M/S. VAISHNO ENTERPRISES versus HAMILTON MEDICAL AG & ANR. on 24 March 2022

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court for the State of Telangana atHyderabad in Writ Appeal No. 201 of 2021 by which the High Court hasdismissed the said appeal and has confirmed the order passed by thelearned Single Judge quashing the Intimation-cum-Notice dated22.10.2020 and Notices dated 04.11.2020 and 12.11.2020 issued by Microand Small Medium Enterprises Facilitation Council (hereinafter referredto as ‘the Council’), the original applicant has preferred the present appeal.

2. That the appellant is a registered partnership consultant whichprovides consultancy services to foreign medical equipment companiesin the form of liaisoning services with hospitals and governmentdepartments and entities for procurement of medical equipment likeventilators. That Respondent No.1 herein is a company registered underthe laws of Switzerland, having its office at Bonaduz, Switzerland and isa manufacturer and supplier of critical care ventilation solutions for avariety of patient segments, applications and environments across theworld. According to the respondent, it has its own consultants, engagedin India, who facilitate the installation of their equipment and undertakerelated ancillary work. That the appellant herein which providesconsultancy services, approached the respondent-Company andrequested to be associated with the Company in implementation of theirprojects in India. One HLL Infra–Tech Services Limited, a Nodal Agency B

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Aof the Government of India, floated a tender dated 20.08.2018 topurchase/procure 1186 high end ventilators and other medical equipmentto be supplied to various hospitals/medical colleges/departments acrossIndia. The respondent also participated in the said tender by offering itsbid through its authorized local agent, M/s Medelec Health Care Solutions.The tender was awarded in favour of the said Medelec Solutions. ThatBthereafter the appellant and the respondent entered into a ConsultingAgreement on 10.02.2020, with a restricted term of six months, agreeingthat the appellant herein shall act as a consultant for the respondent –Company. That thereafter the appellant raised various invoices claimingcertain amounts. The same were alleged to have been paid by theCrespondent. That the earlier Consulting Agreement dated 10.02.2020expired on 10.08.2020, the appellant and the respondent entered into afresh Consulting Agreement on 24.08.2020 for a period of six months.That the appellant herein got registered under the Micro, Small andMedium Enterprises Act, 2006 (hereinafter referred to as, ‘MSME Act’)on 28.08.2020. That thereafter the dispute arose between the parties. ADlegal notice dated 09.09.2020 was sent by the appellant calling upon therespondent to pay the amounts covered by Invoice No. 5 dated 22.06.2020and Invoice No. 6 dated 07.09.2020 and one another along with damagesof Rs.50 lakhs. In the said notice, the appellants informed that it wasregistered under the MSME Act. The respondent terminated theEConsulting Agreement dated 24.08.2020 vide termination letter dated22.10.2020. That the appellant herein replied to the termination noticevide reply dated 16.11.2020. That as the dispute arose between the parties,the appellant herein approached the Council on 22.10.2020 which casewas registered as Reference No.1581/MSEFC/2020. The appellantprayed for the following reliefs:F

(a) That the opposite party is liable to pay the petitioner a sum ofUSD 711,845/- equivalent to Rs.5,21,85,357/- towards Invoice No.5 dated22.6.2020, (b) that the Opposite Party is liable to pay the Petitioner a sum ofGUSD 104,205/- equivalent to Rs. 76,26,073/- towards Invoice No.6 dated7.9.2020,

(c) That the termination letter dated 2.10.2020 issued by theOpposite Party is illegal, void and contrary to the terms of the ConsultingAgreement dated 24.5.2020.

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(d) that the Opposite party is liable to pay the Petitioner a sum ofUSD 304,964/- equivalent to Rs.2,23,56,910/- towards the Proformainvoice dated 21.10.2020 towards balance 25% commission payable inrespect of 1158 ventilators pursuant to the Consulting Agreement dated24.8.2020, (e) that the Opposite party is liable to pay the petitioner interest asper Section 16 of the MSMED Act 2006 as enumerated in Form-I ofthis Application till date of payment.”

