Primacy of MSME Facilitation Council Arbitration over GeM Contract Clauses and Limits of Writ Jurisdiction: Commentary on LGBRIMH v. Green Alliance (Gauhati High Court, 18 Nov 2025)

MSMED Act Arbitration Overrides GeM Arbitration Clauses and Writ Jurisdiction is Not a Substitute: A Commentary on LGBRIMH v. Green Alliance Engineering Services Pvt. Ltd.

1. Introduction

1.1. The Decision in Context

In Lokopriya Gopinath Bordoloi Regional Institute of Mental Health, Tezpur v. M/s Green Alliance Engineering Services Pvt. Ltd. & Ors., W.P.(C) No. 5962/2025, judgment dated 18.11.2025, the Gauhati High Court (per Manish Choudhury, J.) addressed two interlinked questions:

  • Can a public institution, bound by a Government e‑Marketplace (GeM) contract containing an arbitration clause and a specified seat of arbitration, avoid proceedings initiated under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) by insisting on the contractual arbitration mechanism?
  • Is a writ petition under Article 226 maintainable to quash or restrain arbitration proceedings commenced pursuant to Section 18 of the MSMED Act and conducted through the Delhi International Arbitration Centre (DIAC)?

The judgment is significant because it:

  • Applies and reinforces the Supreme Court’s ruling in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., (2023) 6 SCC 401, on the overriding effect of the MSMED Act over the Arbitration and Conciliation Act, 1996.
  • Follows M/S HARCHARAN DASS GUPTA v. UNION OF INDIA, 2025 INSC 689, to hold that the seat and forum of arbitration for MSME disputes are statutorily determined by Section 18(4) MSMED Act, irrespective of a contractual seat clause.
  • Reaffirms the limited role of writ jurisdiction in private contractual disputes, even when one party is a State‑funded institution, and the availability of arbitral remedies under the Arbitration and Conciliation Act, 1996.

1.2. Parties and Contractual Setting

  • Petitioner: Lokopriya Gopinath Bordoloi Regional Institute of Mental Health (LGBRIMH), Tezpur, an autonomous society fully funded by the Ministry of Health & Family Welfare, Government of India – a tertiary mental health care institute.
  • Respondent No. 1: M/s Green Alliance Engineering Services Pvt. Ltd. (GAESPL), a manpower service provider and an MSME “supplier” under the MSMED Act.
  • Respondent No. 2: Delhi International Arbitration Centre (DIAC), an institutional arbitration centre under the Delhi High Court.
  • Respondent No. 3: The Sole Arbitrator appointed by DIAC.
  • Respondent No. 4: Micro and Small Enterprises Facilitation Council, District (West), New Delhi (the “Facilitation Council”).

LGBRIMH and GAESPL entered into a GeM contract (Contract No. GEMC‑511687733020098 dated 05.11.2021) for outsourcing manpower services, effective from 08.11.2021 to 07.11.2022, valued at Rs. 1,30,87,348.56.

1.3. Factual Background in Brief

Key factual elements:

