The Delhi High Court’s judgment on August 2, 2023, in the case of Jaiprakash Associates Ltd. versus Micro and Small Enterprises Facilitation Council and Another, sheds significant light on the arbitration framework under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) vis-à-vis contractual obligations and jurisdiction.

This case arises from a dispute involving Jaiprakash Associates Ltd. (JAL) and Krishna Buildestates Pvt. Ltd. (KBPL) regarding civil, electrical, and other structural works at ‘Wishtown Klassic Block Towers, Jaypee Greens, Noida (UP).’ The MSEFC issued two reference orders for arbitration under the MSME Act concerning the disputes. JAL, however, contested these orders on the ground that KBPL’s registration under the MSME Act occurred after the agreement and completion of work, thus making the references invalid.

The contention spiraled into a legal examination of whether work contracts, particularly those involving both goods and services, fall within the ambit of the MSME Act for arbitration reference. JAL argued that the subject agreements were work contracts, distinct from contracts for services or supply of goods, and thus, not within the MSEFC’s jurisdiction for arbitration reference under the MSME Act. The counsel for KBPL, on the contrary, argued that as one of the bills raised was post the registration of KBPL as an MSME, the reference orders for arbitration were rightfully passed.

In the judgment, the High Court upheld the MSEFC’s reference for arbitration, emphasizing that despite KBPL’s later registration under the MSME Act, some bills and work related to the agreements continued post-registration, bringing the case within the ambit of the MSME Act. The Court also directed that all disputes related to the interlinked contracts be referred to the same Arbitral Tribunal to avoid multiplicity of proceedings and confusion, resonating with the doctrine laid down in Gammon India Ltd. & Anr. vs. National Highways Authority of India.