institution or center providing alternative dispute resolution
services to which a reference is made by the Council. Section
19 contemplates pre-deposit of certain amount before any such
application is entertained by any Court. The word ‘Court’ is
not defined under the MSMED Act‘ 2006. The phrase ‘any
court’ contained in Section 19 of the MSMED Act’ 2006, thus,
has to be understood to mean the ‘court’ defined under
Section 2(1(e)of the Arbitration Act, 1996, which applies to the
arbitration proceedings conducted by the MSME Facilitation
Council or a institute or center referred to by it, by virtue of
sub-section(3) of Section 18. The resultant effect would be
Page 26 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
that the Court having jurisdiction to entertain the challenge to
an arbitral award within the meaning of Section 34 of the
Arbitration Act, 1996 shall be able to adjudicate the challenge
to an arbitral award within the scope of the said provisions.
A conjoint reading of Section 19 of the MSMED Act’ 2006 and
Section 34 of the Arbitration Act’ 1996 makes it clear that the
Court defined in Section 2(1)(e)of the Arbitration Act’ 1996
will have the jurisdiction to entertain the challenge to any
award of the MSME Felicitation Council or the institution to
whom the dispute is referred by the Council, subject to
fulfillment of the condition of pre-deposit laid down in Section
19 of the MSMED Act’ 2006.
28. We may further note that except Section 19 contained in
Chapter-V of the MSMED Act‘ 2006, there is no other
provision which would deal with the procedure or the manner
or even the jurisdiction of the Court where challenge to an
award by the Council can be laid. Section 24 of the MSMED
Act’ 2006 which gives overriding effect to the provisions of
Page 27 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
Sections 15 to 23 contained in Chapter-V of the MSMED
Act‘ 2006, thus, would not apply beyond the provisions
contained therein. Meaning thereby, once the challenge is put
forth before the Court defined in Section 2(1)(e) of the
Arbitration Act, 1996 by making pre-requisite deposit as per
Section 19 of the MSMED Act’ 2006, the interplay between the
MSMED Act‘ 2006 and the Arbitration Act‘ 1996 would come
to an end.
29. The Court before which the challenge is laid, once
entertained the challenge by ensuring compliance of Section 19
of the MSMED Act’ 2006, would have to deal with the
challenge within the purview of Section 34 of the Arbitration
Act, 1996. The MSMED Act‘ 2006 cannot be read and applied
to determine the jurisdiction of the Court defined in Section
2(1)(e) of the Arbitration Act’ 1996 before whom the challenge
to an award is laid under Section 34. The limited scope of
Section 19 of the MSMED Act’ 2006 is clear with the conjoint
reading of Section 19 of the MSMED Act’ 2006, Section 2(1)(e)
Page 28 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
and Section 34 of the Arbitration Act’ 1996. The interplay
between Section 18 of the MSMED Act’ 2006, Section 2(4) and
Section 7 of the Arbitration Act’ 1996, has already been
discussed hereinbefore in detail.
30. The Legislature which fixes the jurisdiction of the MSME
Facilitation Council by virtue of sub-section(4) of Section 18,
has not prescribed any provision dealing with the jurisdiction
of the Courts entertaining application for setting aside any
decree, award or other order made either by the Council itself
or by any institution or center referred to by the Council, in
view of the fact that the provisions of the Arbitration and
Conciliation Act, 1996 are applicable at both the stages of
making of the award and post-passing of the award. The only
mode and manner of referring the dispute for conciliation and
arbitration and appointment of an arbitrator in case of
disagreement between the parties, as governed by the
Arbitration Act‘ 1996 has been replaced by the statutory
scheme of the MSMED Act‘ 2006.
Page 29 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
31. In view of the above discussion, the contention of the
learned counsel for the respondent that by virtue of the
overriding effect of sub-section(4) of Section 18 read with
Section 24 of the MSMED Act’ 2006, the juridical seat of
arbitration proceedings has been fixed and it would result in
exclusion of the jurisdiction of the Civil Court anywhere else in
India where cause of action for adjudication of the dispute lies,
is untenable.
32. As per own submission of the learned counsel for the
respondent, the concept of party autonomy in fixing the place
of arbitration by virtue of sub-section(1) Section 20 and the
choice given to the arbitral proceedings under sub-section(2) of
Section 20 failing in any agreement between the parties as
referred to in sub-section(1) of Section 20, has been replaced
by virtue of Section 18(4) of the MSMED Act’ 2006. The
result is that the place of arbitration is fixed by virtue of the
statutory provision by conferring exclusive jurisdiction for
arbitration to the statutory arbitrator namely, the MSME
Page 30 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
Facilitation Council having jurisdiction at a place where the
supplier is located. The choice of the parties, thus, to decide
the ‘venue’ or the ‘seat’ of arbitration proceedings as per
Section 20 of the Arbitration Act’ 1996 no more survives. The
whole concept of “venue” or “seat” as delineated by the
Apex Court in BGS SGS Soma JV (supra) and other decisions
noted hereinabove relied on by Mr. Saurabh Amin, the learned
counsel for the respondent as to the choice of “venue” or
fixing “seat” of arbitration do not attract in this case.
