Writ courts should not pre-emptively interfere with MSMED arbitration where objections can be raised before the tribunal.

The petitioner, a Government-owned public sector undertaking, entered into an agreement dated 22 June 2015 with respondent no. 2 for execution of telecom infrastructure works in Pathankot, Punjab.

The work was completed and the final invoice was raised on 1 February 2018. Respondent no. 2 obtained registration as a Micro, Small and Medium Enterprise on 26 March 2021 and subsequently raised 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 of the Constitution, contending that respondent no. 2 could not retrospectively invoke the MSMED Act for a contract 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 the objections concerning MSME status, applicability of the MSMED Act, jurisdiction, and limitation could be raised before and determined by the Arbitral Tribunal?

The Court applied the principle that judicial review under Articles 226 and 227 of the Constitution in relation to arbitral proceedings must be exercised sparingly, particularly where the objections can be adjudicated by the Arbitral Tribunal under the statutory arbitration framework.

It considered the Micro, Small and Medium Enterprises Development Act, 2006, including the question of an enterprise’s entitlement to invoke its dispute-resolution mechanism.

The Court noted the petitioner’s reliance on Silpi Industries v. Kerala State Road Transport Corporation, (2021) 18 SCC 790, concerning the effect of subsequent MSME registration, but also relied on the later 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 a party’s MSME status and entitlement to invoke the MSMED Act may be raised before the forum seized of the arbitral proceedings.

Questions of limitation, including the accrual of cause of action and the effect of contractual terms, were likewise held to be matters capable of determination by the Arbitral Tribunal.

The Court held that the petitioner’s objections—whether respondent no. 2’s registration on 26 March 2021 permitted it to invoke the MSMED Act in respect of the 2015 agreement and work completed in 2018, and whether the claim was time-barred—were principally objections to the maintainability and jurisdiction of the proceedings.

However, the mere assertion that the reference was without jurisdiction did not justify writ intervention because these issues could be raised before and examined by the Arbitral Tribunal under the applicable arbitration regime.

The Court expressly declined to determine the applicability of Silpi Industries or the merits of the limitation objection, observing that the latter required examination of the nature of the claim, contractual terms, and the date on which the cause of action accrued.

Since no exceptional circumstance warranting interference at the threshold was established, the writ petition was held not maintainable at that stage.

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

The Court clarified that it had expressed no opinion on the merits of these objections, which were left open for determination by the Arbitral Tribunal in accordance with law.