HON'BLE SRI JUSTICE K. LAKSHMAN
WRIT PETITION No.34612 OF 2022
ORDER:
Heard Mr. Pedda Babu Gurram, learned Senior Counsel representing Mr. Ramachandra Rao Gurram, learned counsel for the petitioner and Mrs. B. Kavitha Yadav, learned Standing Counsel for respondent No.1 and Mr. Damodar Mundra, learned counsel for respondent No.3.
2. This Writ Petition is filed to call for the records pertaining and related to award dated 30.04.2022 passed in Case No.1093/MSEFC/2021 by respondent No.2 and declare the same as illegal and consequently set aside the same.
3. FACTS:
i) Respondent No.3, a Partnership Firm registered under the Micro, Small, and Medium Enterprises Development Act, 2006 (for short Act, 2006), is carrying on the business of manufacturing Steel Furniture and allied products.
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ii) It is also dealing in supply of furniture and during the course of business, respondent No.3 had supplied furniture to the petitioner under various bills starting from 26.11.2019 to 04.03.2020.
iii) According to respondent No.3, the petitioner herein is due and liable to pay an amount of Rs.26,59,821/-.
iv) Despite making several requests, the petitioner failed to pay the aforesaid amount. Therefore, it had filed a complaint before respondent No.2 on 08.06.2021 vide Claim Petition No.1093/MSEFC/2021.
v) After following the procedure laid down under the Act, 2006, respondent No.2 had passed the impugned award dated 30.04.2022, directing the petitioner herein to pay the principal amount of Rs.12,92,412/- pertaining to 36 Invoices and interest with effect from the appointed day as per Sections - 15 and 16 of the Act, 2006, and also compound interest with monthly rests payable at the rate of three (03) times of the Bank rate as notified by the Reserve Bank of India from time to time till realization of dues. 3
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4. (i) Challenging the said award, the petitioner herein had filed the present writ petition on the following grounds:
(a) Respondent No.2 has not conducted conciliation proceedings as per Section - 18 (2) of the Act, 2006 read with Sections -
65 to 81 of the Arbitration and Conciliation Act, 1996 (for short 'Act, 1996');
(b) Before adjudication of the matter, respondent No.2 has to mandatorily refer the matter to conciliation as per the procedure prescribed. In the present case, respondent No.2 did not follow with the said mandatory procedure;
(c) Respondent No.2 has neither considered nor framed the issue with regard to the primary objection raised by the petitioner that there is no privity of contract with respondent No.3 and the petitioner, that the order was placed with Mr. Ramakrishna Soni, representing as proprietor of M/s.
Maheshwari Metal Industries, Hyderabad, which was not registered under the Act, 2006;
(d) Thus, the impugned award is in violation of the aforesaid procedure laid down under the Act, 2006 and also under the 4 KL,J W.P. No.34612 of 2022 Act, 1996. Therefore, availability of alternative remedy is not a bar to maintain the present writ petition;
(e) There is no need of filing an application under Section - 34 of the Act, 1996 and there is no need to deposit 75% of the disputed amount in terms of Section - 19 of the Act, 1996;
(f) Application under Section - 34 of the Act, 1996 is not an alternative and efficacious remedy.
ii) Respondent No.2 had issued a notice dated 22.09.2022 asking the petitioner herein to pay an amount of Rs.2700/- towards arbitration fee and to attend conciliation meeting proposed to be conducted virtually through "Google Meet" on 30.09.2021 at 1.00 p.m. On 22.10.2021, the petitioner had requested respondent No.2 to grant fifteen (15) days time for submitting counter as the petitioner was attacked by COVID Virus along with test certificate. On 01.11.2021, the petitioner had submitted its statement of defence along with relevant documents. On 27.11.2021, respondent No.3 had filed its reply to the statement of defence and the meeting was postponed to 29.01.2022. The petitioner had submitted another letter and the meeting was conducted online on 29.01.2022 and stated that 5 KL,J W.P. No.34612 of 2022 the deed of partnership was altered and fabricated, and the nature of business differed in the deed and other registrations.
iii) Respondent No.2 without conducting another meeting to substantiate the claims of the petitioner, without recording any evidence and without giving an opportunity of hearing in the matter, passed the impugned award dated 3004.2022. Therefore, the entire award is in violation of the procedure laid down under the Act, 2006 and the Act, 1996.
