2026:MHC:669Arb O.P(COM.DIV.) No. 682 of 2022

IN THE HIGH COURT OF JUDICATURE AT MADRAS

ORDER RESERVED ON : 17 - 02 -2026

ORDER PRONOUNCED ON : 19 - 02 -2026

CORAM

THE HON'BLE MR JUSTICE N. ANAND VENKATESH

Arb O.P.(COM.DIV.) No. 682 of 2022

M/s.TGV SRAAC LTD.,

(Formerly M/s Sree Rayalaseema Alkalies and

Allied Chemicals Limited), 40-304, 2nd Floor,

Krishna Jyothsna Complex, Bhagyanagar,

Kurnool-518 004. Andhra Pradesh.

..Petitioner(s)

Vs

M/s.Unicon Engineers

513-A/6, Bharthi Street, Chinnavedampatti,

Coimbatore-641 049.

..Respondent(s)

PRAYER: This Original Petition is filed under Section 34 (2) of the Arbitration

and Conciliation Act, 1996, to set aside the impugned Arbitration Award dated

02.11.2021 passed by the Arbitrator.

__________

Page 1 of 17

https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

For Petitioner(s):Ms. Punnagai M.

for M/s Hari Radhakrishnan

For Respondent(s):Mr. B.Manoharan

ORDER

The petitioner has assailed the Award passed by the sole Arbitrator dated

02.11.2021 in the present petition filed under Section 34 (2) of the Arbitration

and Conciliation Act, 1996, (for brevity, hereinafter referred to “the Act”).

2. The case of the respondent/claimant is that they are a small enterprise

registered in the year 1991 under the Micro, Small and Medium Enterprises

Development Act, 2006, (hereinafter referred to as “the MSMED Act”) and that

they are engaged in the manufacture of air pollution control equipments. The

petitioner proposed to install a captive thermal power Plant of 25 MW capacity

for the purpose of supplying energy to its manufacturing units. This power plant

required pollution control equipment and, for that purpose, the petitioner

negotiated with the respondent and issued a Letter of Intent (LOI) dated

12.03.2009 containing various terms and conditions for the design, engineering,

manufacture, supply, storage, erection and commissioning of Elector Static

__________

Page 2 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

Precipitator (hereinafter referred to as “ESP”). The contract price was fixed at

Rs.3,95,00,000/-.

3. The further case of the respondent is that they supplied the ESP

machinery at a price of Rs.3,75,00,000/- upon various payment terms. In the

purchase order, it was stated that a separate work order will be issued later for

erection and commissioning at a cost of Rs.20,00,0000/-. Subsequently, the

purchase order was amended vide letter dated 22.05.2009, whereby the cost of

supply was revised to Rs.3,55,00,000/- and the cost of erection and

commissioning was revised to Rs.40,00,000/-.

4. It is the further case of the respondent that an advance amount of 10%

of the contract value, amounting to Rs.37,50,000/-, was paid by the petitioner

by means of cheques. When the respondent sent the scanned copy of the

drawings, the petitioner released a further payment of Rs.33,50,000/- vide

cheques in line with the terms contained in the purchase order.

5. There was a delay in making further payments and the parties arranged

for a meeting and entered into a fresh agreement, which was recorded in the

minutes of the meeting held from 12.03.2011 to 14.03.2011. Pursuant to the

__________

Page 3 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

agreement, an amended letter dated 01.04.2011 was issued by the petitioner to

the respondent, increasing the purchase price from Rs.3,55,00,000/- to

Rs.3,97,60,000/-. This amended letter also provided for a hike in the price of

erection and commissioning to the tune of Rs.47,40,000/-.

6. Once again, the parties were not able to comply with the terms of

agreement, which resulted in a subsequent agreement, which was recorded in

the minutes of the meeting held on 01.06.2011. Pursuant to the revised

agreement, the petitioner opened an LC for Rs.1,50,00,000/- on 07.07.2011 and

another LC for the remaining amount on 23.05.2012 and 19.01.2013,

respectively. Accordingly, the respondent completed the supply of the ESP

machinery on 04.04.2013 and conducted the necessary tests.

