M/S HARCHARAN DASS GUPTAversusUNION OF INDIA

                  [2025] 6 S.C.R. 422 : 2025 INSC 689

                        M/s Harcharan Dass Gupta
                                   v.
                              Union of India
                        (Civil Appeal No. 6807 of 2025)
                                   14 May 2025
[Pamidighantam Sri Narasimha* and Joymalya Bagchi, JJ.]


                             Issue for Consideration
       In a case covered under the Micro, Small and Medium Enterprises
       (Development) Act, 2006, whether the High Court erred in holding
       that the Delhi Arbitration Centre lacked jurisdiction to conduct arbitral
       proceedings on the ground that the contract between the appellant-
       supplier (located in Delhi) and the respondent (based in Bengaluru)
       provided that the seat for arbitration shall be at Bengaluru.

                                    Headnotes†
       Micro, Small and Medium Enterprises (Development) Act,
       2006 – s.18(4) – Arbitration and Conciliation Act, 1996 –
       Overriding effect of MSMED Act over Arbitration Act – Seat
       of arbitration in cases covered under the MSMED Act:
       Held: s.18(4), MSMED Act vests jurisdiction for arbitration in the
       Facilitation Council where the supplier is located – A private agreement
       between the parties cannot obliterate the statutory provisions –
       Thus, the agreement between the parties stands overridden by the
       statutory provisions under the MSMED Act – Appellant supplier-
       MSME is located in Delhi and as such the Facilitation Council, Delhi
       in exercise of its power, entrusted the conduct of arbitration through
       the institutional aegis of the Delhi Arbitration Centre – Impugned
       order set aside – Arbitral proceedings restored under the aegis of
       Delhi Arbitration Centre. [Paras 2, 9, 10, 11, 13]

                                  Case Law Cited
       Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods
       Pvt. Ltd. [2022] 19 SCR 1094 : (2023) 6 SCC 401 – relied on.

                                    List of Acts
       Micro, Small and Medium Enterprises (Development) Act, 2006;
       Arbitration and Conciliation Act, 1996.
* Author
[2025] 6 S.C.R.                                                             423

                   M/s Harcharan Dass Gupta v. Union of India


                                      List of Keywords
      Section 18(4) of Micro, Small and Medium Enterprises (Development)
      Act, 2006; Cases covered under the Micro, Small and Medium
      Enterprises (Development) Act, 2006; Seat of arbitration; Overriding
      effect of MSMED Act over Arbitration Act; Facilitation Council;
      Jurisdiction where the supplier is located; Location of supplier;
      Private agreement between the parties; MSMED Act; MSME;
      Agreement between the parties overridden by the statutory
      provisions; Delhi Arbitration Centre; Institutional aegis; Arbitral
      proceedings restored; Indian Space and Research Organisation
      (ISRO); Registered supplier under the MSMED Act; Construction
      of staff quarters.

                                     Case Arising From
      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6807 of 2025
      From the Judgment and Order dated 22.04.2024 of the High Court
      of Karnataka at Bengaluru in WP No. 27269 of 2023

                                 Appearances for Parties
      Advs. for the Appellant:
      Ms. Priya Kumar, Sr. Adv., Ms. Renuka Arora, Nishant Kumar.
      Advs. for the Respondent:
      Vikramjit Banerjee, A.S.G., Abhishek Singh, Raghav Sharma,
      Ishaan Sharma, C.K. Sharma, Ms. Archana Shurve Shinde,
      Dr. N. Visakamurthy.

                     Judgment / Order of the Supreme Court

                                           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 petition1 filed by
      the respondent has been allowed, and it has been held that the Delhi


1    Writ Petition No. 27269 of 2023 (GM-RES).
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       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, 20062 over the Arbitration
       and Conciliation Act, 19963 as affirmed by this Court in Gujarat State
       Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd.,4 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 notice5 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


2    Hereinafter referred to as the ‘MSMED Act.’
3    Hereinafter referred to as the ‘Arbitration Act.’
4    (2023) 6 SCC 401.
5    E-Tender Notice No.CMG/ISRO-HQ/ET/CC 11/2016-17.
[2025] 6 S.C.R.                                                             425

