Bharat Heavy Electricals ... vs Optimal Power Synergy India Pvt. ...
2022 Latest Caselaw 954 Cal/2

                        IN THE HIGH COURT AT CALCUTTA
                       Ordinary Original Civil Jurisdiction
                                 ORIGINAL SIDE

Present :-
THE HON'BLE JUSTICE MOUSHUMI BHATTACHARYA.


                     I.A. No. GA 3 of 2021 in A.P. 175 of 2020
          BHARAT HEAVY ELECTRICALS LIMITED-ELECTRIC DIVISION
                                        Vs
                     OPTIMAL POWER SYNERGY INDIA PVT. LTD.
                                       And
                                 E.C. 156 of 2020
                               I.A. No. GA 1 of 2020
                     OPTIMAL POWER SYNERGY INDIA PVT. LTD.
                                        Vs
                     BHARAT HEAVY ELECTRICALS LTD. (BHEL)


For the Award-Holder in E.C./                 :        Mr. Tilak Kumar Bose, Sr. Adv.
Respondent in A.P.                                     Mr. Ganesh Prasad Shaw, Adv.
                                                       Mr. Gaurav Kumar, Adv.
             [




For the Award-Debtor in E.C./                 :        Mr. Jishnu Saha, Sr. Adv.
Petitioner in A.P.                                     Mr. Touseef Khan, Adv.
                                                       Mr. Ishan Saha, Adv.
                                                       Mr. Arindam Paul,Adv.


Last Heard on                                 :        08.03.2022.


Delivered on                                  :        23.03.2022.


Moushumi Bhattacharya, J.

1. Three applications filed by the parties before the Court are being

considered in this judgment.

2. The first application is for setting aside of an Award dated 24th

September, 2019 passed by the Facilitation Council under the provisions of

The Micro, Small and Medium Enterprises Development Act, 2006 wherein

Optimal Power Synergy emerged as the Award-holder. The second

application is for stay of the Award under section 36 of The Arbitration and

Conciliation Act, 1996. Both these applications have been filed by Bharat

Heavy Electricals Limited (BHEL), the Award-debtor. The third is an

Execution Petition filed by Optimal for execution of the Award.

3. The prayer of the Award-debtor, BHEL, is that the Award should be

stayed pending hearing of the application for setting aside of the Award.

The Award-holder Optimal prays for withdrawing 75% of the principal

amount of Rs. 61,08,654/- awarded to Optimal by the Facilitation Council

without being required to furnish security in lieu of such withdrawal.

4. Mr. Tilak Kumar Bose, learned senior counsel appearing for the Award

-holder Optimal, relies on the provisions of the MSME Act to urge that

section 19 of the said Act requires the appellant to deposit 75% of the

amount of the Award before an application for setting aside of the Award can

be entertained. Counsel further relies on the proviso to section 19 under

which the Court can make an order for payment of such percentage of the

amount deposited by the appellant to the supplier as the court may consider

to be reasonable. Counsel submits that Optimal is in a precarious financial

condition and that the title deeds which Optimal initially wanted to deposit

as security in exchange for the amount to be withdrawn are defective.

5. Mr. Jishnu Saha, learned senior counsel appearing for the Award-

debtor BHEL, seeks stay of the impugned Award on the ground that the

Award-debtor has already deposited 50% of Rs. 2,09,16,171/- (which is 75%

of the total amount comprising of the principal sum awarded plus interest)

in cash with the Registrar Original Side of this Court and has also given a

bank guarantee of the balance 50% of the amount in compliance with the

direction passed on 1st September, 2021. Counsel submits that Optimal

should not be permitted to withdraw any amount of the deposit lying with

the Registrar without furnishing security. Counsel seeks to distinguish the

provisions of the MSME Act and the Arbitration and Conciliation Act, 1996

and submits that unconditional withdrawal of the amount deposited is not

contemplated under the former.

