Satiate Engineering India ... vs Siemens Financial Services ...
2023 Latest Caselaw 9923 Bom

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          GOPAL
GOPAL     CHANDAN
CHANDAN   Date: 2023.09.26
             16:57:24 +0530                                    1     COMAPL-25189.23 (1).doc


                                     IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                        ORDINARY ORIGINAL CIVIL JURISDICTION
                                             IN ITS COMMERCIAL DIVISION

                                    COMM. ARBITRATION APPEAL (L) NO.25189 OF 2023
                                                         IN
                                       COMM. ARBITRATION (L) NO.20143 OF 2023

                              1]      Satiate Engineering (India) Pvt.                ]
                                      Ltd.                                            ]
                                      having address at A/101, Trinity, Orlem         ]
                                      Tank Road, Opp. Siddhivinayak Tower             ]
                                      Mumbai - 400064                                 ]
                                      Also at-:                                       ]
                                      Plot No. G-10, Tarapur M.I.D.C. Vijay           ]
                                      Colony, Vanipada, Boisar, District-             ]
                                      Palghar, Maharashtra-401501                     ]
                                                                                      ]
                              2]      Sandip Padmakar Chinchankar                     ]
                                      Director and Personal Guarantor,                ]
                                      Satiate Engineering (India) Pvt. Ltd.           ]
                                      having address at,
                                      A/101, Trinity, Orlem Tank Road, Opp.           ]
                                      Siddhivinayak Tower, Mumbai 400064              ]
                                                                                      ]
                              3]      Suchita Sandip Chinchankar                      ]
                                      Director and Personal Guarantor,                ]
                                      Satiate Engineering (India) Pvt. Ltd.           ]
                                      having address at,                              ]
                                      A/101, Trinity, Orlem Tank Road, Opp.           ]
                                      Siddhivinayak Tower, Mumbai 400064              ]
                                                                                      ]
                              4]      Sanket Sandip Chinchankar,                      ]
                                      Director and Personal Guarantor,                ]
                                      Satiate Engineering (India) Pvt. Ltd.           ]
                                      having address at,                              ]... Appellants
                                      A/101, Trinity, Orlem Tank Road, Opp.           ](Orig -
                                      Siddhivinayak Tower, Mumbai 400064              ] Respondents)


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                                  2    COMAPL-25189.23 (1).doc



                 V/s.

1]      Siemens Financial Services Pvt. Ltd. ]
        having its registered office at      ]
        Plot No.2, Sector 2, Kharghar Node, ]
        Navi Mumbai - 410210                 ]
        Also having correspondence office at ]
        Birla Aurora Towers, Level 21,       ]
        Plot No.1080, Dr.Annie Beasant Road ]... (Orig. Petitioner
        Worli, Mumbai-400003                 ]   No.1)
                                             ]
2]      Satyendra Shekhawat                  ]
        Landlord, Plot No. G-10, Tarapur     ]
        M.I.D.C. Vijay Colony, Vanipaa,      ]
        Boisar, District Palghar,            ]
        Maharashtra-401501                   ]... (Orig. Respondent
        Also at : Comfort Rubber Industries ]    No.5)
        Plot No. W-26, MIDC Tarapur          ]... Respondents.



Mr. Mathews J. Nedumpara with Ms. Hemali Kurne and Advocate
Shameem Fayiz for the Appellants.

Mr. Anoshak Davar with Advocate Aaushi Doshi, Mr. Siddhesh
Rajput i/by Indialaw LLP for Respondent No.1.



                 CORAM : DEVENDRA KUMAR UPADHYAYA, CJ. &
                         ARIF S. DOCTOR, J.

Reserved on : 12th September 2023 Pronounced on : 26th September 2023

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JUDGMENT. (PER ARIF S. DOCTOR, J.)

The present Appeal impugns an order dated 31 st

August 2023 by which the Learned Single Judge has, in the

captioned Commercial Arbitration Petition filed by Respondent

No.1 under Section 9 of the Arbitration and Conciliation Act,

1996 ("the Arbitration Act") granted the following interim reliefs,

viz.

