Bombay High Court
Gujarat State Petronet Ltd vs Micro And Small Enterprises ... on 6 August, 2018
Bench: Ranjit More
wp 5459.15.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.5459 OF 2015
Gujarat State Petronet Ltd. a company )
incorporated under the Companies )
Act, 1956 having its registered office at )
GSPC Bhavan, Sector 11, Gandhinagar, )
Gujarat - 382010. ) ........Petitioner
Versus
1. Micro and Small Enterprises Facilitation )
Council, Konkan Division, Office of the Joint )
Director of Industries, Konkan Division, )
Office Complex Building, Opposite Modella )
Chek Naka, Wagle Estate Corner, Thane - )
400604. )
2. State of Maharashtra through its Chief )
Secretary, Mantralaya, Mumbai, )
Maharashtra - 400 032. )
3. Krunal Engineering Works, a sole )
proprietary concern through its proprietor )
Mr. Kamalakar V. Salvi having its address at )
Krunal Compound, Near HINDALCO, )
Survey No.285, Gala No.1, Ganesh Nagar, )
Vitava, Ganapatipada, Kalwa (East), Thane, )
Maharashtra 400 605. ) .......Respondents
Mr. Marwendra Kane along with Ms. Chitra Sundar I/b. W. S. Kane and
Co., advocates for the petitioner.
Mr. A. P. Vanarse, AGP for the State.
Mr. Suhas M. Oak along with Mr.Sagar Joshi, advocate for respondent
No.3.
Digitally
signed by
Shubhada
Shubhada Shankar
Shankar Kadam
Kadam Date:
2018.08.06
18:19:36
+0530
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CORAM : RANJIT MORE &
SMT.ANUJA PRABHUDESSAI, JJ.
DATE OF RESERVING JUDGMENT : 4th JULY, 2018
DATE OF PRONOUNCEMENT : 6th AUGUST, 2018
ORAL JUDGMENT : (Per Ranjit More, J.)
Rule. Rule is made returnable forthwith and, by consent, the
petition is heard finally.
2. Heard Mr. Kane, learned counsel for the petitioner, Mr. Oak,
learned counsel for respondent No.3 and Mr. Vanarse, learned AGP for
the State.
3. By invoking jurisdiction of this Court under Article 226 of the
Constitution of India, the petitioner is seeking following reliefs :
(a) That this Hon'ble Court be pleased to issue a
writ of certiorari or a writ in the nature of certiorari or
any other appropriate writ, order or direction calling for
records and proceedings of the impugned order dated
29th April 2015 passed by Respondent No.1 in Petition
No.39A/2011 before Respondent No.1 (Exhibit "E" to the
Petition) and after going through the legality, validity and
propriety thereof, be pleased to quash and set aside the
same;
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(b) That this Hon'ble Court be pleased to issue a
writ of prohibition or a writ in the nature of prohibition
or any other appropriate writ, order or direction
prohibiting Respondent No.1 from exercising any further
jurisdiction over the MSME Reference and specifically
prohibiting Respondent No.1 from entering upon
arbitration in the Petition No.39A/2011 before
Respondent No.1;
(c) That this Hon'ble Court be pleased to issue a
writ of mandamus or a writ in the nature of mandamus
or any other appropriate writ, order or direction
directing Respondent No.1 to refer the disputes between
the Petitioner and Respondent No.3 forming subject
matter of Petition No.39A/2011 before Respondent No.1
to an independent arbitration in terms of Clause 14 of
the said Purchase Order (annexed and marked as Exhibit
A to the Petition).
4. The brief facts giving rise to the present petition are as
follows:
The petitioner floated a tender for supply, installation,
construction, testing, commissioning and development of Fire Fighting
System at the petitioner's gas receiving station in June, 2007. Several
bidders including respondent No.3 participated in the tender process
and upon evaluation of the bids, respondent No.3 was declared by the
petitioner to be a successful bidder.
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On 18th July, 2007, in pursuance of the said tender, the
purchase order, came to be issued to respondent No.3 by the petitioner.
Clause 14 of the said purchase order contained arbitration clause.
