Delhi High Court
Sirius Global Limited vs South Eastern Railway on 19 May, 2020
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 21.01.2020
Pronounced on: 19.05.2020
+ OMP (MISC.)(COMM.) 363/2019 & I.A. 12478/2019
SIRIUS GLOBAL LIMITED ..... Petitioner
Through: Mr. Hindol Banerjee, Advocate
versus
SOUTH EASTERN RAILWAY ..... Respondent
Through: Mr. Malaya Kumar Chand & Mr.
Rohit Sharma, Advocates
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JUDGEMENT
1. Present petition has been filed under Section 29A (4) of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as the
'Act'). Petitioner is a small enterprise registered under the Micro Small
and Medium Enterprises Development Act, 2006 (hereinafter referred to
as the 'MSMED' Act) and provides IT services to various organizations.
2. An Annual Maintenance Contract was executed between the
Petitioner and Respondent - South Eastern Railway. As per the
Petitioner, it executed the work under the Contract for the years 2009-
2012, to the satisfaction of the Respondent, but no payment was made by
the Respondent.
3. It is averred in the petition that Petitioner had requested for
appointment of an Arbitrator and while the Arbitrator was appointed by
the Respondent, but no date was fixed in the proceedings and for many
months nothing was heard either from the Respondent or from the
Arbitrator. In these circumstances, Petitioner being MSME registered
Company approached the Delhi MSME Facilitation Council as per the
MSMED Act and the Council called for Conciliation. Conciliation having
failed, the Council referred the dispute for Arbitration to the DIAC (Delhi
International Arbitration Centre) and a Sole Arbitrator was appointed.
4. Petitioner filed its Statement of Claim for Rs. 1,40,39,899/-. First
hearing was held on 02.01.2018. On 27.02.2018 issues were framed and
on 08.03.2018 Petitioner filed its evidence by way of Affidavit. On next
five occasions dates were fixed, but cancelled as the Arbitrator was not
available.
5. In the hearing on 13.07.2018, Respondent filed an application
seeking adjournment of the proceedings, sine die. This application was in
view of a stay order passed by Delhi High Court in W.P. (C) 2273/2018
staying the Arbitration Proceedings between the Petitioner and Eastern
Railway, which was pending before another Arbitrator at the DIAC and
had been similarly referred under MSMED Act. Considering the
application, the Arbitrator fixed the same for arguments on 01.10.2018.
6. In the meantime, the Writ Petition was dismissed by the Single
Judge on 25.09.2018. On 01.10.2018, the Tribunal called for a copy of
the judgment. The judgment was placed on record and dates for
admission and denial of documents and further proceedings were fixed
for 22.12.2018, 11.01.2019 and 22.01.2019. On 22.12.2018, Respondent
filed evidence by way of affidavit and sought time for filing affidavit of
admission and denial of documents and the Tribunal adjourned the matter
to 11.01.2019.
7. Petitioner avers that, in the meantime, the stipulated 12 months
period expired, but inadvertently, the Petitioner realized this only in the
month of January, 2019. Hence, in the hearing on 11.01.2019, Petitioner
raised the issue of extension of time before the Arbitrator, who in turn
sought clarification from the office of the DIAC. DIAC informed the
Arbitrator that he had entered upon reference on 18.11.2017 and thus it
was within the powers of the Tribunal to grant extension, with the
consent of the parties. Respondent sought time to seek instructions and
the proceedings were adjourned to 22.01.2019, on which date on the
request of the Respondent, case was fixed for 18.02.2019.
8. On 18.02.2019, Respondent's counsel made an oral submission
that it had filed LPA No. 42/2019 against the dismissal of the Writ
Petition and could not consent to extension of time, till the Appeal was
pending. In the absence of consent, the Arbitrator vide order dated
18.02.2019 gave liberty to the parties to take appropriate steps and
consigned the file to records, subject to revival.
9. Petitioner states that Respondent moved an urgent application in
LPA No. 42/2019 for stay of Arbitration Proceedings in that matter and
on 06.03.2019, the Division Bench directed that without prejudice to the
rights of the parties, proceedings before the Arbitrator may go on, but
final Award shall not be passed without leave of the Court.
10. It is in these circumstances that the Petitioner filed the present
petition.
