Whether A Particular Contract Is A Works Contract Under MSME Can't Be Decided Under Writ Jurisdiction: Telangana High Court

Brief Facts:

This writ petition challenges the order dated 21.12.2024 in Case No. 1292/MSEFC/2021 passed by Respondent No. 2, seeking a declaration that the order is non-arbitrable and illegal. The petitioner prays for a direction to Respondent No. 2 to decide the case in accordance with the Micro, Small and Medium Enterprises Development Act, 2006.

The core issue is whether a writ petition is maintainable against an MSME Facilitation Council's order under Section 16 of the Arbitration and Conciliation Act, 1996, declining jurisdiction to arbitrate.

The Petitioner, a partnership firm registered under the MSME Act, was awarded a contract by Respondent No. 3, Greater Hyderabad Municipal Corporation, for road improvement work, with an agreement and work order dated 25.06.2013. After completing the work, the Petitioner raised an invoice for ₹25,11,618/- on 10.05.2016. Due to non-payment, an application was filed before the MSME Facilitation Council on 14.04.2020 via the Samadhan Portal.

Despite repeated notices, Respondent No. 3 did not attend conciliation, prompting the Council to refer the matter to arbitration under Section 18 of the MSME Act. In the arbitration, Respondent No. 3 challenged the Council's jurisdiction, claiming the dispute related to a works contract. On 21.12.2024, the Council upheld this objection and, under Section 16 of the Arbitration Act, held it lacked jurisdiction, stating the MSME Act does not apply to works contracts.

Contentions:

The petitioner submitted that it indulges in the activity of 'quarrying of stone and construction of roads.' The said activity, according to the Petitioner, is classified as a manufacturing activity as per the National Classification Code. Therefore, the Petitioner contended that the work order dated 25.06.2013 is not a works contract.

Further, it was contended that by virtue of registration under Micro, Small and Medium Enterprises (MSME) Act, the Petitioner is entitled for dispute resolution under Section 18.

Observations:

The court noted that in National Thermal Power Corpn. Ltd. v. Siemens Atkeingesellschaft (2007) the Supreme Court held that if the arbitral tribunal decides its jurisdiction under Section 16 and holds that it has no jurisdiction, then such order is appealable.

The Supreme Court further in Assistant Commissioner of State Tax v. Commercial Steel Limited, held that the existence of an alternate remedy does not bar a writ under Article 226 of the Constitution. However, it may be entertained in exceptional cases involving: (i) breach of fundamental rights; (ii) violation of natural justice; (iii) excess of jurisdiction; or (iv) challenge to the vires of a statute or delegated legislation.

Based on the above, the court held that in the present case, the Petitioner failed to show any infraction of his fundamental rights or violation of principles of natural justice or excessive exercise of jurisdiction. Moreover, the dispute between the Petitioner and Respondent No. 3 is in the realm of contracts. On numerous occasions, the Supreme Court has reiterated that contractual disputes involving interpretation of contracts cannot be entertained under Article 226.

The Supreme Court in Kerala SEB v. Kurien E. Kalathil held that “the contract between the parties is in the realm of private law. It is not a statutory contract. The disputes relating to interpretation of the terms and conditions of such a contract could not have been agitated in a petition under Article 226 of the Constitution of India. That is a matter for adjudication by a civil court or in arbitration if provided for in the contract.”

The court further noted that the Supreme Court in Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd held that the question whether a particular contract is a works contract or not cannot be decided under writ jurisdiction.

Accordingly, the present petition was dismissed.

Case Title: M/S V.K.A. Constructions vs The State of Telangana

Case Number: WRIT PETITION No.956 OF 2025

Judgment Date: 09/06/2025

For Petitioner : Mr. K.R.Kaushal Karan, Party in person

For Respondents : Mr. G.Madhusudhan Rao, Ld.St.Counsel for R.3 Ld. Asst.Govt.Pleader for Industries and Commerce

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