33. The provision of Section 18(4) of the MSMED Act’ 2006
cannot be read to exclude the jurisdiction of the Civil Court at
Mehsana which otherwise has jurisdiction to deal with the
dispute being the Civil Court within the jurisdiction of which
the tender / contract was executed and supply was made
against the purchase orders No. 2794 dated 4.9.2009 and No.
3262 dated 30.07.2010. Section 9 of the Code of Civil
Procedure specifically provides that the Civil Courts (subject to
the provisions contained therein) shall have jurisdiction to try
Page 31 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
all civil suits, unless cognizance of such suit is either expressly
or impliedly barred. There is no bar, express or implied,
which can be read into under Section 18 or 24 of the MSMED
Act‘ 2006.
34. In so far as the Clause 44 of the agreement between the
parties relating to the choice of jurisdiction of the Civil Court,
pertinent is to note that the said agreement has been arrived
between the parties in the year 2009-2010, much after the
enactment of the MSMED Act‘ 2006. Two agreements dated
17.08.2009 and 30.01.2010 signed by the parties contain both
the Clauses 44 and 45 reproduced hereinbefore. Clause 44
talks of exclusive jurisdiction conferred by the parties to a
Civil Court, whereas Clause 45 deals with the reference to the
dispute to arbitration, which shall be governed by the
provisions of the Arbitration and Conciliation Act, 1996. As
noticed hereinabove, the Clause 45 of the agreement stood
replaced by Section 18 of the MSMED Act’ 2006, but there is
no replacement of Section 44, which still survives.
Page 32 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
35. At the time of execution of the agreement, both the
parties were aware that the Courts at Mehsana other than the
Court at the location of the supplier, where MSME Felicitation
Council has jurisdiction to arbitrate, will have jurisdiction to
decide the dispute arising out of the arbitration proceedings or
the agreement between the parties. Once the parties have
consciously agreed to confer jurisdiction to the Court at
Mehsana in exclusion to any other Court having jurisdiction,
the respondent cannot be permitted to turn around to contend
that the exclusive jurisdiction due under clause 44 (contained
in the agreement signed and agreed by it), will not be
applicable.
36. It is settled position of law that the parties by agreement
cannot confer jurisdiction on a Court which otherwise does not
have jurisdiction to deal with the dispute, however, the
contracting parties are free to agree that all actions and
proceedings arising out of or related to the contract shall lie in
the Court of competent jurisdiction at one place out of two or
Page 33 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
more Courts having jurisdiction to decide the disputes. The
intention of the parties as to the choice to refer all disputes to
the Court at Mehsana to the exclusion of all other Courts
which might otherwise have had jurisdiction to decide the
dispute, is evident from Clause 44 in the agreement and the
conduct of the parties in signing the said agreements in the
year 2009-2010. The parties once have agreed to submit to the
jurisdiction of Court at Mehsana in respect of the disputes
arising out of the agreement, one contracting party cannot be
permitted to argue that since the arbitration proceedings had
been conducted at Cuttack, Odisha because of the location of
MSME Felicitation Council by virtue of Section 18(4) of the
MSMED Act’ 2006, the Civil Court at Cuttack, Odisha will
have exclusive jurisdiction to deal with the challenge to the
arbitral award under Section 34 of the Arbitration Act’ 1996.
37. We may refer to the two decisions of the High Court at
Bombay and Delhi High Court dealing with the same issue
which have been placed before us by the Mr. Maulik G.
Page 34 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
Nanavati, the learned counsel appearing for the appellant. We
may record that both the above noted judgments have
provided due guidance and assistance to us in writing this
judgment and have been followed by us having persuasive
value.