  • Contractual obligations: GAESPL was bound to comply with labour laws (Minimum Wages, Payment of Wages, EPF/ESI, Contract Labour (Regulation and Abolition) Act) and with specific GeM clauses mandating:
    • Timely wage payment and EPF/ESI deposits (Clauses 4.1, 5, 8).
    • Penalties for delayed payments (Clause 8).
    • Termination for breach (Clause 11).
    • Withholding of payments pending compliance (Clauses 9.2, 9.3).
    • An amicable settlement cum arbitration mechanism (Clause 16). The seat of arbitration under Clause 16.2(vi) was fixed at the place of the buyer’s principal place of business – here, Tezpur, Assam.
  • Alleged breaches by GAESPL:
    • Delayed payment of wages for multiple months (Nov 2021–Aug 2022).
    • Delayed deposits of EPF/ESI contributions (July–Aug 2022).
    • Unauthorized collection of Rs. 5,16,000 from workers.
    LGBRIMH issued several notices (e.g., 13.01.2022, 18.01.2022, 20.01.2022).
  • Termination and consequences:
    • Contract terminated with effect from 31.08.2022; intimation dated 26.08.2022.
    • Performance Bank Guarantee (PBG) of Rs. 4,75,477 forfeited.
    • Cancellation/penalty charges of Rs. 13,08,735 imposed under Clause 8.
    • LGBRIMH directly paid workers’ wages for July–August 2022 (Rs. 4,39,016) to comply with Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970.
  • Failed amicable settlement & contractual arbitration trigger:
    • GAESPL sought amicable settlement under Clause 16.1; a Dispute Resolution Committee was constituted (order dated 01.11.2023) but failed to resolve the dispute.
    • By letter dated 16.12.2023, GAESPL sought arbitration under Clause 16.2.
    • On 03.01.2024, LGBRIMH appointed an arbitrator under Clause 16.2 (three‑member tribunal regime), and called upon GAESPL to appoint its arbitrator. GAESPL did not do so.
  • MSME route invoked instead:
    • On 27.03.2024, GAESPL filed an application before the Delhi Facilitation Council under Section 18(1) MSMED Act, registered as Application No. UDYAM-DL-11-0012137/M/00001.
    • GAESPL claimed Rs. 40,68,348 (alleged delayed payments against Invoice No. GAESPL/22-23/147 dated 27.07.2022, and related dues) and invoked Chapter V (Sections 15–18) of the MSMED Act.
    • The Council issued an intimation to LGBRIMH on 27.03.2024, calling upon it to pay within 15 days, failing which a case would be registered.
    • LGBRIMH objected to the Council’s jurisdiction (03.04.2024; reiterated on 22.08.2024), arguing:
      • The dispute was about contractual breaches, not “delayed payment”.
      • No dues were pending; penalties and forfeiture were contractually justified.
      • An existing arbitration clause under the GeM contract had already been invoked.
    • Conciliation failed; by letter dated 31.08.2024, the Council referred the dispute to DIAC under Section 18(3) MSMED Act. DIAC registered Case No. DIAC/9258/09-24 and appointed a sole arbitrator (Respondent No. 3).

1.4. The Writ Petition

LGBRIMH approached the Gauhati High Court under Article 226 seeking, in essence:

  • A declaration that GAESPL’s MSME claim (based on the termination order dated 26.08.2022) was not maintainable under the MSMED Act, in view of GeM Clauses 16 and 17.
  • Quashing of DIAC Arbitration Case No. DIAC/9258/09-24 as without jurisdiction and in violation of the GeM arbitration clause and seat provision (Clause 16.2(vi)).
  • An order restraining DIAC and the arbitrator from proceeding further until the “jurisdictional issue” was decided.
  • A direction to GAESPL to resolve the dispute exclusively through the GeM contractual mechanism.

The High Court framed the central question as the maintainability of the writ petition, but necessarily had to address the interaction between the MSMED Act and the contractual arbitration clause to answer that question.

