Facts
In this recent case, the Petitioner sought to challenge an arbitral award issued by the Micro and Small Enterprises Facilitation Council (MSEFC) in Kanpur, under the MSMED Act, 2006. The dispute stemmed from a contract between the Petitioner, based in Bengaluru, and the Respondent, an MSME registered in Kanpur. The arbitration proceedings were conducted by the MSME Facilitation Council in Kanpur. Despite a contractual clause designating Bengaluru as the place of arbitration, the Petitioner filed a petition in the Bengaluru Commercial Court to set aside the award.
Arguments
The Respondent’s Counsel argued that, under Section 18(4) of the MSMED Act, the Facilitation Council where the supplier (the Respondent) is registered has jurisdiction over the arbitration proceedings. They asserted that since the award was rendered in Kanpur, any challenge should also be heard by a court in Kanpur, not Bengaluru.
The Petitioner’s Counsel argued in opposition, claiming that the arbitration agreement explicitly specified Bengaluru as the seat of arbitration, which should entitle the Petitioner to challenge the award in Bengaluru’s courts. They maintained that this contractual clause should override the MSMED Act’s default jurisdictional rules.
Judgments Relied Upon
Both parties cited multiple judgments to support their positions:
The Respondent relied on cases like Delhi Tourism and Transportation Development Corporation v. Satinder Mahajan and Madhya Pradesh Purv Kshetra Vidhyut Vitran Co. Ltd. v. Ami Tech India Pvt. Ltd., which support the view that jurisdiction lies with the courts where the arbitration proceedings were conducted and the award was rendered.
The Petitioner referred to cases like BGS SGS SOMA JV v. NHPC Ltd. and BBR (India) Pvt. Ltd. v. S.P. Singla Constructions Pvt. Ltd., which argue that when a contractual arbitration seat is designated, that location determines jurisdiction, regardless of where the Facilitation Council conducted the arbitration.
Conclusion
After reviewing the arguments and precedents, the court ruled that the provisions of the MSMED Act took precedence over the contractual designation of Bengaluru as the arbitration seat. It noted that the MSMED Act mandates that arbitration should occur under the Facilitation Council’s oversight, where the MSME supplier is registered—in this case, Kanpur. The court thus concluded that any challenge to the award must be made in a Kanpur court and dismissed the Petitioner’s request for jurisdiction in Bengaluru.
Our Opinion
This decision highlights the strong preference for applying the MSMED Act’s provisions when jurisdiction is in question for disputes involving MSMEs when there is no exclusive jurisdiction clause in the Arbitration Clause. The ruling underscores that, while arbitration clauses specifying a seat and exclusive jurisdiction are important, they do not override the MSMED Act’s jurisdictional mandates. Notably, when there is no exclusive jurisdiction clause in the agreement, the location where the arbitration award is issued typically establishes the court’s jurisdiction. This case serves as a reminder of the importance of carefully wording arbitration clauses in agreements, particularly in contracts involving MSMEs, to avoid jurisdictional conflicts. Parties should ensure that these clauses clearly define both the seat and venue to better control potential litigation venues and reduce ambiguity.
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