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Supreme Court of India
M/S Harcharan Dass Gupta vs Union Of India on 14 May, 2025
Author: Pamidighantam Sri Narasimha
Bench: Pamidighantam Sri Narasimha
2025 INSC 689 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6807 OF 2025
ARISING OUT OF SLP (C) NO. 14159 OF 2025
DIARY NO. 33751 OF 2024
M/S HARCHARAN DASS GUPTA ...APPELLANT(S)
VERSUS
UNION OF INDIA …RESPONDENT(S)
JUDGMENT
PAMIDIGHANTAM SRI NARASIMHA, J.
1. Delay condoned, leave granted.
2. The present appeal is directed against the order dated
22.04.2024 passed by the Karnataka High Court whereby the writ
petition1 filed by the respondent has been allowed, and it has been
held that the Delhi Arbitration Centre lacks jurisdiction to manage
arbitral proceedings as the contract between the appellant and the
respondent provides that the seat for arbitration shall be at
Bengaluru. For the reasons to follow and in view of the overriding
effect of Micro, Small and Medium Enterprises (Development) Act,
Signature Not Verified
Digitally signed by
KAPIL TANDON
Date: 2025.05.14
18:59:27 IST
Reason:
1 Writ Petition No. 27269 of 2023 (GM-RES).
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2006 2 over the Arbitration and Conciliation Act, 19963 as affirmed
by this Court in Gujarat State Civil Supplies Corporation Ltd.
v. Mahakali Foods Pvt. Ltd., 4 we have allowed the appeal and
restored the arbitral proceedings under the aegis of Delhi
Arbitration Centre. We will first indicate the facts to the extent they
are necessary for the determination of the issue, which are as
follows.
3. The respondent herein, the Indian Space and Research
Organisation (ISRO), based in Bengaluru, invited bids for
construction of staff quarters in New Delhi by way of the tender
notice5 dated 16.01.2017. Appellant, a registered supplier under
the MSMED Act was selected, leading to an agreement dated
11.09.2017 for the execution of the project.
4. In view of certain disputes between the parties, the appellant
invoked jurisdiction of the Facilitation Council at Delhi under
Section 18 of the MSMED Act. In exercise of powers under Section
18, the Facilitation Council issued a notice to the respondent on
30.03.2022 for conciliation, but the respondent refused to
participate in the said proceedings. The non-cooperation of the
2 Hereinafter referred to as the ‘MSMED Act.’
3 Hereinafter referred to as the ‘Arbitration Act.’
4 (2023) 6 SCC 401.
5 E-Tender Notice No.CMG/ISRO-HQ/ET/CC 11/2016-17.
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respondent led to the inevitable consequence of the Facilitation
Council taking its decision to refer the dispute to arbitration under
Section 18(3) of the MSMED Act. As the arbitration was to be
conducted through institutional through Delhi Arbitration Centre,
the Centre proceeded further and appointed a sole arbitrator by
way of a notice dated 28.05.2022.
5. The arbitral proceedings commenced on 08.06.2022 and by
an order dated 26.09.2023, the arbitrator took the claim petition
on record and directed the respondent to file its statement of
defence within four weeks. Instead of filing its defence, the
respondent chose to approach the High Court of Karnataka by
filing a writ petition under Article 226/227 challenging the
assumption of jurisdiction by the Delhi Arbitration Centre and also
the conduct of arbitral proceedings in Delhi. While hearing the writ
petition, the High Court passed an ex parte dated 07.12.2023 order
granting stay on further proceedings. Eventually, by the order
impugned before us, the High Court disposed of the writ petition
declaring that the Delhi Arbitration Centre, at the instance of the
Facilitation Council, Delhi could not have assumed jurisdiction as
it is contrary to the agreement between the parties.
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6. In view of the specific terms of the agreement dated
11.09.2017 contained in Clauses 25 and 25A providing for
settlement of disputes, it was agreed that the seat of arbitration
shall be at Bengaluru. In view of the contractual clauses, the High
Court held that the proceedings conducted by the Delhi Arbitration
Centre and the arbitration to be without jurisdiction, and as such
illegal and contrary to law.
7. We have heard the submissions by Ms. Priya Kumar, learned
senior counsel appearing on behalf of the appellant and Mr.
Vikramjit Banerjee, learned A.S.G. appearing on behalf of the
respondent.
