Andhra Pradesh High Court - Amravati

Rashtriyalspat Nigam Limited vs The Union Of India on 26 April, 2022

          *HONOURBLE SRI JUSTICE D.V.S.S. SOMAYAJULU
    + W.P.Nos.27670, 27673, 27691, 27693, 27826, 27829, 28010,
                          28034 of 2021
                                  And
                       4721, 6249 and 7616 of 2022
% 26.04.2022
WP.No.27670 of 2021
# RASHTRIYA ISPAT NIGAM LIMITED,
VISAKHAPATNAM STEEL PLANT,
Rep. by its authorized signatory- R.Monikandan,
S/o Late P Raju, Aged 48 years, Occ: Dy General Manager
Constn, RMHP RMHP Construction Zonal Office,
 Visakhapatnam Steel Plant,
 Visakhapatnam 530031
                                                          ... Petitioner


Vs.
$ THE UNION OF INDIA
Rep By Secretary,
The Ministry of Micro Small and Medium Enterprises,
Udyog Bhawan Rafi Marg, New Delhi 110011.


                                                      ... Respondents

! Counsel for the petitioners : Sri V.Ravinder ! Counsel for the Respondents : Sri C.V.Mohan Reddy

< Gist:

> Head Note:

? Cases referred:

1 1998 (8) SCC 1 2 AIR 1963 SC 734 3 2012 (12) SCC 573 4 2019 (17) SCC 82 5 2021 SCC Online SC 439 6 2016 (1) SCC 170 7 2015 SCC online Del 13169 8 2017 (122) ALR 65 9 2017 SCC Online Bom 6829 10 2021 (4) ABR 652

11AIR 1968 SC 1450 12AIR 1953 SC 58 132016 (10) SCC 329 142008 (9) SCC 527 151990 (1) SCC 193 161978 (1) APLJ (HC) 63 172021 SCC Onlie SC 8 18(2020) 15 SCC 706 19AIR 1953 SC 58

HON'BLE SRI JUSTICE D.V.S.S.SOMAYAJULU

W.P.Nos.27670, 27673, 27691, 27693, 27826, 27829, 28010, 28034 of 2021 And 4721, 6249 and 7616 of 2022

COMMON ORDER :

With the consent of the learned counsel appearing for the

respective parties, the writ petitions were taken up for hearing

and disposal.

For the petitioners, learned senior counsel Sri V.Ravinder

Rao advanced his arguments and for the main contesting

respondent (the contractor), Sri C.V.Mohan Reddy, learned

senior counsel has advanced his arguments followed by Sri

Ramachandra Rao Gurram.

The question in these cases is about the applicability of the

Micro Small and Medium Enterprises Development Act, 2006

(Act 27 of 2006) (for short ‗the Act') to the contracts entered into

by the contractors with the petitioners'-Steel plant and the

consequences there of.

For Petitioner:

For the Steel Plant, learned senior counsel argues that Act

27 of 2006 applies only to contracts of supply of goods and the

rendering of services thereunder, but will not apply to the civil

construction contracts. Learned senior counsel has filed a list of

the works in each of the cases which are being dealt with and

the same is reproduced here under:

Writ petition Description of work contract number

28010 of 2021 Relocation of new steel yard-civil and associated works in Visakhapatnam steel Plant-civil and structural works as per BOQ part-A of Section1& II

27670 of 2021 Miscellaneous structural steel work-RMHP (zone-1) wherein the scope of work is mainly supply, fabrication and erection of mild steel- tubular handrails, supply of high tension bolts; fabrication and erection of structure after collecting raw steel from respondent; collection of fabricated/semi fabricated structures from respondent and directing the same after taking up necessary modifications; and application of painting on all structural steel works in RMHP (zone-1)

27673 of 2021 Design, Indianisation of Soviet materials, preparation of manufacturing drawings for purchase/consultant approval, fabrication/manufacture, supply erection, painting, testing after erection at site and commissioning of tanks in condensation pumphouse for COB-4

27691 of 2021 Structural steel works of coal handling plant, phase-II facilities for COB-4

27693 of 2021 Structural work, sheeting supply work and sheeting erection work for cable gallery in ASU- V area under VSP-V project

27829 of 2021 Indianization of Soviet materials, procurement of new materials, preparation of manufacturing drawings for purchase/consultant approval, fabrication manufacture, testing at works,

painting, packing, forwarding, supply FOR-VSP stores/site, transportation of materials from store to election site of fluidised bed dryer and storage, testing before erection at site, grouting, erection, testing after direction at site painting, commissioning and trial run, guarantee for workmanship and performance of fluidised bed dryer for ammonia sulphate plant of COB-4.