11. Learned counsel for the Petitioner submits that Respondent has
taken every step to ensure that the Arbitration Proceedings are obstructed
and the Petitioner is not able to realize its legitimate dues. He further
submits that the Petitioner is a small enterprise and is being unnecessarily
victimized by the Respondent. Since, the Respondent did not give
consent, the mandate of the Tribunal was not extended. However, this
Court has wide powers to extend the mandate even at this stage and thus
prays that the time for completion of proceedings and passing of the
Award be extended.
12. Learned counsel for the Respondent on the other hand, based on
the reply filed by the Respondent, contends that the reference and
extension are contrary to the Arbitration Clause in the Agreement dated
09.02.2011. He submits that the reference is barred by limitation as the
Agreement expired on 05.08.2012. He further submits that even the
present petition is barred by limitation and there is no application for
condonation of delay. Application was filed on 03.09.2019 after a long
gap of seven months from the Tribunal's order dated 18.02.2019.
13. Learned counsel further contends that Petitioner has suppressed the
fact that it had invoked the Arbitration Agreement earlier and an
Arbitrator was appointed by the Respondent and the proceedings had
commenced. Thus, the present Arbitration Proceedings cannot proceed
under law. Counsel also submits that this Court has no territorial
jurisdiction as the Agreement was signed in the Office of South Eastern
Railways, Kolkata. It is denied that the Respondent owes any money to
the Petitioner.
14. In rejoinder, learned counsel for the Petitioner submits that
Respondent had appointed a Sole Arbitrator vide letter dated 17.06.2014
and vide letter dated 09.03.2015 the first hearing was fixed for
18.03.2015. It was postponed to 19.03.2015 vide letter dated 16.03.2015.
However, vide letter dated 18.03.2015, the date of hearing of 19.03.2015
was cancelled with the next date to be informed later. But no intimation
was ever received for any further date in the matter and no hearing took
place in the said proceedings.
15. Counsel further submits that when the Respondent or the Arbitrator
failed to respond for nearly two years, Petitioner resorted to the process
of Conciliation and then reference, through the MSME Council. The first
hearing before the DIAC was on 02.01.2018 after nearly two years of the
Petitioner waiting helplessly for any intimation qua the earlier
proceedings. It is further submitted that it is not open to the Respondent
to even question the DIAC Proceedings as it had participated therein,
filed its reply and even evidence by way of Affidavit and has thus
subjected itself to the jurisdiction of the Arbitral Tribunal. If the
Respondent was aggrieved with the initiation of the proceedings, it
should have challenged the same at the start of the proceedings.
16. Learned counsel further submits that validity of Section 18 of the
MSMED Act, 2006 has been upheld by the Supreme Court in the case of
Principle Chief Engineer v. M/s Manibhai & Bros., decided on
05.07.2017. This aspect was also considered by a Division Bench of this
Court in LPA No. 42/2019, mentioned above, and the appeal was
dismissed on 23.08.2019. Learned counsel submits that all letters
pertaining to the previous Arbitration have been placed on record of this
Court.
17. I have heard the learned counsels for the parties.
18. In view of the strong opposition to the present petition by the
Respondent, on certain legal grounds, it becomes necessary for this Court
to examine the same. The first issue that arises for consideration is
whether in view of the earlier Arbitration Proceedings, invoked by the
Petitioner, the present Arbitration Proceedings before the DIAC
(hereinafter referred to as DIAC Proceedings) can proceed and in which
event, is the Petitioner entitled to relief in the present petition. The
second issue is with respect to validity of the DIAC proceedings, having
been initiated by reference of the MSME Council under the MSMED Act,
2006.
19. In order to answer the first issue, it is necessary to go into the
factual aspects of the earlier proceedings. From the narration of facts
given by the Petitioner in the rejoinder, which is unrebutted, it is clear
that no hearing took place in the said proceedings, though rescheduled
from time to time. Before proceeding further it needs a mention that the
said proceedings commenced in 2014. The proceedings would thus be
governed by the Arbitration and Conciliation Act, 1996 as it stood prior
to the 2015 Amendment. The unamended Section 14 of the Act reads as
under:-
―14. Failure or impossibility to act.--(1) The mandate of
an arbitrator shall terminate if--
(a) he becomes de jure or de facto unable to perform his
functions or for other reasons fails to act without undue
delay; and
(b) he withdraws from his office or the parties agree to the
termination of his mandate.