5. i) Respondent No.3 had filed counter contending that the present writ petition is not maintainable since there is an alternative and efficacious remedy available under Section - 34 of the Act, 1996.
ii) Respondent No.2 had followed the procedure laid down under law and there is no violation of the principles of natural justice.
iii) On filing of complaint by respondent No.3 on 08.06.2021, respondent No.2 fixed the meeting on 30.07.2021. The petitioner herein sent WhatsApp message to respondent No.2 stating that he had cleared all the dues and that he would not attend the Council meetings. As such, respondent No.2 opined that conciliation meeting was failed and rightly decided to go for arbitration proceedings. 6
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iv) Though there are minor irregularities, the writ petition is not maintainable challenging the award passed by respondent No.2 under the provisions of the Act, 2006. If the petitioner is aggrieved by the said award, it has to file an application under Section - 34 of the Act, 1996.
v) There are several factual aspects including the authority of Mr. Ranjeet Jhawar to represent respondent No.3, Mr. Ramakrishna Soni and placing invoices etc., that cannot be decided in a writ petition filed under Article - 226 of the Constitution of India. With the aforesaid submissions, respondent No.3 sought to dismiss the present writ petition.
6. ANALYSIS AND FINDING OF THE COURT:
i) Mr. Pedda Babu Gurram, learned Senior Counsel, would submit that respondent No.2 did not conduct conciliation at all. Therefore, there is violation of the procedure laid down under Section
- 18 of the Act, 2006.
ii) It is relevant to note that in the impugned award, it is specifically mentioned that the parties were given an opportunity of conciliation under Section - 18 (2) of the Act. In the counter filed by 7 KL,J W.P. No.34612 of 2022 respondent No.3, it is specifically mentioned that respondent No.2 has requested the petitioner as well as respondent No.3 for appearance in conciliation proceedings which were conducted on 30.09.2021. The petitioner sent WhatsApp message to respondent No.2 that it had cleared all the dues and that it would not attend the council meetings. The petitioner had filed reply to the counter filed by respondent No.3. There is no denial in respect of the said pleadings. On the other hand, in the reply filed by the petitioner, it is stated that the conciliation proceedings were closed on the first date itself. Therefore, now the petitioner herein cannot contend that respondent No.2 has not conducted conciliation proceedings in terms of Section - 18 (2) of the Act, 2006. Thus, the said contention cannot be accepted.
iii) Learned senior counsel would further submit that 4espondent No.2 itself cannot act as an Arbitrator as well as Conciliator in the same dispute. The said issue is no more res integra. In a recent judgment Gujarat State Civil Supplies Corporation Ltd., v. Mahakali Foods Pvt. Ltd. (Unit 2) and other connected 8 KL,J W.P. No.34612 of 2022 matters1. In paragraph No.34 of the said judgment, the Apex Court held as under:
" 34. The upshot of the above is that:
(i) Chapter-V of the MSMED Act, 2006 would override the provisions of the Arbitration Act, 1996.
(ii) No party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council, though an independent arbitration agreement exists between the 19 parties.
(iii) The Facilitation Council, which had initiated the Conciliation proceedings under Section 18(2) of the MSMED Act, 2006 would be entitled to act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act.
(iv) The proceedings before the Facilitation Council/institute/centre acting as an arbitrator/arbitration tribunal under Section 18(3) of MSMED Act, 2006 would be governed by the Arbitration Act, 1996.
(v) The Facilitation Council/institute/centre acting as an arbitral tribunal by virtue of Section 18(3) of the MSMED Act, 2006 would be competent to rule on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration Act, 1996.
(vi) A party who was not the 'supplier' as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract cannot seek any benefit as the 'supplier' under the MSMED Act, 2006. If any 1 . 2022 SCC OnLine SC 1492 9 KL,J W.P. No.34612 of 2022 registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration."
In view of the aforesaid principle held by the Apex Court, the said contention of learned senior counsel is untenable.
iv) In view of the said contentions, it is relevant to refer to Sections - 18 and 19 of the Act, 2006 as well as Sections - 65 to 81 of the Act, 1996, which are as under:
Micro Small and Medium Enterprises Development Act, 2006 Section 18. Reference to Micro and Small Enterprises Facilitation Council.--(1) Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council.
(2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such 10 KL,J W.P. No.34612 of 2022 a dispute as if the conciliation was initiated under Part III of that Act.
(3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that Act.
(4) Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.
(5) Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference.
19. Application for setting aside decree, award or order.--No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall 11 KL,J W.P. No.34612 of 2022 be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court: Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case subject to such conditions as it deems necessary to impose.
