Andhra Pradesh High Court - Amravati
M/S. Dalapathi Constructions, vs The State Of Andhra Pradesh, on 5 August, 2022
IN THE HIGH COURT OF ANDHRA PRADESH
***
W.P.No.4652 of 2022
Between:
# M/s. Dalapathi Constructions,
Rep. by its Partner Mr. Dalapathirao Venkata Nagaraju
# 1-311, Near ZPH School, Vuyyuru,
Krishna Ditrict, AP -521165
... Petitioner
AND
$ 1. The State of Andhra Pradesh, rep. by its Special Chief Secretary,
Industries and Commerce (Micro and Small Enterprises Department
(MSME), Secretariat, Velagapudi, Amaravathi.
2. The Micro and Small Enterprises Facilitation Council (MSEFC), Andhra
Pradesh Rep. by its Chairman, 1st Floor, Commissioner of Industries,
Mutyalampadu, Satyanarayanapuram, Vijayawada, Andhra Pradesh.
3. M/s. Undavalli Constructions, rep. by its Managing Partner Mr.
Undavalli Ramu, H.No.24H-104/1, Undavalli Residency, Ashok Nagar,
Eluru, A.P. 534002.
... RESPONDENTS
Date of Judgment pronounced on : 05.08.2022
HON'BLE SRI JUSTICE R. RAGHUNANDAN RAO
1. Whether Reporters of Local newspapers : Yes/No
May be allowed to see the judgments?
2. Whether the copies of judgment may be marked : Yes/No
to Law Reporters/Journals:
3. Whether The Lordship wishes to see the fair copy : Yes/No
Of the Judgment?
2 RRR,J
W.P.No.4652 of 2022
*IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI
*HONOURABLE SRI JUSTICE R. RAGHUNANDAN RAO
+ W.P.No.4652 of 2022
% Dated:05.08.2022
Between:
# M/s. Dalapathi Constructions,
Rep. by its Partner Mr. Dalapathirao Venkata Nagaraju
# 1-311, Near ZPH School, Vuyyuru,
Krishna Ditrict, AP -521165
... Petitioner
AND
$ 1. The State of Andhra Pradesh, rep. by its Special Chief Secretary,
Industries and Commerce (Micro and Small Enterprises Department
(MSME), Secretariat, Velagapudi, Amaravathi.
2. The Micro and Small Enterprises Facilitation Council (MSEFC), Andhra
Pradesh Rep. by its Chairman, 1st Floor, Commissioner of Industries,
Mutyalampadu, Satyanarayanapuram, Vijayawada, Andhra Pradesh.
3. M/s. Undavalli Constructions, rep. by its Managing Partner Mr.
Undavalli Ramu, H.No.24H-104/1, Undavalli Residency, Ashok Nagar,
Eluru, A.P. 534002.
... RESPONDENTS
! Counsel for Petitioner : Sri S. Ram Babu
^Counsel for Respondent No.1 : G.P. for Industries.
^Counsel for Respondent No.3 : Sri Ashok Returi
<GIST :
>HEAD NOTE:
? Cases referred:
1. (2019) SCC Online Bom 340
2. AIR 2004 SC 1766
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W.P.No.4652 of 2022
HON'BLE SRI JUSTICE R. RAGHUNANDAN RAO
W.P.No.4652 of 2022
ORDER:
The case of the petitioner is as follows:
The petitioner, who is a partnership firm, is in the business of Civil
Constructions in 2014. The petitioner had registered itself as an Enterprise
under the Micro, Small and Medium Development Enterprises Act, 2006,
(for short „the Act‟) on 28.11.2020.
2. The petitioner had entered into a contract with the 3rd
respondent on 14.06.2018 for undertaking construction in a multi-
storeyed residential complex, viz., "Srivalli Pravas" at Kaja, Guntur District.
However, the said contract could not be executed. As the petitioner had
already stationed sizeable plant and machinery at the site, a further
agreement, termed as a Memorandum of Understanding, was entered
between the petitioner and the 3rd respondent on 20.05.2020. As per this
Memorandum of Understanding, the 3rd respondent had agreed to pay a
sum of Rs.253 lakhs + GST to the petitioner as consideration for the plant
and machinery handed over to the 3rd respondent.
3. The 3rd respondent did not make the payment due to the
petitioner. Therefore, the petitioner approached the 2nd respondent-
Facilitation Council, under the provisions of the Act for recovery of its
dues. This application was rejected by the 2nd respondent in the meeting
held on 22.06.2021 and the said decision was communicated to the
petitioner by letter bearing Reference No.21C/IFC 2021/427 dated
23.09.2021. The endorsement in the said letter is as follows:
"As per the Udyam registration certificate, the permissible
activity for the petitioner is construction of building. The
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W.P.No.4652 of 2022
petitioner made claim for not honouring the MOU, where
payment is to be made for the Plant & Machinery sold. As
the activity is neither manufacturing nor servicing and only
trading activity. It is beyond the scope of the Council. Hence
the application is not admissible for adjudication under
MSMED Act, 2006."