3. On 22.10.2020 itself an intimation was sent by the Council tothe respondent. That on receipt of the said notice, the respondentaddressed a letter to the Chairman of the Council and contended thatthey are a company that is based in Switzerland and therefore MSMEAct shall not be applicable to companies located outside country. It wasalso stated that the respondent has no office in India more particularly inNew Delhi as mentioned in the complaint/notice. On 04.11.2020 theCouncil sent Form 2 notice calling for statement of defence to theRespondent herein. One another notice dated 12.11.2020 was sent bythe Council. Thereafter a notice for a conciliation meeting dated23.11.2020 was served upon the respondent and the meeting wasscheduled on 28.11.2020. Thereafter the respondent filed Writ PetitionNo. 21623 of 2020 before the High Court challenging the legality andvalidity of the aforesaid notices. By judgment and order dated 20.04.2021,the learned Single Judge allowed the said writ petition and set aside thenotices issued by the Council by observing that the Council has nojurisdiction to resolve the dispute between the parties. That the appellantherein challenged the judgment and order passed by the learned SingleJudge in Writ Appeal No. 201 of 2020 before the Division Bench. By theimpugned judgment and order the Division Bench of the High Court hasdismissed the said appeal and has confirmed the judgment and orderpassed by the learned Single judge. The impugned judgment and orderpassed by the Division Bench is the subject matter of the present appeal.

4. Learned Counsel appearing on behalf of the appellant hasvehemently submitted that in the facts and circumstances of the case,both, the learned Single Judge as well as the Division Bench of the HighCourt have erred in holding that the Council has no jurisdiction to entertainthe dispute between the appellant and the respondent.

4.1 It is submitted that, both, the learned Single Judge as well asthe Division Bench have erred in holding that in the present case as the A

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Asupplier was outside the territorial jurisdiction of India, considering Section18 of the MSME Act, the Council has no jurisdiction to entertain a disputebetween the supplier located outside the jurisdiction. It is submitted thatas such the initial agreement dated 10.02.2020 between the parties wasexecuted at Delhi, the second Agreement dated 24.08.2020 was alsoexecuted in New Delhi and the services were rendered by the appellantBin India and even the respondent was conducting its business in Indiathrough its registered service centres at New Delhi, Mumbai, Kolkata,Bangalore and it had appointed a power of attorney holder/Special Agentwho is based in Delhi, to act on his behalf, and therefore the cause ofaction can be said to have arisen in India and no part of cause of actionChas arisen in Switzerland, the Council is vested with the jurisdiction toentertain the claim petition filed by the appellant. It is submitted thattherefore the appellant rightly approached the Council to resolve thedispute under the MSME Act and the Council assumed the jurisdictionvested under Section 18 of the MSME Act.

D4.2 It is further submitted by learned counsel appearing on behalfof the appellant that even otherwise considering the objects and purposeof the Act as the MSME Act being a beneficial legislation enacted forfacilitating promotion, development for enhancement of thecompetitiveness of micro, small and medium enterprises and for resolvingthe incidental and ancillary matters related thereto, the High Court oughtEnot to have entertained into the writ petitions against the notice issued bythe Council and ought to have relegated the Respondent No.1 – originalwrit petitioner to appear before the Council for conciliation and thereafteron failure for arbitration and the issue with respect to jurisdiction oughtto have been left to the Arbitrator.F

5. Shri Shyam Divan, learned Senior Advocate appearing on behalfof the respondent has supported the judgment and order passed by thelearned Single Judge as well as that of the Division Bench holding thatwith respect to the dispute between the appellant and the RespondentNo.1 the Council has no jurisdiction under Section 18 of the MSME Act.

G5.1 Shri Divan, learned Senior Advocate has taken us to the variousdefinitions under Section 2 of the MSME Act more particularly thedefinition of “buyer” and “suppliers”. He has also taken us to Section 18of the MSME Act.

5.2 Relying upon the above provisions it is vehemently submittedHby Shri Divan, learned Senior Advocate appearing on behalf of Respondent No.1 that in the present case the Respondent No.1 – buyeris having registered office in Switzerland. It is submitted that even theaddress of the Respondent No.1 mentioned in both the Agreements dated10.02.2020 and 24.08.2020 is also Switzerland. It is submitted thattherefore it is rightly held that as the Respondent No.1 – buyer beinglocated outside India, the Council would have no jurisdiction to entertainthe dispute between the appellant and the Respondent No.1.

5.3 It is further submitted by Shri Divan, learned Senior Advocatefor Respondent No.1 that even otherwise considering the relevantprovisions of the Arbitration Agreement the parties to the Agreementshall not be governed by the MSME Act. It is submitted that in thepresent case the date of contract was 24.08.2020. The appellant hereinis registered as MSME on 28.08.2020 i.e. after the execution of thecontract on 24.08.2020. It is submitted that as per the ArbitrationAgreement the parties shall be governed by the law applicable in Indiawhich shall be the law prevailing at the time of the execution of thecontract. It is submitted that for that reason also the parties shall not begoverned by the MSME Act and therefore the Council would have nojurisdiction to entertain the dispute between the appellant and theRespondent No.1.