7. Both parties alleged breach of contract against each other. Since the

parties were not able to reach an amicable settlement, the dispute ultimately

reached the sole Arbitrator. The respondent made a claim for a sum of

Rs.1,66,27,986/- on various heads. The petitioner also made certain

counterclaims.

__________

Page 4 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

8. The respondent relied upon documents marked as Ex.C1 to Ex.C125

and the petitioner relied upon documents marked as Ex.R1 to Ex.R102.

9. The sole Arbitrator, on considering the facts and circumstances of the

case and on appreciation of evidence, allowed Claim Nos.1(a), 1(b), 1(c), 1(d),

2(ii), 2(iv), and 2(v) and rejected the remaining claims. Insofar as the

counterclaims made by the petitioner are concerned, the entire counterclaim was

rejected.

10. Aggrieved by the same, the present petition has been filed before this

Court.

11. When this petition came up for final hearing on 04.02.2026, the

learned counsel raised certain preliminary issues which touched upon the very

jurisdiction of the arbitral tribunal and hence, this Court recorded the

submissions and passed the following order:-

“This Court heard the learned counsel for the petitioner.

2. The learned counsel for the petitioner raised two preliminary

objections questioning the very jurisdiction of the Arbitral Tribunal

in entertaining the claim made by the respondent. The first

preliminary issue that was raised on the side of the petitioner is that

the purchase order for supply and commissioning of Electro Static

__________

Page 5 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

Precipitator [ESP] was executed between the parties on 17.03.2009

and the same was amended on 13.05.2009 and 22:05:2009

respectively. According to the petitioner, the respondent had

obtained registration under the MSMED Act, 2006 only on

27.04.2016, which was subsequently modified on 25.08.2020.

Therefore, the respondent is not entitled to seek any benefit under

the provisions of MSMED Act. To substantiate this submission, the

learned counsel relied upon the judgments of the Apex Court in

Tata Power Company Ltd., vs. Genesis Engineering Company

reported in [MANU/DE/2550/2023], Sterling and Wilson Pvt.,

Ltd., vs. Union of India reported in [MANU/MH/1631/2017].

P.L.Adke Vs. Wardha Municipal Corporation reported in

MANU/MH/2179/2021] and the judgment in Gujarat State Civil

Supplies Corpn. Ltd. v. Mahakali Foods (P) Ltd., reported in

(2023) 6 SCC 401.

3. The second preliminary issue that has been raised by the

learned counsel for the petitioner is that the nature of contract

between the parties involved Design, Engineering, Manufacture,

Supply, Storage, Erection and Commissioning of ESP and that this

work awarded to the respondent was essentially a works contract

and it is not for procurement of goods or services. Hence, the

learned counsel by relying upon the judgment of the Apex Court in

Kone Elevator India (P) Ltd. v. State of T.N., reported in (2014) 7

SCC 1, submitted that the contract executed is essentially for

erection and commissioning of ESP and the supply of goods and

services was incidental and therefore the said judgment of the Apex

Court will squarely apply to the facts of will the case. Consequently,

it was contended that the proceedings under Section 18(1) of the

MSMED Act, is without any legal sanctity. To substantiate his

submission, the learned counsel relied upon the judgments of the

Apex Court in Silpi Industries vs. Kerala State Road Transport

Corporation reported in [MANU/SC/0390/2021] and in Anupam

Industries Ltd., Vs. The State Level Industry Facilitation

Council reported in [MANU/GJ/3013/20221]

4.In the light of the above preliminary objections raised on the

side of the petitioner, there shall be a direction to the learned

counsel for the petitioner to file a convenience set containing the

documents, order passed by the Arbitral Tribunal on the preliminary

__________

Page 6 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

objections and also the judgments relied upon by the petitioner. An

advance copy shall be served on the learned counsel for the

respondent. This Court will hear both sides on the preliminary

objections raised and if the preliminary objection is upheld, there

will be no need to go into the merits of the case. If it is rejected, this

Court will consider the case on merits and pass final orders.

5. Post this case under the caption part heard cases on

10.02.2026.”