2. Summary of the Judgment

2.1. Core Holdings

  1. MSMED Act proceedings override the contractual arbitration clause (including seat clause):
    Once GAESPL – a supplier within the meaning of Section 2(n) MSMED Act located in Delhi – invoked Section 18(1) before the Delhi Facilitation Council, the statutory mechanism under Section 18 prevailed over the contractual arbitration clause in Clause 16.2 of the GeM contract. Section 18(4) confers jurisdiction on the Facilitation Council where the supplier is located, “notwithstanding anything contained in any other law”. Any contractual provision regarding seat of arbitration at Tezpur (Assam) was overridden.
  2. DIAC and the appointed arbitrator have jurisdiction:
    The Council lawfully referred the dispute to DIAC under Section 18(3), and DIAC validly initiated arbitral proceedings. The arbitration is deemed to be “as if” under an arbitration agreement per Section 7(1) of the Arbitration and Conciliation Act, 1996.
  3. Writ petition not maintainable for private contractual disputes and to short‑circuit arbitral remedies:
    The GeM contract is a non‑statutory contract. Disputes arising therefrom are in the realm of private law. Even assuming LGBRIMH is “State” under Article 12, the outsourcing contract does not involve a public duty; therefore:
    • No public law element justifying writ intervention exists.
    Additionally, arbitral remedies under Sections 16 and 34 of the Arbitration and Conciliation Act remain available and adequate.
  4. Rejection of reliefs sought under Article 226:
    The Court refused to:
    • Declare the MSMED proceedings non‑maintainable.
    • Quash DIAC Case No. DIAC/9258/09-24.
    • Restrain DIAC or the arbitrator from proceeding.
    • Compel GAESPL to adhere only to the GeM contractual arbitration.
  5. Preservation of the petitioner’s right to challenge within the arbitral framework:
    The Court explicitly clarified that:
    • LGBRIMH is free to raise all legal and factual objections, including jurisdictional objections, before the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act.
    • Rejection of a jurisdictional objection by the tribunal does not preclude a challenge under Section 34 against the eventual award.
    • The High Court has not examined or expressed any view on the merits of the underlying contractual claims.

3. Detailed Analysis

3.1. Statutory Framework

3.1.1. MSMED Act, 2006 – Chapter V (Sections 15–18, 24)

The Court carefully set out the delayed payments regime:

  • Section 15 – Liability of buyer to make payment:
    The buyer must pay for goods or services supplied by an MSME on or before the date agreed in writing, which in no case can exceed 45 days from the date of acceptance or deemed acceptance.
  • Section 16 – Interest on delayed payments:
    If the buyer fails to pay as per Section 15, they are liable to pay compound interest with monthly rests, at three times the RBI bank rate, notwithstanding anything in any agreement or other law.
  • Section 17 – Recovery of amount due:
    For goods supplied or services rendered, the buyer is liable to pay the principal amount plus interest under Section 16. This is the substantive right of the supplier and the corresponding obligation of the buyer.
  • Section 18 – Reference to Facilitation Council:
    • 18(1): Despite anything in any other law, any party to a dispute about any amount due under Section 17 may make a reference to the Facilitation Council.
    • 18(2): The Council conducts conciliation itself or through an ADR institution, applying Sections 65–81 of the Arbitration and Conciliation Act.
    • 18(3): If conciliation fails, the Council either itself arbitrates or refers the matter to an ADR institution for arbitration. The Arbitration and Conciliation Act applies as if the arbitration were pursuant to an arbitration agreement under Section 7(1) of that Act.
    • 18(4): Notwithstanding anything in any other law, the Council or ADR centre has jurisdiction to act as arbitrator/conciliator in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India.
    • 18(5): References under Section 18 are to be decided within 90 days.
  • Section 24 – Overriding effect:
    Sections 15–23 of the MSMED Act have effect “notwithstanding anything inconsistent therewith” in any other law for the time being in force.

3.1.2. Arbitration and Conciliation Act, 1996

Relevant provisions mentioned or implicated:

  • Section 7: Defines an “arbitration agreement” and allows it in the form of a clause or a separate agreement.
  • Section 16: Embodies the principle of kompetenz‑kompetenz – the arbitral tribunal may rule on its own jurisdiction, including objections to the existence or validity of the arbitration agreement.
  • Section 34: Provides for setting aside an arbitral award on specified grounds, including jurisdictional infirmities.
  • Sections 65–81 (Part III): Conciliation provisions, applied mutatis mutandis by Section 18(2) MSMED Act.
  • Section 80: Generally prohibits a conciliator from acting as arbitrator in respect of the same dispute; however, this is subject to the overriding provisions of the MSMED Act (as held in Mahakali Foods and adopted here).

3.1.3. GeM Contract – Clause 16 (Dispute Resolution)

The GeM contract clearly provided:

  • Clause 16.1 (Amicable Settlement): Parties to attempt amicable resolution of disputes arising out of or in connection with the contract.
  • Clause 16.2 (Arbitration):
    • In case disputes are not resolved amicably, either party may invoke arbitration by written notice.
    • For contracts over Rs. 1 crore, a three‑member tribunal: each party appoints one arbitrator, the two appoint a presiding arbitrator.
    • Seat of arbitration: Clause 16.2(vi) – the seat is the place where the buyer’s principal place of business is located (here, Tezpur, Assam).

