VAISHNO ENTERPRISES Vs. HAMILTON MEDICAL AG & ANR.

INTRODUCTION

In this case, the appellant, a provider of consultancy services, sought collaboration with the Company- respondent, for projects in India. However, the project tender was ultimately awarded to Medelec Solutions, a local representative of Hamilton Medical AG. Subsequently, the appellant issued a legal notice to the respondent, insisting on payment for invoices and seeking compensation. The appellant contended that it was registered under the Micro, Small, and Medium Enterprises (MSME) Act. The dispute escalated when the Micro and Small Medium Enterprises Facilitation Council, referred to as the Council, issued notices and an Intimation-cum-Notice to the respondent based on the appellant’s complaint. Challenging the Council’s jurisdiction, the High Court intervened, quashing the issued notices, and determining that the Council lacked the authority to adjudicate the dispute.

FACTS OF THE CASE

1. The appellant, a registered partnership consultant, specializes in providing liaisoning services to foreign medical equipment companies, approached the respondent company, to collaborate on projects in India. 
2. HLL Infra-Tech Services Limited, a Nodal Agency of the Government of India, floated a tender for the procurement of 1186 high-end ventilators and other medical equipment and the respondent registered under laws of Switzerland, participated in the tender through its authorized local agent, Medelec HealthCare Solutions, which was awarded the tender. Both parties entered into a Consulting Agreement with a six-month term. 
3. Invoices were raised by the appellant, which the respondent allegedly paid. The appellant, registered under the MSME Act, later initiated a legal dispute, demanding payment of Rs. 50 Lakhs as additional damages. The respondent terminated the Consulting Agreement, leading to a dispute, and under the MSME Act legal notice was sent to the respondent.
4.  In their letter to the Council Chairman, the respondent argued that the MSME Act should not apply to companies outside the country, emphasizing their lack of an office in India. A notice for a conciliation meeting was subsequently served, and the meeting was scheduled.
5. The respondent took legal action by filing a Writ Petition before the High Court, challenging the legality and validity of the notices issued by the Council, and they were granted relief, by setting aside the Council’s notices, asserting they lacked jurisdiction.
6.  The appellant dissatisfied, appealed by filing a Writ Appeal before the Division Bench of the High Court where, through the impugned judgment dismissed the appellant’s appeal, affirming the decision of the learned Single Judge. The judgment of the Division Bench is now the subject of the present appeal.

ISSUES RAISED

1. Whether the Council possesses the authority to address a dispute between the appellant and the respondent, given that the supplier is situated beyond the territorial jurisdiction of India.
2. Whether both the single and division bench of the High Court of State of Telangana at Hyderabad erred while delivering their judgments in this case.

CONTENTIONS OF APPEALENT

1.  The appellants argue that both the learned Single Judge and the Division Bench of the High Court made a mistake in concluding that the Council lacks jurisdiction to address the dispute between the parties.
2.  According to the appellants, Section 18 of the MSME Act is crucial in this context, asserting that the Council cannot have jurisdiction over a dispute involving a supplier located outside the territorial jurisdiction of India.
3.  The appellants emphasize that all agreements between the parties were executed in Delhi, and the services were rendered by them in India. Additionally, the respondent conducted its business in India through registered service centres and appointed a power of attorney holder based in Delhi to act on its behalf.
4. The appellants argue that the cause of action for the dispute can be considered to have arisen in India, with no part of it originating in Switzerland where the supplier is located. Consequently, they contend that the Council has the jurisdiction to entertain the claim petition filed by the appellant.

CONTENTIONS OF REPONDENT

1. 1. The respondent supports the judgments of both the learned Single Judge and the Division Bench, asserting that the Council lacks jurisdiction under Section 18 of the MSME Act to address the dispute between the appellant and the respondent.
2. Emphasizing the provisions of Section 18, the respondent contends that the buyer, located in Switzerland with a registered office and address there, falls outside the territorial jurisdiction of the Council. Therefore, it is rightfully held that the Council has no jurisdiction to entertain the dispute.
3. The respondent also argues that, according to the relevant provisions of the Arbitration Agreement, the MSME Act does not govern the parties. The contract, dated 24.08.2020, predates the appellant’s MSME registration on the same date. As per the Arbitration Agreement, the parties are to be governed by the law applicable in India at the time of contract execution. 
4. Due to the timing of the MSME registration and the governing law specified in the Arbitration Agreement, the respondent asserts that the Council lacks jurisdiction to address the dispute between the parties.

JUDGEMENT

The Court ruled that the Council lacks jurisdiction to adjudicate the dispute between the appellant and the respondent since the contract was executed prior to the appellant’s registration as an MSME. The Court emphasized that, in accordance with Section 18 of the MSME Act, the Council’s jurisdiction does not extend to cases where the parties are not governed by the MSME Act, as demonstrated by the timing of the contract and the appellant’s subsequent MSME registration. Citing precedents such as Shilpi Industries v. Kerala State Road Transport Corporation and Shanti Conductors Pvt. Ltd. v. Assam State Electricity Board, the Court underscored that the applicability of the MSME Act is contingent on the status of the parties at the time of contract execution. In this context, the Court concluded that the Council would have jurisdiction if the supplier were to be registered as an MSME subsequently. Consequently, the Court upheld the order of the learned Single Judge, affirmed by the Division Bench, asserting that the Council lacks jurisdiction in the present case involving the respondent.

ANALYSIS

In rendering its judgment, The Supreme Court determines the jurisdiction of the Council in addressing the dispute between the appellant and the respondent. In citing previous judgments such as Shilpi Industries v. Kerala State Road Transport Corporation and Shanti Conductors Pvt. Ltd. v. Assam State Electricity Board, which dealt with analogous provisions in the MSME Act and the Small Scale and Ancillary Industries Undertakings Act, 1993, the Court concluded that Section 18 of the MSME Act does not confer jurisdiction in this instance. Notably, the contract between the parties was executed before the appellant’s MSME registration, leading the Court to assert that the MSME Act does not govern the parties, and consequently, the Council lacks jurisdiction to entertain the dispute.

CONCLUSION

The Supreme Court, in alignment with the High Court’s decision, rejected the appeal, affirming that the Council lacks jurisdiction to address the dispute between the appellant and the respondent as per Section 18 of the MSME Act.

REFERENCES

1. SCC ONLINE
2. https://indiankanoon.org/doc/34953559/ 
3. https://www.livelaw.in/pdf_upload/march-2022-reportable-judgments-sc-vidhi-thaker-and-prastut-dalvi-live-law-414385.pdf 

This Article is written by Soumya Saisa Das student of Amity Law School, Noida (ALSN); Intern at Legal Vidhiya.

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