Courts Cannot Determine Whether Agreement Is A Works Contract Under MSMED Act; Only Arbitration Can Be Used- Delhi High Court
Title: Jaiprakash Associates Ltd. v. Micro and Small Enterprises Facilitation Council & Anr.
Decided on: 2nd August, 2023
+ LPA 565/2023 & CM Nos.37242/2023, 37243/2023 & 37244/2023
CORAM: HON’BLE THE CHIEF JUSTICE & HON’BLE MR. JUSTICE SAURABH BANERJEE
Introduction
The Delhi High Court has dismissed an appeal that challenged the jurisdiction of the Micro and Small Enterprises Facilitation Council (MSEFC) to refer disputes to arbitration under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act). The court emphasized that the determination of whether an agreement is a works contract falls under the purview of the arbitrator under the MSME Act, and the court cannot adjudicate on such an issue.
Facts
The appeal arose from two reference orders issued by the MSEFC involving disputes related to civil works, electrical works, and structural works at ‘Wishtown Klassic Block Towers, Jaypee Greens, Noida (UP)’. The disputes involved Jaiprakash Associates Ltd. (JAL) and Krishna Buildestates Pvt. Ltd. (KBPL). KBPL had registered under the MSME Act and invoiced JAL for work contracts/agreements both before and after its MSME registration. Disputes arose from these contracts, and KBPL approached the MSEFC to refer the disputes to arbitration. The MSEFC issued reference orders referring the disputes to the Delhi International Arbitration Centre (DIAC).
Advocate Anil Dutt represented the Petitioner (JAL), while Advocate Avishkar Singhvi appeared for the Respondents (KBPL).
Analysis
The Delhi High Court examined the contention that the agreements were distinct composite work contracts involving both services and goods. The court noted that the Single Judge had held that the work contracts initiated before KBPL’s MSME registration but with some agreements’ bills and work taking place post-registration were subject to the MSME Act. The court further observed that the disputes involved both services and goods and referred to several factors supporting the application of the MSME Act, such as the interlinked agreements and ongoing work.
The court held that whether an agreement is a works contract falls under the jurisdiction of the arbitrator as per the MSME Act. The court stated that it cannot determine this issue and that the Single Judge had rightly left it open to be decided by the arbitrator.
Held
The Delhi High Court dismissed the appeal, upholding the MSEFC’s jurisdiction to refer the disputes to arbitration under the MSME Act. The court reiterated that the determination of whether the contracts were work contracts is within the scope of the arbitrator’s authority and cannot be adjudicated upon by the court. The court emphasized the importance of upholding the fairness and credibility of the arbitration process.
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Written by- Ankit Kaushik