4. The petitioner, being aggrieved by the said rejection of its
claim, has approached this Court by way of the present writ petition. It is
the contention of the petitioner that the petitioner has already been
recognised as an Enterprise falling within the ambit of the Act and the
claim was made was for recovery of consideration, payable on account of
sale of plant and machinery, which are goods.
5. Sri S. Ram Babu, learned counsel for the petitioner, submits
that the endorsement of 23.09.2021 requires to be set aside and seeks a
direction from this Court to the 2nd respondent to consider the application
of the petitioner bearing No.UDYAM-AP-06-0004450/S/00001, dated
06.02.2021. He contends that once the petitioner has been recognised as
an Enterprise falling within the ambit of the Act, the petitioner would be
entitled for the benefit of the Act and the 2nd respondent would have to
consider any claim made by the petitioner for recovery of money due on
account of sale of goods or supply of services.
6. In the present case, the petitioner is seeking recovery of
money payable on account of the sale of goods, viz., plant and machinery
of the petitioner. He further contends that the view taken by the 2 nd
respondent that sale of plant and machinery is a trading activity and
would not fall within the ambit of the provisions of the Act, is clearly
incorrect. He submits that this issue had been considered by a learned
Single Judge of the Hon‟ble High Court of Bombay in the case of Shah &
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W.P.No.4652 of 2022
Parikh, Engineers & Contractors vs. Urmi Trenchless Technology
Pvt. Ltd., and Ors.1.
7. The 3rd respondent has filed a counter affidavit raising
various disputes regarding the liability of the 3rd respondent to make any
payment. The 3rd respondent would also submit that the relief sought by
the petitioner cannot be granted, as there is an effective alternative
remedy available under the agreement dated 14.06.2018. The 3rd
respondent contends that Clause-38 of the said agreement provides for
reference of all disputes to arbitration and any claim of the petitioner
would have to be decided by an arbitrator appointed under the provisions
of the Agreement dated 14.06.2018.
8. Sri G. Elisha, learned counsel representing Sri Ashok Returi,
learned counsel appearing for the 3rd respondent, would submit that in
view of Clause-38 of the Agreement dated 14.06.2018, the claimant
cannot approach the 3rd respondent for any claim, and any resolution of
disputes between the petitioner and the 3rd respondent would have to be
carried out only by way of arbitration. He would further submit that the
view taken by the 2nd respondent does not require any interference as the
said view is correct. He would submit that the sale of plant and machinery
is not a manufacturing activity or supply of services and as such does not
fall within the ambit of the provisions allowing such claims to be filed
under the Act.
Consideration of the Court:
9. This Court, at the outset, would place on record that this
Court is not going into the merits or demerits of the respective claims of
2019 SCC OnLine Bom 340
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W.P.No.4652 of 2022
claimant and the 3rd respondent. The same would have to be adjudicated
upon by the authority, which would be competent to adjudicate on such
claims.
10. The issue in the present writ petition revolves around the
interpretation of the provisions of the Act. The Act had been enacted for
facilitating the permission, development and enhancing competitiveness of
Micro, Small and Medium Enterprises and for matters connected therewith
and incidental thereto.
11. The scheme of the Act is as follows:
The Act would apply to Micro, Small and Medium
Organisations, which answer the definition of "Enterprise"
contained in Section 2(e), which is as follows:
Section 2(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 or engaged in providing or rendering
of any service or services."
12. Any organisation answering this description would be
categorised as a Micro, Small or Medium Enterprise, depending upon the
quantum of investment made in the enterprise. Any enterprise, which
seeks the benefit of this Act, would have to file a Memorandum of the
enterprise before such authority, as may be specified by the State
Government or Central Government. Once the said Memorandum is
registered with the said authority, the enterprise would be entitled to the
benefits of the Act.
13. Any enterprise, which has not been paid its dues, on account
of supply of goods or services to any buyer, would be entitled to
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W.P.No.4652 of 2022
approach, under Section 18 of the Act, the Micro and Small Enterprises
Facilitation Council for recovery of its dues along with interest specified in
Section 17 of the Act. When any application is made under Section 18 of
the Act, the Facilitation Council shall either itself conduct conciliation or
seek assistance of any institution or centre to carry out such conciliation.
In the event of the conciliation not being successful, the Council can either
take up the dispute for arbitration or refer it to any institution or centre
for such arbitration and the provisions of Arbitration and Conciliation Act,
1996 shall then apply to the dispute as if the arbitration was in pursuance
of the arbitration agreement referred to in sub-section (1) of Section 7 of
the Arbitration Act.
