M/S Vaishno Enterprises vs Hamilton Medical Ag

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1892 OF 2022

M/s. Vaishno Enterprises ..Appellant

Versus

Hamilton Medical AG & Anr. ..Respondents

JUDGMENT

M. R. Shah, J.

1. Feeling aggrieved and dissatisfied with the impugned

judgment and order passed by the High Court for the State

of Telangana at Hyderabad in Writ Appeal No. 201 of 2021

by which the High Court has dismissed the said appeal and

has confirmed the order passed by the learned Single Judge

quashing the Intimation­cum­Notice dated 22.10.2020 and Signature Not Verified Digitally signed by R Natarajan Date: 2022.03.24 Notices dated 04.11.2020 and 12.11.2020 issued by Micro 16:28:13 IST Reason:

and Small Medium Enterprises Facilitation Council

1 (hereinafter referred to as ‘the Council’), the original

applicant has preferred the present appeal.

2. That the appellant is a registered partnership

consultant which provides consultancy services to foreign

medical equipment companies in the form of liaisoning

services with hospitals and government departments and

entities for procurement of medical equipment like

ventilators. That Respondent No.1 herein is a company

registered under the laws of Switzerland, having its office at

Bonaduz, Switzerland and is a manufacturer and supplier of

critical care ventilation solutions for a variety of patient

segments, applications and environments across the world.

According to the respondent, it has its own consultants,

engaged in India, who facilitate the installation of their

equipment and undertake related ancillary work. That the

appellant herein which provides consultancy services,

approached the respondent­Company and requested to be

associated with the Company in implementation of their

projects in India. One HLL Infra–Tech Services Limited, a

Nodal Agency of the Government of India, floated a tender

2 dated 20.08.2018 to purchase/procure 1186 high end

ventilators and other medical equipment to be supplied to

various hospitals/medical colleges/departments across

India. The respondent also participated in the said tender

by offering its bid through its authorized local agent, M/s

Medelec Health Care Solutions. The tender was awarded in

favour of the said Medelec Solutions. That thereafter the

appellant and the respondent entered into a Consulting

Agreement on 10.02.2020, with a restricted term of six

months, agreeing that the appellant herein shall act as a

consultant for the respondent – Company. That thereafter

the appellant raised various invoices claiming certain

amounts. The same were alleged to have been paid by the

respondent. That the earlier Consulting Agreement dated

10.02.2020 expired on 10.08.2020, the appellant and the

respondent entered into a fresh Consulting Agreement on

24.08.2020 for a period of six months. That the appellant

herein got registered under the Micro, Small and Medium

Enterprises Act, 2006 (hereinafter referred to as, 'MSME

Act') on 28.08.2020. That thereafter the dispute arose

between the parties. A legal notice dated 09.09.2020 was

3 sent by the appellant calling upon the respondent to pay the

amounts covered by Invoice No. 5 dated 22.06.2020 and

Invoice No. 6 dated 07.09.2020 and one another along with

damages of Rs.50 lakhs. In the said notice, the appellants

informed that it was registered under the MSME Act. The

respondent terminated the Consulting Agreement dated

24.08.2020 vide termination letter dated 22.10.2020. That

the appellant herein replied to the termination notice vide

reply dated 16.11.2020. That as the dispute arose between

the parties, the appellant herein approached the Council on

22.10.2020 which case was registered as Reference

No.1581/MSEFC/2020. The appellant prayed for the

following reliefs:

(a) That the opposite party is liable to pay the petitioner a

sum of USD 711,845/­ equivalent to Rs.5,21,85,357/­

towards Invoice No.5 dated 22.6.2020,

(b) that the Opposite Party is liable to pay the Petitioner a

sum of USD 104,205/­ equivalent to Rs. 76,26,073/­

towards Invoice No.6 dated 7.9.2020,

4

(c) That the termination letter dated 2.10.2020 issued by the

Opposite Party is illegal, void and contrary to the terms of

the Consulting Agreement dated 24.5.2020.

(d) that the Opposite party is liable to pay the Petitioner a

sum of USD 304,964/­ equivalent to Rs.2,23,56,910/­

towards the Proforma invoice dated 21.10.2020 towards

balance 25% commission payable in respect of 1158

ventilators pursuant to the Consulting Agreement dated

24.8.2020,

(e) that the Opposite party is liable to pay the petitioner

interest as per Section 16 of the MSMED Act 2006 as

enumerated in Form­I of this Application till date of

payment.”

