Larsen & Toubro Limited vs JMD Engineering

The present Petition is filed under Section 9 of the Arbitration and Conciliation Act, 1996. The Petitioner is seeking urgent interim relief in respect of disputes arising out of the Purchase Orders issued by the Petitioner to the Respondent for supply of industrial valves for refinery projects being carried out for Indian Oil Corporation Limited. The Petitioner came to know that the Respondent had supplied valves along with forged testing certificates. The Respondent admitted this fact. The Petitioner thereafter rejected the said valves and repeatedly asked the Respondent to take back the rejected Goods. However, the Respondent has failed to do so and the Goods are still lying in the possession of the Petitioner. In the meantime, the project has been completed and the lease of the storage yard where the Goods are kept expired on 28 February 2026. The Petitioner has therefore approached this Court seeking directions to the Respondent to immediately remove the rejected Goods from the Petitioner’s possession, until the disputes are decided through arbitration.

In order to meet the requirements of various ongoing projects at different site offices of its client, Indian Oil Corporation Limited (“IOCL”), including the IOCL-RR Project at Panipat and the HPCL-RUF Project at Vizag, Andhra Pradesh, the Petitioner’s subsidiary, namely L&T Hydrocarbon Engineering Limited, issued several Purchase Orders to the Respondent from time to time., under Clause 9 of the Terms and Conditions of the Purchase Orders relating to “Inspection, Testing and Quality Control”, the Respondent was required to provide testing certificates along with all the Goods supplied. Attachment 5 to the Purchase Orders also required the Respondent to supply testing certificates along with the Goods. As agreed between the parties, the Respondent supplied the Goods to the Petitioner from time to time and raised invoices seeking payment for those supplies. The Petitioner, believing in good faith that the Goods supplied were in accordance with the respective Purchase Orders, made payments against several of those invoices. A list of the Goods received by the Petitioner from the Respondent under the IOCL-RR Project was also placed on record.

During an enquiry concerning the Goods supplied by the Respondent under one of the projects, namely the DFCU Project, the testing agency inspected the Goods and found that the Respondent had submitted forged testing certificate(s) in respect of the Goods supplied to the Petitioner. On 8 April 2024, the email received from the testing agency was forwarded to the Respondent. In reply, by its email dated 9 April 2024, the Respondent requested the Petitioner not to approve the items for which the forged documents had been submitted and requested that inspection release notes be issued for the other goods/valve. After the Respondent admitted the issue, the Petitioner, on 28 May 2024, asked the Respondent to remove the rejected valves/Goods from the Petitioner’s site. However, the Respondent did not remove them. The rejected Goods are still lying in the possession of the Petitioner. Even though the Petitioner has repeatedly requested the Respondent to take them back, the Respondent has failed to do so. Because of this, the Petitioner has been unnecessarily required to keep and shift the rejected Goods from one place to another. The Petitioner is also required to spend time and make efforts for the safe storage of these rejected Goods.

From the above facts, particularly the meeting held on 16 April 2024 and the admission made by the Respondent through its email dated 6 May 2024, according to the Petitioner, it is clear that the Goods were supplied on the basis of forged documents. The Petitioner has rejected those supplies. Therefore, the Respondent ought to remove and take back the Goods. The Petitioner has accordingly submitted that it has made out a prima facie case for grant of the interim relief sought in the present Petition. The Petitioner has paid a substantial amount to the Respondent towards the purchase of these Goods, despite the fact that the Goods were supplied with forged certificates and were thereafter rejected. In these circumstances, the Petitioner should not be required to bear the cost and expense of storing the rejected valves. According to the Petitioner, the balance of convenience is in its favour and against the Respondent. The Petitioner has submitted that it will suffer irreparable injury if urgent directions are not issued to the Respondent. The Petitioner has made payments in respect of the Goods and is now being required to spend time, money and efforts for storing the rejected Goods. According to the Petitioner, this additional burden cannot be properly compensated only by payment of money.

The Respondent submitted that the Petitioner has not disclosed the legal effect of the statutory proceedings started under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”). It is clear from the Petition that the Respondent has approached the Micro and Small Enterprises Facilitation Council, Nagpur under the MSMED Act. Both parties have appeared before the said Council after receiving its notices, and the next date of hearing is 9 July 2026. The Respondent has filed two claims before the MSEF Council. The first claim is for non-payment and delayed payment of dues relating to the IOCL Project at Faridabad, Haryana, for an amount of Rs. 34,18,100/-. The second claim relates to the HPCL Rajasthan Refinery Limited EPCC 07 Package (DFCU) at Village Sajiyali Roopji Kanthwada, Tehsil Pachpadra, District Barmer, 344032, for an amount of Rs. 25,73,382/-. Both claims arise from different Purchase Orders.