(2) If a controversy remains concerning any of the grounds
referred to in clause (a) of sub-section (1), a party may,
unless otherwise agreed by the parties, apply to the
Court to decide on the termination of the mandate.
(3) If, under this section or sub-section (3) of Section 13,
an arbitrator withdraws from his office or a party
agrees to the termination of the mandate of an arbitrator,
it shall not imply acceptance of the validity of any ground
referred to in this section or sub-section (3) of Section 12.‖
20. Reading of the unamended Section 14 shows that mandate of an
Arbitrator terminates on account of the Arbitrator's inability to act,
without undue delay. Affirmatively stated, if an Arbitrator fails to act
without undue delay, the inaction results in termination of the mandate. In
the present case, the status of the earlier proceedings can at best be
defined as proceedings in Limbo for the longest time due to inaction on
the part of the Arbitrator. This conclusion is drawn on the basis of the
averments by the Petitioner, which are clearly unrebutted by the
Respondent.
21. In the case of State of West Bengal vs. National Builders, (1994) 1
SCC 235, the Supreme Court while examining the scope of Section
8(1)(b) of the Arbitration Act, 1940, which is pari materia to unamended
Section 14 of the Act, held as under:-
―4. To decide if the court was justified in assuming
jurisdiction to appoint another arbitrator as the arbitrator
appointed by the Chief Engineer under Clause 25 refused
to act, it is necessary to examine the scope of Section
8(1)(b) of the Arbitration Act which reads as under:
―8. (1) In any of the following cases--
(a) ....
(b) If any appointed arbitrator or umpire
neglects or refuses to act, or is incapable of acting,
or dies, and the arbitration agreement, does not
show that it was intended that the vacancy should
not be supplied and the parties or the arbitrators, as
the case may be, do not supply the vacancy; or
(c) ....
any party may serve the other parties or the
arbitrators, as the case may be, with a written notice
to concur in the appointment or appointments or in
supplying the vacancy.‖
This provision vests the court with supervisory jurisdiction
to interfere with relationship between the parties and the
arbitrator if any of the situations as provided in this sub-
section comes into being. What was claimed by the
respondent, which has been accepted by the courts below,
is that the sole arbitrator appointed by the Chief Engineer
refused to act. The question, therefore, is what does this
expression mean? Refusal to act in legal sense means
denial to do something which one is obliged to do under
law. Black's Law Dictionary explains it thus: ‗The act of
one who has, by law, a right and power of having or doing
something of advantage, and declines it'. In private law, of
which arbitration is a part with court's power to supervise
and intervene in arbitral proceedings within statutory
framework, an arbitrator who is appointed, with common
consent of parties, may not proceed with arbitration for
various reasons. The refusal to act may be express or
implied. If an arbitrator resigns or informs the parties his
inability to act it would be express refusal. And even the
courts cannot force him to arbitrate.
In Shibcharan v. Ratiram [ILR (1885) 7 All 20 : 1884
AWN 212] when despite his refusal the Subordinate Judge
directed the records to be sent back to the arbitrators to
submit the award within ten days who, thereafter, made the
same it was set aside by the High Court and it was held:
―Expression has recently been given by this
Court to the view, that one of the most essential
principles of the law of arbitration is, that the
adjudication of disputes by arbitration should be
the result of the free consent of the arbitrator to
undertake the duties of arbitrating between the
contending parties who have agreed to repose
confidence in his judgment. Indeed, the finality of
such award is based entirely upon the principle
that the arbitrators are judges chosen by the
parties themselves, and that such judges are
willing to settle the disputes referred to them.
This essential characteristic of the effect of such
adjudications is necessarily vitiated if
compulsion is employed by the Court.‖
5. Refusal to act may be inferred as well. On what facts
such an inference can be raised cannot be laid down with
certainty. There can be no fixed principle for it. When an
arbitrator has failed to discharge his obligation so as to
give rise to an inference that he has refused to act it shall
have to be decided by the court on facts and circumstances
of each case. For instance in Priyabrata Bose v. Phani
Bhusan Ghose [AIR 1937 Cal 523] the High Court held
that even when the arbitrator was not willing to proceed
unless his fees were paid in advance, it was refusal to act.