12. The learned counsel for the respondent submitted that the petitioner

had given up the preliminary objection regarding the status of the respondent as

a ‘Supplier’ as defined under Section 2(n) of the MSMED Act and, therefore,

the petitioner cannot be permitted to raise those preliminary objections and that

the present case has to be necessarily dealt with on merits.

13. As recorded in the previous proceedings dated 04.02.2026, one of the

issues that has been raised by the learned counsel for the petitioner goes to the

root of the matter, touching upon the very jurisdiction of the sole Arbitrator,

which is circumscribed under Section 18 of the MSMED Act. Hence, even if

the parties give up the issue of jurisdiction, if ultimately the exercise of

jurisdiction by the Arbitral Tribunal becomes questionable, the Court has to

necessary deal with that issue considering the fact that an Award passed by an

Arbitral Tribunal without jurisdiction will be construed as non est in the eye of

__________

Page 7 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

law. In any event, a jurisdiction that is not vested in the Arbitral Tribunal cannot

be conferred by the parties, more particularly in a case, where such jurisdiction

is defined under the MSMED Act.

14. The main preliminary issue that was raised on the side of the

petitioner is that the nature of the contract between the parties does not confine

itself to mere supply of goods and rendering of services and it also includes

within itself erection and commissioning of the ESP, which makes it a works

contract. If the contract between the parties is ultimately held to be a works

contract, it would fall outside the jurisdiction of the Arbitral Tribunal

constituted under the MSMED Act.

15. The law on this issue was dealt with by the Apex Court in the case of

Kone Elevator India Private Limited Vs. State of Tamil Nadu reported in

(2014) SCC OnLine SC 430, wherein the majority judgment held as follows:-

70. Coming back to Kone Elevators, it is perceivable that the three-

Judge Bench has referred to the statutory provisions of the 1957 Act and

thereafter referred to the decision in Hindustan Shipyard Ltd. , and has

further taken note of the customers’ obligation to do the civil construction

and the time schedule for delivery and thereafter proceeded to state about the

major component facet and how the skill and labour employed for

converting the main components into the end product was only incidental

__________

Page 8 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

and arrived at the conclusion that it was a contract for sale. The principal

logic applied, i.e., the incidental facet of labour and service, according to us,

is not correct. It may be noted here that in all the cases that have been

brought before us, there is a composite contract for the purchase and

installation of the lift. The price quoted is a composite one for both. As has

been held by the High Court of Bombay in Otis Elevator, various technical

aspects go into the installation of the lift. There has to be a safety device. In

certain States, it is controlled by the legislative enactment and the rules. In

certain States, it is not, but the fact remains that a lift is installed on certain

norms and parameters keeping in view numerous factors. The installation

requires considerable skill and experience. The labour and service element is

obvious. What has been taken note of in Kone Elevators is that the company

had brochures for various types of lifts and one is required to place order,

regard being had to the building, and also make certain preparatory work.

But it is not in dispute that the preparatory work has to be done taking into

consideration as to how the lift is going to be attached to the building. The

nature of the contracts clearly exposit that they are contracts for supply and

installation of the lift where labour and service element is involved.

Individually manufactured goods such as lift car, motors, ropes, rails, etc. are

the components of the lift which are eventually installed at the site for the lift

to operate in the building. In constitutional terms, it is transfer either in

goods or some other form. In fact, after the goods are assembled and

installed with skill and labour at the site, it becomes a permanent fixture of

the building. Involvement of the skill has been elaborately dealt with by the

High Court of Bombay in Otis Elevator and the factual position is

undisputable and irrespective of whether installation is regulated by statutory

law or not, the result would be the same. We may hasten to add that this

position is stated in respect of a composite contract which requires the

contractor to install a lift in a building. It is necessary to state here that if

there are two contracts, namely, purchase of the components of the lift from

a dealer, it would be a contract for sale and similarly, if separate contract is

__________

Page 9 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

entered into for installation, that would be a contract for labour and service.