There was dispute between the parties regarding completion
of tender work, quality of work and the payment of money for the tender
work as agreed under the said purchase order. Respondent No.3
thereafter approached respondent No.1-Micro and Small Enterprises
Facilitation Council (for short "MSEFC") by making MSME reference
seeking compensation of Rs.36,60,054/64 paise from the petitioner and
served copy of the same upon the petitioner on 14 th October, 2011. The
petitioner, by filing reply to this reference application on 17 th November,
2011 and 19th February, 2015, inter alia raised a preliminary objection
that respondent No.1 - MSEFC has no jurisdiction to try and entertain the
said reference. The objection was taken on the ground that the parties
have clearly and unequivocally agreed for an independent arbitration
agreement in the said purchase order.
By an order dated 29th April, 2015, respondent No.1 - MSEFC
terminated the conciliation proceedings as unsuccessful due to lack of
interest of the petitioner for conciliation and amicable settlement and
decided to itself initiate arbitration proceedings. This order is impugned
in the present petition.
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5. In short, the petitioner is questioning the jurisdiction of
respondent No.1 - MSEFC in entertaining the reference under Section 18
of the Micro, Small and Medium Enterprises Development Act, 2006 ( for
short " the MSMED Act") in a dispute which has arisen between the
petitioner as a buyer of goods from respondent No.3 as seller.
6. Mr. Kane, learned counsel for the petitioner submitted that
the reference under Section 18 of the MSMED Act is not tenable in the
present case before the MSEFC since there is an arbitration agreement
between the parties. According to the learned counsel for the petitioner,
reference can be entertained by the MSEFC only when there is no
arbitration agreement between the parties. He further submitted that
there is no inconsistency between existence of independent arbitration
agreement and the arbitration which the MSEFC is bound to undertake
under the MSMED Act. Mr.Kane submitted that the arbitration
agreement between the parties could have been ignored only if
arbitration in pursuant thereof was inconsistent with the provisions of
the MSMED Act which has an overriding effect over any law. In support
of his contention, he strongly relied upon the decision of the Division
Bench of Nagpur Bench of this Court in M/s.Steel Authority of India
Ltd. and anr. Versus The Micro, Small Enterprise Facilitation Council
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and anr. AIR 2012 Bombay 178. Mr. Kane further submitted that even
assuming for the sake of argument that respondent No.1 - MSEFC has
jurisdiction to entertain the reference under Section 18 of the MSMED
Act, once the MSEFC conducts conciliation proceedings and fails, in that
case, the MSEFC itself cannot initiate arbitration proceedings under
Section 18(3) of the MSMED Act.
7. Mr. Oak, learned counsel for respondent No.3 contested the
petition vehemently. He submitted that taking into consideration the
objects sought to be achieved by the MSMED Act and particularly the
provision under Sections 18 and 24 thereof which gives an overriding
effect to the provisions of the said act, respondent No.1 - MSEFC rightly
entertained the dispute. He submitted that since the conciliation
proceedings have failed for non-cooperation on the part of the
petitioner, the MSEFC was justified in itself initiating the arbitration
proceedings under Section 18(3) of the MSMED Act. Mr. Oak, in order to
support his contention, relied upon a decision of the Gujarat High Court
in FA No.637 of 2016 dated 5th July, 2017 (Principal Chief Engineer
versus M/s. Manibhai and Bros (Sleeper)).
8. In order to appreciate the rival contentions, it is necessary to
see the objects of the MSMED Act. The Government of India felt it
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necessary 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. The Government of India also felt it necessary to
address concerns of entire small and medium enterprises sector and the
sector is provided with single legal framework. The Central Government,
accordingly, enacted the MSMED 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.
9. For appreciating the controversy, we must see the provisions
of Sections 15, 17, 18, 19 and 24 which read as follows :
15. Liability of buyer to make payment.- Where any supplier
supplies any goods or renders any services to any buyer, the
buyer shall make payment therefor on or before the date
agreed upon between him and the supplier in writing or,
where there is no agreement in this behalf, before the
appointed day;
Provided that in no case the period agreed upon between the
supplier and the buyer in writing shall exceed forty-five days
from the day of acceptance or the day of deemed acceptance.
16. ....
17. Recovery of amount due.- For any goods supplied or
services rendered by the supplier, the buyer shall be liable to
pay the amount with interest thereon as provided under
section 16.
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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 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
disputes 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
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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 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.
20. ....
21. .....
22. .....
23. .....
24. Overriding effect.- The provisions of sections 15 to 23
shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in
force."