The Respondent submitted that it is a registered Micro/Small Enterprise and has invoked Section 18 of the MSMED Act. Therefore, according to the Respondent, the disputes are required to be dealt with under the special procedure provided under Sections 18, 19 and 24 of the MSMED Act. As a result, the arbitration clause contained in the Purchase Orders cannot continue to govern the disputes. According to the Respondent, the statutory arbitration mechanism under the MSMED Act takes priority over the contractual arbitration clause. The Respondent submitted that Section 18(1) of the MSMED Act gives a registered Micro or Small Enterprise a statutory right to approach the Facilitation Council. Section 18(2) requires the Council to first undertake conciliation between the parties. Section 18(3) provides that if the conciliation fails, the Council can take up the dispute for arbitration or refer the dispute to any institution or centre providing alternate dispute resolution services.

The Respondent submitted that the Supreme Court in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., (2023) 6 SCC 401 has held that Section 18 of the MSMED Act has an overriding effect over an inconsistent contractual arbitration agreement between the parties. According to the Respondent, the Supreme Court has also held that once the jurisdiction of the Facilitation Council is invoked, the statutory procedure under the MSMED Act will govern the dispute.

The Respondent submitted that this Court does not have territorial jurisdiction to entertain the present Petition. The Respondent is a registered Small and Medium Enterprise and its place of business is at Nagpur. The proceedings under Section 18 of the MSMED Act have also been initiated before the Micro and Small Enterprises Facilitation Council, Nagpur. According to the Respondent, because the MSMED Act has an overriding statutory scheme, the seat of arbitration is at the place where the supplier is registered. Since the Respondent is registered at Nagpur, the Respondent submitted that the seat of arbitration is at Nagpur and not at Mumbai. The Respondent relied upon the judgment of the Supreme Court in support of this submission and contended that the Petitioner’s claim that the seat is at Mumbai is incorrect.

The Respondent submitted that after the statutory dispute resolution process under Section 18 of the MSMED Act, 2006 has been invoked before the MSEFC, Nagpur, the courts at Nagpur would have jurisdiction over the statutory arbitration proceedings and matters connected with them, including supervisory jurisdiction. According to the Respondent, this is because Nagpur is the seat of arbitration and the Respondent is a registered Small Scale Industry having its registration at Nagpur.

The Respondent submitted that the Petitioner is relying upon an alleged ad hoc arbitration clause contained in the Purchase Orders, which provides for arbitration at Mumbai, as stated in paragraph 32 of the present application. However, according to the Respondent, this contractual arbitration clause stopped governing the disputes once the Respondent, being a registered Small-Scale Industry under the MSMED Act, invoked the statutory remedy under Section 18 before the Micro and Small Enterprises Facilitation Council, Nagpur. The Respondent relied upon Section 24 of the MSMED Act, which gives an overriding effect to Sections 15 to 23 of the MSMED Act, notwithstanding anything inconsistent contained in any other law for the time being in force.

The Respondent submitted that it is admitted from the Petition that the Respondent invoked the jurisdiction of the Micro and Small Enterprises Facilitation Council, Nagpur and that the said Council issued notices to both parties. The Petitioner also participated in the proceedings before the Council. According to the Respondent, once the Petitioner participated in the proceedings before the statutory forum, it cannot thereafter rely upon the contractual ad hoc arbitration clause for invoking the jurisdiction of this Court under Section 9 of the Arbitration and Conciliation Act, 1996. The Respondent submitted, without prejudice, that any application concerning the dispute would have to be made before the competent Court at Nagpur.

I have considered the Petition, affidavit in reply, documents on record, submissions of learned Advocates for both parties and the judgments relied upon by them. From all this material, two questions arise. First, whether the Petitioner has shown that the Goods were rejected and that the Respondent is required to take them back. Second whether this Court can grant such relief under Section 9 of the Arbitration and Conciliation Act, 1996 when the Respondent has started proceedings under Section 18 of the MSMED Act before the Micro and Small Enterprises Facilitation Council at Nagpur.

On the question of rejected Goods, there is material before the Court which needs to be considered at this stage. The email dated 6 May 2024 relied upon by the Petitioner refers to the meeting and discussion held on 16 April 2024 at Vadodara. In that email, the Respondent has stated, amongst other things, “Forging Vendor has been informed to supply material with MTC, Heat Treatment / IGC / Graph & other required documentation.” The same email also states that a “Consumption track report will be maintained”, that “Proper colour coding & identification will be maintained” and that “All original copy of MTC will be maintained instead of email soft copy.” These statements show that the Respondent had noticed the issue regarding the documents supplied along with the material and had taken certain steps for correcting the same. The words “Forging Vendor” and the other steps relating to MTC, traceability, colour coding and original certificates do give prima facie support to the case of the Petitioner that there was a issue regarding the documents accompanying the Goods. On the material before the Court, the Respondent has not placed sufficient material to displace this prima facie position.