27826 of 2021 Structural steel works for power plant phase-Il facilities for COB-4

28034 of 2021 Design, engineering, supply, erection, testing commissioning and performance guarantee tests of the plant including supervision of all site services and insurance and training of VSP personnel for indoor LBDS, HVLC and inter- plant cabling

4721 of 2022 Design, engineering and supply of equipment, erection, testing and commissioning including commissioning spares and insurance, space for indoor LBDS for structural mill

6249 of 2022 Structural steel and cladding works for raw material handling system (zone-1, area-3) conveyor system for feeding raw material to new BF, SP, SMS and CRMP.

7616 of 2022 Structural steel work for Madharam Mines (Specification No.VSP-6.3-11-STF-001)

The contention of the learned senior counsel in essence is

that all though there is an element of supply in certain aspects

of the contract, the essential work that is being executed by the

contractor-respondent is ‗civil construction/erection' etc., or

what is termed as a works contract. He points out that these

contracts are not a standalone supply contracts or service

contracts. Therefore, learned senior counsel states that Act, 27

of 2006 will not apply. He also points out that the requisite

memorandum under Section 8 of the Act is also not filed and

therefore it is alleged that the respondent-contractors cannot

take the benefit of Act 27 of 2006. In some of the cases, learned

counsel submits that the respondent-contractors have

unilaterally approached the Facilitation Council under Section

18 of the Act, but the petitioner-Steel Plant has raised its protest

before the said council and urged that the council does not have

the jurisdiction to decide this issue. Learned senior counsel

submits in general that once the Steel Plant appears under

protest, they are not precluded from questioning the action in a

writ under Article 226 of the Constitution of India. It is his

contention that the facilitation council lacks the inherent

jurisdiction to entertain the matter. Therefore, learned counsel

argues that the writ petitions are maintainable. He relies upon

Whirlpool Corporation v. Registrar of Trade Marks, Mumbai

and Ors.1 and other cases which are filed along with this

compilation of case law for this submission. He also cites

Pioneer Traders and Ors. v. Chief Controller of Imports and

Exports Pondicherry2, Cantonment Board and Ors. v.

Church of North India3 and Hindustan Zinc Limited vs.

1998 (8) SCC 1

AIR 1963 SC 734

2012 (12) SCC 573

Ajmer Vidyut Vitran Nigam Limited4 to argue that once there

is an inherent lack of jurisdiction, this Court can and must

interfere. Relying upon the provisions of the Act 27 of 2006 and

in particular, sections 2(e), 2(n) and 2(d), learned senior counsel

reiterates that it is only a supply contract, which is dealt with

under these sections. He points out that the Act refers to a

buyer and supplier and not to a contractor. He points out that

under Section 8 of the Act, filing of a memorandum is

mandatory and unless the same is filed, the respondent-

contractor cannot approach the facilitation council. Therefore,

he argues that chapter V, which provides for payment, reference

of dispute etc., is not applicable. He relies upon the decision of

Silpi Industries etc., v. Kerala State Road Transport

Corporation and another5.

In the compendium of case law filed, learned senior

counsel refers to case laws 4 to 8 i.e. Commissioner of Central

Excise & Customs Kerala v. Larsen and Tourbro Ltd., 6,

Shree Gee Enterprises v. Union of India and another7 ,

Rahul Singh v. Union of India8, Sterling & Wilson Private

Ltd., v. Union of India9 to argue that the contract in question

is essentially a works contract, which may have an incidence of

2019 (17) SCC 82 5 2021 SCC Online SC 439 6 2016 (1) SCC 170 7 2015 SCC online Del 13169 8 2017 (122) ALR 65 9 2017 SCC Online Bom 6829

supply of certain material. Therefore, he argues that the

contract in question is a works contract only. He points out that

in P.L.Adke v. Wardha Municipal Corporation 10, Act 27 of

2006 itself fell for consideration and an argument similar to one

that is advanced in this Court has been upheld and the works

has been classified as works contract. In all fairness, he also

submits that this matter is pending before the Hon'ble Supreme

Court, but no stay is granted. The learned senior counsel

submits that the invocation of the jurisdiction of the facilitation

council has no legal basis and the facilitation council cannot

entertain such disputes. He prays that the writs should be

allowed.