The act has enacted special provisions for preventing delayed
payments to such enterprises and special procedure for recovery of the
amount due towards supply is also laid down. Chapter V of the Act
contains these special provisions.
Section 15 of the Act provides that the buyer is liable to make
payment for the goods purchased from Micro and Small Enterprises on
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or before the date agreed upon between them and the supplier in
writing or, where there is no agreement in this behalf, before the
appointed date. Provided that, in no case, the period agreed upon
between the supplier and the buyer in writing shall exceed forty-five
days from the day of acceptance or the day of deemed acceptance.
Section 16 of the Act provides that notwithstanding anything
contained in any agreement between the buyer and the supplier or in
any law for the time being in force, the buyer shall be liable to pay
compound interest with monthly rests to the supplier on the amount due
from the appointed day or, as the case may be, from the date
immediately following the date agreed upon at three times of the bank
rate notified by the Reserve Bank.
Section 17 of the Act provides that the buyer shall be liable to
pay the entire amount i.e. price of goods with interest as contemplated
under section 16.
Section 18 of the Act provides for making reference i.e.
reference of dispute by any of the parties to the Micro and Small
Enterprises Facilitation Council.
Section 19 of the Act provides setting aside decree, award or
order made by the Council which acts like an arbitrator.
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10. Section 24 of the Act gives an overriding effect to the
provisions of Sections 15 to 23 which provide statutory framework for
micro, small and medium enterprises to address the issues of delayed
payment. Sub-section (1) of Section 18 contains non-obstante clause
which enables the party to a dispute to make a reference to MSEFC.
Similarly, sub-section (4) of Section 18 which also contains a non-
obstante clause provides for arbitration to be conducted by MSEFC or
any institution or a centre providing alternate dispute resolution
services. It is thus evident that the act does not contemplate arbitration
through an arbitrator appointed by the parties but provides for special
forum in the form of MSEFC or under the aegis of any institution or a
centre providing alternate dispute resolution services as referred by
MSEFC. Furthermore, Section 19 which mandates pre-deposit of 75% of
awarded amount ensures expedient recovery of the dues and thus
safeguard the interest of micro, small and medium enterprises. The
Arbitration Act 1996 and/or the arbitration agreement entered into by
the parties does not contain such provisions.
11. It is to be noted that the MSMED Act is a special enactment,
enacted with an object of facilitating the promotion and development
and enhancing i.e. competitiveness of micro, small and medium
enterprises, which do not command significant bargaining power. It is
Shubhada S Kadam 11/24
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with this object that the Act provides for institutional arbitration. Keeping
in mind the object of the Act and non-obstante clause in Section 24 of
the Act, we are of the view that the provisions of Sections 15 to 23 of the
Act will have an overriding effect, notwithstanding anything inconsistent
in any other law or the arbitration agreement as defined under Section 7
of the Arbitration Act, 1996. Thus, notwithstanding the provisions of the
Arbitration Act 1996 and the existence of an arbitration agreement, any
party can make a reference to MSEFC with regard to the amount due
under Section 17, and such council or the institution or centre identified
by it, will have jurisdiction to arbitrate such dispute.
12. In Steel Authority of India Ltd. (supra), there was an
agreement between the buyer and the seller and clause 22 of the
agreement contained the arbitration clause. The supplier invoked clause
22 of the agreement and proposed to appoint Justice C.P. Sen (Retired) as
Arbitrator to settle the dispute through arbitration. The buyer, however,
in pursuance of clause 23 of the general conditions of contract,
appointed one Mr. S. K. Gulati as an Arbitrator for resolving the disputes
between the parties. The Arbitrator appointed by the buyer issued
notices to the parties asking them to submit their claim. However, the
supplier, instead of filing claim before the Arbitrator, objected the
arbitration stating that the matter may be either referred to Justice C.P.
Shubhada S Kadam 12/24
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Sen (Retired) or it should go before the Micro and Small Enterprises
Facilitation Council established under the 2016 Act. The buyer declined
to enter into another mode of settlement of dispute before the Council,
since it had already appointed an Arbitrator. The supplier went ahead
and filed a reference under Section 18 of the 2016 Act. The buyer raised
an objection before the Council objecting its jurisdiction. The Council,
however, decided to proceed with the matter. The buyer approached
the approached the High Court questing the jurisdiction of the Council.