THE ARBITRATION AND CONCILIATION ACT, 1996
65. Submission of statements to conciliator.--(1) The conciliator, upon his appointment, may request each party to submit to him a brief written statement describing the general nature of the dispute and the points at issue. Each party shall send a copy of such statement to the other party. (2) The conciliator may request each party to submit to him a further written statement of his position and the facts and grounds in support thereof, supplemented by any documents and other evidence that such party deems appropriate. The party shall send a copy of such statement, documents and other evidence to the other party. (3) At any stage of the conciliation proceedings, the conciliator may request a party to submit to him such additional information as he deems appropriate. 12
KL,J W.P. No.34612 of 2022 Explanation.--In this section and all the following sections of this Part, the term "conciliator" applies to a sole conciliator, two or three conciliators, as the case may be.
66. Conciliator not bound by certain enactments.--The conciliator is not bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872).
67. Role of conciliator.--(1) The conciliator shall assist the parties in an independent and impartial manner in their attempt to reach an amicable settlement of their dispute. (2) The conciliator shall be guided by principles of objectivity, fairness and justice, giving consideration to, among other things, the rights and obligations of the parties, the usages of the trade concerned and the circumstances surrounding the dispute, including any previous business practices between the parties. (3) The conciliator may conduct the conciliation proceedings in such a manner as he considers appropriate, taking into account the circumstances of the case, the wishes the parties may express, including any request by a party that the conciliator hear oral statements, and the need for a speedy settlement of the dispute.
(4) The conciliator may, at any stage of the conciliation proceedings, make proposals for a settlement of the dispute. Such proposals need not be in writing and need not be accompanied by a statement of the reasons therefor.
68. Administrative assistance.--In order to facilitate the conduct of the conciliation proceedings, the parties, or the 13 KL,J W.P. No.34612 of 2022 conciliator with the consent of the parties, may arrange for administrative assistance by a suitable institution or person.
69. Communication between conciliator and parties.-- (1) The conciliator may invite the parties to meet him or may communicate with them orally or in writing. He may meet or communicate with the parties together or with each of them separately.
(2) Unless the parties have agreed upon the place where meetings with the conciliator are to be held, such place shall be determined by the conciliator, after consultation with the parties, having regard to the circumstances of the conciliation proceedings.
70. Disclosure of information.--When the conciliator receives factual information concerning the dispute from a party, he shall disclose the substance of that information to the other party in order that the other party may have the opportunity to present any explanation which he considers appropriate:
Provided that when a party gives any information to the conciliator subject to a specific condition that it be kept confidential, the conciliator shall not disclose that information to the other party.
71. Co-operation of parties with conciliator.--The parties shall in good faith co-operate with the conciliator and, in particular, shall endeavour to comply with requests by the conciliator to submit written materials, provide evidence and attend meetings.
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72. Suggestions by parties for settlement of dispute.-- Each party may, on his own initiative or at the invitation of the conciliator, submit to the conciliator suggestions for the settlement of the dispute.
73. Settlement agreement.--(1) When it appears to the conciliator that there exist elements of a settlement which may be acceptable to the parties, he shall formulate the terms of a possible settlement and submit them to the parties for their observations. After receiving the observations of the parties, the conciliator may reformulate the terms of a possible settlement in the light of such observations.
(2) If the parties reach agreement on a settlement of the dispute, they may draw up and sign a written settlement agreement. If requested by the parties, the conciliator may draw up, or assist the parties in drawing up, the settlement agreement.
(3) When the parties sign the settlement agreement, it shall be final and binding on the parties and persons claiming under them respectively.
(4) The conciliator shall authenticate the settlement agreement and furnish a copy thereof to each of the parties.
74. Status and effect of settlement agreement.--The settlement agreement shall have the same status and effect as if it is an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal under section
30. 15 KL,J W.P. No.34612 of 2022
75. Confidentiality.--Notwithstanding anything contained in any other law for the time being in force, the conciliator and the parties shall keep confidential all matters relating to the conciliation proceedings. Confidentiality shall extend also to the settlement agreement, except where its disclosure is necessary for purposes of implementation and enforcement.
76.Termination of conciliation proceedings.--The conciliation proceedings shall be terminated--
(a) by the signing of the settlement agreement by the parties, on the date of the agreement; or
(b) by a written declaration of the conciliator, after consultation with the parties, to the effect that further efforts at conciliation are no longer justified, on the date of the declaration; or
(c) by a written declaration of the parties addressed to the conciliator to the effect that the conciliation proceedings are terminated, on the date of the declaration; or
(d) by a written declaration of a party to the other party and the conciliator, if appointed, to the effect that the conciliation proceedings are terminated, on the date of the declaration.