Inaction by the arbitrator or inordinate delay in rendering
the award are yet some of other reasons due to which
courts have raised an inference that the arbitrator refused
to act. (See Manohar Singh Sahay & Co. v. Jogendra
Singh Kalra [AIR 1984 Pat 3 : 1983 BBCJ (HC) 606]
, State of U.P. v. Sardul Singh Kulwant Singh [AIR 1985
All 67 : 1985 All CJ 117] and Gajanand Sita Ram v. Phul
Chand Fateh Chand [AIR 1930 All 675 : 1930 ALJ 1373]).
The parties appoint an arbitrator by consent and he
undertakes to decide the dispute out of his free will. He
may withdraw his consent expressly or may act in a
manner giving rise to inference that he was not willing to
act any more. In either case the basic principle is that the
arbitrator cannot be forced to act.‖
22. These observations have been recently affirmed by the Supreme
Court in Jayesh Pandya & Anr. v. Subhtex India Limited & Ors., 2019
SCC OnLine SC 1101, with respect to Sections 14 & 15 of the
Arbitration and Conciliation Act,1996 as amended by the Amendment
Act, 2015. Therefore, in my view, the mandate of the Arbitrator
appointed in the earlier proceedings stood terminated.
23. In so far as, the provisions of the MSME Act are concerned, the
Petitioner being a small enterprise and registered at Delhi rightly invoked
the MSMED Act. As per Section 18 (4) of the MSME Act, the MSME
Facilitation Council or the Centre provides Alternate Dispute Resolution
services and has jurisdiction in a dispute where the supplier is located
within its jurisdiction even though the buyer may be located anywhere in
India. Section 18 (4) is extracted hereinunder:-
―18. Reference to Micro and Small Enterprises
Facilitation Council.--
(1) ........
(2) ........
(3) .......
(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) ........‖
24. The issue as to whether the Council has the jurisdiction to refer a
dispute to Arbitration is no longer res integra. Coordinate Bench of this
Court in W.P.(C) 6564/2016 titled Mangalore Refinery &
Petrochemicals Ltd. vs. Micro & Small Enterprises Facilitation Council
& Anr,. decided on 24.01.2019, held as under:-
―7. Insofar as the first contention is concerned - that is,
regarding the jurisdiction of the Council to refer the
disputes to arbitration that are not covered under the
arbitration agreement - the same is no longer res integra.
This Court has, in a number of decisions now, held that the
reference under Section 18 of the MSMED Act is a
statutory reference and is dehors any arbitration
agreement between the parties (See: M/s Ramky
Infrastructure Private Ltd. v. Micro and Small
Enterprises Faciliatation Council & Anr.: W.P.(C)
5004/2017, decided on 04.07.2018). It has also been held
bound by the terms of the arbitration agreement while
making such reference (See: Bharat Heavy Electricals
Limited v. The Micro and Small Enterprises Facilitations
Centre and Anr.: W.P.(C) 10886/2016, decided on
18.09.2017).
8. A Coordinate Bench of this Court has further held that
the dispute resolution mechanism under Section 18 of the
MSMED Act overrides the arbitration clause under the
contract (see: GE T & D India Ltd. v. Reliable
Engineering Projects and Marketing: OMP (Comm) No.
76/2016, decided on 16.02.2017).
9. The Division Bench of the Allahabad High Court in
BHEL v. State of UP and Others: W.P.(C) 11535/2014,
decided on 24.02.2014 had held that even though there
may be an arbitration agreement between the parties, the
provisions of Section 18(4) of the MSMED Act contains a
non-obstante clause in empowering the Council to act as
an Arbitrator. It is also noticed that in terms of Section 24
of the MSMED Act, the provisions of the MSMED Act
would have an overriding effect notwithstanding anything
inconsistent therewith contained in any other law for the
time being in force.