The Division Bench of this Court, in paragraph 11, held as under :
"11. Having considered the matter, we find that Section
18 (1) of the Act, in terms allows any party to a dispute
relating to the amount due under Section 17 i.e. an
amount due and payable by buyer to seller; to approach
the facilitation Council. It is rightly contended by Mrs.
Dangre, the learned Addl. Government Pleader, that there
can be variety of disputes between the parties such as
about the date of acceptance of the goods or the deemed
day of acceptance, about schedule of supplies etc.
because of which a buyer may have a strong objection to
the bills raised by the supplier in which case a buyer must
be considered eligible to approach the Council. We find
that Section 18 (1) clearly allows any party to a dispute
namely a buyer and a supplier to make reference to the
Council. However, the question is; what would be the next
step after such a reference is made, when an arbitration
agreement exists between the parties or not. We find that
there is no provision in the Act, which negates or renders
an arbitration agreement entered into between the
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parties ineffective. Moreover, Section 24 of the Act, which
is enacted to give an overriding effect to the provisions of
Section 15 to Section 23 including Section 18, which
provides for forum for resolution of the dispute under the
Act-would not have the effect of negating an arbitration
agreement since that section overrides only such things
that are inconsistent with Section 15 to Section 23
including Section 18 notwithstanding anything contained
in any other law for the time being in force. Section 18(3)
of the Act in terms provides that where conciliation
before the Council is not successful, the Council may itself
take the dispute for arbitration or refer it to any
institution or centre providing alternate dispute
resolution and that the provisions of the Arbitration and
Conciliation Act, 1996 shall thus apply to the disputes as
an arbitration in pursuance of arbitration agreement
referred to in Section 7(1) of the Arbitration and
Conciliation Act, 1996. This procedure for arbitration and
conciliation is precisely the procedure under which all
arbitration agreements are dealt with. We, thus find that
it cannot be said that because Section 18 provides for a
forum of arbitration an independent arbitration
agreement entered into between the parties will cease to
have effect. There is no question of an independent
arbitration agreement ceasing to have any effect because
the overriding clause only overrides things inconsistent
therewith and there is no inconsistency between an
arbitration conducted by the Council under Section 18
and arbitration conducted under an individual clause
since both are governed by the provision of the
Arbitration Act, 1996."
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13. Similar question fell for consideration before the Apex Court
in M/s. Manibhai and Bros (Sleeper) (supra). In this case, the supplier
being a registered Small-scale Entrepreneur approached the Council
under Section 18 of the MSMED Act claiming the outstanding amount of
Rs.1,19, 07,858/- with interest against the buyer. The Council initially
resorted to conciliation proceedings and thereafter, declared the award.
The award was challenged by the buyer by way of filing special civil
application before the learned Single Judge of the Gujarat High Court.
The same was dismissed and thereafter letters patent appeal was filed
before the Division Bench of the same Court. The letters patent appeal
was allowed only on the ground that the buyer has already moved an
application under Section 8 of the Arbitration Act 1996 and, no order was
passed on the said application. The Division Bench, accordingly,
remanded the matter to the Council. The Council again rejected the
buyer's application under Section 8 of the Arbitration Act, 1996 and,
therefore, the buyer approached the High Court by way of first appeal.
14. The argument, similar to the present one, was advanced
before the the Division Bench of the Gujarat High Court that once there
is an arbitration agreement in existence, the dispute is required to be
referred for arbitration and thus, the application under Section 8 of the
Arbitration Act, 1996 could not have been dismissed. The Division Bench
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of the Gujarat High Court followed the decision of the Allahabad High
Court in the case of Paper and Board Convertors vs. U.P. State Micro
and Small Enterprise in writ petition No.24343 of 2014 and held that
the Council has jurisdiction to act as an arbitrator or conciliator in a
dispute between the parties and the Council has only one of the two
courses of action open to it : either to conduct an arbitration itself or to
refer the parties to a centre or institution providing alternate dispute
resolution services stipulated in sub-section (3) of Section 18 of the
MSMED Act. Consequently, the Division Bench of the Gujarat High Court
did not find any error in the decision of the Council in not entertaining
the buyer's application under Section 8 of the Arbitration Act, 1996. The
Division Bench of the Gujarat High Court also referred to the decision of
the Nagpur Bench of this Court in M/s. Steel Authority of India Ltd.