3. On 22.10.2020 itself an intimation was sent by the

Council to the respondent. That on receipt of the said

notice, the respondent addressed a letter to the Chairman of

the Council and contended that they are a company that is

based in Switzerland and therefore MSME Act shall not be

applicable to companies located outside country. It was

also stated that the respondent has no office in India more

5 particularly in New Delhi as mentioned in the

complaint/notice. On 04.11.2020 the Council sent Form 2

notice calling for statement of defence to the Respondent

herein. One another notice dated 12.11.2020 was sent by

the Council. Thereafter a notice for a conciliation meeting

dated 23.11.2020 was served upon the respondent and the

meeting was scheduled on 28.11.2020. Thereafter the

respondent filed Writ Petition No. 21623 of 2020 before the

High Court challenging the legality and validity of the

aforesaid notices. By judgment and order dated 20.04.2021,

the learned Single Judge allowed the said writ petition and

set aside the notices issued by the Council by observing

that the Council has no jurisdiction to resolve the dispute

between the parties. That the appellant herein challenged

the judgment and order passed by the learned Single Judge

in Writ Appeal No. 201 of 2020 before the Division Bench.

By the impugned judgment and order the Division Bench of

the High Court has dismissed the said appeal and has

confirmed the judgment and order passed by the learned

Single judge. The impugned judgment and order passed by

6 the Division Bench is the subject matter of the present

appeal.

4. Learned Counsel appearing on behalf of the appellant

has vehemently submitted that in the facts and

circumstances of the case, both, the learned Single Judge

as well as the Division Bench of the High Court have erred

in holding that the Council has no jurisdiction to entertain

the dispute between the appellant and the respondent.

4.1 It is submitted that, both, the learned Single Judge as

well as the Division Bench have erred in holding that in the

present case as the supplier was outside the territorial

jurisdiction of India, considering Section 18 of the MSME

Act, the Council has no jurisdiction to entertain a dispute

between the supplier located outside the jurisdiction. It is

submitted that as such the initial agreement dated

10.02.2020 between the parties was executed at Delhi, the

second Agreement dated 24.08.2020 was also executed in

New Delhi and the services were rendered by the appellant

in India and even the respondent was conducting its

business in India through its registered service centres at

7 New Delhi, Mumbai, Kolkata, Bangalore and it had

appointed a power of attorney holder/Special Agent who is

based in Delhi, to act on his behalf, and therefore the cause

of action can be said to have arisen in India and no part of

cause of action has arisen in Switzerland, the Council is

vested with the jurisdiction to entertain the claim petition

filed by the appellant. It is submitted that therefore the

appellant rightly approached the Council to resolve the

dispute under the MSME Act and the Council assumed the

jurisdiction vested under Section 18 of the MSME Act.

4.2 It is further submitted by learned counsel appearing

on behalf of the appellant that even otherwise considering

the objects and purpose of the Act as the MSME Act being a

beneficial legislation enacted for facilitating promotion,

development for enhancement of the competitiveness of

micro, small and medium enterprises and for resolving the

incidental and ancillary matters related thereto, the High

Court ought not to have entertained into the writ petitions

against the notice issued by the Council and ought to have

relegated the Respondent No.1 – original writ petitioner to

8 appear before the Council for conciliation and thereafter on

failure for arbitration and the issue with respect to

jurisdiction ought to have been left to the Arbitrator.

5. Shri Shyam Divan, learned Senior Advocate appearing

on behalf of the respondent has supported the judgment

and order passed by the learned Single Judge as well as

that of the Division Bench holding that with respect to the

dispute between the appellant and the Respondent No.1 the

Council has no jurisdiction under Section 18 of the MSME

Act.

5.1 Shri Divan, learned Senior Advocate has taken us to

the various definitions under Section 2 of the MSME Act

more particularly the definition of “buyer” and “suppliers”.

He has also taken us to Section 18 of the MSME Act.

5.2 Relying upon the above provisions it is vehemently

submitted by Shri Divan, learned Senior Advocate appearing

on behalf of Respondent No.1 that in the present case the

Respondent No.1 – buyer is having registered office in

Switzerland. It is submitted that even the address of the

9 Respondent No.1 mentioned in both the Agreements dated

10.02.2020 and 24.08.2020 is also Switzerland. It is

submitted that therefore it is rightly held that as the

Respondent No.1 – buyer being located outside India, the

Council would have no jurisdiction to entertain the dispute

between the appellant and the Respondent No.1.

5.3 It is further submitted by Shri Divan, learned Senior

Advocate for Respondent No.1 that even otherwise

considering the relevant provisions of the Arbitration

Agreement the parties to the Agreement shall not be

governed by the MSME Act. It is submitted that in the

present case the date of contract was 24.08.2020. The

appellant herein is registered as MSME on 28.08.2020 i.e.

after the execution of the contract on 24.08.2020. It is

submitted that as per the Arbitration Agreement the parties

shall be governed by the law applicable in India which shall

be the law prevailing at the time of the execution of the

contract. It is submitted that for that reason also the

parties shall not be governed by the MSME Act and

10 therefore the Council would have no jurisdiction to entertain

the dispute between the appellant and the Respondent No.1.