There is also some material regarding the rejected material and what happened thereafter. The minutes of meeting dated 10 December 2024 are titled “Vendor Recovery Settlement Discussion for Rejected Material Supplied to Various Project Sites.” The minutes refer to the HRRL-DFCU, HPCL-RUF, IOCL-DHDT and IOCL-RR projects. They also refer to credit note for rejected material, return of material to the vendor, transport arrangements at the vendor’s cost and refund of amounts relating to other rejected material. Thus, from the later conduct of the parties also, the existence of rejected material and discussions regarding its return cannot be said to be without any basis.

The Purchase Order also contains an arbitration clause. The relevant portion of the Purchase Order states that “The arbitration proceedings shall be conducted in English language. The arbitration venue shall be in Mumbai, India. The Parties agree that the dispute resolution process provided herein shall be the sole remedy and the Parties shall not suspend their obligations under the Order.” The Purchase Order provides that the arbitration clause would continue even after termination of the Order. Therefore, there is a contractual basis for the Petitioner to submit that disputes between the parties were intended to be resolved through arbitration. However, the above findings regarding the Goods and the arbitration clause do not decide whether this Court has jurisdiction to entertain the present Petition under Section 9. The Respondent has raised a specific objection in this regard. The Respondent says that after it invoked Section 18 of the MSMED Act before the Micro and Small Enterprises Facilitation Council at Nagpur, the statutory procedure under the MSMED Act became applicable. The Respondent has also stated that both parties appeared before the Council and that the proceedings are still pending. The Petitioner has not disputed the existence of these proceedings. The Petition shows that the Respondent has invoked the MSMED Act and that proceedings before the Nagpur Council have started.

The judgment of the Supreme Court in Mahakali Foods (P) Ltd., is relevant to this question. The Supreme Court hasheld that the MSMED Act is a special law dealing with disputes between a particular class of persons through a particular procedure and before a particular forum. The Supreme Court held:

The Supreme Court has also made it clear that the statutory procedure under Section 18 does not stop only because the parties have entered into an independent arbitration agreement. In paragraph 44 of Mahakali, the Supreme Court held:

The Supreme Court thereafter held in paragraph 46:

In view of this legal position, the submission of the Petitioner that the Purchase Order provides Mumbai as the arbitration venue cannot decide the objection regarding jurisdiction. Once the statutory mechanism under Section 18 has been invoked by a party to whom the MSMED Act applies, the arbitration clause cannot be looked at separately from that statutory mechanism. The effect of the clause has to be considered along with the MSMED Act and the law declared by the Supreme Court.

The subsequent judgment of the Supreme Court in Harcharan Dass Gupta v. Union of India, 2025 SCC OnLine SC 1111 gives an answer to the objection raised in the present matter. In that case also, there was a clause providing for a different seat of arbitration. The MSME had invoked Section 18 before the Facilitation Council at Delhi. The High Court had relied upon the contractual provision. The Supreme Court did not agree with that approach.

The Supreme Court considered the specific provision contained in Section 18(4) of the MSMED Act and recorded it as follows:

On the basis of this provision, the Supreme Court held that the question regarding the seat of arbitration in matters covered by the MSMED Act had been settled by Mahakali. The Court observed that jurisdiction under Section 18 is with the Facilitation Council where the supplier is located. The Supreme Court held that where the MSME supplier was located in Delhi, the Delhi Facilitation Council could exercise the statutory jurisdiction. The fact that the parties had agreed to Bengaluru as the contractual seat could not take away that statutory jurisdiction. The Supreme Court described this result as the “logical consequence of the statutory regime as also declared by this Court in Mahakali.”

Therefore, the position which emerges is that when the MSMED Act applies and Section 18 has been invoked, the statutory scheme has to be considered first. The jurisdiction of the arbitral proceedings cannot be decided only on the basis of the seat mentioned in the Purchase Order. In the present case, the Respondent says that it is a registered Small Enterprise having its place of business at Nagpur. It has invoked Section 18 before the Micro and Small Enterprises Facilitation Council at Nagpur. Notices were issued and the Petitioner appeared before the Council. Thus, this is not a case where the Respondent is stating before this Court for the first time that it may invoke the MSMED Act in future. The statutory proceedings have commenced.

I have also considered the judgment of this Court in Saraswathi Vidya Bhavan v. Tulsidas Construction, Commercial Arbitration Petition (L) No. 21882 of 2025, order dated 12 August 2025, relied upon by the Petitioner. In that case also, this Court noticed that the Respondent was a micro enterprise and that the MSMED Act could enable the Respondent to claim statutory interest. However, this Court proceeded to grant interim protection and observed that the parties could proceed to arbitration either by filing a Section 11 application or, at the instance of the Respondent, by moving the MSME Facilitation Council. The situation in the present case is different. Here, the Respondent has invoked Section 18 before the Nagpur Facilitation Council and the Petitioner has participated in those proceedings. The subsequent judgment of the Supreme Court in Harcharan Dass Gupta considers the effect of an invoked Section 18 mechanism on the contractual seat of arbitration. Therefore, the law declared by the Supreme Court has to be applied to the present case.

