Kiran Raj

The Supreme Court Division Bench comprising Justice Pamidighantam Sri Narasimha and Justice Joymalya Bagchi held that arbitration proceedings under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 override prior arbitration agreements between parties. The Court directed the restoration and continuation of arbitral proceedings under the aegis of the Delhi Arbitration Centre, setting aside the Karnataka High Court's earlier decision which had held otherwise. The Court further clarified that all legal and factual issues could be raised before the arbitral tribunal without prejudice.

The respondent, the Indian Space and Research Organisation (ISRO), invited bids for the construction of staff quarters in New Delhi through tender notice dated 16.01.2017. The appellant, M/s Harcharan Dass Gupta, a registered supplier under the MSMED Act, was selected, culminating in the execution of an agreement on 11.09.2017.

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Subsequent disputes arose, leading the appellant to invoke Section 18 of the MSMED Act by approaching the Facilitation Council in Delhi. A notice for conciliation was issued to the respondent on 30.03.2022, but the respondent declined to participate. Consequently, under Section 18(3) of the MSMED Act, the Facilitation Council referred the dispute to arbitration, appointing a sole arbitrator through the Delhi Arbitration Centre on 28.05.2022.

Arbitral proceedings commenced on 08.06.2022. On 26.09.2023, the arbitrator admitted the claim petition and directed the respondent to file its statement of defence within four weeks. Instead of complying, the respondent approached the Karnataka High Court under Article 226/227, challenging the jurisdiction of the Delhi Arbitration Centre. An ex parte stay was granted on 07.12.2023, and by order dated 22.04.2024, the High Court held that the seat of arbitration must be Bengaluru, in accordance with the contractual agreement, and declared the proceedings before the Delhi Arbitration Centre without jurisdiction.

The appellant contended that under the MSMED Act, the statutory provisions prevail over the Arbitration and Conciliation Act, 1996, and any private agreements between the parties. The case heavily relied on the Supreme Court’s earlier judgment in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., (2023) 6 SCC 401.

The Supreme Court observed that the statutory framework under the MSMED Act allows the Facilitation Council to assume jurisdiction irrespective of private agreements on the seat of arbitration. The Court specifically referenced Section 18(4) of the MSMED Act, which provides that "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."

The Court accepted that the appellant was a registered MSME located in Delhi, thereby conferring jurisdiction to the Delhi Facilitation Council and, by extension, the Delhi Arbitration Centre.

The Court extensively quoted its prior decision in Mahakali Foods, observing in italics:

"Thus, the Arbitration Act, 1996 in general governs the law of Arbitration and Conciliation, whereas the MSMED Act, 2006 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."

The Court clarified that even if the Arbitration Act is considered a special law, the MSMED Act, enacted later, would still have overriding effect, particularly due to Section 24 of the MSMED Act.

Further, the Court rejected the argument that the arbitration clause in the contract could oust the jurisdiction of the Facilitation Council. It recorded in italics:

"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 Bench also addressed concerns regarding the neutrality of the Facilitation Council acting as arbitrator, noting in italics:

"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."

Finally, the Court recorded that the Facilitation Council’s decision to appoint the Delhi Arbitration Centre as the arbitral institution was legally valid under the MSMED Act, and the arbitral proceedings must proceed accordingly.

The Court allowed the present appeal and set aside the order dated 22.04.2024 passed by the Karnataka High Court. It directed that the arbitral proceedings under the aegis of the Delhi Arbitration Centre be restored and continued without further hindrance.

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The Court specifically recorded: "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."

It further directed: "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."

The appeal was accordingly disposed of with no order as to costs.

Advocates Representing the Parties:

For the Petitioners: Ms. Priya Kumar, Senior Advocate; Ms. Renuka Arora, Advocate; Mr. Gaurav Prakash Pathak, Advocate; Mr. Ashutosh Anand, Advocate; Mr. Nishant Kumar, Advocate-on-Record

For the Respondents: Mr. Vikramjit Banerjee, Additional Solicitor General; Mr. Abhishek Singh, Advocate; Mr. Raghav Sharma, Advocate; Mr. Ishaan Sharma, Advocate; Mr. C.K. Sharma, Advocate; Ms. Archana Shurve Shinde, Advocate; Dr. N. Visakamurthy, Advocate-on-Record

Case Title: M/s Harcharan Dass Gupta vs. Union of India

Neutral Citation: 2025 INSC 689

Case Number: Civil Appeal No. 6807 of 2025 (Arising out of SLP (C) No. 14159 of 2025)

Bench: Justice Pamidighantam Sri Narasimha, Justice Joymalya Bagchi

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