Kiran Raj

On December 24, 2024, the Gujarat High Court held that the jurisdiction to hear an application under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an award passed under Section 18(4) of the MSMED Act, 2006, would be determined by the agreement between the parties if it confers exclusive jurisdiction on a specific court. This ruling was delivered in an appeal filed by Uttar Gujarat Vij Company Limited (UGVCL) against Gupta Power Infrastructure Limited.

 The Division Bench, consisting of Chief Justice Sunita Agarwal and Justice Pranav Trivedi, overturned the decision of the Commercial Court at Mehsana, which had dismissed UGVCL’s application under Section 34 of the Arbitration Act on the ground of lack of jurisdiction. The High Court held that the contractual clause conferring exclusive jurisdiction to Mehsana courts retained its binding effect for post-award proceedings, notwithstanding the statutory provisions of the MSMED Act.

The dispute arose from a contract executed between UGVCL and Gupta Power Infrastructure Limited for the supply of materials. Following a disagreement regarding the payment obligations under the contract, the matter was referred to the MSME Facilitation Council in Cuttack, Odisha, under Section 18 of the MSMED Act. The Facilitation Council, acting as an arbitral tribunal, issued an award in favor of Gupta Power on July 30, 2016. UGVCL sought to challenge the award by filing an application under Section 34 of the Arbitration Act before the Commercial Court in Mehsana, citing a jurisdictional clause in the agreement that conferred exclusive jurisdiction to the courts in Mehsana.

Clause 44 of the agreement stipulated: “All questions, disputes or differences arising under or out of or in connection with the tender/contract 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.” However, the Commercial Court dismissed UGVCL’s application on April 5, 2022, holding that Section 18(4) of the MSMED Act fixed the arbitral seat at Cuttack, the location of the supplier, thereby conferring jurisdiction solely on the courts in Odisha.

UGVCL, in its appeal before the Gujarat High Court, contended that the jurisdictional clause in the agreement retained its enforceability and was determinative of jurisdiction for post-award challenges. It argued that the MSMED Act governs the conduct of arbitration proceedings but does not displace the parties’ agreement on jurisdiction for judicial proceedings under the Arbitration Act. UGVCL also placed reliance on the Supreme Court’s judgment in BGS SGS Soma JV v. NHPC Limited [(2020) 4 SCC 234], which defined the distinction between the “seat” and “venue” of arbitration, asserting that the contractual seat, as agreed upon by the parties, must prevail.

In support of its position, UGVCL cited the ruling in Ravi Ranjan Developers Pvt. Ltd. v. Aditya Kumar Chatterjee (2022), which reiterated that the seat of arbitration confers exclusive jurisdiction for proceedings related to arbitration, barring any contrary intent in the agreement. UGVCL further argued that the MSMED Act’s statutory provisions regarding the arbitral seat apply only to the arbitration process and not to post-award proceedings, which fall squarely within the jurisdictional framework of the Arbitration Act.

Conversely, Gupta Power maintained that the MSMED Act, being a special enactment, overrides the general principles of the Arbitration Act, including party autonomy in determining jurisdiction. It asserted that Section 18(4) of the MSMED Act, which fixes the arbitral seat at the supplier’s location, has an overriding effect on any contractual stipulation to the contrary. Gupta Power also challenged the maintainability of UGVCL’s appeal under Section 37 of the Arbitration Act, contending that the Commercial Court’s dismissal of the Section 34 application did not amount to a substantive refusal to set aside the award.

The Gujarat High Court examined the interplay between the MSMED Act and the Arbitration Act. It observed that Section 18(4) of the MSMED Act governs the arbitration process and confers jurisdiction on the MSME Facilitation Council to act as an arbitral tribunal. However, the Court held that this statutory provision does not extend to post-award challenges under the Arbitration Act. It noted: “The overriding effect of Section 18(4) of the MSMED Act is limited to the conduct of arbitration proceedings and does not displace the jurisdiction conferred by agreement for judicial proceedings under Section 34 of the Arbitration Act.”

The High Court further examined Clause 44 of the agreement, asserting its binding nature. It stated: “The intention of the parties, as explicitly reflected in Clause 44, must be given effect to. The jurisdictional clause conferring exclusive jurisdiction to the courts at Mehsana is determinative for post-award proceedings and cannot be supplanted by the statutory seat fixed for arbitration under Section 18(4) of the MSMED Act.”

The Court referred to the decision in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited (Unit 2) (2023), which held that the jurisdiction of courts for post-award proceedings under the Arbitration Act is not affected by the statutory seat of arbitration under the MSMED Act. It also cited the Delhi High Court’s ruling in Indian Oil Corporation Limited v. Fepl Engineering (P) Limited & Anr. (2019), which reaffirmed that jurisdictional clauses in agreements continue to govern post-award challenges, irrespective of the arbitration venue.

Addressing the maintainability of UGVCL’s appeal under Section 37, the High Court rejected Gupta Power’s contention that the dismissal of the Section 34 application on jurisdictional grounds did not constitute a refusal to set aside the award. The Court held that such a dismissal is effectively a denial of relief under Section 34, making the appeal maintainable under Section 37(1)(c) of the Arbitration Act.

The High Court concluded that the Commercial Court erred in dismissing UGVCL’s application for lack of jurisdiction. It ruled that the courts at Mehsana retained jurisdiction in view of the parties’ explicit agreement and directed the Commercial Court to adjudicate the matter on merits. The judgment stated: “The Commercial Court’s decision to dismiss the application on jurisdictional grounds is contrary to the express terms of the agreement, which confer exclusive jurisdiction to the courts at Mehsana for all disputes arising under the contract.”

The appeal was allowed, and the matter was remanded to the Commercial Court at Mehsana for expeditious adjudication. Gupta Power’s request for a stay on the judgment was denied.

Case Title: Uttar Gujarat Vij Company Limited Vs Gupta Power Infrastructure Limited
Case Number: R/First Appeal No.1728/2022
Bench: Chief Justice Sunita Agarwal and Justice Pranav Trivedi

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