77. Resort to arbitral or judicial proceedings.--The parties shall not initiate, during the conciliation proceedings, any arbitral or judicial proceedings in respect of a dispute that is the subject-matter of the conciliation proceedings except that a party may initiate arbitral or 16 KL,J W.P. No.34612 of 2022 judicial proceedings where, in his opinion, such proceedings are necessary for preserving his rights.
78. Costs.--(1) Upon termination of the conciliation proceedings, the conciliator shall fix the costs of the conciliation and give written notice thereof to the parties. (2) For the purpose of sub-section (1), "costs" means reasonable costs relating to--
(a) the fee and expenses of the conciliator and witnesses requested by the conciliator with the consent of the parties;
(b) any expert advice requested by the conciliator with the consent of the parties;
(c) any assistance provided pursuant to clause (b) of sub- section (2) of section 64 and section 68.
(d) any other expenses incurred in connection with the conciliation proceedings and the settlement agreement. (3) The costs shall be borne equally by the parties unless the settlement agreement provides for a different apportionment. All other expenses incurred by a party shall be borne by that party.
79. Deposits.--(1) The conciliator may direct each party to deposit an equal amount as an advance for the costs referred to in sub-section(2) of section 78 which he expects will be incurred.
(2) During the course of the conciliation proceedings, the conciliator may direct supplementary deposits in an equal amount from each party.
(3) If the required deposits under sub-sections (1) and (2) are not paid in full by both parties within thirty days, the 17 KL,J W.P. No.34612 of 2022 conciliator may suspend the proceedings or may make a written declaration of termination of the proceedings to the parties, effective on the date of that declaration. (4) Upon termination of the conciliation proceedings, the conciliator shall render an accounting to the parties of the deposits received and shall return any unexpended balance to the parties.
80. Role of conciliator in other proceedings.--Unless otherwise agreed by the parties,--
(a) the conciliator shall not act as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceeding in respect of a dispute that is the subject of the conciliation proceedings;
(b) the conciliator shall not be presented by the parties as a witness in any arbitral or judicial proceedings.
81.Admissibility of evidence in other proceedings.--The parties shall not rely on or introduce as evidence in arbitral or judicial proceedings, whether or not such proceedings relate to the dispute that is the subject of the conciliation proceedings,--
(a) views expressed or suggestions made by the other party in respect of a possible settlement of the dispute;
(b) admissions made by the other party in the course of the conciliation proceedings;
(c) proposals made by the conciliator;
(d) the fact that the other party had indicated his willingness to accept a proposal for settlement made by the conciliator.
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v) As discussed above, respondent No.2 has referred the matter to the conciliation and requested both the petitioner and respondent No.3 to appear on 30.09.2021 for conducting conciliation proceedings. The petitioner herein has sent WhatsApp message to respondent No.2 stating that it had cleared the dues and that it will not attend the council meeting. Therefore, respondent No.2 left with no other option but to opine that the conciliation meeting is failed and decided to go for arbitration proceedings.
vi) As stated above, in the reply filed, the petitioner contended that respondent No.2 has closed the conciliation on the first date itself. It is relevant to note that as per Section - 18 (5) of the Act, 2006, every reference made under this section shall be decided within a period of ninety (90) days from the date of making such a reference. Therefore, the petitioner herein instead of appearing before respondent No.2 for conciliation, failed to appear and, therefore, it cannot contend that respondent No.2 failed to conduct conciliation proceedings and that it had closed the same on the first date itself. However, if the petitioner has any grievance with regard to the same, it can take the said plea in 19 KL,J W.P. No.34612 of 2022 an application filed under Section - 34 of the Act, 1996. On the said ground, it cannot maintain the present writ petition.
vii) It is also relevant to note that where a party has received notice and he does not raise a plea of lack of jurisdiction before the arbitral tribunal, he must make out a strong case why he did not do so if he chooses to move a petition for setting aside the award under Section - 34 (2) (v) of the Act, 1996 on the ground that the composition of the arbitral tribunal was not in accordance with the agreement of the parties. If plea of jurisdiction is not taken before the arbitrator as provided in Section - 16 of the Act, such a plea cannot be permitted to be raised in proceedings under Section - 34 of the Act for setting aside the award, unless good reasons are shown. The said principle was laid down by the Hon'ble Supreme Court in Gas Authority of India Ltd. v. Keti Construction (I) Ltd.2, wherein the Apex Court referred the decision in SBP & Co. v. Patel Engineering3. In SBP & Co.2, a Larger Bench of the Apex Court held in paragraph No.45 which is as under:
"45. It is seen that some High Courts have proceeded on the basis that any order passed by an arbitral tribunal 2 . (2007) 5 SCC 38
3. ( 2005) 8 SCC 618 20 KL,J W.P. No.34612 of 2022 during arbitration, would be capable of being challenged under Article 226 or 227 of the Constitution of India. We see no warrant for such an approach. Section 37 makes certain orders of the arbitral tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating his grievances against the award including any in-between orders that might have been passed by the arbitral tribunal acting under Section 16 of the Act. The party aggrieved by any order of the arbitral tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The arbitral tribunal is after all, the creature of a contract between the parties, the arbitration agreement, even though if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the arbitral tribunal. It will still be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the arbitral tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution of India. Such an intervention by the High Courts is not permissible."
