Furnace Buyer’s Arbitration Bid Fails; Bombay HC Leaves MSME Council To Decide Whether The Deal Was A Works Contract

The petitioner agreed to purchase a 7.5 MVA Submerged Arc Furnace from the respondent under a purchase agreement dated 27 September 2022, which contained an arbitration clause.

Disputes arose concerning the furnace’s functioning after installation.

The respondent had initiated proceedings before the Facilitation Council under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), and informed the petitioner of those proceedings by email dated 23 March 2026.

The petitioner then issued a notice under Section 21 of the Arbitration and Conciliation Act, 1996 and applied under Section 11 for appointment of a sole arbitrator.

The parties disputed whether the transaction was a sale of goods or a works contract; the petitioner relied, among other materials, on the agreement, purchase orders and invoices.

The Court considered Section 11 of the Arbitration and Conciliation Act, 1996, governing appointment of arbitrators, alongside Sections 18 and 24 of the MSMED Act, 2006, which provide for dispute resolution through the Facilitation Council and give the MSMED Act overriding effect in case of inconsistency.

Relying on Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (Unit 2), (2023) 6 SCC 401, particularly paragraph 48, the Court noted that a Facilitation Council acting as an arbitral tribunal has the powers of an arbitral tribunal under the Arbitration Act, including the power under Section 16 to rule on its own jurisdiction.

The respondent had already approached the Facilitation Council, and the dispute over whether the arrangement was a works contract concerned the Council’s jurisdiction.

The Court considered that, under Mahakali Foods, the Council acting as an arbitral tribunal could decide its own jurisdiction.

It therefore declined to determine the transaction’s true nature at the Section 11 stage, notwithstanding authorities cited by the petitioner in which courts had addressed works-contract questions while considering arbitration applications.

The invoices, in the Court’s view, were sufficient for the Council to consider the petitioner’s objection that the transaction was a works contract.

It left the Facilitation Council at Calcutta free to determine whether the transaction was a works contract and permitted the petitioner to present its case before the Council.