Arbitral seat clause in contract irrelevant when arbitration is under MSME Act: Bombay High Court

The Bombay High Court has held that the seat of arbitrations conducted under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) would be determined by the Facilitation Council under the Act, and that contractual clauses which provide for another arbitral seat are irrelevant in such cases [GEA Westfalia Separator India Pvt Ltd Vs Aqua Technologies LLP].Justice Somasekhar Sundaresan made the observation while refusing to entertain petitions filed by GEA Westfalia Separator India Pvt Ltd against arbitral awards passed by the Pune Facilitation Council in favour of SVS Aqua Technologies LLP. The Court ruled that since the arbitration was conducted under Section 18 of the MSMED Act by the Council at Pune, only courts in Pune would have jurisdiction to hear such appeals under Section 34 of the Arbitration and Conciliation Act, 1996..The Court rejected GEA’s reliance on Clause 23 of a Manufacturing and Supply Agreement, which provided for “arbitration in Mumbai" in accordance with the International Center for Alternative Dispute Resolution (ICADR) Arbitration Rules, 1996.Justice Sundaresan found that this contractual arbitration clause was never invoked, as the arbitration was eventually conducted only under the MSMED Act.Consequently, the Court concluded that the contractual arbitration clause, which deemed Mumbai as the seat of arbitration, was irrelevant. "The reality is that this provision (contractual arbitral clause) was never acted upon and has been irrelevant to the arbitration proceedings (under MSMED Act) that led to the Impugned Award ... The Impugned Award is not at all connected to the arbitration agreement executed between the parties. For all purposes, substantive and practical, the arbitration clause has had no relevance and has played no role in the run up to the Impugned Award,” the Court observed.It added that GEA’s argument that Mumbai remained the arbitration seat was fallacious and disingenuous..The case concerned a dispute that arose from a Manufacturing and Supply Agreement dated November 13, 2019, between Vadodara-based GEA and Pune-based SVS Aqua Technologies.Following arbitration proceedings, the Micro and Small Enterprises Facilitation Council, Pune, passed an award in November 2024, directing GEA to pay awarded sums along with interest to SVS Aqua. GEA filed a plea before the Bombay High Court challenging this award. .The Court, however, held that it did not have the territorial jurisdiction to entertain the matter, even if the 2019 agreement contained an arbitration clause that deemed Mumbai to be the seat of arbitration. "The entire reference to the arbitration clause is a red herring inasmuch as the proceedings have been conducted squarely in terms of the MSMED Act (not ICADR Rules), in Pune (not in Mumbai), and by the Facilitation Council (not by a tribunal appointed in the manner provided in the clause)," it said. The Court also pointed out that neither of the parties before the Court was from Mumbai. “In the absence of any connecting factor that would otherwise confer jurisdiction on this Court … a challenge to the Impugned Award must necessarily lie in the principal civil court with original jurisdiction in Pune," it added, before eventually dismissing GEA's plea. .Advocates Karl Tamboly, Bhavin Shah, Amrita Dubey, Yash Pitroda, Amrita Nataranjan, Sandeep Rebari, Samiron Borkataky and Ikshvaaku Marwah, instructed by Kochhar & Co. appeared for GEA Westfalia..Advocates Yuvraj P Narvankar with Raufa Shaikh appeared for SVS Aqua..[Read Judgment]