For respondent:

In reply to this, learned senior counsel Sri C.V.Mohan

Reddy representing the contractor in W.P.No.28010 of 2021

advances the argument on behalf of all the contesting

respondents. He has taken the lead and made the submissions

for the respondent-contractor. Learned senior counsel submits

that there is no dispute about the essential facts.

As far as the submission of the petitioners counsel about

the filing of Section 8 memorandum, he submits that the same

is not mandatory and it is so held by a judgment of the

combined High Court of Telangana and Andhra Pradesh in

W.P.No.35872 of 2012 and batch. Apart from that, the learned

senior counsel also submits that the petitioners-Steel Plant has

10 2021 (4) ABR 652

given benefits to the contractors at the time of tender itself,

recognised their status as a small scale industry by waiving the

security deposit, cost of the tender papers etc. Therefore, he

submits that the objection raised on the basis of Section 8 of the

Act is not tenable.

Learned senior counsel argues that the respondent-

contractors in this batch of matters are all registered under the

Act 27 of 2006. He argues that this is a beneficial legislation

meant to promote, develop and enhance the competitiveness of

the micro, small and medium enterprises. Relying upon the

Preamble of the Act, learned senior counsel points out that the

purpose for which this Act has been brought into existence

cannot be overlooked while interpreting the provisions of the

Act. He points out that if a purposive interpretation is given to

the provisions of this Act, it will be clear that the purpose of the

enactment is to facilitate the development and enhancement of

the MSMED and all matters connected thereto. It is also

submitted that a separate facilitation council with its own rules

and regulations for adjudicating the dispute has been created

for the purpose of quick disposal of the disputes.

Learned senior counsel relies on a compendium of case

laws that is filed by him including Ishwar Singh Bindra and

Ors. vs. State of U.P.11, D.N. Banerji vs. P.R. Mukherjee and

Ors.12, Lanco Anpara Power Limited vs. State of Uttar

AIR 1968 SC 1450

AIR 1953 SC 58

Pradesh and Ors.13 and Union of India (UOI) vs.

Prabhakaran Vijaya Kumar and Ors.14. In particular, learned

senior counsel relies upon Lanco Anpara Power Limited (13

supra) and Paras 40 to 45 of this case to argue that a purposive

interpretation is necessary and the intention behind the Act, is

to be looked into and the purpose for which the Act has been

enacted should always be kept in mind in deciding the cases.

On the issue of inherent lack of Jurisdiction etc., learned

senior counsel submits that there is no question of an inherent

lack of jurisdiction in the case for the Facilitation Tribunal. He

submits that the Tribunal has the ‗jurisdiction' to decide the

entire dispute and to decide about the petitioners' objections or

the respondent-contractors claim. Relying on Sushil Kumar

Mehta v. Gobind Ram Bohra (Dead) through his Lrs. 15 and

V. Appannammanayuralu vs. B. Sreeramulu16, learned senior

counsel argues that there is no question of inherent lack of

jurisdiction and that therefore, a writ is not maintainable.

Sri Gurram Ramachandra Rao, learned counsel appearing

for the respondents essentially adopted the arguments of Sri

C.V.Mohan Reddy. In addition, relying upon the provision of law

and the booklet of citations with the following decisions in

Bhaven Construction through Authorised Signatory

Premjibhai K.Shah v. Executive Engineer Sardar Sarovar

2016 (10) SCC 329

2008 (9) SCC 527

1990 (1) SCC 193

1978 (1) APLJ (HC) 63

Narmada Nigam Ltd.,17, Deep Industries Limited v. Oil and

Natural Gas Corporation Limited and another18 and Silpi

Industries etc., (5 supra) he submits that all the issues raised

by the petitioners including the issue of competency/jurisdiction

have to be raised before and decided by the Arbitrator only. He

submits that the issue has already been raised also. Hence, he

strongly argues that the writ petitions are not maintainable. He

submits that in view of section 5 (minimal judicial intervention);

section 16 of the Arbitration Act, 1996 and the law laid down in

the leading judgments, this Court should not interfere and must

relegate the parties to the council only, where all the issues will

be decided.

The Government Pleader appearing for the other

respondents submit that they adopt the arguments advanced by

the learned senior counsel. The Union of India through the

learned Assistant Solicitor General clarified that there is no

separate counter or issue to be argued by them and that the

learned counsels have covered all the issues raised.