               M/s Harcharan Dass Gupta v. Union of India


     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 the respondent.
8.   We have given our anxious consideration to the submissions of
     both the parties. In our view, the issue is no more res integra and
     is covered by the decision of this Court in Mahakali. As we need
     to do nothing more than refer to the relevant portions of the binding
     precedent, the reasoning, as well as the conclusion in this decision
     are extracted herein for ready reference. At the outset, the following
     two paragraphs clearly explain the principle on the basis of which
     the court holds that the MSMED Act overrides the Arbitration Act:
           “42. Thus, the Arbitration Act, 1996 in general governs the
           law of Arbitration and Conciliation, whereas the Msmed
           Act, 2006 governs specific nature of disputes arising
           between specific categories of persons, to be resolved
           by following a specific process through a specific forum.
           Ergo, the Msmed Act, 2006 being a special law and the
           Arbitration Act, 1996 being a general law, the provisions
           of the Msmed Act would have precedence over or prevail
           over the Arbitration Act, 1996. In Silpi Industries case [Silpi
           Industries v. Kerala SRTC, (2021) 18 SCC 790 : 2021
           SCC OnLine SC 439] also, this Court had observed while
           considering the issue with regard to the maintainability
           and counter-claim in arbitration proceedings initiated as
           per Section 18(3) of the Msmed Act, 2006 that the Msmed
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       Act, 2006 being a special legislation to protect MSMEs
       by setting out a statutory mechanism for the payment of
       interest on delayed payments, the said Act would override
       the provisions of the Arbitration Act, 1996 which is a general
       legislation. Even if the Arbitration Act, 1996 is treated
       as a special law, then also the Msmed Act, 2006 having
       been enacted subsequently in point of time i.e. in 2006, it
       would have an overriding effect, more particularly in view
       of Section 24 of the Msmed Act, 2006 which specifically
       gives an effect to the provisions of Sections 15 to 23 of the
       Act over any other law for the time being in force, which
       would also include the Arbitration Act, 1996.
       43. The Court also cannot lose sight of the specific non
       obstante clauses contained in sub-sections (1) and (4) of
       Section 18 which have an effect overriding any other law
       for the time being in force. When the Msmed Act, 2006 was
       being enacted in 2006, the legislature was aware of its
       previously enacted Arbitration Act of 1996, and therefore,
       it is presumed that the legislature had consciously made
       applicable the provisions of the Arbitration Act, 1996 to
       the disputes under the Msmed Act, 2006 at a stage when
       the conciliation process initiated under sub-section (2)
       of Section 18 of the Msmed Act, 2006 fails and when
       the Facilitation Council itself takes up the disputes for
       arbitration or refers it to any institution or centre for such
       arbitration. It is also significant to note that a deeming legal
       fiction is created in Section 18(3) by using the expression
       “as if” for the purpose of treating such arbitration as if it
       was in pursuance of an arbitration agreement referred to in
       sub-section (1) of Section 7 of the Arbitration Act, 1996. As
       held in K. Prabhakaran v. P. Jayarajan [K. Prabhakaran v.
       P. Jayarajan, (2005) 1 SCC 754 : 2005 SCC (Cri) 451] , a
       legal fiction presupposes the existence of the state of facts
       which may not exist and then works out the consequences
       which flow from that state of facts. Thus, considering the
       overall purpose, objects and scheme of the Msmed Act,
       2006 and the unambiguous expressions used therein, this
       Court has no hesitation in holding that the provisions of
       Chapter V of the Msmed Act, 2006 have an effect overriding
       the provisions of the Arbitration Act, 1996.”
[2025] 6 S.C.R.                                                            427

