Case Note & Summary
The dispute arose from a contract for supply of VRLA batteries between Petitioner, a government enterprise, and Respondent, a company registered under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). Petitioner floated a tender in March 2016, and Respondent was awarded the contract, leading to purchase orders and subsequent disputes over delivery delays, price reductions, and encashment of a performance bank guarantee. After failed conciliation, Petitioner unilaterally appointed an arbitrator, later replaced by the High Court, leading to an arbitral award dated 3 May 2024 directing Petitioner to pay Microtex Rs. 2,76,82,030/- with interest under Section 16 of the MSMED Act and Section 31(7)(b) of the Arbitration and Conciliation Act, 1996. Petitioner filed a petition under Section 34 of the Arbitration Act challenging the award, primarily on grounds that the arbitral tribunal lacked jurisdiction as Respondent is registered under the MSMED Act, making arbitration under Section 18 of the MSMED Act exclusive, and that the award of interest under Section 16 of the MSMED Act was erroneous. Petitioner argued that the MSMED Act has overriding effect, citing precedents like M/s. Harcharan Dass Gupta Vs. Union of India and Gujarat State Civil Supplies Corporation Ltd. Vs. Mahakali Foods Private Limited. Microtex contended that the objection to jurisdiction was belated, raised only in written submissions, and that the remedy under Section 18 of the MSMED Act is optional, not exclusive, relying on Porwal Sales Vs. Flame Control Industries. The court considered the rival contentions, noting that Petitioner had earlier unilaterally appointed the arbitrator and did not object to ad hoc arbitration in prior proceedings. The court held that the remedy under Section 18 of the MSMED Act is not exclusive, allowing ad hoc arbitration under the Arbitration Act, and upheld the tribunal's jurisdiction. It also found no error in the award of interest under Section 16 of the MSMED Act. Consequently, the court dismissed the petition, upholding the arbitral award.
Headnote
A) Arbitration Law - Jurisdiction of Arbitral Tribunal - MSMED Act Overriding Effect - Arbitration and Conciliation Act, 1996, Sections 34, 31(7)(b) and Micro, Small and Medium Enterprises Development Act, 2006, Sections 16, 18 - Petitioner challenged arbitral award under Section 34 of Arbitration Act, contending tribunal lacked jurisdiction as respondent registered under MSMED Act, making arbitration under Section 18 MSMED Act exclusive - Court held that remedy under Section 18 MSMED Act is optional, not exclusive, and ad hoc arbitration permissible; tribunal's jurisdiction upheld as objection raised belatedly and petitioner had earlier appointed arbitrator unilaterally (Paras 7-8, 12-15). B) Arbitration Law - Interest Award - Section 16 MSMED Act - Micro, Small and Medium Enterprises Development Act, 2006, Section 16 - Arbitral tribunal awarded interest under Section 16 MSMED Act on part of awarded amount - Petitioner contested award of interest under Section 16 MSMED Act - Court upheld award of interest under Section 16 MSMED Act, finding no error in tribunal's direction (Paras 9, 13).
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Issue of Consideration: Whether the arbitral tribunal lacked jurisdiction to adjudicate the dispute as the respondent is registered under the MSMED Act, and whether the award of interest under Section 16 of the MSMED Act was permissible.
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Final Decision
Court dismissed the petition, upholding the arbitral award dated 3 May 2024, and held that the arbitral tribunal had jurisdiction and the award of interest under Section 16 of the MSMED Act was permissible.