COURT: The essential issues that arise for consideration

in this batch of writ petitions are: (1) whether the contractors

who were the successful tenderers for certain works awarded by

the petitioner can invoke the provisions of Act 27 of 2006 for

redressal of their grievances?. (2) Whether such contracts can

be called ‗service' contracts under Act 27 of 2006?

17 2021 SCC Onlie SC 8 18 (2020) 15 SCC 706

The facts in W.P.No.28010 of 2021 are being looked into

since that is the lead case that was argued by both the learned

senior counsels. The work in question in this case is the

relocation of New Steel Yard and Civil Associate works. The

letter of acceptance was initially issued on 19.05.2016. There

are four sub-orders in this. (i) civil and structural works, (ii)

Modular furniture work, (iii) Supply of water system works,

Electrical, Telecom, Lan-datacom & Air-conditioning works, (iv)

Erection, Testing & Commissioning of water system works,

Electrical, Telecom, Lan-datacom & Air-conditioning works.

The contractor was requested by the petitioner to provide

the tax bifurcation for the sub-orders on 20.05.2016. He

provided the tax bifurcation including the taxes on 03.06.2016.

Thereafter, a formal acceptance dated 19.07.2016 was issued to

the contractor for a work valuing Rs.11,96,84,455/- and then

the articles of agreement were signed on 10.11.2016. Thus, the

award of the work and the formal contract were concluded in the

period 19.05.2016 to 10.11. 2016.

A Reading of this agreement shows that the tender was

accepted from the ‗contractor', who agreed under articles 4 as

follows:

―In consideration of the payments to be made by the Employer to the Contractor as hereinafter mentioned, the Contractor hereby covenants with the Employer to construct, complete and maintain the Work in all respects and in conformity with the provisions of this Contract.‖

In clause 8, the following is agreed:

―All disputes arising out of or in any way connected with this Agreement shall be deemed to have arisen in Visakhapatnam. Only the Courts in Visakhapatnam shall have jurisdiction to determine the same. However, the disputes, if any, shall be settled by Arbitration mentioned in the General Conditions of Contract.‖

The successful tenderer is referred to as a contractor only

and not as a supplier.

Apart from this, this Court notices that basing on the

quoted values with taxes given the total value of the work is

Rs.13.11 crores. If the respondent-contractor's letter is taken

into consideration, the civil and structural work is worth

Rs.11,23,76,585/- without the taxes. The Modular furniture

work or supply work and all the erection work put together come

to Rs.1.49 crores i.e. the supply work is essentially limited to

Rs.1.49 crores only, which includes supply of modular furniture

and all other supply works. The balance of Rs.33.55 lakhs is

the other erection work. Thus, it can be very clearly seen from

the figures submitted by the respondent-contractor himself that

a very very large percentage of the work or the predominant part

of the work is civil and structural work only. Supply element is

a small part.

Act 27 of 2006:

This Court also agrees that when an issue like that arises,

there is a need to look into the purposes of the Act to come to a

conclusion as to what was the intent of the legislature. As

rightly pointed out by the learned senior counsel for the

respondents in the decision of D.N.Banerji v. P.R.Mukherjee

and others19 itself it was held as follows:

―15. These remarks are necessary for a proper understanding of the meaning of the terms employed by the statute. It is no doubt true that the meaning should be ascertained only from the words-employed in the definitions, but the set-up and context are also relevant for ascertaining what exactly was meant to be conveyed by the terminology employed. As observed by Lord Atkinson in Keates v. Lewis Merthyr Consolidated Collieries [1911] A.C. 641 at 642, "In the construction of a statute it is, of course, at all times and under all circumstances permissible to have regard to the state things existing at the time the statute was passed, and to the evils which, as appears of thin from it provisions, it was designed to remedy." If the words are capable of one meaning alone, then it must be adopted, but if they are susceptible of wider import, we have to pay regard to what the statute or the particular piece of legislation had in view. Though the definition may be more or less the same in two different statutes, still the objects to be achieved not only as set out in the preamble but also as gatherable from the antecedent history of the legislation may be widely different. The same words may mean one thing in one context and another in a different context.