But, a pregnant one, once there is a composite contract for supply and

installation, it has to be treated as a works contract, for it is not a sale of

goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a

chattel being attached to another chattel. Therefore, it would not be

appropriate to term it as a contract for sale on the bedrock that the

components are brought to the site, i.e., building, and prepared for

delivery. The conclusion, as has been reached in Kone Elevators , is based

on the bedrock of incidental service for delivery. It would not be legally

correct to make such a distinction in respect of lift, for the contract itself

profoundly speaks of obligation to supply goods and materials as well as

installation of the lift which obviously conveys performance of labour and

service. Hence, the fundamental characteristics of works contract are

satisfied. Thus analysed, we conclude and hold that the decision rendered

in Kone Elevators  does not correctly lay down the law and it is, accordingly,

overruled.

16. The above judgment was followed by the Delhi High Court in the

case of Tata Power Company Limited Vs. Genesis Engineering Company

reported in 2023 SCC OnLine Del 2366 and the relevant portions are extracted

hereunder:-

17. The primary question to be adjudicated before coming to the

arbitrability of the disputes in question is the applicability of the

MSME Act to the case at hand. In order to determine, the applicability

of the sald Act, it is pertinent to peruse the contract and determine the

nature of the contract.

18. Pursuant to the issuance of the LoC, the parties entered into

the following Work Orders along with the General Conditions of

__________

Page 10 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

Contract:

(a) Work Order No. 6000040502 for Replacement of Street Lights

along with LEDs; and

(b) Work Order bearing No. 6000042695 for Supply & Installation

of Tubular poles, Supply & Installation of Earth Wire, Supply &

Installation of PVC Cable and other relevant accessories and services

as per BOQ.

19. In order to ascertain whether the scope of work as awarded to

Petitioner would qualify as a 'work contract' or 'composite supply', the

judgment of the Hon'ble Supreme Court of India in Kone Elevator

India Private Limited v. State of Tamil Nadu, (2014) 7 SCC 1 is

relevant to appreciate the categories of contract, i.e. (a) Contract for

work to be done for remuneration and for supply of materials to be

used in the execution of work for a price (b) Contract for work in

which the use of the materials is necessary or incidental to the

execution of the work (c) Contract for supply of goods where some

work is required to done as Incidental to the sale. The Hon'ble

Supreme Court has opined that category (a) as composite contract

consisting of two contracts, one of which is for the sale of goods and

the other which is for work and labour. It was held that the

involvement of supply of goods and material as well as installation of

the lift had concluded that the contracts awarded to Kone Elevators

satisfy the characteristics of Works Contract and held that it cannot be

considered as contract of sale.

20. Applying the judgment to the instant case, the Works Orders

as executed by the parties in the instant case falls within category (a)

as it comprises of two contracts which include supply of goods such as

Cables, wire, connectors, street lights and poles and subsequent

involvement of work and labour for its installation. Further, the

element of both supply of goods and element of labour and service is

involved in the Work Orders. It is also a settled principled of law that

that dispute/claims arising from Works Contract are not amenable to

the jurisdiction of Facilitation Council constituted under the MSME

Act.

__________

Page 11 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

17. The next judgment that was relied upon is again the judgment of the

Delhi High Court in the case of M/s.Shree Gee Enterprises Vs. Union of India

and Anr. reported in 2015 SCC OnLine Del 13169. In this judgment, the Delhi

High Court took into consideration the clarification given by the Ministry of

Micro, Small and Medium Enterprises and the relevant portions are extracted

hereunder:-

“10. Reference may also be had to the office memorandum dated

20.02.2014 issued by the Director of the Office of the Development

Commissioner, Ministry of MSME, Union of India, wherein frequently

asked questions and their answers had been circulated to the various

Ministries and in particular to question No. 18 and their answers thereto

which reads as under:-

Ques. 18. Whether this policy is applicable for works/trading

activities also?

Ans. Policy is meant for procurement of only goods produced and

services rendered by MSEs.

11. A reading of the policy along with the frequently asked

questions meant for giving preference in respect of procurement of goods

produced and services rendered by Micro, Small and Medium Enterprises

(MSME). It would not be applicable to a "works contract” simpliciter.

18. It is quite clear from the above judgments that where the contract

between the parties is a composite contract, which includes supply of goods,

rendering services and other components like, installation, commissioning, etc.,

it has to be treated as a works contract since it is not a sale of goods or rendering

of services simpliciter. This clarification was in fact, given by the Ministry

__________

Page 12 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

concerned under the FAQs to the effect that the policy under MSMED Act is

meant only for goods produced and services rendered and is not applicable to

works contract.