6. In rejoinder learned counsel appearing on behalf of the

appellant has submitted that as the dispute arose

subsequently i.e. subsequent to 28.08.2020 and therefore at

the time when the dispute arose the appellant was the

registered MSME and therefore, for the dispute between the

appellant 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 this Court is the jurisdiction of the Council under the

MSME Act with respect to the dispute between the appellant

and the respondent.

8.1 It was the case on behalf of Respondent No.1 – Buyer

that as the Respondent No.1 ­ buyer is located outside India

and is having its registered office at Switzerland the Council

would have no jurisdiction to enter into the dispute between

11 the appellant and the respondent. On the other hand, it is

the case on behalf of the appellant that the agreements were

executed between the parties at Delhi and the services were

rendered by the appellant in India and even the Respondent

No.1 is conducting its business in India through registered

service centres at New Delhi, Mumbai, Kolkata, Bangalore

and it had appointed a power of attorney/special agent

which is based in Delhi, and after having availed the

services rendered by the appellant and doing business in

India, thereafter it will not be open for Respondent No.1 to

contend that with respect to the dispute between the

appellant and the respondent, the Council would have no

jurisdiction under the MSME Act. However, while

considering the main issue whether the parties shall be

governed by the MSME Act or not, the relevant clause under

the Agreement is required to be considered which reads as

under:

“9. CHOICE OF LAW

This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of India. The parties agree to resolve their differences, disputes, if any, mutually, within

12 30 days of the initiation of the dispute which can be extended by the mutual consent of the parties, if necessary. In the event the parties are not able to resolve the differences by way of the said mutual dialogues, they are at a liberty to initiate appropriate actions as per law.”

8.2 It is not in dispute that the contract/agreement

between the appellant and the respondent has been

executed on 24.08.2020. Therefore, the laws of India

applicable at the time of contract/agreement shall be

applicable and therefore the parties shall be governed by the

laws of India prevailing/applicable at the time when the

contract was executed. It is admitted position that the date

on which a contract/agreement was executed i.e. on

24.08.2020 the appellant was not registered MSME.

Considering the relevant provisions of the MSME Act more

particularly Section 2(n) read with Section 8 of the MSME

Act, the provisions of the MSME Act shall be applicable in

case of supplier who has filed a memorandum with the

authority referred to in sub­section (1) of Section 8.

Therefore, the supplier has to be a micro or small enterprise

registered as MSME, registered with any of the authority

13 mentioned in sub­section (1) of Section 8 and Section 2(n) of

the MSME Act. It is admitted position that in the present

case the appellant is registered as MSME only on

28.08.2020. Therefore, when the contract was entered into

the appellant was not MSME and therefore the parties

would not be governed by the MSME Act and the parties

shall be governed 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 no jurisdiction to entertain the

dispute between the appellant and the Respondent no.1, in

exercise of powers under Section 18 of the MSME Act.

Therefore, in the aforesaid peculiar facts and circumstances

of the case, more particularly the terms of the Agreement,

the order passed by the learned Single Judge confirmed by

the Division Bench holding the Council would have no

jurisdiction with respect to Respondent No.1 is not required

to be interfered with.

8.3. However, at the same time, the larger question/issue

whether in a case where the buyer is located outside India

but has availed the services in India and/or done the

14 business in India with the Indian supplier and the contract

was executed in India the MSME Act would be applicable or

not and/or another larger issue that in case the supplier is

subsequently registered as MSME the Council would still

have jurisdiction are kept open to be considered in an

appropriate case bearing in mind Section 18 as well as

Section 8 of the MSME Act and the judgments of this Court

in the case of M/s Shilpi Industries vs. Kerala State Road

Transport Corporation, C.A. No.1570­78 of 2021 [2021

SCC Online SC 439] arising under the provisions of MSME

Act and Shanti Conductors Pvt. Ltd. Vs. Assam State

Electricity Board, (2019) 19 SCC 529 in which case a

similar provision under the Small Scale and Ancillary

Industries Undertakings, Act, 1993 came up for

consideration before this Court.

9. In view of the above and for the reason stated above,

we are in agreement with the ultimate conclusion

reached/arrived at by the learned Single Judge confirmed

by the Division Bench that with respect to the dispute the

appellant and the Respondent No.1 the Council would have

15 no jurisdiction under Section 18 of the MSME Act. Under

the circumstances, the present appeal deserves to be

dismissed and is accordingly dismissed.

There shall be no order as to costs.

…………………………………J. (M. R. SHAH)

…………………………………J. (B. V. NAGARATHNA) New Delhi, March 24, 2022

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