8. We have given our anxious consideration to the submissions
of both the parties. In our view, the issue is no more res integra
and is covered by the decision of this Court in Mahakali. As we
need to do nothing more than refer to the relevant portions of the
binding precedent, the reasoning, as well as the conclusion in this
decision are extracted herein for ready reference. At the outset, the
following two paragraphs clearly explain the principle on the basis
of which the court holds that the MSMED Act overrides the
“42. Thus, the Arbitration Act, 1996 in general governs the law
of Arbitration and Conciliation, whereas the MSMED Act, 20064
governs specific nature of disputes arising between specific
categories of persons, to be resolved by following a specific
process through a specific forum. Ergo, the MSMED Act, 2006
being a special law and the Arbitration Act, 1996 being a
general law, the provisions of the MSMED Act would have
precedence over or prevail over the Arbitration Act, 1996.
In Silpi Industries case [Silpi Industries v. Kerala SRTC, (2021)
18 SCC 790 : 2021 SCC OnLine SC 439] also, this Court had
observed while considering the issue with regard to the
maintainability and counter-claim in arbitration proceedings
initiated as per Section 18(3) of the MSMED Act, 2006 that
the MSMED Act, 2006 being a special legislation to protect
MSMEs by setting out a statutory mechanism for the payment
of interest on delayed payments, the said Act would override
the provisions of the Arbitration Act, 1996 which is a general
legislation. Even if the Arbitration Act, 1996 is treated as a
special law, then also the MSMED Act, 2006 having been
enacted subsequently in point of time i.e. in 2006, it would have
an overriding effect, more particularly in view of Section 24 of
the MSMED Act, 2006 which specifically gives an effect to the
provisions of Sections 15 to 23 of the Act over any other law for
the time being in force, which would also include the Arbitration
Act, 1996.
43. The Court also cannot lose sight of the specific non obstante
clauses contained in sub-sections (1) and (4) of Section 18 which
have an effect overriding any other law for the time being in
force. When the MSMED Act, 2006 was being enacted in 2006,
the legislature was aware of its previously enacted Arbitration
Act of 1996, and therefore, it is presumed that the legislature
had consciously made applicable the provisions of the
Arbitration Act, 1996 to the disputes under the MSMED Act, 2006
at a stage when the conciliation process initiated under sub-
section (2) of Section 18 of the MSMED Act, 2006 fails and when
the Facilitation Council itself takes up the disputes for
arbitration or refers it to any institution or centre for such
arbitration. It is also significant to note that a deeming legal
fiction is created in Section 18(3) by using the expression “as if”
for the purpose of treating such arbitration as if it was in
pursuance of an arbitration agreement referred to in sub-section
(1) of Section 7 of the Arbitration Act, 1996. As held in K.
Prabhakaran v. P. Jayarajan [K. Prabhakaran v. P. Jayarajan,
(2005) 1 SCC 754 : 2005 SCC (Cri) 451] , a legal fiction
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presupposes the existence of the state of facts which may not
exist and then works out the consequences which flow from that
state of facts. Thus, considering the overall purpose, objects
and scheme of the MSMED Act, 2006 and the unambiguous
expressions used therein, this Court has no hesitation in
holding that the provisions of Chapter V of the MSMED Act, 2006
have an effect overriding the provisions of the Arbitration Act,
1996.”
9. Further, the Court proceeds to hold that even the
agreement between the parties stands overridden by the
statutory provisions under the MSMED Act:
44. The submissions made on behalf of the counsel for the
buyers that a conscious omission of the word “agreement” in
sub-section (1) of Section 18, which otherwise finds mention in
Section 16 of the MSMED Act, 2006 implies that the arbitration
agreement independently entered into between the parties as
contemplated under 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 also cannot be
accepted. A private agreement between the parties cannot
obliterate the statutory provisions. 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, in view of the
non obstante clauses contained in sub-sections (1) and (4) of
Section 18. The provisions of Sections 15 to 23 have also
overriding effect as contemplated in Section 24 of
the MSMED Act, 2006 when anything inconsistent is contained
in any other law for the time being in force. It cannot be gainsaid
that while interpretating a statute, if two interpretations are
possible, the one which enhances the object of the Act should
be preferred than the one which would frustrate the object of
the Act. If submission made by the learned counsel for the
buyers that the party to a dispute covered under the MSMED Act,
2006 cannot avail the remedy available under Section 18(1) of
the MSMED Act, 2006 when an independent arbitration
agreement between the parties exists is accepted, the very
purpose of enacting the MSMED Act, 2006 would get frustrated.