               M/s Harcharan Dass Gupta v. Union of India


9.   Further, the Court proceeds to hold that even the agreement between
     the parties stands overridden by the statutory provisions under the
     MSMED Act:
           44. The submissions made on behalf of the counsel for the
           buyers that a conscious omission of the word “agreement”
           in sub-section (1) of Section 18, which otherwise finds
           mention in Section 16 of the Msmed Act, 2006 implies
           that the arbitration agreement independently entered into
           between the parties as contemplated under Section 7 of the
           Arbitration Act, 1996 was not intended to be superseded
           by the provisions contained under Section 18 of the Msmed
           Act, 2006 also cannot be accepted. A private agreement
           between the parties cannot obliterate the statutory
           provisions. Once the statutory mechanism under sub-
           section (1) of Section 18 is triggered by any party, it would
           override any other agreement independently entered into
           between the parties, in view of the non obstante clauses
           contained in sub-sections (1) and (4) of Section 18. The
           provisions of Sections 15 to 23 have also overriding effect
           as contemplated in Section 24 of the Msmed Act, 2006
           when anything inconsistent is contained in any other law
           for the time being in force. It cannot be gainsaid that while
           interpretating a statute, if two interpretations are possible,
           the one which enhances the object of the Act should be
           preferred than the one which would frustrate the object
           of the Act. If submission made by the learned counsel
           for the buyers that the party to a dispute covered under
           the Msmed Act, 2006 cannot avail the remedy available
           under Section 18(1) of the Msmed Act, 2006 when an
           independent arbitration agreement between the parties
           exists is accepted, the very purpose of enacting the Msmed
           Act, 2006 would get frustrated.
           45. …
           46. The submission therefore that an independent
           arbitration agreement entered into between the parties
           under the Arbitration Act, 1996 would prevail over the
           statutory provisions of the Msmed Act, 2006 cannot be
           countenanced. As such, sub-section (1) of Section 18
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       of the Msmed Act, 2006 is an enabling provision which
       gives the party to a dispute covered under Section 17
       thereof, a choice to approach the Facilitation Council,
       despite an arbitration agreement existing between the
       parties. Absence of the word “agreement” in the said
       provision could neither be construed as casus omissus in
       the statute nor be construed as a preclusion against the
       party to a dispute covered under Section 17 to approach
       the Facilitation Council, on the ground that there is an
       arbitration agreement existing between the parties. In
       fact, it is a substantial right created in favour of the party
       under the said provision. It is therefore held that no party
       to a dispute covered under Section 17 of the Msmed Act,
       2006 would be precluded from making a reference to the
       Facilitation Council under Section 18(1) thereof, merely
       because there is an arbitration agreement existing between
       the parties.
       47. The aforesaid legal position also dispels the arguments
       advanced on behalf of the counsel for the buyers that the
       Facilitation Council having acted as a Conciliator under
       Section 18(2) of the Msmed Act, 2006 itself cannot take up
       the dispute for arbitration and act as an arbitrator. Though it
       is true that Section 80 of the Arbitration Act, 1996 contains
       a bar that the Conciliator shall not act as an arbitrator in
       any arbitral proceedings in respect of a dispute that is
       subject of conciliation proceedings, the said bar stands
       superseded by the provisions contained in Section 18
       read with Section 24 of the Msmed Act, 2006. As held
       earlier, the provisions contained in Chapter V of the Msmed
       Act, 2006 have an effect overriding the provisions of the
       Arbitration Act, 1996. The provisions of the Arbitration Act,
       1996 would apply to the proceedings conducted by the
       Facilitation Council only after the process of conciliation
       initiated by the Council under Section 18(2) fails and the
       Council either itself takes up the dispute for arbitration or
       refers to it to any institute or centre for such arbitration as
       contemplated under Section 18(3) of the Msmed Act, 2006.
       48. When the Facilitation Council or the institution or the
       centre acts as an arbitrator, it shall have all powers to
[2025] 6 S.C.R.                                                            429

               M/s Harcharan Dass Gupta v. Union of India


           decide the disputes referred to it as if such arbitration
           was in pursuance of the arbitration agreement referred
           to in sub-section (1) of Section 7 of the Arbitration Act,
           1996 and then all the trappings of the Arbitration Act, 1996
           would apply to such arbitration. It is needless to say that
           such Facilitation Council/institution/centre acting as an
           Arbitral Tribunal would also be competent to rule on its own
           jurisdiction like any other Arbitral Tribunal appointed under
           the Arbitration Act, 1996 would have, as contemplated in
           Section 16 thereof.”
10. The issue relating to ‘seat of arbitration’ in all cases covered under
    the MSMED Act is settled in view of the pronouncement of this
    Court in Mahakali. This position is also true by virtue of the specific
    provision of the MSMED Act, that is, sub-Section (4) of Section 18,
    which vests jurisdiction for arbitration in the Facilitation Council where
    the supplier is located:
           “(4) Notwithstanding anything contained in any other law
           for the time being in force, the Micro and Small Enterprises
           Facilitation Council or the centre providing alternate dispute
           resolution services shall have jurisdiction to act as an
           Arbitrator or Conciliator under this section in a dispute
           between the supplier located within its jurisdiction and a
           buyer located anywhere in India.”
11. There is no dispute about the fact that the appellant-MSME is located
    in Delhi and as such the Facilitation Council, (South-West), GNCTD,
    Old Terminal Tax Building, Kapashera, New Delhi-110037. In exercise
    of its power, the said Council entrusted the conduct of arbitration
    through the institutional aegis of the Delhi Arbitration Centre. The
    conclusions drawn by us are the logical consequence of the statutory
    regime as also declared by this Court in Mahakali.
12. Mr. Vikramjit Banerjee, learned ASG submits that the decision of
    this Court should not in any way prejudice any rights or contentions
    that his client may legitimately raise and contest before the arbitral
    tribunal. We have no hesitation in clarifying that we have not touched
    upon the merits of the matter. We also direct the learned arbitrator
    to permit the parties to raise and argue all questions of law and fact
    as are legally permissible.
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13. In view of the above, we allow the present appeal and set aside
    the impugned order dated 22.04.2024 passed by the Karnataka
    High Court in Writ Petition No. 27269 of 2023 (GM-RES) and direct
    conduct and conclusion of arbitral proceedings.
14. With these directions, the civil appeal is disposed of. There shall be
    no order as to costs.

       Result of the case: Appeal allowed.



       †
           Headnotes prepared by: Divya Pandey