Delhi HC Upholds Tribunal's Jurisdiction To Decide MSME Status Under Arbitration Act

(MENAFN- KNN India) New Delhi, Oct 15 (KNN) The division bench of the Delhi High Court, comprising Chief Justice Manmohan and Justice Tushar Rao Gadela, has upheld a single-judge bench's ruling that the tribunal, not the writ court, must determine whether an entity was an MSME at the relevant time under Section 16 of the Arbitration and Conciliation (A&C) Act, 1996.

The bench ruled that issues relating to the tribunal's jurisdiction, MSME registration timelines, and direct payment agreements are factual matters and must be assessed by the arbitral tribunal.

The court reiterated that interference under Articles 226/227 of the Constitution is limited to exceptional circumstances, which were not present in this case.

The court further noted that the tribunal, under Section 16, has the authority to rule on its jurisdiction before any challenge to its findings can be made under Section 34 of the A&C Act.

The bench clarified that MSME status can only apply prospectively from the date of registration, following the precedent set by the Supreme Court in Gujarat State Civil Supplies Corporation v. Mahakali Foods Pvt. Ltd..

It also emphasised that the appellant still had remedies available under the A&C Act, as objections to jurisdiction and other issues could be raised before the arbitral tribunal. The court dismissed the appeal but granted liberty to the parties to present their claims and defenses in the arbitration proceedings.

The dispute arose when Corrtech International Pvt. Ltd. (CIPL) subcontracted part of its contract with GAIL for a gas pipeline project to Harji Engineering Pvt. Ltd. (HEWPL). HEWPL, in turn, engaged Knock Pro Infra Pvt. Ltd. (Respondent No. 3) through a“Direct Payment Agreement” to perform Horizontal Directional Drilling (HDD) services.

Respondent No. 3 approached the Micro and Small Enterprise Facilitation Council (MSEFC), alleging non-payment of dues. After conciliation efforts failed, the matter was referred to the Delhi International Arbitration Centre (DIAC) under Section 18(3) of the MSMED Act.

However, CIPL challenged the arbitration proceedings, arguing that Knock Pro Infra was not an MSME when the contract was awarded, thus disqualifying it from invoking the MSMED Act.

CIPL further contended that Respondent No. 3 had failed to file the Statement of Claim (SoC) within the stipulated six-month period, as required under Section 23(4) of the A&C Act.

The appellant argued that the proceedings should have been terminated under Section 25(a) due to this delay. Additionally, CIPL challenged the DIAC's authority to extend timelines without statutory backing.

Respondent No. 3 countered that the registration under the MSMED Act was valid for services provided post-registration and that the disputes regarding payment could be resolved during arbitration.

The respondent also argued that CIPL's objections concerning jurisdiction should be addressed through the tribunal under Section 16, not via a writ petition.

The High Court upheld the single judge's dismissal of the writ petition, affirming that such objections must be raised before the arbitral tribunal.

It concluded that the appellant's grievances could be addressed through statutory remedies, including an appeal under Section 34 of the A&C Act.

(KNN Bureau)

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