The Micro, Small and Medium Enterprises (Development) Act, 2006 supersedes arbitration agreements under the Arbitration Act, confirming that statutory provisions have overriding effect in disputes involving registered MSMEs.

JUDGMENT

PAMIDIGHANTAM SRI NARASIMHA, J.

1. Delay condoned, leave granted.

2. The present appeal is directed against the order dated 22.04.2024 passed by the Karnataka High Court whereby the writ petition [Writ Petition No. 27269 of 2023 (GM-RES)] filed by the respondent has been allowed, and it has been held that the Delhi Arbitration Centre lacks jurisdiction to manage arbitral proceedings as the contract between the appellant and the respondent provides that the seat for arbitration shall be at Bengaluru. For the reasons to follow and in view of the overriding effect of Micro, Small and Medium Enterprises (Development) Act, 2006 [Hereinafter referred to as the ‘MSMED Act.] over the Arbitration and Conciliation Act, 1996 [Hereinafter referred to as the ‘Arbitration Act.] as affirmed by this Court in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. , (2023) 6 SCC 401 we have allowed the appeal and restored the arbitral proceedings under the aegis of Delhi Arbitration Centre. We will first indicate the facts to the extent they are necessary for the determination of the issue, which are as follows.

3. The respondent herein, the Indian Space and Research Organisation (ISRO), based in Bengaluru, invited bids for construction of staff quarters in New Delhi by way of the tender notice [E-Tender Notice No.CMG/ISRO-HQ/ET/CC 11/2016-17] dated 16.01.2017. Appellant, a registered supplier under the MSMED Act was selected, leading to an agreement dated 11.09.2017 for the execution of the project.

4. In view of certain disputes between the parties, the appellant invoked jurisdiction of the Facilitation Council at Delhi under Section 18 of the MSMED Act. In exercise of powers under Section 18 , the Facilitation Council issued a notice to the respondent on 30.03.2022 for conciliation, but the respondent refused to participate in the said proceedings. The non-cooperation of the respondent led to the inevitable consequence of the Facilitation Council taking its decision to refer the dispute to arbitration under Section 18 (3) of the MSMED Act. As the arbitration was to be conducted through institutional through Delhi Arbitration Centre, the Centre proceeded further and appointed a sole arbitrator by way of a notice dated 28.05.2022.

5. The arbitral proceedings commenced on 08.06.2022 and by an order dated 26.09.2023, the arbitrator took the claim petition on record and directed the respondent to file its statement of defence within four weeks. Instead of filing its defence, the respondent chose to approach the High Court of Karnataka by filing a writ petition under Article 226/227 challenging the assumption of jurisdiction by the Delhi Arbitration Centre and also the conduct of arbitral proceedings in Delhi. While hearing the writ petition, the High Court passed an ex parte dated 07.12.2023 order granting stay on further proceedings. Eventually, by the order impugned before us, the High Court disposed of the writ petition declaring that the Delhi Arbitration Centre, at the instance of the Facilitation Council, Delhi could not have assumed jurisdiction as it is contrary to the agreement between the parties.

6. In view of the specific terms of the agreement dated 11.09.2017 contained in Clauses 25 and 25A providing for settlement of disputes, it was agreed that the seat of arbitration shall be at Bengaluru. In view of the contractual clauses, the High Court held that the proceedings conducted by the Delhi Arbitration Centre and the arbitration to be without jurisdiction, and as such illegal and contrary to law.

7. We have heard the submissions by Ms. Priya Kumar, learned senior counsel appearing on behalf of the appellant and Mr. Vikramjit Banerjee, learned A.S.G. appearing on behalf of t