The Punjab and Haryana High Court has held that a dispute can be referred to Arbitration without agreement if the Special Act has the provision, due to the overrriding effect.
The single-judge of Justice Lisa Gill while adjuctaing upon a plea filed under Section 14 of the Arbitration and Conciliation Act with Section 151 CPC seeking termination of the mandate of the Sole Arbitrator, observed that MSMED Act being a Special Act shall prevail over the Arbitration Act.
Brief Facts of the Case
The petitioner was a proprietorship firm engaged in manufacturing of corrugated boxes, packaging material and other material which is used in logistic industry for safe transportation of goods. Respondent is stated to be a supplier of plywood and other wooden material used in the manufacturing of corrugated boxes and other packaging material by the petitioner. Respondent claimed an outstanding amount qua the petitioner in respect of goods supplied by it to the petitioner in the year 2016. Claim was filed by the respondent before the Haryana Micro and Small Enterprises Facilitation Council (HMSEFC).
The petitioner has contended that the matter was referred for arbitration without any valid order being passed on conciliation proceedings under the Micro, Small and Medium Enterprises Development Act, 2006. An application under Section 12 of the Arbitration Act seeking valid disclosure from the learned Arbitrator was filed with a specific objection that there exists no clause for arbitration, therefore HMSEFC could not have referred the matter to the Arbitrator.
Moreover, declaration in terms of Section 12 of the Arbitration Act was also sought from the Arbitrator.
Present petition was thus filed on the grounds that conduct of the Arbitrator is arbitrary and disclosure regarding independence and impartiality of the Arbitrator is imperative as per Section 12 of the Arbitration Act. It was further submitted that claim filed by the respondentclaimant is time barred as invoices are of the year 2016. Learned counsel for the petitioner also argued that Section18 (3) MSMED Act, provides for referral of the dispute to any institution or centre or arbitration, therefore referral to the Sole Arbitrator is illegal. Furthermore, it was contended that learned Arbitrator was moving with the arbitration proceedings at a very fast pace, thus mandate of the Arbitrator should stand terminated.
High Court's Observation
The Court at the outset empathically noted that the petitioner did not challenge appointment of the Arbitrator by the HMSEFC. Analysing the provisions of Section 15, 16, 17 and 18 of the MSMED Act, it stated that the respondent who was registered under the MSMED Act, at the relevant time was entitled to approach the HMSEFC under the MSMED Act for redressal of its grievance.
The Court referred to M/s. Silpi Industries Vs. Kerala State Road Transport Corporation, 2021 Latest Caselaw 258 SC held that provisions of the MSMED Act being a Special Act shall prevail and have overriding effect vis-a-vis the Arbitration Act.
Noting that Section 18 of the MSMED Act starts with a non obstante clause, the Court rejected the argument that proceedings are not maintainable in the absence of an arbitral clause
"Even in a case where exists an agreement between the parties for resolution of disputes by Arbitration, if a seller is covered under the MSMED Act, the seller is at liberty to approach the competent authority to make its claim and agreement, if any, between the parties is to be ignored in view of the statutory obligations and mechanism provided under the MSMED Act. The counter claim was also held to be permissible by the buyer."
The Court further mentioned HRD Corporation (Marcus Oil and Chemical Division) Vs. Gail (India) Limited (Formerly Gas Authority of India Ltd.), 2017 Latest Caselaw 623 SC, Bharat Broadband Network Ltd. Vs. United Telecoms Ltd., 2019 Latest Caselaw 395 SC and noted that remedy of the petitioner is to clearly wait for the award and avail its remedies thereafter, which it is at liberty to do so.
Case Title: M/s SGM Packaging Industries vs M/s Goyal Plywood LLP
Case Details: ARB No. 86 of 2020 (O&M)
Coram: Justice Lisa Gill
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