The conduct of the Petitioner before the Facilitation Council is also relevant. The Petitioner has participated in the statutory proceedings. Having participated in those proceedings, the Petitioner cannot now rely upon the clause providing Mumbai as the arbitration venue and at the same time contend that the statutory proceedings before the Facilitation Council should not affect its right to seek interim relief from this Court. The question before this Court is not whether the Petitioner has any remedy regarding the rejected Goods. The Petitioner does have a remedy. The question is before which forum that remedy can be pursued. The availability of a remedy and the jurisdiction of a particular Court are two separate matters.

I have also considered the submission of the Petitioner that the relief sought in the present Petition is only for removal of the rejected Goods and is not a claim for payment of money. This fact by does not change the position regarding jurisdiction. The dispute concerning the Goods arises from the supplies made under the Purchase Orders and the subsequent rejection of those supplies. The Respondent has raised monetary claims before the Facilitation Council arising from the Purchase Orders. The rejected Goods, payments made, rejection of the material and liability of the parties all arise from the same transactions. The fact that the Petitioner is asking for removal of the Goods instead of payment of money cannot revive the contractual arbitration forum after the statutory mechanism under the MSMED Act has been invoked. At the same time, on the limited factual question concerning possession of the rejected Goods, there is substance in the case of the Petitioner. The Petitioner states that the Goods are still in its possession. The email dated 6 May 2024 and the minutes of meeting dated 10 December 2024 support the existence of rejected material and discussions between the parties regarding its return. The minutes also refer to return of the material to the vendor and transport arrangements at the vendor’s cost. I therefore find, prima facie, that the Petitioner has a genuine grievance in having to keep the rejected material. Its request that the material should ultimately be taken back by the Respondent is also supported by the material placed before the Court.

The Petitioner cannot obtain an order from this Court only on the basis of the clause in the Purchase Order which states that “The arbitration venue shall be in Mumbai, India.” This clause was part of the agreement between the parties. However, after the statutory mechanism under Section 18 of the MSMED Act was invoked, the effect of that clause has to be considered along with Sections 18 and 24 of the MSMED Act and the binding judgments of the Supreme Court. On such consideration, the choice of Mumbai cannot prevail over the statutory mechanism.

One aspect needs to be made clear. The finding that this Court cannot grant the relief does not mean that the Respondent is entitled to keep the rejected Goods with the Petitioner for an unlimited period. The material before the Court shows that the parties themselves had discussed return of the rejected material and financial adjustment. Whether the rejection of the Goods was proper, who has to bear the transportation expenses, whether any amount is payable, whether credit is required to be given and what final order should be passed regarding the alleged defective or forged certificates are matters which can be considered by the competent statutory forum. At this stage, the question before this Court is only whether it can exercise jurisdiction under Section 9 when the statutory proceedings under the MSMED Act are pending.

I therefore find that the Petitioner has shown a prima facie basis for its grievance regarding the rejected Goods. I also find that, if there was no issue of jurisdiction, the circumstances relating to possession and storage of the rejected Goods could have supported interim protection. However, these findings cannot override the statutory scheme under the MSMED Act. The Respondent has invoked Section 18 before the Facilitation Council at Nagpur and the Petitioner has participated in those proceedings. Therefore, the contractual arbitration clause providing Mumbai as the venue cannot, in the present circumstances, give territorial jurisdiction to this Court.

The objection of the Respondent regarding jurisdiction therefore succeeds. The present Petition under Section 9 cannot be entertained by this Court for want of territorial jurisdiction. This does not mean that the Petitioner has no remedy. The disputes concerning the rejected Goods can be raised before the competent forum in accordance with the statutory procedure started under Section 18 of the MSMED Act. The Supreme Court has held that after conciliation fails, the Facilitation Council may take up the dispute for arbitration or refer it to an institution or centre under Section 18(3). The arbitration conducted in that manner is governed by the Arbitration Act as provided under the MSMED Act. The existence of an independent arbitration agreement does not prevent such statutory proceedings.

In view of the above discussion, I hold that the Petitioner has placed material showing that there are rejected Goods and that discussions have taken place between the parties regarding their return. However, the Petitioner cannot obtain an order for removal of those Goods from this Court in the present Section 9 Petition because the statutory arbitration mechanism under the MSMED Act has been invoked before the Facilitation Council at Nagpur. The Petition is therefore liable to be dismissed for want of territorial jurisdiction.

In view of the foregoing discussion and for the reasons recorded hereinabove, the following order is passed: