Kerala High Court: Facilitation Council Situated in Supplier’s Place of Business Exclusively Holds Jurisdiction to Resolve Disputes under Section 18 of MSMED Act

Kerala High Court: Facilitation Council Situated in Supplier’s Place of Business Exclusively Holds Jurisdiction to Resolve Disputes under Section 18 of MSMED Act

The Kerala High Court while invoking the doctrine of forum conveniens has observed that as Section 18(4) of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) starts with a non-obstante clause and specifically provides that for resolution of a dispute, only the Facilitation Council located in the place where the supplier's (Respondent) business is located alone shall have the jurisdiction to entertain a claim.

The single judge Justice Viju Abraham observed that under Section 18 of the MSME Act, the jurisdiction to issue an order lies with the Facilitation Council in the place where the supplier is located and hence such an order could only be challenged in the High Court having territorial jurisdiction over such Facilitation Council.

The brief background of the case is that the Petitioner claimed to be a buyer of certain goods and the second Respondent was the supplier of such goods.

Petitioner was issued a notice by the first Respondent (Micro and Small Enterprises Facilitation Council) that the Petitioner had failed to pay the second Respondent an amount of Rs.77,21,127/-.

In the counter-claim to the notice, the Petitioner contended that the second Respondent owed him Rs.1,38,50,972/-.

Subsequently, the issue came before the Kerala High Court and vide its interim orders, all further proceedings have stayed. Later, the second Respondent filed to vacate the interim order while also contending that the Kerala High Court did not have jurisdiction as per Act, 2006.

The High Court perused relevant section of the Act, 2006 and observed that Section 18 of the Act, 2006 specifically states to refer to the Micro and Small Enterprises Facilitation Council, with respect to the amount to due under Section 17 and hence, the Council upon receiving such reference, shall try the dispute itself or provide a Centre of alternative dispute resolution.

Further, the judge examined Section 18 and noted that jurisdiction is only available at the place where the supplier is located and hence any order issued by the Facilitation Council can be challenged before the High Court of that jurisdiction (in the present case- Karnataka High Court).

The Court while considering the definition of the term ‘Court’ in the present case held that, according to Section 34 read with Section 2(e) of the Arbitration and Conciliation Act, 1996, the Principal Civil Court of original jurisdiction in the district shall have jurisdiction to entertain an application for setting aside the arbitral award.

The Court observed that, “unlike in Civil Procedure Code, specifically Section 20 of the Code, which provides various territorial jurisdiction for filing a suit which includes the place where the defendant resides or a part of the cause of action has arisen. Section 24 specifically provides for an overriding effect which provides that the provisions of Sections 15 to 23 of the Act 2006, shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.”

Based on this, the Court concluded that only the Facilitation Council in Karnataka, where admittedly the supplier, the 2nd respondent, is located, has jurisdiction to entertain a proceeding under the Act 2006.

Furthermore, the Court held that even if part of the cause of action arose in Kerala, the doctrine of forum conveniens would apply as the predominant part of the cause of action arose in the jurisdiction of the Karnataka High Court.

The Court reckoned, “The seat of the Facilitation Council and the supplier, 2nd respondent herein, is in the State of Karnataka and any award passed as per Section 18 of the Act 2006 which is deemed to be an award as per the provisions of the Arbitration and Conciliation Act, 1996 is to be challenged before the Principal Civil Court which is also located in the State of Karnataka.”

Accordingly, due to lack of jurisdiction, the Court refrained from adjudicating on the factual and legal contentions raised.