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45. …
46. The submission therefore that an independent arbitration
agreement entered into between the parties under the
Arbitration Act, 1996 would prevail over the statutory
provisions of the MSMED Act, 2006 cannot be countenanced. As
such, sub-section (1) of Section 18 of the MSMED Act, 2006 is an
enabling provision which gives the party to a dispute covered
under Section 17 thereof, a choice to approach the Facilitation
Council, despite an arbitration agreement existing between the
parties. Absence of the word “agreement” in the said provision
could neither be construed as casus omissus in the statute nor
be construed as a preclusion against the party to a dispute
covered under Section 17 to approach the Facilitation Council,
on the ground that there is an arbitration agreement existing
between the parties. In fact, it is a substantial right created in
favour of the party under the said provision. It is therefore held
that no party to a dispute covered under Section 17 of
the MSMED Act, 2006 would be precluded from making a
reference to the Facilitation Council under Section 18(1) thereof,
merely because there is an arbitration agreement existing
between the parties.
47. The aforesaid legal position also dispels the arguments
advanced on behalf of the counsel for the buyers that the
Facilitation Council having acted as a Conciliator under Section
18(2) of the MSMED Act, 2006 itself cannot take up the dispute
for arbitration and act as an arbitrator. Though it is true that
Section 80 of the Arbitration Act, 1996 contains a bar that the
Conciliator shall not act as an arbitrator in any arbitral
proceedings in respect of a dispute that is subject of conciliation
proceedings, the said bar stands superseded by the provisions
contained in Section 18 read with Section 24 of the MSMED Act,
2006. As held earlier, the provisions contained in Chapter V of
the MSMED Act, 2006 have an effect overriding the provisions of
the Arbitration Act, 1996. The provisions of the Arbitration Act,
1996 would apply to the proceedings conducted by the
Facilitation Council only after the process of conciliation
initiated by the Council under Section 18(2) fails and the Council
either itself takes up the dispute for arbitration or refers to it to
any institute or centre for such arbitration as contemplated
under Section 18(3) of the MSMED Act, 2006.
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48. When the Facilitation Council or the institution or the centre
acts as an arbitrator, it shall have all powers to decide the
disputes referred to it as if such arbitration was in pursuance
of the arbitration agreement referred to in sub-section (1) of
Section 7 of the Arbitration Act, 1996 and then all the trappings
of the Arbitration Act, 1996 would apply to such arbitration. It
is needless to say that such Facilitation
Council/institution/centre acting as an Arbitral Tribunal would
also be competent to rule on its own jurisdiction like any other
Arbitral Tribunal appointed under the Arbitration Act, 1996
would have, as contemplated in Section 16 thereof.”
10. The issue relating to ‘seat of arbitration’ in all cases covered
under the MSMED Act is settled in view of the pronouncement of
this Court in Mahakali. This position is also true by virtue of the
specific provision of the MSMED Act, that is, sub-Section (4) of
Section 18, which vests jurisdiction for arbitration in the
Facilitation Council where the supplier is located:
“(4) Notwithstanding anything contained in any other law for
the time being in force, the Micro and Small Enterprises
Facilitation Council or the centre providing alternate dispute
resolution services shall have jurisdiction to act as an
Arbitrator or Conciliator under this section in a dispute
between the supplier located within its jurisdiction and a
buyer located anywhere in India.”
11. There is no dispute about the fact that the appellant-MSME
is located in Delhi and as such the Facilitation Council, (South-
West), GNCTD, Old Terminal Tax Building, Kapashera, New Delhi-
110037. In exercise of its power, the said Council entrusted the
conduct of arbitration through the institutional aegis of the Delhi
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Arbitration Centre. The conclusions drawn by us are the logical
consequence of the statutory regime as also declared by this Court
in Mahakali.
12. Mr. Vikramjit Banerjee, learned ASG submits that the
decision of this Court should not in any way prejudice any rights
or contentions that his client may legitimately raise and contest
before the arbitral tribunal. We have no hesitation in clarifying that
we have not touched upon the merits of the matter. We also direct
the learned arbitrator to permit the parties to raise and argue all
questions of law and fact as are legally permissible.
13. In view of the above, we allow the present appeal and set aside
the impugned order dated 22.04.2024 passed by the Karnataka
High Court in Writ Petition No. 27269 of 2023 (GM-RES) and direct
conduct and conclusion of arbitral proceedings.
14. With these directions, the civil appeal is disposed of. There
shall be no order as to costs.
………………………………….J.
[PAMIDIGHANTAM SRI NARASIMHA]
………………………………….J.
[JOYMALYA BAGCHI]
NEW DELHI;
MAY 14, 2025
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