MSME Council's Order Declaring Jurisdiction To Decide Dispute Between Parties Can Be Challenged Only U/S 34 Of A&C Act: Orissa High Court

Brief Facts:

M/s Odisha Mining Corporation Limited (OMC) filed this Writ Petition seeking to quash the proceedings in IFC Case No. 1 of 2006 initiated by the Industries Facilitation Council, Thane, and the related letters dated 30.01.2014 and 23.07.2014 issued by the MSME Facilitation Council, Konkan Region, Thane, regarding termination of conciliation and initiation of arbitration under Section 18(3) of the MSME Act. By amendment, OMC also challenged the ex parte award dated 15.11.2014 passed by the said Council.

OMC invited bids for setting up a 75 TPH crushing and screening plant at Jajanga, Odisha. M/s Indiana Engineering Works (Opposite Party No.3) emerged as the successful bidder and was issued a LoI on 22.12.1992 and a work order on 29.09.1993. A contract was executed on 13.05.1994. However, Opposite Party No.3 failed to meet the performance standards and left the work incomplete. Despite repeated notices, they did not fulfill the contract terms.

On 27.03.2006, Opposite Party No.3 filed a claim before IFC, Thane under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (IDP Act) alleging non-payment of bills from 1998–1999, even though the plant was handed over and provisionally accepted on 11.04.1999. OMC contended that all events occurred in Odisha and the contract gave exclusive jurisdiction to Bhubaneswar courts. Therefore, IFC Thane lacked territorial jurisdiction.

After the MSMED Act came into force on 02.10.2006, IFC Thane proceeded under Section 18. OMC argued that the Act could not retrospectively validate proceedings initiated under the IDP Act without jurisdiction. In its letter dated 23.07.2014, the Council cited Section 32 and Opposite Party No.3's SSI registration to claim jurisdiction but did not clarify if the issue was argued or decided. OMC filed a Writ Petition challenging the letter and later amended it to also contest the ex parte award dated 23.02.2015.

The Petitioner submitted that when the Council took up arbitration, it was incumbent on its part to allow the Petitioner to file its written statement of defence under Section 23 of the Arbitration Act. No notice whatsoever was issued to the Petitioner intimating either initiation of the proceeding under the Arbitration Act, 1996 or providing opportunity to file statement of defence.

It was further submitted that Alternate remedy though available to the Petitioner is not a bar to entertain the Writ Petition as the ex-parte award passed by the Council was ex facie illegal and without jurisdiction is settled in Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and others.

In reply, the Opposite Party submitted that the Petitioner was given ample opportunity to participate in conciliation but chose not to. Hence, the Council committed no irregularity in terminating conciliation and initiating arbitration. Even afterward, the Council encouraged amicable settlement, as reflected in the minutes dated 01.02.2014.

It was further submitted that since the award has already been passed in the IFC case, the present Writ Petition is not maintainable. The legality of the jurisdictional decision and the merits of the award can only be challenged under Section 34 of the Arbitration Act, read with Section 19 of the MSMED Act.

It was further submitted that the Council at Thane had jurisdiction to entertain the claim of the Opposite Party No.3, as the Opposite Party No.3 was registered with the Directorate of Industries, Maharashtra, which come under the jurisdiction of the Council at Thane. the Council under the IDP Act initially and Facilitation Council under the MSMED Act after its enactment had the jurisdiction to entertain the claim/dispute of the Opposite party No.3.

Observations:

The court noted that the minutes dated 18th January, 2014 indicate that due to the Petitioner's non-cooperation, the Council terminated conciliation and decided to initiate arbitration under Section 18(3) of the MSMED Act. The Petitioner did not challenge this order. Although, the Petitioner argued that the Council's order dated 1st February, 2014 showed conciliation was still ongoing, this contention is untenable, as the Council merely encouraged an amicable resolution without reviving conciliation. It is clear that conciliation concluded on 18th January, 2014.

It further observed that the Council at Thane had territorial jurisdiction as Opposite Party No.3, the Supplier, is located within its area. This aligns with the MSMED Act's objective of promoting and supporting SMEs. Section 32(2) of the MSMED Act provides that proceedings initiated under the repealed IDP Act are deemed to have been taken under the corresponding provisions of the MSMED Act, thereby validating the continuation of the dispute before the Council.

While referring to various judgments, the court held that in Kanwar Singh Saini, it was held that when a statute creates a right and prescribes a specific forum for its enforcement, the remedy must be sought only under that statute. Similarly, in M/s Silpi Industries, the Supreme Court clarified that the MSMED Act, being a special legislation, overrides the Arbitration Act.

It further added that if the claim falls under the MSMED Act, the supplier may approach the designated authority, and any agreement to the contrary is void. The same view was echoed by the Allahabad High Court in Marsons Electrical Industries, stating that MSMED registration applies prospectively and cannot be given retrospective effect. Accordingly, Clause 9.20 of the contract, providing for jurisdiction, stands overridden by the MSMED Act.

The court further said that neither the IDP Act nor the MSMED Act mandates the IFC or Council to decide jurisdictional issues at the threshold unless raised by the opposing party. Once the Petitioner raised the issue, the Council rightly held it had territorial jurisdiction under Section 18(4) of the MSMED Act. Any challenge to this finding lies only under Section 34 of the Arbitration Act read with Section 19 of the MSMED Act. Hence, the objection raised by the petitioner is untenable.

It concluded that the Council lawfully terminated conciliation on 18.01.2014 and initiated arbitration, with no revival of conciliation thereafter. Hence, Jharkhand Urja Vikas Nigam Ltd. is inapplicable. The claim that arbitration violated procedure under the Arbitration Act is not maintainable in a writ petition. Such issues must be challenged under Section 34 of the Arbitration Act read with Section 19 of the MSMED Act.

Accordingly, the present petition was dismissed.

Case Title: M/s Odisha Mining Corporation Limited Versus Union of India, Ministry of Micro, Small and Medium Enterprises and Ors.

Case Number:W.P.(C) No.22236 OF 2014

Judgment Date: 18/06/2025

For Petitioner : Ms. Pami Rath, Senior Advocate being assisted by Ipsit Acharya, Advocate

For Opp. Parties : Mr. Durga Prasad Nanda, Senior Advocate being assisted by Suvalaxmi Devi, Advocate (For Opposite Party No.3

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