(supra) and expressed inability to agree with it. The relevant discussion
is contained in paragraph 7.0. to 8.0. which reads as under :
"7.0 Identical question came to be considered by
the Division Bench of the Allahabad High Court in the case
of Paper and Board Convertors (supra). While
interpreting the very provision of Section 18 of the Act,
2006, in para 12, the Division Bench has observed and
held as under :
12. The non-obstane provision contained in sub-
section (1) of Section 18 and again in sub-
section (4) of Section 18 operates to ensure that
it is a Facilitation Council which has jurisdiction
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to act as an arbitrator or Conciliator in a dispute
between a supplier located within its jurisdiction
and a buyer located anywhere in India. The
Facilitation Council had only one of the two
courses of action open to it : either to conduct
an arbitration itself or to refer the parties to a
centre or institution providing alternate dispute
resolution services stipulated in sub-section (3)
of Section 18.
7.1. After observing as above, the Division Bench
of the Allahabad High Court has set aside the order
passed by the Facilitation Council directing the parties to
place its version before the sole arbitrator in terms of the
rate contract agreement and restored the proceedings
back to the Council and directed the Council to act in
accordance with the provisions of sub-section (3) of
Section 18 and either conduct the arbitration itself or
refer the arbitral proceedings to any institution or centre
providing alternate dispute resolution services.
8.0 Now, so far as reliance placed upon the
decision of the Division Bench of the Bombay High Court
in the case of M/s.Steel Authority of India Ltd. and anr.
(supra) relied upon by Shri Patel, learned advocate for
appellant, for the reasons stated above provision of Act
2006 referred herein above and the Act 2006 being
Special Act under which the parties are governed, we are
not in agreement with the view taken by the Division
Bench of the Bombay High Court and we are in complete
agreement with the view taken by the Division Bench of
the Allahabad High Court in the case of Paper and Board
Convertors (supra).
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15. The decision of the Division Bench of the Gujarat High Court in
M/s. Manibhai And Brothers (Sleeper) (Supra) was challenged before
the Apex Court by filing Diary No16845 of 2017. These proceedings
came to be disposed of by the Division Bench of the Hon'ble Apex Court
by its order dated 5th July, 2017, which reads as follows :
"We have given our thoughtful consideration
to the submissions advanced before us yesterday and
today.
We are satisfied, that the interpretation
placed by the High Court on Section 18 of the Micro,
Small and Medium Enterprises Development Act, 2006, in
the impugned order, with reference to arbitration
proceeding is fully justified and in consonance with the
provisions thereof.
Having affirmed the above, we are of the view,
that all other matters dealt with in the impugned order
are not relevant for the adjudication of the present
controversy, and need not be examined.
The special leave petition is dismissed in the
above terms. Pending applications stand disposed of. "
16. The above order of the Apex Court apparently shows that the
Apex Court approved the view of the Gujarat High Court in M/s.
Manibhai and Brothers (Sleeper) (supra) and the Allahabad High Court
in Paper and Board Convertors (supra). In that view of the matter, the
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submission of Mr. Kane, learned counsel for the petitioner, that the
reference made by respondent No.3 and entertained by respondent
No.1 - MSEFC is not maintainable in view of the independent arbitration
agreement between the parties cannot be entertained and the same is
liable to be rejected.
17. This takes us to consider the next issue raised by Mr.Kane,
learned counsel for the petitioner that the respondent No.1 - MSEFC
having itself conducted the conciliation proceedings, could not have
decided to itself initiate the arbitration proceedings under Section 18(3)
of the MSMED Act. We find merit in this submission.
18. Section 18(1) of the MSMED Act provides for reference to the
Facilitation Council of a dispute with regard to any amount due under
Section 17. Sub-section (2) of Section 18 contemplates of conduct of
conciliation either by council itself or by seeking assistance of any
institution or centre providing alternate dispute resolution services. For
purpose of such conciliation proceedings, the provisions of Sections 65
to 81 of the Arbitration and Conciliation Act, 1996 are applicable. Sub-
section (3) thereof, makes a provision for arbitration if the conciliation
proceedings between the parties are not successful and stand
terminated without any settlement either by the Council itself or by
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reference to any institution or centre providing alternate dispute
resolution services. To such arbitration, the provisions of Sections 65 to
81 of the Arbitration and Conciliation Act, 1996 are made applicable.