This is the reason why decisions on the meaning of particular words or collection of words found in other statutes are scarcely of much value when we have to deal with a specific statute of our own; they may be helpful, but cannot be taken as guides or precedents.‖

AIR 1953 SC 58

This Court notices that Act 27 of 2006 was enacted to

facilitate the MSMED. Prior to that, the industries were

classified under the Industries (Development and Regulation)

Act, 1951 (Act 65 of 1951). Section 11B of this Act 65 of 1951

dealt with the power of the Central Government to specify the

requirements to be complied by small scale industrial units.

Section 11B (1) of Act 65 of 1951 is extracted here under:

11B. Power of Central Government to specify the requirements which shall be complied with by small scale industrial undertakings.--(1) The Central Government may, with a view to ascertaining which ancillary and small scale industrial undertakings need supportive measures, exemptions or other favourable treatment under this Act to enable them to maintain their viability and strength and so as to be effective in-- (a) promoting in a harmonious manner the industrial economy of the country and easing the problem of unemployment, and (b) securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good,

Section 29B of the Act 65 of 1951 also gives the power to

the Central Government to exempt certain industries on the

basis of the smallness of the number of workers employed, or

the amount invested in the undertaking, or the desirability of

encouraging small undertakings. The Government can by a

notification exempt the application of the Act. The first schedule

of this Act gives the list of industries which are regulated by the

said Act. Section 2A and 2B of section 29B of Act 65 of 1951 are

reproduced here under:

29 (2A) In particular, and without prejudice to the generality of the provisions of sub-section (1), the Central Government may, if it is satisfied, after considering the recommendations made to it by the Advisory Committee constituted under sub-section (2B), that it is necessary so to do for the development and expansion of ancillary, or small scale, industrial undertakings, by notified order, direct that any article or class of articles specified in the First Schedule shall, on and from such date as may be specified in the notified order (hereafter in this section referred to as the ―date of reservation‖), be reserved for exclusive production by the ancillary, or small scale, industrial undertakings (hereafter in this section referred to as ―reserved article‖).

29(2B) The Central Government shall, with a view to determining the nature of any article or class of articles that may be reserved for production by the ancillary, or small scale, industrial undertakings, constitute an Advisory Committee consisting of such persons as have, in the opinion of that Government, the necessary expertise to give advice on the matter.

If these sections are read in conjunction with the first

schedule of the Act, which contains 38 items, it is clear that the

Act was meant to regulate the industries for the manufacture or

production of the 38 items/products with different

nomenclatures in the first schedule. All of them relate to

‗manufacture' and ‗production' only.

After this, Act 32 of 1993 was promulgated for the purpose

of Payment of Interest on Delayed Payments to Small Scale and

Ancillary Undertaking Acts. This Act essentially concentrated

on the payments and the interest payable of the amount due

through the council.

This Act was repealed by Act 27 of 2006 (the Act being

considered now). The statement and objects of Act, 27 of 2006

are as follows:

―STATEMENT OF OBJECTS AND REASONS Small scale industry is at present defined by notification under section 118 of the Industries (Development and Regulation) Act, 1951. Section 29B of the Act provides for notifying reservation of items for exclusive manufacture in the small scale industry sector. Except for these two provisions, there exists no legal framework for this dynamic and vibrant sector of the country's economy. Many Expert Groups or Committees appointed by the Government from time to time as well as the small scale industry sector itself have emphasised the need for a comprehensive Central enactment to provide an appropriate legal framework for the sector to facilitate its growth and development. Emergence of a large services sector assisting the small scale industry in the last two decades also warrants a composite view of the sector, encompassing both industrial units and related service entities. The world over, the emphasis has now been shifted from industries" to "enterprises". Added to this, a growing need is being felt to extend policy support for the small enterprises so that they are enabled to grow into medium ones, adopt better and higher levels of technology and achieve higher productivity to remain competitive in a fast globalisation area. Thus, as in most developed and many developing countries, it is necessary that in India too, the concerns of the entire small and medium enterprises sector are addressed and the sector is provided with a single legal framework. As of now, the medium industry or enterprise is not even defined in any law.‖ (emphasis supplied)

The Preamble to the Act 27 of 2006 is as follows:

―An Act to provide for facilitating the promotion and development and enhancing the competitiveness of micro,

small and medium enterprises and for matters connected therewith or incidental thereto.‖

In addition, in the opinion of this Court, the following

definitions of Act 27 of 2006 are also important:

2 (d) ―buyer‖ means whoever buys any goods or receives any services from a supplier for consideration;

(e) ―enterprise‖ means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (55 of 1951) or engaged in providing or rendering of any service or services;

(n) ―supplier‖ means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8, and includes,--

(i)...

