The High Court · 2025

Heard Mr Rajeev Rambhatla' learned counsel representlng Ms. Sirnapelll' Pooja' learned counsel for the applicant and K.Keertivardhan Reddy' learned counsel for the respondent' Mr

2. The mai.n tssue in the present application is not on the existence of the agreement between thc parties or the existence of the dispute between the parties' but the forunr before '"vhich the dispute can be adjudicated' Applicant is the first party under a Sub-Contractor Agreement dated 04'06'2022' which contains an arbitration clause 49, which is also r-rot disputed by thc respondent. The issue, as observed hereinabove, is u'hether the Micro & Small Bnterprises Facilitation Council, Jammu (hereinafter referred to as 'MSEFC') would be the proper forum or an independent arbitrator appointed by this Court rt'ould be the forum where the dispute between the parties is to be adjudicated. Respondent admittedly is a Micro, Small ancl (hereinafter referred to as -MsMEl :;::"; *"::" ;:':ff;:*:TiJ# J" ith effect ftom rs.oz.2, 27 r04 2020 under rhe *'no"" registration )22 under the nsr^, l "MSME UDYAM" process. The Sub-Contractor Agreement was entered between the parties on 04.06.2022. In respect of the disputes between the parties, the respondent approached the learned Court of Munsiff, Samba, for perpetual injunction in which the applicant appeared and filed an apptication under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act of 1996"\. By order dated

18.09.2024, the learned Court of Munsiff, Samba, accepted the objection of the applicant and disposed of the matter, as the agreement between the parties provided for arbitration clause. Thereafter, the respondent initiated proceeclings under the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as 'the MSMED Act') before the MSEFC on01.O2.2025. On 15.02.2025, the respondent submitted hard copies of documents relating to the claims in response to the MSEFC's requisition. The present applicant issued notice invoking arbitration clause through Registered Post on

17.02.2025, which returned due to "insufficient address". Thereafter, on 25.02.2025, the applicant sent an e-mail notice to the respondent invoking arbitration clause. On 04.03.2O25, the MSEFC issued notice to the applicant. The present arbitration application was filed on 13.O3.2025 by the applicant wherein there was nc mention of the proceedings belore the MSEFC. Applicant also replied to the notice dated 04.03 2025 from the MSEFC on 7'/ .O3.2025 after filing of the arbitration application.

3. In the present arbitration application, counti]r aflidavit rvas filcd b,v the respondent on 12.06.2025. Rejoinder thereto has beerr filed on 20.06.2025.

4. On the part of the applicant, the follou,ing plea has been taken. That p:rrtles entered into a Sub-Contractor .{greement on

04.06 .2022 for shilting of electrical utilities (including distribution ancl transmission) and water pipeiine utilities in relation to the project titled "Construction of four/ six lane access controlle<l cxpressway from Gurha Baildaran to Junction u,ith .Jammu l?ing Road (NH 244A) near Jakh village (468r'100 km to 503+2li0) of Delhi Amritsar Katra Expressway". The agroement wasi executed on an item rate contract b:Lsis, with the rates being based on the cost data of the lJtility-owning department pri:\/ailing at the time of the agreemen,'s executlon. Despite multiple extensions by the applicant 1n good faith, respondent failed to complete the work withiil stipulated timeframe of six months from the date of agreernent i.e., by

04.12.2022. The respondent continued to raise run:ring account .+ bills from February, 2023 onwards, which were containing discreparcies. Therefore, applicant u'as compelled to terminate the Sub-Contractor Agreement uide notice daLed 07 .05.2024 . Applicant has averred that notice invoking arbitration clause was issued on 07.02.2025 and 19.02.2025. Thereafter. the applicant filed application under Section I 1(5) and (6) of the Act of 1996 on 13.03.2025 before this Court.

