MSMED applicability and limitation objections should ordinarily be raised before the arbitral tribunal, not in threshold writ proceedings.

The petitioner, a Government-owned public sector undertaking, entered into an agreement with respondent no. 2 on 26 December 2016 for execution of telecom infrastructure works in Pathankot, Punjab.

The work was completed and the last invoice was raised on 11 June 2018.

Respondent no. 2 obtained MSME registration on 26 March 2021 and thereafter filed a claim before the Micro and Small Enterprises Facilitation Council (MSEFC) on 25 July 2022.

The MSEFC referred the dispute to the Delhi International Arbitration Centre (DIAC) on 16 April 2024.

The petitioner challenged the reference and consequential arbitral proceedings under Articles 226 and 227, contending that respondent no. 2 could not retrospectively invoke the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) for a transaction completed before its MSME registration and that the claim was barred by limitation.

Whether the High Court should exercise its jurisdiction under Articles 226 and 227 to quash the MSEFC’s reference to DIAC on the ground that respondent no. 2 obtained MSME registration after completion of the contract and could not invoke the MSMED Act retrospectively.

Whether the petitioner’s objection that the claim before the MSEFC was barred by limitation warranted interference with the arbitral proceedings at the threshold.

Whether objections concerning the applicability of the MSMED Act, the status and entitlement of respondent no. 2, and limitation could be adjudicated by the Arbitral Tribunal under the statutory arbitration framework.

The Court applied Articles 226 and 227 of the Constitution, holding that writ jurisdiction in relation to arbitral proceedings is to be exercised sparingly where the objections can be raised before and decided by the Arbitral Tribunal under the Arbitration and Conciliation Act, 1996.

It considered the MSMED Act and the statutory mechanism under which disputes are referred by the MSEFC for arbitration.

The Court noted Silpi Industries v. Kerala SRTC, (2021) 18 SCC 790, relied upon by the petitioner regarding the inability of an enterprise to retrospectively invoke the MSMED Act after obtaining registration.

It also relied on the subsequent decision in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (Unit 2) & Anr., (2023) 6 SCC 401, which recognised that objections regarding an entity’s MSME status and entitlement to invoke the MSMED Act may be raised before the forum seized of the arbitral proceedings.

Questions of limitation involving the nature of the claim, contractual terms, and accrual of the cause of action were likewise held suitable for determination by the Arbitral Tribunal.

The Court held that the petitioner’s objections—namely, that respondent no. 2’s MSME registration dated 26 March 2021 post-dated the 2016 agreement and 2018 completion of work, and that the claim filed in 2022 was time-barred—concerned the maintainability of the claim and the jurisdiction of the statutory arbitral forum.

However, the mere jurisdictional character of an objection did not justify intervention under Articles 226 and 227 when the objection could be effectively raised before the Arbitral Tribunal.

The Court declined to determine the applicability of Silpi Industries to the facts, noting that the Tribunal could examine the registration issue in light of the applicable law and the subsequent decision in Mahakali Foods.

Similarly, limitation required examination of the contractual terms, the nature of the claim, and the date of accrual of the cause of action, matters appropriately left to the Tribunal.

As an efficacious alternative remedy existed, no exceptional circumstance warranted interference at the threshold.

The Court declined to quash the MSEFC’s reference dated 16 April 2024 or restrain the DIAC arbitral proceedings.

The petitioner was granted liberty to raise before the Arbitral Tribunal all objections concerning the date of respondent no. 2’s MSME registration, the applicability of the MSMED Act to the transaction, and limitation.

The Court expressly clarified that it had not adjudicated the merits of those objections, which were left open for determination by the Arbitral Tribunal in accordance with law.