(ii)...

(iii) any company, co-operative society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises; (emphasis supplied)

If a careful analysis of these sections is done and in

particular, Section 2(e) and 2(n) of the Act, the following

emerges:-

An enterprise is one by whatever name called, which is

engaged in the manufacture or production of goods in any

manner pertaining to an industry specified in the first schedule

of the Act 65 of 1951 or engaged in providing or rendering of any

services. Therefore, this enterprise is an enterprise engaged in

manufacture or production of goods.

Supplier is defined in section 2(n). Of particular

importance is section 2(n) (iii), which states that a supplier by

whatever name called should be engaged in selling goods

―produced by micro or small enterprises and rendering services

which are provided by such enterprises'. Therefore, here also

the emphasis is on services required for the purpose of selling

etc., of goods which are produced by micro or small enterprises.

The conjunction ‗and' used in section 2(n) (iii) makes it clear that

the services that are rendered are services related to the goods

which are produced by micro and small enterprises. The

legislature used the conjunction and therefore, in the opinion of

this Court the services, which are rendered are the services

pertaining to the goods manufactured and produced by the

enterprises. Enterprise is defined as a unit engaged in

production and manufacture of items with reference to an

industry in the First Schedule. This is also clear from a reading

of the statements of objects once again, wherein it is said that

the emergence of a large service sectors assisting the small scale

industry in the last two decades warrants a composite view of

the sector encompassing both industrial units and related

service entities.

Therefore, in line with the judgments cited, this Court has

examined the purpose and intent of the Act and is of the firm

opinion that the services that are referred to under the said Act

cannot be treated as every service that is rendered. The services

referred to must have a direct connection with the manufacture

and production of goods.

Apart from this; this Court also draws support from the

following passage reported in Commissioner of Central Excise

& Customs Kerala (6 supra):

―19. In Larsen and Toubro Ltd. v. State of Karnataka, this Court stated: (SCC p.750, para 72)

72. In our opinion, the term "works contract" in Article 366(29-A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. Parliament had such wide meaning of "works contract" in its view at the time of the Forty-sixth Amendment. The object of insertion of Clause (29-A) in Article 366 was to enlarge the scope of the expression "tax on sale or purchase of goods" and overcome Gannon Dunkerley [State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. MANU/SC/0152/1958 : AIR 1958 SC 560 : 1959 SCR 379]. Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term "works contract".

Nothing in Article 366(29-A)(b) limits the term "works contract" to contract for labour and service only. The learned Advocate General for Maharashtra was right in his submission that the term "works contract" cannot be

confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some "works". We are also in agreement with the submission of Mr. K.N. Bhat that the term "works contract" in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Parliament had all genre of works contract in view when Clause (29-A) was inserted in Article

366.‖

To the same effect is the judgment in Shree Gee

Enterprises (7 supra). In this case, a notice inviting tender for

replacement of sewer, waste water lines of residential flats of

Indian Oil Nagar was issued. The purchase preference was

given to MSE industries. The third respondent was given the

contract in terms of the public procurement policy of MSEs

2012. This was challenged by the unsuccessful contractor. The

Division Bench of the Delhi High Court clearly held that the

purchase preference policy which was advocated by the

Government is meant for giving preference to procurement of

goods produced and services rendered of MSEs and that it

would not be applicable to a work contract simpliciter.

Therefore, the award of the work of the 3rd respondent was set

aside. To the same effect is the judgment of the Division Bench

of the Bombay High Court in Sterling & Wilson Private Ltd. (9

supra), wherein in para 43 it was clearly held that the provisions

of this Act 27 of 2006 will not apply to the works contract which

are essentially contracts of a composite nature involving supply

of goods as well as labour and services. The learned Judges also

relied upon judgments of the other Courts to come to the

conclusion.

Lastly, in the case of P.L.Adke (10 supra) also, the issue is

similar to the present dispute before this Court. A contractor

invoked the provisions of MSME Act for redressal of his

grievances. The contract in question did not provide for an

arbitration at all. The single Judge held that a major stumbling

block the petitioner faces is the nature of the contract. In this

case also, the work awarded to a contractor was a Sewerage

scheme, which included sewerage, network, property

connection, construction of bore house, sewage treatment plant

etc. Learned single Judge clearly held that it is only a works

contract and not a contract for supply of goods and providing

services simpliciter.