This clause fulfils the requirements of Section 7 Arbitration and Conciliation Act, and LGBRIMH had in fact invoked it by appointing an arbitrator on 03.01.2024. However, as the High Court emphasised, a private arbitration clause is ultimately subordinate to the statutory regime of the MSMED Act when that Act is properly triggered.

3.2. Precedents Cited and Their Influence

3.2.1. GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v. MAHAKALI FOODS PVT. LTD. (UNIT 2), (2023) 6 SCC 401

Two questions from Mahakali Foods were central to this case:

  1. Do the provisions of Chapter V of the MSMED Act override the Arbitration and Conciliation Act, 1996?
  2. Does the existence of an independent arbitration agreement under Section 7 of the Arbitration and Conciliation Act bar a reference to the Facilitation Council under Section 18(1) MSMED Act?

The Supreme Court’s answers were unambiguous:

  • MSMED Act as special legislation overrides the Arbitration Act:
    The Court characterized the Arbitration Act as a general law on arbitration and conciliation, whereas the MSMED Act, particularly Chapter V, is a special law dealing specifically with delayed payments to MSMEs. As a later special statute with specific overriding clauses (Sections 18(1), 18(4), and 24), the MSMED Act prevails. The judgment (para 42, as quoted) also referred to Silpi Industries v. Kerala SRTC, (2021) 18 SCC 790, reinforcing that MSMED overrides contrary arbitral stipulations.
  • Non obstante clauses and legal fiction in Section 18(3):
    The Court noted that Section 18(1) and (4) contain “notwithstanding” clauses, indicating legislative intent to override any other law. Further, Section 18(3) uses a legal fiction (“as if”) to treat the arbitration as if it arose from a Section 7 arbitration agreement, even where no such prior agreement existed or even where a different agreement existed.
  • Private arbitration agreement cannot oust MSMED jurisdiction:
    Importantly, the Supreme Court held that:
    • “A private agreement between the parties cannot obliterate the statutory provisions.”
    • Once the Section 18(1) mechanism is triggered by a party, it overrides the independent arbitration agreement.
    • Section 18(1) is an enabling provision that creates a substantive right for MSMEs to approach the Council, notwithstanding an existing arbitration clause.
  • Conciliator can later act as arbitrator under MSMED regime:
    Section 80 Arbitration Act, which normally bars a conciliator from acting as arbitrator in the same dispute, is overridden by Section 18 read with Section 24 MSMED Act. Hence, a Facilitation Council that attempted conciliation can later arbitrate the same dispute.

The Gauhati High Court expressly relied on these principles to hold:

  • That Chapter V of the MSMED Act overrides the Arbitration and Conciliation Act.
  • That GAESPL’s recourse to Section 18(1) was valid despite the GeM arbitration clause.
  • That once the MSME process was triggered, the Council and DIAC’s jurisdiction could not be nullified by invoking the contractual seat or procedure.

3.2.2. M/S HARCHARAN DASS GUPTA v. UNION OF INDIA, 2025 INSC 689

In Harcharan Dass Gupta, the appellant (a registered MSME supplier) had a contract with ISRO, with a contractual arbitration clause fixing the seat at Bengaluru. The MSME supplier, however, invoked Section 18 before the Delhi Facilitation Council, which referred the matter to the Delhi Arbitration Centre. The Karnataka High Court had quashed the proceedings on the ground that the contractual seat at Bengaluru had to prevail.

The Supreme Court reversed the High Court, holding:

  • Section 18(4) MSMED Act statutorily determines jurisdiction and seat:
    The Facilitation Council where the supplier is located has jurisdiction, and may conduct or refer arbitration, irrespective of where the contract-fixed seat lies.
  • Mahakali Foods is binding:
    The Supreme Court reaffirmed that the MSMED Act overrides contractual arrangements regarding arbitral seat and forum.