"20. In view of the above, there shall be ad- interim relief in terms of prayer clause (b) which reads as follows :-

"b. That pending hearing and final disposal of the arbitration proceedings and till the Award which may be passed is enforced in accordance with Section 36 of the Arbitration and Conciliation Act 1996, the Respondents, their agent/s, servant/s, and any third person/s claiming through them be restrained by an order of injunction of this Hon'ble Court from in any manner dealing with, selling, transferring, disposing of, or alienating or encumbering or mortgaging or hypothecating or charging or parting with possession of or transferring, or inducting anyone else into or creating any right, title or interest or license in favour of anyone else in respect of :

i. New Automatic Die Punching MY 1080 (1 No.);

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ii. New Auto Flute Laminator Model V4V 1500 (1 No.);

iii. New one set of High speed single Facer Corrugation Line (1 No.);

iv. New Automatic Die Punching MY10B0 (1 No.) and v. New One Set of High Speed Single Facer Corrugation Line (1 No.).

vi. along with anything mounted on it, contained in it, affixed or attached to it, permanently or otherwise"

21. Although ad-interim relief in terms of prayer clause (c) was also sought, in the light of the submission made on behalf of respondent No.5, this Court finds that the appointment of the Court Receiver would not be necessary as respondent No.5 has no objection to the said equipment being taken away by the petitioner. Accordingly in view of the statement made on behalf of respondent No.5, the petitioner is permitted to take possession of the said equipment from the premises of respondent No.5, which may be done within a period of two weeks from today. Needless to say that respondent Nos. 1 to 4 shall not create any obstruction to the petitioner taking physical possession of the subject equipment from the premises of respondent No.5, as indicated hereinabove."

2. Mr. Nedumpara, learned counsel appearing on behalf

of the Appellants, submitted that the Impugned Order is bad in

law inasmuch as the very proceedings under Section 9 of the

Arbitration Act were not maintainable. He submitted that since

Appellant No.1 was registered under the provisions of the Micro,

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Small and Medium Enterprises Development Act, 2006 ("the

MSMED Act") Appellant No. 1 would be entitled to the statutory

protection available under the Notification dated 29 th May, 2015

issued under Section 9 of the MSMED Act.

3. Mr. Nedumpara then invited our attention to the said

Notification and pointed out therefrom that the same provided

for a complete mechanism for dealing with MSMEs which were

facing financial stress. He submitted that as per clause 1 of the

said Notification it was mandatory on the part of banks and

creditors to constitute a committee in the manner more

particularly set out in the said Notification on the first signs of

any incipient stress to the MSME being noticed. He submitted

that on the constitution of the said committee, the process as

contemplated by the said notification was required to be strictly

followed. He submitted that no form of recovery against an

MSME could be initiated or if initiated, be continued, except in

the manner provided for by the said committee. From the said

notification, he pointed out that even the discharge/payment of

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tax dues/liabilities would be only with the prior

approval/sanction of the said committee. He submitted that in

the present case, even though Respondent No. 1 had not

advanced any loan to Appellant No. 1, Respondent No. 1 would

fall within the definition of a creditor under the said notification

since creditor was to be construed broadly so as to give the

widest possible meaning. He submitted that such an

interpretation would be in keeping with the salutary objectives

of the MSMED Act.

4. He then submitted that it was the mandate of the

statute that recovery from an MSME undergoing financial stress

was in fact the last option. He submitted that it was mandatory

for the committee to formulate and put into force a corrective

action plan which would first deal with rectification and

restructuring of the MSME in an attempt to resolve any financial

stress. He submitted that recovery was the last mode to be

adopted and that too only when the first two modes had failed.

He submitted that, to permit Respondent No.1, at the interim

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stage to proceed to take possession of the said machinery was

nothing but a mode of recovery which would effectively spell the

death knell of all MSMEs and would be ex-facie contrary to the

very objectives and scheme of the MSMED Act.

5. Mr. Nedumpara, placing reliance upon Section 9 of

the MSMED Act, submitted that the said Notification had

statutory force. He submitted that the said Notification not only

created rights and benefits in the Appellant No.1 but also an

obligation upon the banks and creditors to act in the manner set

out in the said Notification. He submitted that the legislation was

a remedial and beneficial legislation, and hence the widest

possible interpretation ought to be given to the said Notification.

Mr. Nedumpara then invited our attention to the object clause of

the MSME Act and pointed out therefrom that same

encapsulated the intention of the Legislature which was inter-

alia to ensure timely and smooth flow of credit to small and

medium enterprises as also to minimize the incidence of

sickness among such enterprises.

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6. Mr. Nedumpara also invited our attention to the

Industries (Development and Regulation) Act, 1951 to point out

that the Central Government had noted therein the need for

supportive measures, exemptions or other favourable treatment

to be offered to small scale industrial undertakings.

