Orissa High Court Voids MSME Arbitration Award in Works Contract Dispute

The court rules that the Micro, Small and Medium Enterprises Development Act, 2006 does not apply to works contracts, rendering the Facilitation Council's award void.

The Orissa High Court has set aside an arbitral award issued by the Micro and Small Enterprises Facilitation Council (MSEFC) in favor of Adarsh Nobel Corporation Ltd. (ANCL) against Indian Oil Corporation Ltd. (IOCL). The court ruled that the MSEFC lacked jurisdiction over the dispute, which arose from a works contract, as such contracts fall outside the statutory purview of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). 

The case stemmed from a contract awarded by IOCL to ANCL for constructing a VR storage tank at Paradip Refinery. The contract was terminated by IOCL, leading ANCL to seek redress under the MSMED Act, claiming damages for wrongful termination. However, Justice Dr. Sanjeeb K Panigrahi held that works contracts, which involve composite agreements of goods and services, do not qualify for dispute resolution under the MSMED Act.

The judgment emphasized that the MSMED Act is intended for disputes related to the supply of goods or services, not complex works contracts. The court underscored the legal interpretation that works contracts, by their nature, do not fit within the Act’s framework and thus, the Facilitation Council's proceedings were void ab initio.

The court further clarified that objections under Section 47 of the Code of Civil Procedure are not maintainable against arbitral awards, as these awards are treated as decrees solely for enforcement purposes. It highlighted that allowing such objections would undermine the finality of arbitration awards.

In conclusion, the court exercised its writ jurisdiction to set aside the award, citing inherent lack of jurisdiction by the Facilitation Council. This decision reaffirms the judicial stance that MSME statutory arbitration benefits do not extend to works contracts.

Bottom Line:

Micro, Small, and Medium Enterprises Development Act, 2006 - Works contracts do not fall within the statutory purview of the MSMED Act, 2006, and the Facilitation Council lacks jurisdiction to adjudicate disputes arising from such contracts.

Statutory provision(s): Micro, Small and Medium Enterprises Development Act, 2006 Section 18, Arbitration and Conciliation Act, 1996 Section 36, Code of Civil Procedure, 1908 Section 47, Article 226 of the Constitution of India.

Indian Oil Corporation Ltd. v. Adarsh Nobel Corporation Ltd., (Orissa) : Law Finder Doc Id # 2792730