The Gauhati High Court applied this precedent directly:

  • GAESPL, as a supplier, is located in Delhi.
  • The Delhi Facilitation Council is thus the proper statutory forum under Section 18(4).
  • The referral to DIAC, based in Delhi, for arbitration is fully consistent with the MSMED Act.
  • The GeM clause stipulating Tezpur as the seat cannot displace this statutory arrangement.

3.2.3. Public Law/Writ Jurisdiction Cases: Andi Mukta and K.K. Saksena

The Gauhati High Court held these authorities inapplicable because:

  • The GeM contract for manpower outsourcing was a voluntary, non‑statutory commercial arrangement.
  • Although LGBRIMH performs public functions in mental health care, its decision to outsource manpower via contract is not a statutory public duty.
  • Therefore, no public law element was involved in the dispute over penalties, termination, and payment – it was purely contractual.

3.2.4. Alternate Remedy and Writs: Whirlpool and Tamil Nadu Cements

  • Whirlpool Corporation v. Registrar of Trade Marks, (1998) 8 SCC 1:
    Recognized that availability of an alternate remedy does not bar writ jurisdiction in at least three contingencies: (i) enforcement of fundamental rights; (ii) violation of principles of natural justice; (iii) orders wholly without jurisdiction or challenge to vires of the statute.
  • Tamil Nadu Cements Corporation Ltd. v. Micro & Small Enterprises Facilitation Council, [2025] 4 SCC 1:
    A three‑Judge Bench considered Whirlpool and Mahakali Foods together and referred certain questions about the maintainability of writs against MSME Council orders/awards to a larger Bench (five Judges). However, as noted by the Gauhati High Court, the specific issue in the present case is not one of the referred questions.

The Gauhati High Court therefore:

  • Recognized the Whirlpool exceptions but held that they do not apply here, because:
    • There was no violation of natural justice in the MSME/DIAC process alleged or demonstrated.
    • Once Mahakali Foods and Harcharan Dass Gupta are applied, DIAC and the Council cannot be said to be “wholly without jurisdiction”.
    • No challenge to the vires of the MSMED Act was raised.
  • Held that pending reference in Tamil Nadu Cements does not dilute the binding character of Mahakali Foods and Harcharan Dass Gupta on the issues actually decided therein.

3.3. The Court’s Legal Reasoning

3.3.1. MSMED Mechanism vs. Contractual Arbitration Clause

The petitioner’s central argument was that:

  • The dispute is about contractual breach (delayed wages to workers, statutory non‑compliance by GAESPL, unauthorized recovery from workers) and termination, not about “delayed payment” to GAESPL as a supplier.
  • Therefore, the MSMED regime (Sections 15–18) is inapplicable.
  • Since GAESPL itself invoked Clause 16 of the GeM contract, it was bound by that mechanism and could not abandon it for MSME proceedings.

The Court did not accept this characterization. Instead, it treated the dispute as one where:

  • GAESPL claimed dues (Rs. 40,68,348) against an invoice for services rendered, alleging delayed or non‑payment by LGBRIMH – bringing it squarely within Section 17 MSMED Act (recovery of amount due for services rendered with interest under Section 16).
  • The termination and penalties formed part of the overall financial dispute, which the MSME mechanism is competent to adjudicate as part of the Section 18 reference.

Applying Mahakali Foods, the High Court held:

  • Section 18(1) is an enabling provision creating a statutory right in favour of the MSME supplier to approach the Facilitation Council.
  • A pre‑existing arbitration clause, even if invoked earlier, cannot curtail or negate this statutory right.
  • Once GAESPL invoked Section 18(1), the Council’s process (conciliation → arbitration/referral to DIAC) takes precedence.

3.3.2. Jurisdiction and Seat of Arbitration under Section 18(4)

Clause 16.2(vi) arguably fixed Tezpur, Assam (the buyer’s principal place of business) as the seat. LGBRIMH argued that arbitration at DIAC in Delhi breached this clause and was therefore without jurisdiction.

