The jurisdiction of the MSEF Council to adjudicate disputes under the MSME Act is determined at the arbitration stage and not prematurely during mediation.

ORDER

The petitioner claims to be a reputed infrastructure company. It engages in road construction and infrastructure development. It was awarded a contract by M/s.DRAI Private Limited. A sub-contract for electrical utility shifting under NH-844 project was awarded to the petitioner. The petitioner, in turn, appointed the second respondent for execution of the electrical utility shifting works. The sub contract was preceded by a Letter of Intent (hereinafter referred to as 'LOI') dated 01.10.2021. A Memorandum of Understanding (hereinafter referred to as 'MOU') dated 23.02.2022 was entered into by both the parties. The petitioner alleges that the sub contract had to be executed on a back-to-back basis. In terms of the LOI and MOU, the second respondent was responsible for execution, coordination, certification and obtaining approvals.

2. The petitioner states that the payment to be made was subject to certification by TANGEDCO and NHAI and consequential release of funds by the Principal Contractor/NHAI, to the petitioner. The petitioner alleges that midway through the work, the second respondent abandoned the same, which resulted in cost escalation, contractual breaches and safety incidents. Though the second respondent is the defaulter, it filed a claim petition invoking Section 18 of the Micro, Small, and Medium Industries Development Act, 2006 (hereinafter referred to as MSME Act). The claim petition was initially for a sum of Rs.3.34 crores and later, escalated to Rs.12,46,53,375.69/-. Along with the claim, interest under Section 16 of the MSME Act was also sought for. The claim of the second respondent was not supported by any tax invoices, completion certificate or other tangible evidences to justify the claim.

3. Summons was served on the petitioner by the first respondent. Between 28.12.2023 and 13.05.2025, the petitioner participated in the same. On coming to know about a clarification issued by the Union of India through its MSME Ministry, that ‘works contract’ is not covered under the National Industrial Classification (hereinafter referred to as 'NIC') codes for Udyam Registration, the petitioner raised an objection before the first respondent on 23.05.2025. It called upon the Council to examine and determine its jurisdiction before proceeding further in the matter.

4. The MSEF Council, by its impugned order dated 30.06.2025, held that there is no explicit exclusion of ‘work contract’ under the ambit of MSEF Council, and the clarification also does not assist the petitioner. The Council overruled the preliminary objection and adjourned the matter to 09.07.2025. Challenging the same, the present writ petition.

5. The contesting second respondent entered appearance and filed a counter. According to it, it is engaged in electrical contracts and other related works for over three decades. It is registered with the Government of Puducherry from 28.03.1999 onwards. It obtained ‘Udyam Registration’ on 21.09.2020 as required under MSME Act. It is a ‘small enterprise’ as defined under Section 2(m) of the said Act. 6. The second respondent accepted that it was appointed as a sub contractor as part of the project of four-laning of Jitttandahalli - Dharmapuri Section of NH-844. It pleads the writ petitioner had orally informed the second respondent about the scope of work and the nature of execution. In good faith, the second respondent had commenced the work even before the execution of the LOI. It accepted that the LOI was issued on 01.10.2021 and the MOU was signed on 23.02.2022. The second respondent denied the averment that it had abandoned the work. On the contrary, it submitted that it successfully completed the work and raised bills on v