Karnataka HC Bars Unregistered Companies From Seeking Conciliation Under MSME Act

Bengaluru, Feb 10 (KNN) The Karnataka High Court has ruled that companies not registered under the Micro, Small And Medium Enterprises Development Act, 2006, cannot seek conciliation proceedings or arbitration through the Micro and Small Enterprises Facilitation Council for money claim disputes.

Justice M Nagaprasanna, in a single judge bench, granted the petition by M/s. Northroof Ventures Private Limited, overturning the Arbitral Tribunal's decision.

The court found that the proceedings before the Council and the subsequent referral to arbitration were conducted without jurisdiction.

The dispute stemmed from a contract between Northroof Ventures Private Limited and M/s. XYNC Structural Solutions Pvt Ltd, initiated a work order on May 10, 2018, followed by an invoice raised on May 22, 2018.

Subsequently, the respondent registered as a Micro Enterprise under the Act. However, when a payment dispute arose, Northroof filed an application before the Council, which later referred the matter to arbitration upon failed conciliation.

The court observed that the respondent's registration as a Micro Enterprise occurred after the completion of transactions, rendering the Council's jurisdiction invalid.

It emphasised that jurisdictional issues are categorical and cannot be inferred, hence rejecting the respondents' arguments based on consent.

Moreover, the court highlighted the procedural flaw in the Council's referral to arbitration, given its lack of jurisdiction to conciliate. Consequently, the arbitration proceedings resulting from this referral were deemed null and void.

In conclusion, the Karnataka High Court granted the petition, affirming the lack of jurisdiction in the Council's proceedings and subsequent arbitration.

(KNN Bureau)