5. Learned counsel for the applicant also avers that on O1.O2.2025, the respondent had approached the MSEFC under the MSMED Act as an afterthought dclav the arbitration proceedings despite knowing fully r,r,ell that this is a r.vorks contract. Though a plea was taken that the respondent \^,as not registered MSME at the time of entering into the Sub-Contractor Agreement but that plea has r-Iot been pressed since the respondent had registered with the MSEFC on

27.O4.2020.

6. The following grounds have been taken by the appiicant to assert that the arbitrator appointed by this Court under the arbitration clause between the parties is the right forum for adjudication of the dispute between thc parties. It is contended that the nature of the Sub-Contractor Agreement is a u,orks ) contract whic:h involves not merely supply of goods or services but execution of r,r'orks including insta,llation, maintenance and handing over to Utility owning agencies. In this regard, he has relied upor.r tlre decisions of the Hon'ble Supreme Court in CCE Customs v. Larsen & Toubro Limitedl ar-rd M/s. Kone Elevators Inclia Private Limited v. State of Tamil Naduz to submit that (i) the performance under such a works contract is not divisible into an exclusive contract for supplv ol goods or sen,ices, but b1'a legal fiction, it is divided into parts lor sale of goods and lor suppiv of iabour and services; (ii) thc concept of a dominalt natlrre test does not apply to works contract; (iii) as per Clause 29A of Article 336 of the Constitution of India, u,orks contracl covers all genres of w,orks contracts and (iv) the "overr.r'helming component test" would not appl1, to u,orks of composite natlrre. It is submitted that the Hon'ble Supreme Court concluded that the nature ol a works contra(tt is distinct, indivisible and composite. Hence, a works contract is not ./ amenable to the MSMED Act. He has also relied on the decision of the Bombal' High Court in Sterling Wilson Rrt Limited v. / Union of India:]. r (2016) 1 SCC l7t) 2 \20t4) 7 SCC 1 3 2017 SCC Onlinr: Bom 6829 6

7. According to the applicant, the respondent's approach to the MSEFC is abuse of process by forum shopping and an afterthought. lt is further submitted that existence of arbitration clause 49 under the Sub-Contractor Agreement dated

04.06.2022 bars MSEFC proceedings. He has referred to the decision of the Honble Supreme Court in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods {Privatef Limiteda on the proposition that in order to make an application in the presence of arbitration agreement, proper registration and compliance with the acts and requirements are essential Further submissions have been made on the merits of the dispute, which this Court is not required to enter into in the present proceedings. B. On the part of the respondent, the following submissions have been made: B. 1. Lack of maintainability: Precedence of MSMED Act: \ a) It is submitted that the existence of pre-existing proceedings before the MSEFC, Jammu, concerning the sarne Sub-Contractor Agreement dated 04.06.2022, renders the present application under the Arbitration Act not maintainable. t (2023) 6 SCC 401 I ? 7 b) It is su bmitted that the respondent filed its applicatior-r for dispute resolution belore the MSEFC on 01.O2.2025, even bcfore thc applicant l-rad issuecl its purported notice under Sectiorr 2l of thc Act ol i996 or-t 07.O2.2025 c) It is submitted that MSMED Act is a sper:ial legislation inter-rded to provide a speedy and specific resolution mechanism for MSMtrs. The non obstante clause in Section 24 of the MSMtrD Act rnandates that its pror.isions prevail :r,er any other Act, including the €lenerai provisions of the Act of 1996. d) The proposition of lau, stated above has been spelt out by thc Ilon'blt: Sr rprcrne Court in Silpi Industries v, Kerala State Road Transpo,rt Corporations.

