Whether A Particular Contract Is A Works Contract Under MSME Can't Be Decided Under Writ Jurisdiction: Telangana High Court
Safiya Malik
The High Court of Telangana Single Bench of Justice K. Lakshman held that a writ petition challenging the jurisdictional decision of a Micro and Small Enterprises Facilitation Council (MSEFC) under Section 16 of the Arbitration and Conciliation Act, 1996, is not maintainable in light of the statutory appellate remedy provided under Section 37(2) of the same Act. The Court declined to entertain the writ petition and dismissed it as not maintainable, while preserving the petitioner’s right to avail alternative remedies, including appeal or civil recovery proceedings, as appropriate under law.
The matter pertains to a dispute involving a registered Micro, Small and Medium Enterprises (MSME) firm and a public municipal corporation arising out of a public works contract. The petitioner, a partnership firm operating under the name M/s. V.K.S. Constructions, was registered under the MSME Development Act, 2006. The petitioner participated in a public tender floated by the Greater Hyderabad Municipal Corporation (GHMC) for the execution of works related to the improvement of the Nanakramguda Expressway Junction to Phoenix Info City via Nanakramguda village, Hyderabad.
Also Read: Right To Do Business Includes Right To Shut Down | Supreme Court Upholds Article 19(1)(g) Protection
The petitioner was selected based on having submitted the lowest bid and was awarded the contract on 25.06.2013. An agreement and a work order were executed on the same date. Following execution of the project, the petitioner raised an invoice dated 10.05.2016 seeking payment of ₹25,11,618 for the work completed under the contract.
As payment remained outstanding, the petitioner filed an online application on 14.04.2020 through the MSME Samadhan Portal under the provisions of the MSME Development Act. The matter was referred to the MSEFC of Ranga Reddy Region. The Council issued three notices for conciliation on 05.11.2021, 22.03.2022, and 31.03.2023, but the respondent (GHMC) did not appear for the conciliation proceedings.
Consequently, invoking Section 18 of the MSME Act, the Council referred the matter to arbitration and issued an arbitration notice on 05.05.2023. During the arbitral proceedings, the respondent contested the Council’s jurisdiction on the ground that the underlying dispute arose out of a “works contract,” which was not arbitrable under the MSME framework. It was asserted that the nature of the contract excluded it from the scope of arbitration under the MSME Act.
After hearing both parties, the Council issued an order on 21.12.2024 under Section 16 of the Arbitration and Conciliation Act, 1996, holding that it lacked jurisdiction on the basis that the dispute arose from a works contract. The Council declared the claim as “non-arbitrable” and dismissed it.
The petitioner approached the High Court by way of a writ petition under Article 226 of the Constitution of India, seeking to declare the said order illegal and non-arbitrable and to direct the Council to adjudicate the dispute under the MSME Act.
The petitioner contended that the activities undertaken under the contract involved quarrying of stone and road construction, and thus amounted to a manufacturing activity termed under the National Classification Code.
On this basis, it was argued that the contract could not be deemed a works contract. The petitioner relied on its registration under the MSME Act and sought relief under Section 18.
In opposition, Respondents No. 2 and 3 submitted counter affidavits supporting the Council’s decision. Respondent No. 3, GHMC, cited judgments from the Bombay and Delhi High Courts including P.L. Adke v. Wardha Municipal Corporation and Shree Gee Enterprises v. Union of India, asserting that the MSEFC cannot entertain disputes arising from works contracts.
The Court considered the procedural history and noted the specific statutory remedy available under Section 37(2)(a) of the Arbitration and Conciliation Act, 1996, against an arbitral tribunal’s order accepting a plea of lack of jurisdiction under Section 16. Justice K. Lakshman stated:
“It is pertinent to note that the impugned order was passed under Section 16 of the Act, 1996. Against an order passed under Section 16 of the Act, 1996, a direct appeal is provided for under Section 37 of the Act, 1996.”
The Court elaborated on the statutory architecture of Section 16, which permits an arbitral tribunal to determine its own jurisdiction, and Section 37(2), which allows appeals against an arbitral tribunal’s decision accepting a jurisdictional objection.
The judgment quoted extensively from the Supreme Court’s decision in National Thermal Power Corporation Ltd. v. Siemens Atkeingesellschaft, where it was held:
“Where the plea of absence of jurisdiction or a claim being in excess of jurisdiction is accepted by the Arbitral Tribunal and it refuses to go into the merits of the claim by declining jurisdiction, a direct appeal is provided. In the context of Section 16 and the specific wording of Section 37(2)(a) of the Act, it would be appropriate to hold that what is made directly appealable...is only an acceptance of a plea of absence of jurisdiction.”
The Court also cited Assistant Commissioner of State Tax v. Commercial Steel Limited, reiterating that the existence of an alternative statutory remedy limits the maintainability of writ petitions under Article 226. The relevant passage reads:
“The existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226...but a writ petition can be entertained in exceptional circumstances where there is: (i) a breach of fundamental rights; (ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or (iv) a challenge to the vires of the statute or delegated legislation.”
The Court held that none of these conditions were met in the present case. There was no breach of fundamental rights or violation of natural justice, and the issue in question pertained purely to the contractual interpretation of whether the agreement constituted a works contract.
Referring to Kerala SEB v. Kurien E. Kalathil, the Court observed:“The disputes about the meaning of a covenant in a contract or its enforceability have to be determined according to the usual principles of the Contract Act...The contract between the parties is in the realm of private law. It is not a statutory contract...The disputes relating to interpretation...could not have been agitated in a petition under Article 226.”
Finally, the Court referred to Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., in which the Supreme Court held that: “It is a settled law that the interpretation of contracts in such cases shall generally not be done in the writ jurisdiction...The pertinent question...is whether the present contract, which is composite in nature, falls within the ambit of a works contract...This is a question that requires contractual interpretation, and is a matter of evidence.”
In conclusion, the High Court recorded its decision in the following terms:
“i. The writ petition is dismissed as not maintainable;”
“ii. The Petitioner is at liberty to avail the alternative remedy of appeal under Section 37(2) of the Arbitration & Conciliation Act, 1996;”
“iii. In the event, the Petitioner opts to not challenge the impugned order dated 21.12.2024, the remedy of filing a recovery suit or any such other remedy will remain open.”
The Court further directed that all pending miscellaneous applications in the Arbitration Application shall stand closed.
Advocates Representing the Parties
For the Petitioners: Mr. K.R. Kaushal Karan, Party in person
For the Respondents: Mr. G. Madhusudhan Rao, Learned Standing Counsel for Respondent No. 3; Learned Assistant Government Pleader for Industries and Commerce for Respondents No. 1 and 2
Case Title: M/s. V.K.S. Constructions v. The State of Telangana and Others
Case Number: Writ Petition No. 956 of 2025
Coram: Justice K. Lakshman
[Read/Download order]
