Choosing the Correct Legal Forum for Contractual Disputes: Courts, Arbitration and MSME

Theme: Legal Framework; Module: Arbitration & Courts

Author: Dr. Pradeep Reddy Sarvareddy

Published Date: 01 Jan 2026

When a contractual dispute arises, choosing the correct legal forum is important.  You may be fighting the case for years and a convenient location may be beneficial and save you a lot of time & hassle.  Further, filing in a wrong forum can result in unnecessary objections, wastage of time or even dismissal of your case.  So, should you choose Arbitration, MSME Arbitration or Courts?  Which location or venue is correct legally?  This Article explains the available legal forums for Commercial Disputes.

  • Civil Courts for dispute value less than Rs. 3 Lakhs.
  • Commercial Courts for dispute value more than Rs. 3 Lakhs.
  • MSME Arbitration for suppliers and service providers (but not for works contracts)
  • Conciliation / Mediation (but not mandatory)
  • Arbitration

You can choose the forum based on Contract Clauses or Statutory Provisions.  Contract clauses means that what is mentioned in your Contract.  For example, you cannot choose Arbitration without a written clause in your Contract or a separate Arbitration Agreement.  Otherwise, your legal remedy may be Court, which is a Statutory provision.  Another Statutory provision is the MSME Act which allows you to go to MSME Arbitration instead of regular Arbitration or Courts. 

If you are an MSME, and your Contract also includes an Arbitration Clause, then what are your options?

  • Option 1: You can file in MSEFC for MSME Arbitration. It’s your Statutory Right.
  • Option 2: You can choose regular Arbitration as per your Contract instead of MSME Arbitration. This is your choice.
  • Option 3: You may file in Court instead of MSME Arbitration or regular Arbitration. But if the other Party / Department object, your case will not be allowed in Court.  But if both Parties choose, then you can ignore the Arbitration Clause and go to Court.

Ultimately, you have a choice.

Which MSEFC to file the case?

The MSEFC where your business is registered.  This prevents you from having to travel to the other party’s location.  Very convenient for you.

Which Court can you file?

  • This is a longer answer.
  • Assume that your office is in Hyderabad, the other Party’s office is in New Delhi and the Project is located in Mumbai. Then, you can file in any of these three locations, i.e., Hyderabad, New Delhi or Mumbai.
  • If your Contract says “All Disputes are subject to the Jurisdiction of the Courts in New Delhi”, then what? Note that the clause does not use the terms like “only” or “exclusively” or something else like that.  So, once again you get to file in any of these three locations, i.e., Hyderabad, New Delhi or Mumbai.
  • But if your Contract says “All Disputes are subject to the Jurisdiction of the Courts in New Delhi only”, then what? Now note the word “only” or something similar.  Now you can file only in “New Delhi” Courts but not in any other Court.
  • But if your Contract says “All Disputes are subject to the Jurisdiction of the Courts in Chennai only”, then what? Now note the word “only” is also present.  But, there is no connection to Chennai, as your office or the other Party’s office or the Project are not connected to Chennai.  So, even if your Contract says “Chennai only”, you cannot file in the Courts of Chennai.  Once again you get a choice to file in any of these three locations, i.e., Hyderabad, New Delhi or Mumbai.

What about Arbitration?

  • This is a bit complex. But note the general information.
  • In Arbitration also, if your Contract uses the term “seat” or “place” then, you have to file only in the Courts in the location of the “seat” or “place”.
  • If Seat or Place are not mentioned, then, if you look at your jurisdiction clause. Just like the Courts situation above, if there is nothing mentioned, you could choose any of the three locations mentioned.  If the terms like “only” are mentioned, then you can file in the Court in that location only.
  • But the beauty of Arbitration is that you can choose your “seat” anywhere in the World, say Chennai or Singapore or America. Even though there is no connection to the Project, you can choose the Courts in other locations, and you can arbitrate in any “venue” of your choice like Switzerland or Bahamas. 
  • But the biggest question is, if you are seeking Arbitration, what is the need to go to Court in the first place? Great question.  I am still scratching my head. 

For more information, look up the term “Forum Shopping”.  If you have good intentions, it is good and termed as “Parties autonomy”, but if you have bad intentions, it is bad and termed as “abuse of process”.

My advice.  Avoid disputes.  Try to settle and move on.  You can make more money and be happy if you focus on your business.  Remember, your business is Contracting not “fighting”.