Relying on Section 18(4) MSMED Act and Harcharan Dass Gupta, the Court concluded:

  • Under Section 18(4), the Facilitation Council where the supplier is located has jurisdiction over the dispute “notwithstanding anything” in any other law.
  • GAESPL is a supplier located in Delhi. The Delhi Facilitation Council, and through it DIAC, are thus the statutorily designated fora.
  • The contractual seat at Tezpur is overridden by the statutory scheme. In MSME disputes, the concept of “seat” is effectively anchored by Section 18(4) at the supplier’s location (or the Council’s location), rather than by contract.

Consequently, the Court held that:

  • The arbitration before DIAC (Case No. DIAC/9258/09-24) is not without jurisdiction.
  • Reliefs seeking to quash or restrain DIAC/arbitral proceedings on jurisdictional grounds lack merit.

3.3.3. Writ Maintainability and Public Law Element

A second, independent basis for rejecting the writ petition was the absence of a public law element and the availability of adequate arbitral remedies.

The Court reasoned:

  • The GeM contract is not a statutory contract. It is based on commercial terms voluntarily agreed between LGBRIMH and GAESPL.
  • Disputes regarding:
    • Delayed wage payments by the contractor to its employees.
    • EPF/ESI deposit timelines.
    • Penalties, PBG forfeiture and termination under contract clauses.
    Though they may incidentally touch labour law compliance, are in essence disputes over private contractual rights and obligations.
  • Such disputes fall within the realm of private law and must be adjudicated:
    • either in civil courts, or
    • through arbitration if an arbitration clause exists (as it does here), or
    • through the special statutory route (MSMED Act) if applicable.
  • A writ of mandamus is generally not issued to enforce contractual terms or to control the conduct of arbitration, particularly where:
    • No fundamental right violation is shown.
    • No clear lack of jurisdiction exists in the statutory tribunal (here, the MSME Council/DIAC).
    • No breach of natural justice is made out.

On this basis, the Court held that the writ petition is not to be entertained, reiterating that:

  • The appropriate forum to contest jurisdiction and merits is the arbitral tribunal (Section 16 A&C Act), followed by a challenge under Section 34, if necessary.
  • Article 226 should not be converted into a forum to pre‑empt or short‑circuit the statutory arbitration process, particularly where Parliament has created a specialised regime (MSMED Act).

3.3.4. Deference to Arbitral Tribunal (Kompetenz‑Kompetenz)

The Court underscored that:

  • The arbitral tribunal under the DIAC reference has the power to decide its own jurisdiction under Section 16 Arbitration and Conciliation Act, like any other arbitral tribunal.
  • LGBRIMH’s objections to the applicability of MSMED Act, or to the scope of Section 17 (whether the dispute truly concerns an “amount due”), or to any procedural irregularity can be raised there.
  • Even if the tribunal rejects these objections, LGBRIMH retains the right to approach the competent court under Section 34 to set aside any eventual award.

By emphasising this, the High Court refused to usurp, at a preliminary stage, the role of the arbitral tribunal in determining its own competence and the scope of the reference.

3.4. Impact and Implications

3.4.1. For Government Institutions and Publicly Funded Bodies

The decision has clear implications for government institutions and other public bodies that procure through GeM or similar contracts:

  • Cannot contract out of MSMED obligations:
    Even if a public body uses a standardised contractual framework (like GeM) with its own dispute resolution and seat clause, it cannot, by contract, prevent an MSME supplier from exercising its statutory right under Section 18 MSMED Act.
  • Geographical convenience of seat cannot trump statute:
    Bodies in distant states (like Assam) must be prepared to participate in MSME arbitration where the supplier (e.g., in Delhi) is located.
  • Due diligence on supplier’s MSME status becomes critical:
    Procuring entities should:
    • Ascertain whether vendors/suppliers are registered MSMEs.
    • Recognize that such suppliers can choose between contractual arbitration and MSME Facilitation Council remedies, with the latter taking precedence if invoked.

