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M/S Harcharan Dass Gupta v. Union of India

Civil Appeal · 2025 INSC 689Decided 14 May 2025
C.A. No.-006807-006807 - 2025 (arising out of SLP (C) No. 14159 of 2025, Diary No. 33751 of 2024)
Justice Pamidighantam Sri Narasimha · Justice Joymalya Bagchi

Background

A Delhi-based MSME contractor, M/s Harcharan Dass Gupta, had a construction contract with ISRO (representing Union of India) for staff quarters in New Delhi, with a contractual clause specifying Bengaluru as the seat of arbitration. When disputes arose, the contractor invoked the Delhi Facilitation Council under Section 18 of the MSMED Act, which referred the matter to arbitration under the Delhi Arbitration Centre. The Karnataka High Court held the Delhi Arbitration Centre lacked jurisdiction because the contract specified Bengaluru as the seat.

Decision Breakdown

The Supreme Court allowed the appeal, restoring the arbitral proceedings before the Delhi Arbitration Centre. Relying on its earlier decision in Gujarat State Civil Supplies Corporation v. Mahakali Foods, the Court held that the MSMED Act's special provisions override the general Arbitration and Conciliation Act, and that under Section 18(4) of the MSMED Act, jurisdiction to conduct arbitration for a registered MSME supplier vests with the Facilitation Council located where the supplier is based (here, Delhi) regardless of what seat of arbitration the underlying commercial contract specifies. It clarified it had not touched the merits of the dispute and directed the arbitrator to allow both sides to argue all permissible questions of law and fact.

Lesson Learnt

When a small business (MSME) is a party to a contract, the statutory dispute-resolution mechanism under the MSMED Act, including where arbitration is conducted, can override a contractually agreed seat of arbitration; large buyers cannot rely on standard contract clauses to avoid the MSME-protective forum.

Official source (sci.gov.in)View Judgment (PDF)

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