8.2. Refutatior-' of u'orks contract exclusion: a) It is sutrmitted that the applicant's argument that the MSMtrD Act i:; ir-rapplicable because the contract is a \x,orks contract' is lega1l.1, unsound and based on an incorrect premise, as clarified b1, the Calcutta High Court in Hindustan Petroleum 5 (2o2ll IB SCC 790 : 2O21 SCC OnLine SC 439 s Corporation Limited v. West Bengal State Micro, Small Enterprises Facilitation Council6. b) [t is submitted that the applicant's relialce on the decisions of the Hon'ble Supreme Court in CCE Customs (supra) and M/s. Kone Elevators India Private Limited (supra) IS misplaced. The Calcutta High Court observed tirat the propositior-i laid doq,n in M/s. Kone Elevators India Private Limited (supra) was entirely in the context of the in terpre tatior-r of Article 366 (29-Al of the Constitution of India and ta-xing statutes. The High Court found that applying this revenue jurisprudence concept to the beneficial MSMED Act is ar-r errorleous misinterpretation. c) It is submitted that unlike taxing statutes u,h ich are intcrpreted strictly, beneficial iegislations are to be interpreted liberally. The "pivot of adjudication" in the MSMtrD Act is 'the nature of the enterprise which seeks the benefit ol the statute" and not the nature ofthe transaction itself. d) The Calcutta High Court also found that the MSMtrD Act makes no distinction that would exclude works contracts and 6 2023 SCC Online CaI 17OO 9 that such a clistinction would be artificial and contrarl, to the MSMED Act itsell e) The Calrutta High Court also held that the MSMED Act applies to registered enterprises engaging in selling goods, rendering services, or anyone of the two, or both together and appl.1 ing conccpts lrom revenue law to make a distinction ol works contracL u,ould not be apt. Q The Calcutta l-ligh Court concluded that once an enterprise is duly' registerecl under Section B(i) ol the MSMED Act, it must attract the provisions of the MSMED Act, vesting authority on the MSMtrFC to resolve disputes in that regard. g) The proposition of lau' laid out hereinabove Lras also been folloued by the Delhi High Court in the case of [demia Syscom India Private Limited v. Conjoinix Total Solutions Private Limitedz, r,r,hi,:h dealt with a similar contention wherein a petitioner to ir Section 11 appiication contend,:d that the jurisdiction of M SMED Act is ousted since the agreement is a torl<s contract'. The Delhi High Court rejected the r:ontention. h) Thus, it is humbly submitted that the MSEI,IC, Jammu, has the requisite jurisdiction. 7 2025 SCC Onl-inr: Del 1023 t0

8.3. Multiplicity of proceedings: a) It is submitted that allowing this appiication would result in concurrent and parallel proceedings arising from the SAlTIC contract and dispute, leading to the serious risk of conflictir-rg awards, which is contrary to the object of expeditious displrte resolution under the MSMED Act b) The principle of Kompeten-2,-Kompeten-2, empo\,,ers the MStrFC to decide whether it has jurisdiction to entertain all claims and counter-claims of the parties. This proposition of larv has been reiterated by the Hon'ble Supreme Court in Gujarat State Civil Supplies Corporation Limited (supra). A.4. Concealment of material facts and abuse of process: a) It is submitted that the applicant has approached this Court with unclean hands by deliberately suppressing the existence of the prior MSMtr proceedings. b) It is submitted that the respondent filed its application before the MSEFC on O1.02.2025. ./ c) The ap plicant received the MSEFC's notice dated

04.O3.2O25 and filed the present application on 1l).03.2025, yet intentionally concealed this critical lact from this Court. d) Such concealment of material facts which challenge the verv maintainability of the application, amounts to an abuse of the .yudicial pr,rcess, warranting the dismissai ol the application in limine with exen-rplary costs.

8.5. Prematuritr. axd statutory non-compliance: a) It is subm itted that the present application is premature and legally unlenable lor failure to compll, r,r,ith the mandatory 3o-da_r, waiting period prescribed by Section 1 1(5) ol the Act of

1996. b) The postal notices dated 07.O2.2O25 and 17.02.2025 were returned with tlre endorsement of "insuflicient address", demonstrating :r failure of effective service to the respondent's registered office