7. Mr. Nedumpara submitted that the Appellants had

also filed a Writ Petition against Axis Bank Limited and others in

which the Appellants had inter alia sought a declaration that (a)

the jurisdiction of the Civil Court is not ousted since the MSMED

Act had not created a special tribunal/forum to enforce the

rights and obligations/remedies created by it and (b) the

Appellants are covered by the provisions of the MSMED Act and

are entitled to the nursing and care provided under the

notification dated 29th May, 2015. Mr. Nedumpara, however,

submitted that Respondent No.1 was not added as party

Respondent to the said Writ Petition, though an application

seeking to add/implead Respondent No.1 as a party had been

taken out.

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8. Basis the above, he submitted that the very filing of a

Petition under Section 9 of the Arbitration Act at this stage was

entirely bad in law and in the teeth of the scheme of the scheme

of the MSMED Act and that the Impugned Order was required to

be set aside.

9. Per contra, Mr. Davar, the learned counsel appearing

on behalf of Respondent No.1, submitted that Respondent No. 1

was neither a bank nor a creditor and thus the said notification

as also the provisions of the MSMED Act were entirely

inapplicable to the facts of the present case. He submitted that

Respondent No.1 had, pursuant to a Master Lease Agreement

dated 9th December, 2016 ("the lease agreement"), leased

certain machinery to Appellant No.1. He then invited our

attention to the following terms of the lease agreement, viz.,

12.2 Use of the Equipment

The Lessee undertakes to:

a) ...

b) ...

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                                        10         COMAPL-25189.23 (1).doc

             c) ...
             d) ...
             e) ...
             f) ...
             g) ...
             h) ...
             i) ...

j) not change the Premises where the Equipment is located without the prior written consent of the Lessor and in case of such change provide the Lessor with a letter of the landlord, or owner or other person in charge of the day to day running of the such new premises where the Equipment is to be kept, as set out in Schedule 10;

15.1 Non-fulfilment of essential obligations

The Lessee fails to perform or comply with any of the following essential obligations under any Lease Schedule and this Agreement;

a) Non-payment - The Lessee fails to pay to the Lessee on the due date any Lease Instalments payable pursuant to the applicable Lease Schedule under this Agreement or any other sums due under this Agreement or any Lease Schedule at the time and in the manner specified;

b) Transfer of the Equipment - Any Equipment is transferred, encumbered, alienated, sold, moved, pledged, sublet or possession relinquished, or any attempt to do so without prior approval in writing of the Lessor;

c) Usage for illegal purpose - Any Equipment is used for illegal purposes;

d) Change in the Premises - The premises specified in a Lease Schedule are changed by the Lessee without the prior written consent of the Lessor;

e) Transfer of rights and obligations - If the rights or obligations of the Lessee under this Agreement or any Lease Schedule are transferred, encumbered, alienated, and sold without prior approval in writing of the Lessor;

f) Insurance - If the Lessee does not keep any Equipment insured as set out in this Agreement.

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From the above, he pointed out that not only had Appellant No.1

failed and neglected to pay lease rent in excess of an amount of

rupees seven crore but also that Appellant No. 1 had in

complete breach and violation of clauses 12.2. (j) and 15.1

parted with possession of the said machinery by moving the

same to another location belonging to Respondent No.2. He then

invited our attention to the impugned order and pointed out that

Respondent No.2 did not dispute this fact as also had no

objection to Respondent No.1 taking over physical possession of

said machinery. He submitted that it was thus, that Respondent

No.1 had pursuant to clause 30 of the lease agreement which

provided for arbitration, filed the captioned Petition under

Section 9 of the Arbitration Act, for interim reliefs.

10. My Davar then invited our attention to the

Memorandum of Appeal and pointed out that though various

grounds of challenge were taken therein, the Appellants had

only urged ground A, viz.

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                                   12       COMAPL-25189.23 (1).doc

"A. The MSMED Act offers a blanket protection against recovery by secured creditors, operational creditors, landlords/lessors, even the Government and statutory authorities, under all law concerning recovery, namely, SARFAESI, IBC, Arbitration and Conciliation Act, Negotiable Instruments Act, etc. Therefore, the application under Section 9 of the Arbitration and Conciliation Act by the Respondent/Original Petitioner is not maintainable."