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viii) Referring to the said principle, a Three-Judge Bench of the Apex Court in Sterling Industries v. Jayprakash Associates Ltd.4 reiterated the said principle.
ix) Referring to the aforesaid judgments, the High Court of Andhra Pradesh at Amaravati in Gulf Oil Corporation v. Andhra Pradesh Micro and Small enterprises Facilitation Council5, held that writ jurisdiction of the High Court, after commencement of arbitration proceedings, is limited and that the said jurisdiction narrowed further against award passed under the Act, 2006 and that Court cannot exercise writ jurisdiction to issue any order in the writ petition. It further held that under Section - 34 of the Act, 1996, the aggrieved party has an avenue for ventilating his grievances against the award including any in-between orders that might have been passed by the arbitral tribunal acting under Section - 16 of the Act, 1996. The party aggrieved by any order of the arbitral Tribunal, unless has a right of appeal under Section - 37 of the Act, 1996 has to wait until the award is passed by the Tribunal.
4. 2019 Supreme (SC) 1198 5 . MANU/AP/0534/2020 22 KL,J W.P. No.34612 of 2022
x) In M/s. India Glycols Limited v. Micro and Small Enterprises Facilitation Council6, this Court on examination of the facts therein and also after going through the record, on coming to a conclusion that respondent No.2 Council has not followed the mandatory procedure laid down under Sections - 18 (2) and (3) of the Act, 2006 and Sections - 65 to 81 of the Act, 1996, the writ petition is maintainable. Whereas, in the present case, the facts are different. Respondent No.2 had initiated conciliation proceedings and directed the parties to appear on 30.09.2021. The petitioner did not attend the said meeting. Therefore, the facts of the said case are different to the facts of the present case.
xi) With regard to the contention of the petitioner that placing of an order with Mr. Ramakrishna Soni, representing as proprietor of M/s. Maheshwari Metal Industries, Hyderabad (respondent No.3 herein), which was not registered under the Act, 2006, this Court cannot consider and decide complicated questions of fact in a writ petition filed under Section - 226 of the Constitution of India. However, liberty is granted to the petitioner to raise all the aforesaid
6. MANU/TL/1707/2022 23 KL,J W.P. No.34612 of 2022 grounds which are based on the factual aspects in an application that would be filed under Section - 34 of the Act,1996 challenging the impugned award.
7. CONCLUSION:
i) In view of the aforesaid discussion, the petitioner failed to make out any ground to maintain the present writ petition under Article - 226 of the Constitution of India challenging the award passed by respondent No.2. The present writ petition is devoid of merits and the same is liable to be dismissed.
ii) The present Writ Petition is accordingly dismissed. In the circumstances of the case, there shall be no order as to costs.
iii) However, as held by the Apex Court in State of Goa v. Western Builders7 that the Court before which an Award is challenged under Section 34 can exclude such period of limitation where a party challenging the award was under a bona fide belief that another forum had jurisdiction to entertain such challenge. In other words, Section - 34 (3) read with Section 14 of the Limitation Act, 1963 empowers the Court to exclude such period which was spent in 7 . (2006) 6 SCC 239 24 KL,J W.P. No.34612 of 2022 bona fidely pursuing such challenge before a wrong forum. Considering the same, liberty is granted to the petitioner to file an application under Section - 34 (3) read with Section 14 of the Limitation Act, 1963 of the Act, 1996 seeking to condone the delay, and on filing the same, the Court concerned shall consider the same and dispose of it in accordance with law.
As a sequel, the miscellaneous petitions, if any, pending in the writ petition shall stand closed.
_________________ K. LAKSHMAN, J 12th December, 2022 Note:
1. The Registry is directed to return the original award to the petitioner under due acknowledgment.
2. The Registry is also directed to return the original record to respondent No.2 under due acknowledgment.
(B/O. ) Mgr