6. A brief background of the three applications is necessary for a better

understanding of the stand taken by the parties before this Court. The

impugned Award was passed by the West Bengal State Micro Small

Enterprises Facilitation Council under section 18 of the MSME Act on 24th

September, 2019 on a reference by Optimal arising out of a dispute with

BHEL. BHEL is the buyer and Optimal is the supplier as defined under

sections 2 (d) and (n) respectively of the MSME Act. The Award notes that

Optimal is a small manufacturing enterprise which issued eight purchase

orders on BHEL for supply of a Solar Power Conditioning Unit and other

items for a diesel power plant. The payment terms in the purchase order

were 80% - 90% payment on supply plus 100% taxes to be made with 30 -

45 days of credit from receipt of the material at site and the balance 10% on

execution of basic supply of the materials. The Award was passed after

BHEL failed to participate in the conciliation pursued under section 18 of

the MSME Act. The arbitration was commenced after the conciliation failed.

7. By the impugned Award, BHEL was directed to pay the principal sum

of Rs. 61,08,654/- along with the interest thereon at three times the bank

rate notified by RBI compounded with monthly rests under Section 16 of the

MSME Act. The claimant / Award-holder, Optimal was directed to submit its

claim of interest on the principal sum and the Award-debtor, BHEL was

directed to pay the said sum within 30 days from the date of submission of

the claim of interest. Optimal submitted its claim on 28th November, 2019

for an amount of Rs. 2,78,88,228/- inclusive of interest. The 3 applications

for setting aside and stay of the award and for execution were filed by BHEL

and Optimal thereafter. Optimal filed an Execution Application before this

Court. The stay application was disposed of by a judgment and order of this

Court on 1st September, 2021 by which BHEL was directed to deposit 75%

of the total awarded amount (principal plus interest) of Rs. 2,78,88,228/-

[75% of Rs. 2,78,88,228 = Rs. 2,09,16,171] and to deposit 50% of this

amount (Rs. 1,04,58,085.50) with the Registrar Original Side of this Court.

The remaining 50% was directed to be given by way of a bank guarantee

from a reputed bank within a specific time frame. BHEL was given liberty to

make a separate application for stay of the Award only after deposit of the

amounts as directed.

8. I now come to the merits of the case made out by the parties in the

three applications pertaining to the Award.

9. Section 36 of The Arbitration and Conciliation Act, 1996, provides for

enforcement of an arbitral award after the time for applying for setting aside

of the award has expired and subject to stay of the award under section

36(2) of the Act.

10. Section 36(2) empowers the Court to grant an order of stay of the

operation of the arbitral award in accordance with section 36 (3) on a

separate application made for that purpose.

11. For ease of comparison, section 36(3) of the Arbitration and

Conciliation Act, 1996 and section 19 of the MSME Act, 2006, are set out in

sequence :-

Section 36(3) of the 1996 Act:

"36. Finality of Arbitral Awards −

.............

(3) Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing:

Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908)."

Section 19 of the MSME Act:

"19. Application for setting side 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."

12. The words used in section 36(3) are "... the Court may, subject to such

conditions as it may deem fit, grant stay of the operation of such award....".

The discretion of the Court in the matter of grant of stay of an award

becomes evident from the construction of the provision - the imposition of

conditions unobtrusively nestled in the sentence. The discretion, which is

also spelt out in the proviso for conditions for grant of stay, is extended to

the next level of decision-making, as it were, for stay of the award. The free-

hand given to the Court is in fact continued from the preceding provision -

36(2) - where the enforcement of an Award is deemed to continue unfettered

and regardless of an application for setting aside of the Award. Further, the

'may' in 36(3) set against the 'shall' in the proviso placed thereafter also

serves to lay stress on the element of discretion in the matter of stay of an

award.