19. In the case in hand, even though separate purchases orders were

issued for supply and services, the ultimate bill that was raised included within

its fold manufacture, supply, storage, erection and commission of the ESP. This

clearly constitutes a works contract and it is not a contract of manufacturing of

goods and rendering of services simpliciter.

20. The learned counsel for the respondent relied upon an order passed in

W.P.No.17814 of 2022, dated 13.06.2023, where a similar objection was

refused to be gone into by this Court. This order will not apply to the facts of

the present case, since this Court was dealing with a writ petition and the nature

of contract involved was held to be a question of fact, which cannot be gone

into while exercising a writ jurisdiction. The learned counsel for the respondent

also relied upon a judgment of the Calcutta High Court in WPO No.2896 of

2022, dated 27.06.2023, where the Calcutta High Court held otherwise, even

insofar as a works contract is concerned. It was brought to the notice of this

Court that the said order passed by the learned single Judge was subsequently

__________

Page 13 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

stayed by a Division Bench. In view of the same, this judgment cannot be taken

as a precedent.

21. In the case in hand, an application came to be filed under Section 16

of the Act before the sole Arbitrator raising preliminary objection on the

jurisdiction of the Tribunal to deal with the matter. Section 15 of the MSMED

Act was brought to the notice of the sole Arbitrator and a ground was raised to

the effect that only goods and services will come within the purview of the

MSMED Act. This ground virtually touches upon the core issue that was

discussed by this Court supra and the sole Arbitrator had rejected the

application on 20.02.2020. Therefore, it is not as if this issue was not raised

before the sole Arbitrator, but however, it was not addressed in a proper form,

but in substance what was questioned was the jurisdiction of the Arbitral

Tribunal. Hence, the petitioner is not raising this issue for the first time before

this Court.

22. In the light of the above discussion, this Court holds that the term

“buyer” defined under Section 2(d) of the MSMED Act only deals with goods

or services. Similar is the definition of “enterprise” under Section 2(e) of the

MSMED Act. These definitions, along with the law enunciated by the Apex

__________

Page 14 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

Court and the other High Courts, make it clear that MSMED Act would apply

only to supply of goods or services and does not cover the works contract,

which is a composite supply of goods and services and which also includes

erection and commissioning of equipment. Accordingly, the sole Arbitrator

lacked jurisdiction to deal with the claim made by the respondent since the

jurisdiction is specifically defined under the MSMED Act, 2006. Accordingly,

the Award rendered by an Arbitral Tribunal without jurisdiction will render the

Award non est in the eye of law.

23. In the light of the above finding, it is not necessary for this Court to

go into the other preliminary issue raised by the learned counsel for the

petitioner to the effect that the respondent was not registered as an enterprise on

the date of entering into the contract with the petitioner until the completion of

the entire project and therefore, could not claim for the benefits under the

MSMED Act. Getting into this issue will only be an academic exercise since

this Court has rendered the Award as non est while dealing with the first

preliminary issue raised by the learned counsel for the petitioner.

__________

Page 15 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

24. The upshot of the above discussion leads to the only conclusion that

the Award passed by the sole Arbitrator dated 02.11.2021 is liable to be

interfered with and is accordingly set aside. It is left open to the parties to take

steps to appoint a fresh Arbitrator to refer the dispute in accordance with law.

25. In the result, this Original Petition is allowed in the above terms.

Considering the nature of the issue, there shall be no order as to costs.

19-02-2026

Index : Yes

Speaking Order: Yes

Neutral Citation: Yes

Asi

To

M/s.Unicon Engineers

513-A/6, Bharthi Street, Chinnavedampatti,

Coimbatore-641 049.

__________

Page 16 of 17 https://www.mhc.tn.gov.in/judis

Arb O.P(COM.DIV.) No. 682 of 2022

N. ANAND VENKATESH, J.

Asi

Arb O.P.(COM.DIV.) No. 682 of 2022

19-02-2026

__________

Page 17 of 17 https://www.mhc.tn.gov.in/judis