Background Matrix 

In the case of Marine Craft Engineers (P) Ltd. v. Garden Reach Shipbuilders & Engineers Ltd. At Garden Reach Shipyard in Kolkata, the petitioner (a service provider) and the respondent (a buyer) entered into a contract for the repair of a Wet Basin flap gate. As a registered Micro and Small-Scale Enterprise, the petitioner filed a referral with the West Bengal State Micro Small Enterprises Facilitation Council in accordance with the terms of the MSME Act, 2006. However, the respondent nominated a lone arbitrator while the reference was pending before the Facilitation Council based on a provision in the purchase order. The petitioner filed a writ petition with this court seeking to invalidate the impugned Award made by the sole arbitrator on September 23, 2018.

Issue 

1. Did the Arbitrator have the authority to issue the disputed Award? 
2. Does the Facilitation Council have exclusive jurisdiction to hear and resolve issues under the terms of the MSMED Act, 2006?

Submission from parties 

According to the MSMED Act’s provisions, the Appellant argued that the Facilitation Council has the exclusive authority to decide whether to refer the case to the Arbitrator.

The respondent argued that because the petitioner is not a “supplier” as defined by Section 2(n) of the MSMED Act, the petitioner is not permitted to report a matter to the Micro and Small Enterprises Facilitation Council under Section 18 of the MSMED Act in order to recover money owed to it under Section 17.

Courts Verdict 

The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) provisions are violated by the appointment of an arbitrator based on a contractual arbitration clause while the matter is pending before the MSME Facilitation Council, according to the Calcutta High Court single bench led by Moushumi Bhattacharya.

Although the petitioner’s demand for payment of dues with regard to the work done and rendered by the petitioner was made after the petitioner’s registration under the MSMED Act, the Court noted that once the party obtains registration even after execution of the contract, the provisions of the MSMED Act would apply to the supply of goods and rendering of services after the registration. The Court decided that a supplier’s registration as an MSME on the date of the contract will not prevent them from bringing a case before the Micro and Small Enterprises Facilitation Council under Section 18 of the MSMED Act, so long as the amounts sought are related to goods supplied or services rendered after the date of the supplier’s registration as an MSME under Section 8(1) of the MSMED Act.

In accordance with Section 34 of the Arbitration and Conciliation Act of 1996, the Court annulled the contested Award because it was clearly unconstitutional on its face and went against the fundamental principles of Indian law.