14. In the present case, the 3rd respondent contends that, in
view of the arbitration clause in Clause-38 of the agreement dated
14.06.2018, the matter should be referred to an arbitrator mentioned in
the said clause and the same cannot be referred to the 2 nd respondent
under the provisions of the Act. The provisions of Clause-38 and the
provisions of Section 18 of the Act require the dispute between the
petitioner and the 3rd respondent should be referred to arbitration. The
only question is whether the arbitrator is to be appointed under the terms
of the agreement dated 14.06.2018 or in accordance with the provisions
of Section 18 of the Act.
15. Section 18 of the Act reads as follows:
Section 18 - (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
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W.P.No.4652 of 2022
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 shall apply to such a dispute as if the
conciliation was initiated under Part III of the 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 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 the 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.
16. Section 7 of the Arbitration and Conciliation Act, 1996
requires an arbitral agreement in writing to be available before any
dispute can be referred to arbitration. In the present case such an arbitral
agreement is available in Clause-38 of the agreement dated 14.06.2018.
However, Section 18 (3) of the Act provides that the arbitration conducted
by the Facilitation Council shall be treated as arbitration, as if the said
dispute was referred under an arbitration agreement referred to in sub-
section (1) of Section 7 of the Arbitration and Conciliation Act, 1996.
Further, Section 18(4), which starts with a non-obstante clause states that
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W.P.No.4652 of 2022
the Facilitation Council shall have jurisdiction to act as arbitrator in any
dispute between a supplier located with its jurisdiction and buyer located
anywhere in India.
17. A conjoint reading of these provision would make it amply
clear that a reference to the Facilitation Council for conciliation and
subsequent arbitration if required, is not barred on account of the
presence of an arbitration agreement providing for a different method of
constituting an Arbitral Tribunal. In the circumstances, the contention that
Clause-38 of the Agreement dated 14.06.2018 would bar reference of the
dispute to the Facilitation Council, has to be rejected.
18. I am fortified by the judgment of the Hon‟ble Supreme Court
in Secur Industries Limited vs. M/s. Godrej and Boyce Mfg. Co.
Ltd., and Anr.,2, which had dealt with Section 6 of the Interest on
Delayed Payments to Small Scale and Ancillary Industrial Undertakings
Act, 1993, which has now been replaced by the present Act.
19. The 2nd respondent-Council had taken, the view that even
though the petitioner was registered under the Act, the dispute cannot be
taken up by the 2nd respondent on the ground that the transaction of sale
of plant and machinery, is a trading activity. This view is assailed by the
petitioner on the basis of a judgment of a learned Single Judge of the
Hon‟ble High Court at Bombay.
20. In Shah & Parikh, Engineers & Contractors vs. Urmi
Trenchless Technology Pvt. Ltd., and Ors., the learned Single Judge
while dealing with a similar issue, at paragraph-22 had held as follows:
AIR 2004 SC 1766
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W.P.No.4652 of 2022
"22. As regards the other defence is concerned, defendant
no. 1 is admittedly a small enterprise registered under the
MSME Act. The registration certificate is annexed at Exhibit
„1‟ to the affidavit in support of notice of motion (L) no. 2266
of 2018 filed by defendant no. 1 under Section 8 of the
Arbitration Act. The Registration Certificate is for "horizontal
boring", which is nothing but drilling activity. Plaintiff in the
course of arguments did not dispute that defendant no. 1
was registered under the MSME Act, but merely sought to
contend that the work forming the subject matter of the
contract between the parties was not the same activity for
which defendant no. 1 had been registered. However, as
stated above, this is misconceived as "horizontal boring" is in
fact a drilling activity. Further, there is nothing in the MSME
Act which provides that the registration for a particular
activity will render an enterprise liable not to be regarded as
a micro, small or medium enterprise for any other activity.
Once registered, the status of the enterprise is that of a
registered enterprise under the MSME Act and all the
provisions of the MSME Act has to apply with full force
21. I am in respectful agreement with the said principle
enunciated by the learned Single Judge of the Hon‟ble High Court of
Bombay.
22. In that view of the matter, the writ petition is allowed
directing the 2nd respondent to consider the claim of the petitioner in
accordance with law and after proper notice and adequate opportunity
being afforded to both the petitioner and the 3rd respondent. There shall
be no order as to costs.
As a sequel, pending miscellaneous petitions, if any, shall stand
closed.
_________________________
R. RAGHUNANDAN RAO, J.
5th August, 2022
Js.
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W.P.No.4652 of 2022
HON'BLE SRI JUSTICE R. RAGHUNANDAN RAO
W.P.No.4652 of 2022
5th August, 2022
Js.