3.4.2. For MSME Suppliers and Contractors

For MSMEs like GAESPL, the judgment is strongly favourable:

  • Affirmation of choice and primacy of MSME route:
    MSMEs are free to:
    • Rely on contractual arbitration, or
    • Invoke Section 18 MSMED Act,
    and the latter option, once exercised, overrides contrary contractual arrangements.
  • Enhanced bargaining and enforcement position:
    Buyers cannot pre‑emptively neutralise the MSME route through seat clauses or forum selection clauses.

3.4.3. For Arbitration Practice and DIAC

  • Institutional arbitration as an extension of MSME regime:
    DIAC, acting under a Section 18(3) referral, conducts arbitration that is legally equated with arbitration under a Section 7 agreement. This reinforces DIAC’s role as a preferred institutional forum for MSME disputes arising in Delhi.
  • Limits on court intervention at pre‑award stage:
    High Courts are reminded not to derail such arbitrations via writs, unless there is a clear case of lack of jurisdiction, which is not easily made out after Mahakali Foods and Harcharan Dass Gupta.

3.4.4. Interaction with the Pending Larger Bench in Tamil Nadu Cements

The reference to a larger Bench in Tamil Nadu Cements relates broadly to the circumstances in which writs may lie against MSME Council orders/awards. The Gauhati High Court cautiously notes that the issues in this case are not among those referred.

Until the larger Bench decides otherwise:

  • Mahakali Foods and Harcharan Dass Gupta remain binding on all High Courts.
  • Statutory MSME arbitration will continue to override conflicting arbitral agreement clauses.
  • Writ jurisdiction will remain tightly circumscribed when used to interrupt MSME-based arbitrations.

4. Simplifying Key Legal Concepts

4.1. What is an “Amount Due” under Sections 15–17 MSMED Act?

In simple terms:

  • When an MSME supplies goods or renders services, the buyer must pay within the agreed period, but not more than 45 days from acceptance.
  • If the buyer does not pay in time, the MSME is entitled to:
    • The principal amount, and
    • Compound interest on that amount from the day after it became due, at three times the RBI bank rate.
  • Any dispute about this principal + interest is a dispute about an “amount due” under Section 17, which can be referred to the Facilitation Council under Section 18(1).

Even if the dispute also involves allegations of breach, termination, or penalties, as long as the supplier claims payment for goods/services rendered, the Council can adjudicate the entire financial dispute, including set‑offs and counter‑claims.

4.2. What is a “Non Obstante” Clause?

A non obstante clause typically starts with words like “Notwithstanding anything contained in any other law...”. It means:

  • The provision containing this clause will prevail over any conflicting law or agreement.
  • In the MSMED Act:
    • Section 18(1) and 18(4) begin with such language, signalling that the MSME dispute resolution mechanism overrides other laws (including the Arbitration Act) and private contracts.
    • Section 24 provides that Sections 15–23 of the MSMED Act override all inconsistent laws.

4.3. Statutory vs. Non‑Statutory Contracts

A contract is statutory if:

  • Its terms are prescribed by statute (law), or
  • It is entered into under a specific statutory power and in a form/statutory scheme that leaves little or no room for voluntary terms.

A non‑statutory contract is one in which:

  • Parties freely negotiate or accept terms, even if one party is a government body or a public authority.

Here, the GeM contract:

  • Was entered into voluntarily by LGBRIMH and GAESPL.
  • Though conducted via a government platform (GeM), the essential obligations and remedies arose from consent.
  • Therefore, it is a non‑statutory contract. Disputes under it are typically not resolved via writ jurisdiction, but through civil suits or arbitration.

4.4. “Seat of Arbitration” vs. “Venue”

In arbitration:

  • The seat of arbitration is the legal location. It determines:
    • Which court has supervisory jurisdiction (e.g., for Section 34 challenges).
    • The procedural law governing the arbitration.
  • The venue is the physical place where hearings are held, which can be different from the seat.

