Arbitration In IndiaJudiciary cannot intervene into mixed question of facts and law, during pendency of proceedings before Arbitral Tribunal

The Delhi High Court, in Mahanagar Telephone Nigam Ltd V. Delhi International Arbitration Centre, Through its Co-ordinator and Others [2024 SCC Online Del 687]  held that court cannot intervene into disputes pertaining to mixed questions of law and facts and hence, the Arbitral Tribunal has the jurisdiction to determine the dispute.

FACTS

The Respondent No.3, an enterprise registered under the Micro Small and Medium Enterprise Act, 2006 (hereinafter referred to as the “MSMED Act”) entered into a contract with Mahanagar Telephone Nigam Ltd (hereinafter referred to as “Petitioner”) on 19.08.2006, for construction of balance work of telephone exchange at Keshav Puram, Delhi. Further, Respondent No.3 sought an extension from the Delhi Development Authority (hereinafter referred to as “DDA”) for the completion of work on 04.09.2006.

The bills were being raised by Respondent No.3 for the work done. Meanwhile, the plot allotted to the Petitioner was cancelled. Hence, DDA approved the extension of the Respondent No.3 for 3 years till 05.08.2016.

Further, the revised bills and plans were submitted by the Respondent No.3 to the Petitioner. Hence, three revised bills were submitted as follows:

a. First RA Bill dated 08.08.2018 amounting to Rs.55,80,311/- (Rupees Fifty Lakhs Eighty Thousand Three Hundred Eleven Only)

b. Second RA Bill dated 12.05.2022 amounting to Rs.1,33,23,786/- (Rupees One Crore Thirty-Three Lakhs Twenty-Three Thousand Seven Hundred Eighty-Six Only)

The Respondent No.3 approached the MSME Council (hereinafter referred to as the “Respondent No.2”) claiming an amount of Rs.2,15,96,273/- (Rupees Two Crores Fifteen Lakhs Ninety-Six Thousand Two Hundred Seventy-Three Only) towards non-payment of RA bills.

Further, the Respondent No.3 filed an application under Section 17 of the MSMED Act before Respondent No.2 for referring the dispute regarding non-payment to the Delhi International Arbitration Centre (hereinafter referred to as “Respondent No.1”).

The Respondent No.2 accepted the application and further referred the same to the Respondent No.1 vide the decision dated 02.05.2022 (hereinafter referred to as the “Impugned Decision”).

The Petitioner being aggrieved and dissatisfied by the Impugned Decision, has filed the present petition.

ISSUE BEFORE THE DELHI HIGH COURT

Whether the Respondent No.2 had the jurisdiction to refer the dispute to Respondent No.1, when the MSME Certificate was obtained after the Contract was entered between the Respondent No.3 and Petitioner?

CONTENTION OF THE PARTIES

The Petitioner contended that the benefit of MSME cannot be claimed if the person claiming the same is not registered under the MSMED Act.

DECISION AND FINDINGS

The Delhi High Court observed that the provisions of Sections 17 and 18 of the MSMED Act, which aim to offer a cost-effective dispute resolution mechanism for recovering unpaid dues of micro, small, and medium enterprises.

The Delhi High Court relied on Gujarat State Civil Supplies Corpn. Ltd. v. Mahakali Foods (P) Ltd., (2023) 6 SCC 401, and observed that the MSME registration obtained subsequently would have a prospective application.

The High Court held that though the Agreement was entered before the MSME Registration was obtained, the RA Bills have been issued after MSME Registration. It was further explained that the determination of services rendered post-contract and the nature of the contract as mixed questions of law and facts, to be addressed by the Arbitral Tribunal.

Hence, the High Court declined to enter into the merits of the matter and directed to refer the same before the Arbitral Tribunal.

AMLEGALS REMARKS

The Delhi High Court has upheld the legislative intent of the A&C Act that is the competence of the Arbitral Tribunal to determine its own jurisdiction. Furthermore, the Delhi High Court has refrained to enter into the merits of the facts and issues in the matter, as it shall be determined by the Arbitral Tribunal.

-Team AMLEGALS, assisted by Mr. Shaurya Pandey (Intern)

For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or himanshi.patwa@amlegals.com