2022 (6) TMI 365 - HC - Indian Laws

Facilitation Council's Jurisdiction Upheld for Work Contracts under MSMED Act; Emphasizes Compliance and Arbitration

NBCC (India) Ltd. Versus The State of West Bengal & Ors.

The court affirmed the jurisdiction of the Facilitation Council under the MSMED Act for work contracts and deemed the proceedings maintainable under the ... Work Contract - termination for breach of contract by the respondent no.4 - validity of proceedings under the MSMED Act - HELD THAT:- It was held in M/S. KONE ELEVATOR INDIA PVT. LTD. VERSUS STATE OF TAMIL NADU AND OTHERS [2014 (5) TMI 265 - SUPREME COURT] that “ the work contract is an individual contract but, by legal fiction, is divided into two parts, one for sale of goods and the other for supply of labour and services.” As held in Principal Chief Engineer vs M/S Manibhai and Bros (Sleeper) [2017 (7) TMI 1419 - SC ORDER], The Supreme Court upheld the Gujarat High Court’s judgment [2016 (6) TMI 1444 - GUJARAT HIGH COURT] on the interpretation of Section 18 of the Act. The High Court held that since the Act is a special legislation and has an overriding effect, the parties governed by it are bound to follow the mechanism provided under Section 18 of the Act. It was further reiterated in Mackintosh Burn Limited v. Micro and Small Enterprises Facilitation Council [2020 (2) TMI 1639 - CALCUTTA HIGH COURT]. The Learned Single Judge rightly observed that “without prejudice to any of the rights and contentions of the writ petitioner, the petitioner shall participate in arbitration and that the Tribunal shall decide on its jurisdiction on inter alia the questions raised by the writ petitioner before entering into other questions.” - Appeal dismissed. Issues:Jurisdiction of Facilitation Council under MSMED Act for work contracts; Maintainability of proceedings under MSMED Act.Analysis:The appellant, a government enterprise, filed a writ petition challenging orders passed by the Facilitation Council under the MSMED Act regarding work contracts with a private company. The appellant objected to the jurisdiction of the Council and the maintainability of proceedings under the Act for work contracts. The appellant contended that the Act does not apply to work contracts as they are not covered under section 11 or the Public Procurement Policy, 2012.The court referred to legal precedents to interpret the application of the MSMED Act to work contracts. In Kone Elevator India Private Limited v. State of Tamil Nadu, it was held that a work contract is divided into parts for the sale of goods and supply of labor and services. The Supreme Court upheld the interpretation of Section 18 of the Act in Principal Chief Engineer vs M/S Manibhai and Bros (Sleeper) and reiterated in Mackintosh Burn Limited v. Micro and Small Enterprises Facilitation Council that parties governed by the Act must follow the mechanism provided under Section 18.The Learned Single Judge observed that the appellant should participate in arbitration, and the Tribunal would decide on jurisdiction and other questions raised by the appellant. The court dismissed the appeal and all connected applications, upholding the order of the Learned Single Judge without interference.In conclusion, the judgment affirmed the jurisdiction of the Facilitation Council under the MSMED Act for work contracts and deemed the proceedings maintainable under the Act. The court emphasized the importance of following the mechanism provided by the Act and participating in arbitration as per the Tribunal's decision on jurisdictional issues.