9. Learned counsel for the respondent submiis that the subject contracl does not fall within the definition of "works contract". In the present dispute, the performance under the Sub-Contractor .{greement is divisible unlike composite contract t2 and the supply element of agreement is clearly divisible from the labour element, as is evident from the bills raised by the respondent also. It is further submitted that the Calcutta High Court in Hindustan Petroleum Corporation Limited (supra) has held that once ar.r enterprise IS duly registered under Section B(1) of the MSMED Act, it must attract the provisions of the MSMED Act vesting authority on the Council to resolve the dispute in that regard. The Calcutta High Court has distinguished the decision rendered in the case of M/s. Kone Elevators India Private Limited (supra) principle, as it was on the issue of taxation. It is submitted that unlike taxing statutes rvhich are interpreted strictly, beneficial legislations are to be interpreted libcrally. It is further submitted that the Calcutta High Court has also held that the MSMED Act makes no distinction to exclude q,oiks contract. Such a distinction would be artificial and contrary to the MSMED Act itself. Learned counsel lor the respondent, therefore, submits that this Court may refrain lrom appointing an arbitrator in the present proceedings under Section 11(5) & (6) of the Act of i996 since the petitioner, being a e MSMtr, has already invoked the jurisdiction of the MSEFC, Jammu. ,/ ./

10. I have r:onsidered the submissions of learned counsei for the parties and I have also taken note of the chronologr of dates and events. I have also taken note of the relevarrt provisions of the MSMED Act, 2006 and the Arbitration and Ccnciliation Act, 1996 and perused the decisions relied upon b1' learned counsel for the parties I l. The applicant though had taken the issue of non- registration of the applicant prior to invocation of the MSME Forum of MStrFC, Jammu, but that is not in dispute since the respondent had already registered before the MSEFC on

27.O4.2020.

12. The issue which requires answer in the present proceedings is whether under the MSMED Act, the MSEFC s,oulcl have jurisdiction to decide the dispute betwet:n the parties under the Sub Contractor Agreement dated 04.06 2022, wh'ich contains an arbitration clause or the provision under the Act of 1996 u,ould prevail for appointment of an arbitrator by this Court?

13. ln this regard, this Court is of the considered view that the MSMED Act, being a special legislation intendec to provide speedl, and spt:cific resolution mechanism for MSMEs, would

1.1 prevail over the Act of 1996, more So, in view of the non-obstante clause in Section 24 of the MSMED Act. This issue has earlier been held by the Apex Court in the case of Silpi Industries (supra). Paragraph Nos.36 and 37 of the judgment is quoted hereundcr: "36. The obligations of the buyer to make payment, and award of interest at three times of the bank rate notihed by Resene Bank in the event of delay by the buyer and the mechanism for recovery and reference to Micro and Small Enterprises Facilitation Council and further remcdies under thc 2006 Act for the party aggrieved by thc awards, are covcred b1' Chaptcr V of the 2OO6 Act. The proYisions of Sections 15 to 23 of the Act are given overriding effect notwithstanding anything inconsistent therewith contained in any other Iaw for the time being in force. From the Statement of Objects and Reasons also it is clear that it is a beneficial legislation to the small, medium and micro sector. The Arbitration and Conciliation Act, 1996 is a general law whereas the Micro, Small and Medium Dnterprises Development Act, 2O06 is a special benehcial legislation which is intended to bene{it micro, small and medium enterprises covcred by the said Act.