He submitted that the very same arguments had been urged

before the Learned Single Judge in support of the contentions

taken in the aforesaid ground of Appeal which had been dealt

with in detail by the Learned Single Judge in the Impugned

Order.

Basis the above, Mr. Daver submitted that there was absolutely

no merit in the present Appeal. He submitted that the present

Appeal was required to be dismissed.

11. We have heard learned counsel for the parties,

considered the rival submissions and find that the present

Appeal deserves to be dismissed for the following reasons, viz.

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                                         13       COMAPL-25189.23 (1).doc

A. We find that the only ground urged before us to assail the

impugned order i.e., the MSMED Act affords a blanket

protection from initiation of any recovery proceedings

under all other laws, in the facts of the present case, is

both factually and legally untenable. Respondent No.1 is

neither a bank nor a creditor and hence the provision of

both the said Notification as also the MSMED Act would be

wholly inapplicable to Respondent No.1. We are unable to

accept the Appellants contention that Respondent No.1

who has admittedly not advanced any loan and/or credit

facility would fall within the definition of creditor under the

said notification. Additionally, we must note that in the

facts of the present case, cause of action according to

Respondent No.1 is on account of the breach the terms of

the said lease agreement by Appellant No. 1 and is not for

recovery of any loan and/or credit facility. Respondent No.

1 is seeking to secure and recover possession of

machinery which admittedly belongs to Respondent No. 1

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and for arrears of payment of lease rent as agreed and

was due and payable under the lease agreement. We find

that the Learned Single Judge has more than adequately

and succinctly dealt with this contention in paragraph 16

of the impugned order in which the Learned Single Judge

has held as follows:-

"16. As regards the preliminary objection taken on behalf of respondent No.1, this Court has considered the master lease agreement placed on record at exhibit B. It cannot be said that the said document, in any manner, provides for advancing of any finance or loan by the petitioner to respondent No.1. The claim raised by the petitioner under the said master lease agreement is for lease rentals due from respondent No. 1 and violation of certain other clauses under the agreement. By no stretch of imagination can it be said that in such circumstances, the framework and scheme contemplated under notification dated 29.05.2015 issued under Section 9 of the MSMED Act would apply to the relation between the petitioner and respondent No.1. This is further clear from paragraph 1 of the said notification, which starts with the words `identification by banks or creditors - before a loan account of a micro, small and medium enterprises turns into a non-performing asset'. The master lease agreement at exhibit - B does not concern advancement of any loan by the petitioner to respondent No.1 and therefore the very basis for invoking the said notification and

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the provisions of the MSMED Act is taken away. The basis on which the edifice of the entire argument regarding preliminary objection has been raised on behalf of respondent is found to be unsustainable and therefore, the preliminary objection deserves to be rejected."

We are in complete agreement with the aforesaid findings

of the Learned Single Judge. It is plain that Respondent

No. 1 is neither a bank nor creditor of Appellant No. 1. The

relationship between Appellant No. 1 and Respondent No.

1 is purely that of lessor and lessee and thus the question

of the applicability of the said notification and the MSMED

Act to the facts of the present case does not arise at all

and is in the nature of a complete red herring.

B. While there is no doubt about the salutary objectives of

the MSMED Act it is equally important to ensure that these

salutary objectives are not misused and abused by errant

MSME's. We find that the present case is a classic example

of an attempt on the part of the Appellant to abuse and

misuse the MSMED Act. We say so because the Appellant

No. 1 admittedly (i) has not paid lease rent in excess of

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Rs.7 Crores and (ii) has contrary to the terms of the lease

agreement parted with possession of the machinery taken

on lease. Thus, in the facts of the present case, to permit

the Appellant to press into service the provisions of the

MSMED Act would infact not only amount to putting a

premium on dishonesty but also result in a gross abuse of

the salutary provisions of the MSMED Act.

C. Also, we must note here that the impugned order is an

interim order which has been passed by the Learned

Single Judge in the exercise of his discretionary

jurisdiction. It is plain that no prejudice whatsoever has

and could be caused to the Appellants by the impugned

order as it is an admitted position that Appellant No.1 is

not even in possession much less in use of the said

machinery. Given this undisputed fact, the balance of

convenience is entirely in favour of Respondent No. 1 who

is admittedly the owner of the said machinery.

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12. Thus, for the reasons stated aforesaid, the Appeal is

dismissed.

(ARIF S. DOCTOR, J.)                               (CHIEF JUSTICE)




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