13. In contrast, the discretion of the Court considering the application for

setting aside of an award under the proviso to section 19 of the MSME Act is

dressed both in 'shall' and 'may'; the mandate on the Court is to order

payment of a part of the deposit (by the award-debtor for stay of the award)

to the supplier award-holder "as it considers reasonable...subject to such

conditions as it deems necessary to impose". The discretion of the Court is

thus built into the proviso on the quantum which shall be released to the

supplier and the terms on which such payment can be made. In other

words, the Court is statutorily-mandated to ensure that the supplier can

withdraw a part of the amount deposited by the buyer and the amount

which is to be released. The Court is also empowered to decide whether to

impose terms for such withdrawal on an assessment of the attending

circumstances as would be evident from the last line of the proviso.

14. The leverage given to the supplier in section 19 of the MSME Act

seamlessly fits into the overall scheme of the Act. The right of an award-

holder to withdraw a certain percentage of the amount deposited by the

award-debtor pending an application for setting aside of the award is absent

in section 36(3) of the 1996 Act and is indeed a remarkable step-up in

respect of the rights of an award-holder. This right is also perfectly in sync

with the other provisions of the MSME Act which was enacted with the

object of facilitating the promotion and development of micro, small and

medium enterprises and enhance their competitiveness. The object is

reinforced in and runs through several sections including section 15 under

which a buyer is liable to pay the supplier for the supply of goods on or

before the date agreed upon between the buyer and supplier in writing or

before the appointed day in the absence of a written agreement. Section 16

continues in the same vein on the default of the buyer on its payment

obligation to the supplier. The buyer is then made liable for compound

interest with monthly rests to the supplier on the amount from the

appointed day or from the date immediately following the date agreed upon,

at three times of the bank rate notified by the Reserve Bank. Section 19

makes it mandatory on the appellant, to deposit 75% of the amount in terms

of the decree/award. Section 19, discussed above, reserves the obligation to

deposit 75% of the awarded amount only on the award-debtor who is not a

supplier; the exclusion being clearly indicated in parenthesis. The proviso

further makes it clear that a percentage of the amount deposited shall be

paid to the supplier under such circumstances as the Court may deem fit.

Hence, section 19 of the 2006 Act would entitle Optimal (supplier) to

withdraw a portion of the amount deposited by BHEL which is presently

lying with the Registrar, Original Side of this Court; the other part is by way

of a bank guarantee. Optimal seeks to withdraw 75% of the principal sum

awarded, i.e. 75% of Rs. 61,08,654/-. The demand is fair since the dispute

in the setting aside application is in relation to the amount of interest which

is to be added to the principal sum under section 16 of the MSME Act.

Optimal should hence be allowed to withdraw 75% of Rs. 61,08,654/- which

is in tandem with section 19 of the MSME Act.

15. The second question which must be answered is whether Optimal can

withdraw 75% of the principal amount without requiring furnishing of

security. The accepted principle is that a person who withdraws money

which has been deposited to the credit of the suit must furnish

corresponding security. The judgment-debtor in other words remains

secured in the event the decree is set aside.

16. The question is can Optimal - the award-holder - be allowed to do so?

17. The proviso to section 19 of the MSME Act contemplates exercise of

discretion in considering stay of an award with regard to (a) the percentage

of the deposited amount which is to be paid to the supplier and (b) the

conditions to be imposed for such payment. The thread of discretion runs

through both (a) and (b) and weaves into imposition of conditions for

withdrawal. The concluding part of the proviso is framed "as it deems

necessary to impose." The court therefore is empowered to not only decide

on the nature of conditions which may be imposed on the supplier for

withdrawing the money but also whether imposition of conditions is at all

necessary in the facts of the case. The background facts would be the

guiding factor in the exercise of discretion, reinforced as it is, by repetition of

"as it considers reasonable under the circumstances of the case" and "such

conditions as it deems necessary to impose" two times over in the proviso.

