Sanchayita Lahkar

The High Court of Gauhati,  Single Bench of Justice Manish Choudhury has held that when a supplier invokes the dispute-resolution process under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006, that statutory mechanism prevails over the arbitration clause in a Government e-Marketplace contract, including any contractually agreed seat of arbitration. In a writ petition by a central government mental health institute challenging proceedings before the Micro and Small Enterprises Facilitation Council, Delhi, and the Delhi International Arbitration Centre, the Court concluded that the Delhi-based supplier could pursue its claim arising from alleged delayed payments and termination-related disputes under the MSMED Act, and declined to interfere with the ongoing arbitration, leaving all permissible objections to be considered by the arbitral tribunal.

The petitioner Institute, an autonomous mental health institution under the Ministry of Health and Family Welfare, entered into a GeM Contract with the respondent service provider for outsourcing manpower services effective from 08.11.2021 to 07.11.2022.

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The respondent was required to comply with statutory labour obligations and contractual terms relating to timely wage disbursement and EPF/ESI payments. The petitioner recorded delayed wage payments between November 2021 and August 2022, delayed EPF/ESI deposits for July and August 2022, and unauthorized collection of funds from workers, issuing notices regarding these violations. Payments were withheld until corrected invoices and statutory compliance records were produced and penalties were imposed.

Due to recurring breaches, the petitioner terminated the contract with effect from 31.08.2022, forfeited the performance bank guarantee and imposed cancellation charges. The respondent sought release of withheld amounts and invoked the contractually prescribed amicable settlement process, after which a Dispute Resolution Committee meeting was convened but failed. The petitioner thereafter appointed an arbitrator as per Clause 16.2, but the respondent approached the Facilitation Council under the MSMED Act, which registered the application and issued an intimation alleging delayed payment of dues.

The petitioner raised jurisdictional objections, but the Council referred the matter to DIAC for arbitration, where proceedings commenced. The petitioner filed objections before the arbitrator challenging applicability of the MSMED Act and ultimately filed the present writ seeking quashing of the DIAC proceedings, asserting primacy of the contractual arbitration mechanism.

The Court recorded that the petitioner’s objections centred on the claim that the dispute concerned contractual breaches and not delayed payments, and that “the provisions of the MSMED Act would not be applicable in the case in hand.” The petitioner further stated that “the Facilitation Council’s reference was in complete ignorance of the Arbitration clause contained in Clause 16.2 of the GeM Contract.” It was argued that the contractual seat of arbitration must prevail.

The Court examined Clause 16 of the GeM Contract and noted that arbitration thereunder satisfied the requirements of Section 7 of the Arbitration and Conciliation Act. It then analysed Sections 15–18 of the MSMED Act, noting that Section 18(1) begins with a non obstante clause, permitting “any party to a dispute, with regard to any amount due under Section 17, to make a reference to the Facilitation Council.” It further recorded that under Section 18(3) “the Council shall either itself take up the dispute for arbitration or refer it to any institution… and the provisions of the Arbitration and Conciliation Act… shall then apply… as if the arbitration was in pursuance of an arbitration agreement.”

Relying on Mahakali Foods, the Court quoted that the MSMED Act “being a special law… would have precedence over or prevail over the Arbitration Act” and that “a private agreement between the parties cannot obliterate the statutory provisions.” It extracted the finding that once Section 18(1) is invoked, “it would override any other agreement independently entered into between the parties.” The Court also referred to Harcharan Dass Gupta, noting the Supreme Court’s view that Section 18(4) determines jurisdiction based on where the supplier is located.

The Court recorded that “once the respondent no.1… has invoked the jurisdiction of the Facilitation Council, the statutory provisions contained in Section 18 of the MSMED Act would override the Arbitration Clause contained in 16.2 of the GeM Contract.” It held that the contractual seat clause “would no longer held sway in view of the overriding provisions contained in Section 18(4).”

The Court further observed that the GeM Contract “is not a statutory contract” and that disputes arising out of such private law contracts are ordinarily not adjudicated under Article 226. It stated that “a writ in the nature of mandamus would not ordinarily be issued for enforcing terms and conditions of a Contract.”

The Court finally recorded that non-entertainment of the writ “does not mean that the petitioner is to be left without remedy” and that rejection of the petitioner’s objection by the arbitrator “would not preclude the petitioner Institute to question the competence of Arbitral Tribunal as per Section 16 read with Section 34.”

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The Court directed that the writ petition “is not to be entertained in the facts and circumstances of the case, as narrated above.” It clarified that this determination “should not in any way prejudice any rights, claims and contentions that the petitioner Institute can raise and contest before the Arbitral Tribunal.”

The rejection of his objection as regards lack of jurisdiction by the Arbitral Tribunal would not preclude the petitioner Institute to question the competence of Arbitral Tribunal as per Section 16 read with Section 34 of the Arbitration and Conciliation Act.”

It also clarified that it “has not touched upon the merits of the claims of any of the two parties in Case no. DIAC/9258/09-24,” and expressed that the arbitral tribunal “would permit the petitioner Institute to urge all questions of law and facts… and adjudicate… as per its own merits and in accordance with law.”

Advocates Representing the Parties

For the Petitioner: Mr. A.K. Dutta, Advocate.

Case Title: Lokopriya Gopinath Bordoloi Regional Institute of Mental Health v. M/s Green Alliance Engineering Services Pvt. Ltd. & Ors.
Neutral Citation: 2025: GAU-AS:15803
Case Number: Writ Petition (Civil) No. 5962/2025
Bench: Justice Manish Choudhury