37. The 2006 Act contemplates a statutory arbitration when conciliation fails. A party which is covered by the provisions of 2006 Act allows a party to apply to the Council constituted under the Act to first conciliate and then arbitrate on the dispute between it and ottrer parties. There are fundamenta-l differences in the settlement mechanism under the 2006 Act and the 1996 Act. The Iirst difference is, the Council constituted under the 2006 Act to undertake mandatory conciliation before the arbitration which is not so under the 1996 Act. Secondly, in the event of failure of conciliation under the 2O06 Act, the Council or the centre or institution is identified by it for arbitration. The 1996 Act allows I t5 resolution of disputes by agreed forum. The third difference is that, in the event of award in favour of seller ald if the same is to be challengecl, there is a condition for pre-deposit of 75% of the amount au'arded. Such is not the case in the 1996 Act. When such benclicial provisions arc there in the special enactment, such benefits cannot be denied on the ground that c()unterclaim is not mair]tainable before thc Council. [n any case, whenever buyer wish ro avoid the jurisdiction of the Council, the buyer can do on the specious plea of counterclaim, without responding to the claims of the seller. When the provisions of Sections 15 to 23 are given overriding effect under Section 24 of lhe Act nnd further the 2OO6 Ar:t is a beneficial legislation, we are of the view that even the bul er, if any claim is there, c€rn very well subJect to the jurisdiction beiore the Council and make its claim/counterclaim as otherwise it will defeat the very objects of the Act u,hich is a benehcial legislation to micro, small and medium enterprises. Even in cascs where there is no agreement for resolution of disputes by rvay of arbitration, if the seller is a party covered by Micro, Small and Medium Enterprises Development Acr. 2006, if such party approaches the Council for resolution of dispute, the othcr part), rnay approach the civil court or any othcr forum n-raking clairns on the same issue. If two parallel proceedings are allorved, it m;ry result in conflicting findings."

14. ln a recent decision rendered by a Co-equal Bench of the Apex Court in tlLe case of NBCC (Indial Limited v. The State of West Bengals, the Apex Court has referred to the jr-rdgments in the cases of Silpi Industries (supra), Gujarat State Civil Supplies Corporation Limited (supra) and also the subsequent 8 Appeal No.37O5 ot'),O24, decided on 10.01.2025 16 judgments in Vaishno Enterprises v. Hamilton Medical AGs and M/s Nitesh Estates Limited v. Micro and Small Enterprises Facilitation Council of Haryanalo and held tl-rat they cannot be considered to be binding precedents on the issue of compulsory registration before initiation of proceedings under Section 18 of the MSMED Act. However, Iearned Division Bench of the Hon'ble Supreme Court had, in its concluding part, referred the matter to a Three-Judge Bench to ensure clarity and certainty about the applicable precedents on the subject. The Apex Court in th e case of NBCC (India) Limited (supra) also held that for an effective judicial remedy under the constitutional scheme which is an integral part ol access to justice, it should be accessible, affordable, expeditious and cohesive. When a statute provisioning a judicial remedy fa1ls lor construction, the choice of interpretative outcome is not governed so much by the power or privileges under the Constitution, but by the constitutional duties to create effective judicial remedies in furtherance of the right to access to justice A meaningful interpretation that furthers effective judicial access is a constitutional imperative and it is this duty that must inform the interpretative criteria. The Apex Court then e 2022 SCC Online SC 355 to C.A.No.5276 12022@ SLP {C) No.2668212Or8 17 proceeded to t:xamine the statutory scheme of the MSMED Act and at paragraph 14.3 of the judgment held that the purpose and object of Section i8 of the MSMED Act is to provide for a remedy for resolution of disputes. The remedy is pr-ovided by the statute. r-rot b1, an agreement between the parties. It is, therefore, necessarv to keep it unrestricted and open-ended, enabling any part-v to a disprrte to access the remedy since the expression used in Sectic,n 18 of the MSMED Act is "any party to the clispute". When statutory provision incorporating remedies for resolution of Cisputes falls for consideration. constitutional Courts must ir rterpret such remedies in a manner that would effectuate accesis to justice. The Apex Court also dr:alt with the definition ol "supplier" under Section 2(n) of the MSI\4trD Act and at paragraph l-i.-l held that a supplier r.r,i11 also be an entitl, engaged ln selling goods or rendering services, produced or provided by a micro or small enterprise. Therefore, the definition of "supplier" encompasses not only those who hilve filed a memorandum, but also those who have not filed. As such, the Apex Court in the decision of NBCC (India) Ltd. (supra) lurthercd the legislative intent in the MSMED Act, which is a beneficral piecc of legislation for MSMEs to adopt interpretation q,hrch u,ould not only reduce the hiatus between a 18 right and a remedy, but also to ensure that the remedy IS effective. If rights are recognition of a claim, remedies are their actualization. While the rights regime receives broad recognition under our constitutional framervork, it is imperative that remedies must keep pace and be strengthened. One of the core functions of the higher judiciary is to bridge the gap betu,een rights and remedies and this would immediately give rise to the legislative, executive and juciicial obligations for their provision, implementation and declaration respectively.