18. The determining facts in the instant case are as follows.

19. The claim of Optimal in the arbitration was essentially for the balance

price for the goods sold and delivered to BHEL. The claim related to

contracts entered into between the parties in 2013 and 2014 and most of

the claims were on account of balance retention money which became

payable to Optimal in 2015. Mediation proceedings were initiated in 2018

and arbitration commenced only after the Mediation failed. Optimal has

successfully emerged from the arbitration proceedings by being awarded a

sum of Rs. 61,08,654/- by an Award dated 24th September, 2019. The

Award-debtor, BHEL was directed to pay this amount along with interest

computed under Section 16 of the MSME Act within 30 days from the date

of submission of claim by Optimal. Optimal was thereafter forced to contest

proceedings filed by BHEL in this regard for setting aside and stay of the

Award. By a judgment dated 1st September, 2021, BHEL was directed to

deposit a portion of the awarded amount which was put in towards the end

of 2021. Moreover, Optimal's claim in the arbitration arose from supplies

made by it to BHEL from 2011 onwards.

20. Optimal has just revived from a financial crisis suffered in the

aftermath of the pandemic. Optimal requires urgent funds for meeting the

operational costs of its business and for the survival of its workmen. The

facts would indicate that Optimal, despite supplying materials to BHEL from

2011 onwards, has not got a farthing from such supplies for the last 11

years despite having an Award in its favour. Optimal has stated on oath that

furnishing a bank guarantee as security will not be possible as Optimal is

presently facing a severe financial crunch. Optimal has only recently

restructured its account from a Non Performing Asset to an operational

account consequent upon an one-time settlement of its dues with the bank

only in April 2021. The earlier intention to provide land as security for

withdrawal of the deposit is also not feasible since the title deeds were found

to be defective upon inspection. The aforesaid statements are part of the

records.

21. The proviso to section 19 of the MSME Act and the discretion

conferred on a Court to decide upon the quantum of withdrawal by a

supplier must be given a construction which is not in dissonance with either

section 19 or the other provisions of the MSME Act. The object is to ensure

that the small or medium scale enterprise survives; the object is not to

hasten the death of the enterprise under the weight of financial pressures

aggravated by initiation of proceedings for realization of its dues from supply

of materials to a buyer. Section 19 of the MSME Act matches the object of

the Act and strengthens its core by broadening the contours for stay of an

award / decree compared to section 36(3) of The Arbitration and

Conciliation Act, 1996 where the discretion is limited to granting stay of an

award subject to appropriate conditions. There is no mandate to allow

withdrawal of the amount deposited by the Award-holder. A Single Bench of

the Delhi High Court recognized the 2-step discretion under section 19 in

Indian Oil Corporation Ltd. vs. FEPL Engineering (P) Ltd. This Court construes

the said section to stretch the boundaries of the discretion even further.

22. The facts in the present case provide the quintessential framework

where discretion should be exercised in consonance with the underlying

intent of section 19 of the MSME Act for a financial leg-up to a beleaguered

supplier. In essence, the facts warrant that Optimal should be permitted to

withdraw 75% of the principal amount awarded to Optimal in the arbitration

− Rs. 61,08,654/- − without requiring to furnish security for withdrawing

the said amount. This order is being passed in the Execution proceeding;

E.C. No. 156 of 2020. Optimal shall therefore be permitted to withdraw the

said amount within a period of two weeks from date. Since BHEL has

already deposited 50% of Rs. 2,09,16,171/- with the Registrar, Original Side

of this Court, Optimal shall withdraw the amount as directed from this

amount. The balance amount of Rs. 58,76,595/- shall remain with the

Registrar and be treated as security for the purpose of the pending

application under Section 34 of the 1996 Act.

23. G.A 3 of 2021 is accordingly allowed and disposed of in terms of

prayer (a). The Award dated 24th September 2019 and received under cover

of a letter dated 7th November, 2019 shall be stayed until disposal of the

pending proceedings.

24. BHEL and Optimal shall have the liberty of mentioning A.P. 175 of

2020 and E.C. No 156 of 2020, respectively, for listing.

Urgent Photostat certified copies of this judgment, if applied for, be

supplied to the parties upon fulfillment of requisite formalities.

(Moushumi Bhattacharya, J.)