Therefore, this Court for all the above reasons and in line

with the case law cited holds that the work that the Act 27, 2006

would not apply to the works contracts which were awarded by

the Visakhapatnam Steel Plant in these cases by a process of

tender. Some element of supply is involved in these works and

that by itself is not enough for this Court to hold that the stand

of the respondents is correct.

The second and equally important issue raised is about the

filing of the memorandum under section 8 of the Act 27 of 2006

and the invocation of the jurisdiction of the facilitation council.

This Court finds that the definition of supplier in section 2(n) of

the Act 27 of 206 is as follows:

2 (n) ―supplier‖ means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8, and includes,--

In addition, the decision of the Hon'ble Supreme Court in

Silpi Industries etc., (5 supra) supports this view. In para 25

of the said decision, the Hon'ble Supreme Court noted all the

dates. It was found that bids were invited on 25.02.2010; bid

was submitted on 17.05.2010; work was awarded on 21.09.2010

and contract was signed on 29.07.2011. The section 8

memorandum was applied for by the appellant on 25.03.2015.

Thereafter, in para 26, the following was decided among other

things:

―....................In our view, to seek the benefit of provisions under MSMED Act, the seller should have registered under the provisions of the Act, as on the date of entering into the contract. In any event, for the supplies pursuant to the contract made before the registration of the unit under provisions of the MSMED Act, no benefit can be sought by such entity, as contemplated under MSMED Act.

..................... The appellant cannot become micro or small enterprise or supplier, to claim the benefits within the meaning of MSMED Act 2006, by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods and services. If any registration is obtained, same will be prospective and applies for supply of goods and services subsequent to registration but cannot operate retrospectively. Any other interpretation of the provision would lead to absurdity and confer unwarranted benefit in favour of a party not intended by legislation.‖

In view of this clear and categorical finding, this Court has

to hold that unless the ‗memorandum' is filed under section 8 of

Act 27 of 2006 and the contract is a pure and simple supply

contract, a party cannot move the facilitation council nor can

the council entertain and decide any dispute. In the words of

the Hon'ble Supreme Court any other interpretation would lead

to an absurdity and conferring unwarranted benefits on a party

that is not intended by the legislation. The fact that some of the

contractors were registered as SSI units; or that EMD etc., were

waived by the petitioner is immaterial in view of this clear legal

position as enunciated by the highest Court of the land. Both

these conditions must be present (a) the work must be ‗supply'

contract pure and simple (in contra distinction to a works

contract) and (b) the memorandum under section 8 must be

filed.

The factual position is as follows:

         Writ Petition Number                   Description

W.P. 27670 of 2021                   Agreement 04.08.2012
                                     R.4- No MSMED Memorandum
                                     under section 8

W.P.27673 of 2021                    Agreement : 04.12.2007
                                     MSMED Memorandum :
                                     22.06.2013


W.P.27691 of 2021                    Agreement: 10.06.2008
                                     No MSMED Memorandum filed
                                     under section 8.


W.P.27693 of 2021                    Agreement : 27.12.2011
                                     No MSMED Memorandum under
                                     section 8.





W.P.27826 of 2021              Agreement : 10.06.2008
                               SSI on 30.09.1991
                               MSMED Memorandum on
                               22.06.2013
W.P.27829 of 2021              Agreement :04.12.2007
                               SSI - 30.09.1991
                               MSMED Memorandum -
                               22.06.2013
W.P.28010 of                       Agreement : 10.11.2016
                               MSMED Memorandum not filed as
                               per SO 1636(E) dated 29.09.2006
                               or as per SO 2052 (E) dated
                               30.06.2017. Only NSIC
                               registration.
W.P.28034 of 2021              Date of Contracts :18.09.2008
                               Registration of MSMED
                               Memorandum:
                               23.04.2007
W.P.6249 of 2021               Agreement 08.05.2007
                               Letter of acceptance - 02.08.2007
                               MSMED Memorandum :
                               24.07.2013



W.P.7616 of 2022               Order / agreement: 05.01.2008
                               MSMED Memorandum
                               24.07.2013

W.P.4721 of 2022               Agreement 14.08.2010
                               MSME Memorandum 23.04.2007

It is thus clear that only the respondent in WP.No.28034

and 4721 of 2021 filed their section 8 memorandum before the

award of the work. However, due to the finding that Act, 27 of

2006 will not apply to a works contract, the said company is

also denied the benefit.