6. In rejoinder learned counsel appearing on behalf of the appellanthas submitted that as the dispute arose subsequently i.e. subsequent to28.08.2020 and therefore at the time when the dispute arose the appellantwas the registered MSME and therefore, for the dispute between theappellant and the respondent which has arisen subsequent to 28.08.2020,the Council would have jurisdiction.

7. Heard learned counsel for the respective parties at length.

8. The short question which is posed for consideration before thisCourt is the jurisdiction of the Council under the MSME Act with respectto the dispute between the appellant and the respondent.

8.1 It was the case on behalf of Respondent No.1 – Buyer that asthe Respondent No.1 - buyer is located outside India and is having itsregistered office at Switzerland the Council would have no jurisdictionto enter into the dispute between the appellant and the respondent. Onthe other hand, it is the case on behalf of the appellant that the agreementswere executed between the parties at Delhi and the services wererendered by the appellant in India and even the Respondent No.1 is A

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Aconducting its business in India through registered service centres atNew Delhi, Mumbai, Kolkata, Bangalore and it had appointed a powerof attorney/special agent which is based in Delhi, and after having availedthe services rendered by the appellant and doing business in India,thereafter it will not be open for Respondent No.1 to contend that withrespect to the dispute between the appellant and the respondent, theBCouncil would have no jurisdiction under the MSME Act. However,while considering the main issue whether the parties shall be governedby the MSME Act or not, the relevant clause under the Agreement isrequired to be considered which reads as under:

“9. CHOICE OF LAWC

This Agreement and the rights of the parties hereunder shallbe governed by and construed in accordance with the laws ofIndia. The parties agree to resolve their differences, disputes, ifany, mutually, within 30 days of the initiation of the dispute whichcan be extended by the mutual consent of the parties, if necessary.DIn the event the parties are not able to resolve the differences byway of the said mutual dialogues, they are at a liberty to initiateappropriate actions as per law.”

It is not in dispute that the contract/agreement between theappellant and the respondent has been executed on 24.08.2020.ETherefore, the laws of India applicable at the time of contract/agreementshall be applicable and therefore the parties shall be governed by thelaws of India prevailing/applicable at the time when the contract wasexecuted. It is admitted position that the date on which a contract/agreement was executed i.e. on 24.08.2020 the appellant was notFregistered MSME. Considering the relevant provisions of the MSMEAct more particularly Section 2(n) read with Section 8 of the MSMEAct, the provisions of the MSME Act shall be applicable in case ofsupplier who has filed a memorandum with the authority referred to insub-section (1) of Section 8. Therefore, the supplier has to be a micro orsmall enterprise registered as MSME, registered with any of the authorityGmentioned in sub-section (1) of Section 8 and Section 2(n) of the MSMEAct. It is admitted position that in the present case the appellant isregistered as MSME only on 28.08.2020. Therefore, when the contractwas entered into the appellant was not MSME and therefore the partieswould not be governed by the MSME Act and the parties shall beHgoverned by the laws of India applicable and/or prevailing at the time of execution of the contract. If that be so the Council would have nojurisdiction to entertain the dispute between the appellant and theRespondent no.1, in exercise of powers under Section 18 of the MSMEAct. Therefore, in the aforesaid peculiar facts and circumstances of thecase, more particularly the terms of the Agreement, the order passed bythe learned Single Judge confirmed by the Division Bench holding theCouncil would have no jurisdiction with respect to Respondent No.1 isnot required to be interfered with.

8.3. However, at the same time, the larger question/issue whetherin a case where the buyer is located outside India but has availed theservices in India and/or done the business in India with the Indian supplierand the contract was executed in India the MSME Act would beapplicable or not and/or another larger issue that in case the supplier issubsequently registered as MSME the Council would still have jurisdictionare kept open to be considered in an appropriate case bearing in mindSection 18 as well as Section 8 of the MSME Act and the judgments ofthis Court in the case of M/s Shilpi Industries vs. Kerala State RoadTransport Corporation, C.A. No.1570-78 of 2021 [2021 SCCOnline SC 439] arising under the provisions of MSME Act and ShantiConductors Pvt. Ltd. Vs. Assam State Electricity Board, (2019)19 SCC 529 in which case a similar provision under the Small Scaleand Ancillary Industries Undertakings, Act, 1993 came up for considerationbefore this Court.

9. In view of the above and for the reason stated above, we are inagreement with the ultimate conclusion reached/arrived at by the learnedSingle Judge confirmed by the Division Bench that with respect to thedispute the appellant and the Respondent No.1 the Council would haveno jurisdiction under Section 18 of the MSME Act. Under thecircumstances, the present appeal deserves to be dismissed and isaccordingly dismissed.

There shall be no order as to costs.

Bibhuti Bhushan Bose

Appeal dismissed.

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