Bombay High Court Rules MSMED Arbitration Challenges Must Be Filed in Pune, Rejects Reliance on Mumbai Arbitration Clause.


10 September 2025 Arbitration Law >> Business & Commercial Law   |   MSME (Micro, Small & Medium Enterprises) >> Business & Commercial Law  

Recently, in a verdict, the Bombay High Court dismissed petitions filed by GEA Westfalia Separator India Pvt. Ltd. under Section 34 of the Arbitration and Conciliation Act, 1996, and held that only Pune courts can decide on appeals against arbitral orders given by the Micro and Small Enterprises Facilitation Council, Pune.

The dispute arose from a manufacturing and supply arrangement between GEA and SVS Aqua Technologies LLP where differences were first subject to an arbitration clause for settlement "in Mumbai" under ICADR Rules. But in invoking the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) for arrears, arbitration was conducted before the Facilitation Council at Pune. The Council ruled in November 2024 in favor of SVS Aqua.

 
 

Opposing this award, GEA approached the Bombay High Court, holding that since the contract had stipulated arbitration in Mumbai, the "seat" being Mumbai, the said Court was seized of jurisdiction. It contended Pune to be a convenient sitting place.

SVS Aqua argued, on the other hand, that the arbitration was entirely statutory under Section 18 of the MSMED Act that overrode all other statues and that the arbitration at Pune was valid. Therefore, only Pune courts, as the local courts where the Council was functioning and where SVS Aqua was based, had jurisdiction under Section 34 to entertain challenges.

Justice Somasekhar Sundaresan agreed with SVS Aqua that the contractual arbitration clause "in Mumbai" was never pressed into service. Rather, the arbitration proceeded completely under the statutory mechanism of the MSMED Act. The Court placed emphasis that statutory arbitration under Section 18 created its own jurisdictional foundation rooted in the situs of the supplier, which in the present case turned out to be Pune.

The Court observed:

The agreement between the parties did not contain an exclusive or non-exclusive jurisdiction clause in the Mumbai courts' favor.
There was no application of the arbitration clause requiring Mumbai and ICADR Rules since the award had been issued under the MSMED Act.
The statutory "seat" of this arbitration was Pune where the Facilitation Council operated.
Precedents like Gammon Engineers (2024) were distinguishable, in that they were contracts with overt express exclusive jurisdiction clauses that did not exist in the present case.

Briefly, the High Court held that Pune courts alone had jurisdiction to hear a Section 34 challenge, inasmuch as the arbitration stemmed exclusively from the statutory regime under the MSMED Act and not from the contract between the parties. Accordingly, all the petitions and pending applications filed before the Mumbai bench were quashed for lack of jurisdiction.

The judgment reinforces the doctrine that MSMED Act arbitrations are on their own legislative footing and cannot be evaded by resort to private arbitration clauses unless exclusive jurisdiction is agreed upon.


Micro, Small and Medium Enterprises Development Act, 2006  

Arbitration and Conciliation Act, 1996