15. As such, this Court is of the firm vielr, that in the facts and circumstances of the case, the respondent, being an MSME, has a right under the MSMtrD Act and the remedl, provided under the MSMED Act also for settlement or adjudication ol the dispute u,ith its purchaser i.e., the applicant. Under the Scheme of the MSMED Act, Chapter V in relation to any claim of payment against supply of goods or services, 'any party' to the dispute can approach the Facilitation Councii. Given the overriding provisions under Section 24 of the MSMED Act and the beneficial nature of the MSMED Act, the observations of the learned Court of Munsiff, Samba, in its order dated 18.09.2024 that there exist an arbitration clause under the Sub-Contractor Agreement dated 04.06.2022 between the parties would not l9 come into the rvay of the respondent to invoke the forum of the MSEFC. The applicant has also raised a plea that the Sub-Contraclor Agreement dated 04.06.2022 entered between the parties is in the nature of a ll,orks contract and therefore, it u,ould not bt: amenable to the jurisdiction of the MSEFC. Hou'ever, the decisions relied upon by the applicant i.e., in the cases of CCE Customs (supra) and M/s, Kone Elevators India Private Limited (supra) would not be applicable to the facts of the present ca:ic. as the issue of interplay ol the Act ol 1996 u,ith that ol Chapter V of the MSMED Act, which provid,:s for a forum ol adjuclication ol' the dispute between the parties, one of whom IS an MSME, u,as not an issue therein. The decision in CCE Customs (supra) n,as in relation to a ta-xation matt3r. As such, in tl-ris regard, t.he Calcutta High Court in its judgment rendered in thc casc ol' Hindustan Petroleum Corporation Limited (supra) has also taken a view that the MSMED Act makes no distinction to exclude rvorks contract and other contracts. It has e so taken a vie',r, that the decision in M/s. Kone Elevators India Private Limited (supra) was on the proposition of interpretation of Article 366 (29-A) of the Constitur ion of India and taxing statLrtes. The application of taxation jurisprudence or ?.0 revenue jurisprudence to the interpretation of the benelicial provisions of the MSMBD Act would be erroneous. I6. Therefore, this Court is satisfied that the MSEFC u'ould be the proper forum under the MSMtrD Act lor settlement througl-r conciliation or adjudication of the dispute between the parties The respondent has invoked the jurisdiction of the MStrFC, Jammu, before invocation of the arbitration clause by the present appiicant, as is evident from the chronologz of dates ald events noted hereinabove. In such circumstances, this Court should refrain lrom exercising its jurisdiction under Section 1 1 (5) and (6) ol the Act of 1996 for appointment of an independent arbitrator in respect of the dispute between the partres

17. The instant Arbitration Application is, accordingll', dismissed. However, there shall be no order as to costs Miscellaneous applications pending, if an1,, shal1 stand c1o sed SD/-K.SRINIVASA RAO JOINT REGISTRAR G //TRUE COPY// SECTION OFFICER -l To.'-' ,. on" CC to Ms Sirnapelly Pooja' Advocat: toP,Ucl i" rrllt r' reertivarorrin Reddv' Advocate IoPUC] ;. ;;;; 3. Two CD CoPies DUPSL Y<- I HIGH COURT DATED:3'1/1 0/20 25 ORDER ARBAPPL.No.55 of 2025 OF c Z ry. F a """ ill .* DISMISSING THE ARBIIRATION APPLICATION zrr"(e &*.