The next issue is about the invocation of the writ

jurisdiction by this Court. This Court is of the firm opinion that

in view of its interpretation mentioned above and the case law

referred to, the Act 27 of 2006 will not apply to a works contract

like the works in question. As the respondent-contractor will

not fall within the definition of a ‗supplier' and the petitioner will

not fall within the definition of a buyer, this Court holds that the

Act 27 of 2006 will not apply. The contractors did not also file

the section 8 memorandum as required to claim the benefit of

the Act except in one case.

If the Act will not apply, the question that arises is does

the ‗facilitation council' have the ‗jurisdiction' to entertain the

matter. Para 7 of the Division Bench judgment of the A.P. High

Court reported in V. Appannammanayuralu (16 supra) defines

inherent lack of jurisdiction lucidly and as follows:

―7. In the first place, it must be found out what is meant by inherent lack of jurisdiction. The adjective "inherent" has its origin in the verb "inhere". According to the Oxford Dictionary "inhere" means "exist, abide in, be vested in". Therefore, the adjective "inherent" indicates something which exists or abides or vests in a person or authority. When this adjective is applied to a court's jurisdiction, it means that a jurisdiction to dispose of a cause is vested in it or abides in it. Consequently, inherent lack of jurisdiction means a power or jurisdiction which does not at all exist or vest in a Court.

To put it in other words, a Court can be said to lack inherent jurisdiction when the

subject-matter before it is wholly foreign to its ambit and is totally unconnected with its recognised jurisdiction. ........‖

Once this Court holds that the Act does not apply; the

council also does not have the jurisdiction to entertain and

decide this sort of dispute. It means that the subject matter is

wholly outside its power or totally foreign to its ambit.

Therefore, the petitioners are fully within their rights in raising

the issue and seeking a decision by this Court. It is an admitted

case that the petitioners have appeared under protest before the

Facilitation Council. Once a party appears before the Court or a

Tribunal and raises an issue about the jurisdiction of the said

Tribunal, it cannot be said that they have submitted to its

jurisdiction. They are appearing under protest. Therefore, they

are at liberty to seek an adjudication of this issue before this

Court under Article 226 of the Constitution of India since it is a

case of absolute lack of jurisdiction.

Related to this issue of the writ being filed is the issue

raised by Sri Gurram Ramachandra Rao, learned counsel that

all the issues of jurisdiction etc., must be raised before and

decided by the Facilitation Council only. He states that in view

of section 5 of the Arbitration Act, 1996 the Courts interference

is ruled out. He argues that the Facilitation Council has the

competence to decide all the issues as per Section 16 of the

Arbitration Act. He relies upon the case law mentioned earlier.

However, a close examination of the case law reveals the

following:

In para 17 of Deep Industries Limited (18 supra), it is

held as follows:

17. This being the case, there is no doubt whatsoever that if petitions were to be filed Under Articles 226/227 of the Constitution against orders passed in appeals Under Section 37, the entire arbitral process would be derailed and would not come to fruition for many years. At the same time, we cannot forget that Article 227 is a constitutional provision which remains untouched by the non-obstante Clause of Section 5 of the Act. In these circumstances, what is important to note is that though petitions can be filed Under Article 227 against judgments allowing or dismissing first appeals Under Section 37 of the Act, yet the High Court would be extremely circumspect in interfering with the same, taking into account the statutory policy as adumbrated by us herein above so that interference is restricted to orders that are passed which are patently lacking in inherent jurisdiction.

Similarly, in para 18 of Bhaven Construction (17 supra) it

is held as follows:,

―It is therefore, prudent for a Judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment. This power needs to be exercised in exceptional rarity, wherein one party is left remediless under the statute or a clear ―bad faith‖ shown by one of the parties. This high standard set by this Court is in terms of the legislative intention to make the arbitration fair and efficient.‖

This Court is conscious of its very limited jurisdiction in

view of these judgments but the question is when this Court

holds that there is a patent lack of jurisdiction as the mandate

of Silpi Industries (5 supra), is not followed and the provisions

of Act, 27 of 2006 are not applicable to works contract - should

this Court be a silent spectator and allow the issue to go to the

Facilitation Council - then the challenge to the Award under

section 34 of Arbitration Act; the appeals etc., thereon before the

issue is settled or should the Court express its opinion now

itself? This case in the opinion of this Court falls within the

‗exceptional circumstances' of para 18/20 of Bhaven

Construction (17 supra) and para 16 of Deep Industries