38. In Ircon International Limited vs. Pioneer Fabricators
Private Limited (2023 SCC OnLine Delhi 1811), the Division
Bench of the Delhi High Court was dealing with the appeal
under Section 37 of the Arbitration Act, 1996 challenging an
order of rejection of a petition filed under Section 19 of the
MSMED Act’ 2006 read with Section 34 of the Arbitration Act,
1996 on the ground of lack of jurisdiction. The Division
Bench of the Delhi High Court dealing with the issue has
considered various decisions to hold that the place where the
proceedings were held by the Facilitation Council must be
construed as a ‘venue’ as different from a ‘seat’ which is
determinative clause of the jurisdiction conferred by the parties
on a particular Court by mutual agreement. An earlier
decision of the Delhi High Court in Indian Oil Corporation
Page 35 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
Limited vs. Fepl Engineering (P) Limited & Anr. (2019 SCC
OnLine Delhi 10265) was noted and relied therein, wherein it
was held that the MSMED Act‘ 2006 despite being a special
legislation, would not eclipse and nullify the jurisdiction clause
agreed upon between the parties. The place of arbitration for
the parties, to entertain and challenge to an arbitral award
continues to be the place over which the Court has been
conferred with exclusive jurisdiction, as agreed between the
parties. Post-rendering of the arbitral award by the
Facilitation Council, the exclusive jurisdiction clause entered
into between the parties shall not be affected by operation of
the provisions of the MSMED Act‘ 2006 and only the
procedure of constitution of the arbitral tribunal is obliterated
in view of the judgment of the Apex Court in Mahakali Foods
Private Limited (supra).
39. The Division Bench of High Court of Bombay has
expressed the same view on a reference made to it while
answering the question whether the jurisdiction of the Court to
Page 36 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
hear a petition under Section 34 of the Arbitration Act’ 1996
challenging the award in a statutory arbitration under Section
18 of the MSMED Act’ 2006 would be governed by the non-
obstante provision under Section 18(4) of the MSMED
Act’ 2006 or would be governed by the arbitration agreement
between the parties, which has conferred the exclusive
jurisdiction to a particular Court. Considering the interplay
between the MSMED Act‘ 2006 and the Arbitration and
Conciliation Act, 1996, it was held therein that the jurisdiction
of the Court to hear the application under Section 34 of the
Arbitration Act’ 1996 as to challenge the award passed under
Section 18(4) of the MSMED Act’ 2006, would be governed by
the agreement between the parties which has conferred
exclusive jurisdiction to a particular Court.
40. Coming to the next submission of the learned counsel for
the respondent about the maintainability of the present appeal
under Section 37 of the Act’ 1996 on the premise that the
order under challenge is not an order of refusal to set aside
the arbitral award under Section 34 on any ground stated in
Section 34 of the Act’ 1996, suffice it to say that the rejection
Page 37 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
of the application under Section 34 on the ground of
entertainability, i.e. lack of jurisdiction has resulted in denial
to set aside an arbitral award, which in our considered
opinion, would be a ground to entertain the appeal under
Section 37, incorporated in sub-section (1)(c) of Section 37.
The distinction sought to be drawn by the learned counsel for
the respondent between an order passed under Section 34 on
merits and the rejection of Section 34 application on the
ground of lack of jurisdiction, does not appeal to us, inasmuch
as, any order of refusal to set aside an arbitral award under
Section 34 on any ground, will give rise to a remedy of appeal
under Section 37, to the Court authorized by law to hear the
appeals from the original decree of the Court.
41. In view of the above discussion, the judgment and order
dated 05.04.2022 passed by the Commercial Court-5 th
Additional District Judge, Mehsana in rejecting the application
under Section 34 of the Arbitration Act, 1996 read with
Section 19 of the MSMED Act’ 2006, on the ground that the
Court lacks territorial jurisdiction, is liable to be set aside
being suffering from a grave error of law. While allowing the
instant appeal filed under Section 13 of the Commercial
Court’s Act’ 2015 read with Section 37 of the Arbitration and
Conciliation Act’ 1996, we set aside the judgment and order
dated 05.04.2022 passed by the Commercial Court and revive
Page 38 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
NEUTRAL CITATION
C/FA/1728/2022 CAV JUDGMENT DATED: 24/12/2024
undefined
the Commercial Misc. Civil Application No.131 of 2019. The
competent court at Mehsana is directed to decide the same on
merits, as expeditiously as possible.
42. With the above, the present appeal stands allowed. The
Civil Application also stand disposed of. No order as to the
costs.
(SUNITA AGARWAL, CJ )
(PRANAV TRIVEDI,J)
FURTHER ORDER
After delivery of the judgment, request made by
Mr. Saurabh G. Amin, the learned advocate for the respondent,
to stay the effect and operation of this order, is hereby
rejected in view of the reasoning given in the order.
(SUNITA AGARWAL, CJ )
(PRANAV TRIVEDI,J)
C.M. JOSHI/pps
Page 39 of 39
Uploaded by C.M. JOSHI(HC01073) on Thu Dec 26 2024 Downloaded on : Thu Dec 26 21:37:07 IST 2024