In MSME disputes:

  • Section 18(4) MSMED Act gives jurisdiction to the Council where the supplier is located, regardless of contractual seat clauses.
  • When that Council (or its chosen institution like DIAC) conducts arbitration, that effectively fixes the “seat” in that jurisdiction (unless otherwise specified consistently with the statute).

4.5. Kompetenz‑Kompetenz (Tribunal’s Power to Decide Its Own Jurisdiction)

Under Section 16 Arbitration and Conciliation Act:

  • The arbitral tribunal is empowered to rule on:
    • Its own jurisdiction.
    • The existence or validity of the arbitration agreement.
  • This principle, known as kompetenz‑kompetenz, is meant to:
    • Allow arbitration to proceed without constant court interference.
    • Reserve judicial scrutiny for the stage of challenging an award under Section 34, rather than at every preliminary objection.

In this case, the High Court essentially said:

  • Let the MSME‑based arbitral tribunal (appointed through DIAC) decide any jurisdictional issues first.
  • Court interference at the pre‑award stage through a writ is neither necessary nor appropriate, particularly given the statutory framework favouring MSME arbitration.

5. Conclusion: Key Takeaways and Significance

5.1. Key Takeaways

  1. MSME Arbitration is Statutorily Superior to Contractual Arbitration in Case of Conflict:
    Once an MSME supplier invokes Section 18(1) MSMED Act, the special statutory mechanism (conciliation followed by arbitration through the Council or an ADR institution) overrides any inconsistent clause in a prior arbitration agreement, including GeM‑based clauses and seat provisions.
  2. Seat of Arbitration in MSME Disputes is Determined by Supplier’s Location:
    Under Section 18(4), the Facilitation Council (and its chosen ADR institution) where the supplier is located enjoys jurisdiction, irrespective of contractual seat clauses fixing another city or state.
  3. Writ Jurisdiction is Not a Substitute for Arbitral Remedies:
    Even for public or government‑funded institutions, disputes arising from non‑statutory commercial contracts are generally not amenable to writ jurisdiction. Arbitral and statutory remedies (Sections 16 and 34 Arbitration Act, and Chapter V MSMED Act) must be pursued instead.
  4. Public Function vs Private Contract Distinction is Crucial:
    The mere fact that a body performs public functions (e.g., healthcare) does not convert its commercial procurement contracts into “public law” disputes. Unless the contract itself is statutory or involves performance of a statutory public duty, mandamus will ordinarily not lie.
  5. Arbitral Tribunals Remain the Primary Forum for Jurisdictional Objections:
    Parties challenging the applicability of MSMED Act, or contesting the tribunal’s jurisdiction, must normally raise such issues before the arbitral tribunal under Section 16, and then, if necessary, under Section 34 after the award.

5.2. Broader Legal Significance

The Gauhati High Court’s decision in LGBRIMH v. Green Alliance is not path‑breaking in creating an entirely new doctrine; rather, its significance lies in its faithful and robust application of the Supreme Court’s MSME jurisprudence (Mahakali Foods, Harcharan Dass Gupta) to:

  • A government procurement scenario via GeM.
  • A geographically distinct buyer–supplier arrangement (Assam buyer, Delhi supplier).
  • A context where the buyer had already invoked a contractual arbitration mechanism.

By refusing to entertain a writ that sought to displace the MSME statutory forum and DIAC‑based arbitration, the Court:

  • Reinforces the protective purpose of the MSMED Act for micro and small enterprises.
  • Signals to public buyers that they must respect statutory remedies chosen by MSMEs, even where contractual frameworks (like GeM) provide alternative dispute resolution mechanisms.
  • Clarifies that Article 226 is not to be used as an umbrella to shield public institutions from the consequences of the special protections accorded to MSMEs.

In practical terms, this judgment strengthens the hand of MSME suppliers in enforcing their financial claims and interest on delayed payments, while simultaneously reaffirming the discipline of arbitral self‑governance and the limited, carefully‑circumscribed role of writ courts in commercial and arbitral matters.

Case Details

Year: 2025
Court: Gauhati High Court

Judge(s)

HONOURABLE MR. JUSTICE MANISH CHOUDHURY

Advocates

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