19. A plain reading of sub-sections (2) and (3) of Section 18 of the
MSMED Act makes it clear that is is obligatory for the Council to conduct
conciliation proceedings either by itself or seek assistance of any institute
or centre providing alternative dispute resolution services. The
provisions of Sections 65 to 81 of the Arbitration Act 1996 are made
applicable to conciliation proceedings. In the event, the conciliation
proceedings are unsuccessful and stand terminated, the Council can
either itself take up the dispute for arbitration or refer it to any
institution or centre proving alternate dispute resolution services for
such arbitration. The provisions of Arbitration Act 1996, in its entirety,
are made applicable as if the arbitration was in pursuance of the
arbitration agreement referred to in sub-section(1) of Section 7 of the
Arbitration Act, 1996.
20. It is thus evident that sub-section (2) and sub-section (3) of the
MSMED Act vests jurisdiction in the Council to act as conciliator as well
as arbitrator. The question is in view of the provisions of Section 80 of
the Arbitration Act 1996, the Council which has conducted the
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conciliation proceedings is prohibited from acting as arbitrator. As
stated earlier, certain provisions of Arbitration Act 1996 including Section
80 are specifically made applicable to conciliation proceedings
contemplated by Section 18(2) of the MSMED Act. Whereas provisions of
Arbitration Act 1996, in its entirety, are made applicable to the
arbitration and conciliation proceedings contemplated by sub-section (3)
of Section 18 of the MSMED Act.
21. A harmonious reading of these provisions clearly indicate that
Section 80 of the Arbitration Act, 1996 is applicable to conciliation as well
as arbitration proceedings under sub-sections (2) and (3) of Section 18 of
the MSMED Act. Section 80 of the Arbitration Act, 1996 reads thus :
"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; and
(b) the conciliator shall not be presented by the parties as
a witness in any arbitral or judicial proceedings."
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22. A plain reading of Section 80 makes it clear that the conciliator
cannot act as an arbitrator or his representative or counsel of a party in
any arbitral or judicial proceedings in respect of a dispute. It is thus
evident that the MSEFC cannot act as conciliator as well as arbitrator, or
it may choose to refer the dispute to any centre or institution providing
alternate dispute resolution services for the parties to conciliation or
arbitration. However, once the MSEFC acts as conciliator, in view of
provisions of Section 80, it is prohibited from acting as arbitrator.
23. Admittedly, in the present case, respondent No.1 conducted
the conciliation proceedings between the petitioner and respondent
No.3 and by the impugned order, terminated the same as being
unsuccessful. What is surprising is that respondent No.1 - MSEFC, having
conciliated the dispute between the parties and conciliation proceedings
being unsuccessful and terminated, the MSEFC itself initiated to
arbitrate the dispute between the same parties. In our view, respondent
No.1-MSEFC itself, could not have initiated arbitration proceedings
between the petitioner and respondent No.3. In terms of the provisions
of sub-section (3) of Section 18 the MSMED Act, respondent No.1 -
MSEFC ought to have referred the dispute between the petitioner and
respondent No.3 to any institution or centre providing alternate dispute
resolution services for arbitration. The impugned order, so far as it
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relates to authorising respondent No.1 - MSEFC to initiate arbitration
proceedings/arbitral dispute cannot be sustained and the same deserves
to be quashed and set-aside.
24. We, accordingly, dispose of the petition by passing the
following order :
1. We hold that the despite independent
arbitration agreement between the petitioner and
respondent No.3, respondent No.1 - MSEFC has
jurisdiction to entertain reference made by
respondent No.3 under Section 18 of the MSMED
Act.
2. Clause 2 of the operative part of the
impugned order i.e."Arbitration proceeding be
initiated U/s 18(3) of MSMED Act 2006 and that
this council shall act as an Arbitrator Tribunal" is
quashed and set-aside and respondent No.1 - MSEFC
is directed to refer the dispute between the
petitioner and respondent No.3 to any institution or
centre providing alternate dispute resolution
services for arbitration. Respondent No.1 - MSEFC
Shubhada S Kadam 23/24
wp 5459.15.doc
shall take necessary steps as expeditiously as
possible and, in any case, within a period of four
weeks from the date of receipt of this order.
3. Rule is, accordingly, made absolute in the
above terms.
[SMT.ANUJA PRABHUDESSAI, J.] [RANJIT MORE, J.]
Shubhada S Kadam 24/24
