Calcutta High Court Upholds MSME Facilitation Council's Jurisdiction in Arbitration Dispute

Court dismisses petition challenging jurisdiction under MSMED Act, 2006, reiterates the requirement of pre-deposit for challenging arbitral awards.

In a significant ruling, the Calcutta High Court has upheld the jurisdiction of the Micro, Small and Medium Enterprises Development (MSMED) Facilitation Council to entertain arbitration references under Section 18 of the MSMED Act, 2006. The judgment was delivered in the case of Kommoners Club & Hospitality Pvt. Ltd. v. Pecon Software Limited, presided over by Justice Hiranmay Bhattacharyya.

The petitioner, Kommoners Club & Hospitality Pvt. Ltd., challenged an arbitral award dated December 21, 2023, arguing that Pecon Software Limited, the opposite party, was not a registered MSME at the time of their lease agreement in 2018, and thus, the Facilitation Council lacked jurisdiction. The petitioner relied heavily on the Supreme Court's ruling in M/S Silpi Industries v. Kerala State Road Transport Corporation, which emphasized that MSME registration must precede the execution of contracts to claim statutory benefits.

However, the court noted that Pecon Software Limited had registered as an MSME in 2015, well before the lease agreement in question, and that subsequent amendments to their registration should relate back to the original registration date. Justice Bhattacharyya distinguished the current case from Silpi Industries, affirming that the Facilitation Council's jurisdiction was valid given the pre-existing registration.

Additionally, the court addressed the procedural question of whether the application under Article 227 of the Constitution of India was maintainable. The judgment emphasized that an alternative statutory remedy under the Arbitration and Conciliation Act, 1996, was available and that the petitioner had not complied with the pre-deposit requirement under Section 19 of the MSMED Act. Citing the Supreme Court's decision in India Glycols Limited v. MSEFC, Telangana, the court held that bypassing the pre-deposit would undermine the MSMED Act's objectives.

Ultimately, the High Court dismissed the petition as not maintainable, leaving the petitioner to seek alternative remedies. This decision reinforces the statutory framework supporting MSMEs and underscores the judiciary's adherence to established procedural requirements.

Bottom Line:

Arbitration under MSMED Act, 2006 - Facilitation Council has jurisdiction to entertain reference under Section 18 even if the specific activity registration is amended later, provided the unit was already registered as MSME before execution of the contract.

Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 34, Micro, Small and Medium Enterprises Development Act, 2006 Sections 18 and 19, Constitution of India, 1950 Article 227

Kommoners Club & Hospitality Pvt. Ltd. v. Pecon Software Limited, (Calcutta) : Law Finder Doc Id # 2818508