10. In this view, the scope of reference before the DIAC is
also not circumscribed in any manner by the terms of the
arbitration agreement between the parties.‖
25. In the case of Indian Oil Corporation Limited vs. FEPL
Engineering (P) Limited & Anr., being OMP (COMM) 144/2019,
decided on 05.04.2019, Court held that MSMED Act being a special
Legislation dealing with Micro, Small and Medium Enterprises, would
certainly have precedence over the General Law, i.e. the Arbitration and
Conciliation Act, 1996.
26. It is significant to mention that the Respondent during the
proceeding before the DIAC had relied upon a parallel litigation between
the present Petitioner and the Eastern Railways, where according to the
Respondent the same issue was under consideration of the Court. The
Writ Petition filed by the Railways being W.P. (C) 2273/2018, was
dismissed on 25.09.2018 and the learned Single Judge held that
provisions of Section 18 of the MSMED Act would be applicable,
notwithstanding the Arbitration Agreement in terms of Section 7 of the
Arbitration and Conciliation Act, 1996. Railways had contended that the
order passed by the MSME Council referring the disputes to the DIAC
was without jurisdiction as the Agreement between the parties included
an Arbitration Clause. Relevant para of the judgment is as under:-
―3. Both the aforesaid issues are covered by the decisions
of this Court. In Bharat Heavy Electricals Limited v. Micro
and Small Enterprises Facilitations Centre and Ors.:
W.P.(C)10886/2016, decided on 18.09.2017, this Court
after considering the scheme of the Act had held that by
virtue of the provisions of Section 24 of the Act, the
provisions of the Act would have the effect notwithstanding
anything inconsistent in any other law or instrument. Thus,
the provisions of Section 18(3) of the Act would be
applicable notwithstanding the arbitration agreement in
terms of Section 7 of the Arbitration and Conciliation Act,
1996.‖
27. As noted in the earlier part of the judgment, during the DIAC
Proceedings, Respondent had submitted that the said judgment was under
consideration in an Appeal before a Division Bench of this Court. It
needs a mention that vide Order dated 23.08.2019, the said LPA bearing
No. 42/2019 has been dismissed by the Division Bench, upholding the
order of the learned Single Judge. Relevant part of the order of the
Division Bench is as under:-
―8. In view of the aforesaid provisions of law, no error has
been committed by the learned Single Judge while
deciding W.P.(C) 2273/2018, vide order dated 25th
September, 2018. Thus, despite an arbitration clause in the
agreement between the parties to the litigation, if the
Micro, Small and Medium Enterprises Development Act,
2006 is applicable to them, the MESF Council, has the
power, jurisdiction and authority under Section 18(3) to
either take up the matter for arbitration itself or refer the
matter for arbitration to any institution or centre providing
alternate dispute resolution services once the conciliation
proceedings before MESF Council fails. This provision
has overriding effect, looking to Section 18(4) and Section
24 of the Act, 2006. This aspect of the matter has been
properly appreciated by the learned Single Judge while
deciding W.P.(C) 2273/2018, vide order dated 25th
September, 2018, especially looking to para 10 of the
judgment delivered by the Hon'ble Gujarat High Court in
First Appeal No. 637/2016, wherein it has been observed
as under :
―10. In view of the above and for the reasons
stated above, no error has been committed by
the learned Council in not entertaining the
application under Section 8 of the Arbitration
Act, 1996. We see no reason to interfere with the
order passed by the learned Council. As
observed herein above and LPA 42/2019 Page 5
of 6 considering the sub-section (1) of Section 18
of the Act, 2006 the Facilitation Council has
jurisdiction to act as Arbitrator and/or
conciliator any dispute between the parties and
that Council had only one of 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 Section 18(3) of
the Act, 2006. Therefore, while dismissing the
present appeal, it is observed that Council shall
now act in accordance with provision of sub-
section (3) of Section 18 and either to conduct
an arbitration itself or to refer the parties to a
centre or institution providing alternate dispute
resolution services. With the above observations,
present appeal is dismissed. No costs. In view of
dismissal of the First Appeal, Civil Application
stands dismissed accordingly.‖‖
28. In view of the judgments referred above, it can hardly be argued by
the Respondent that the MSME Council had no jurisdiction to refer the
matter to DIAC in the present proceedings. Thus, the contention that the
DIAC Proceedings are bad in law and the present petition cannot be
entertained only merits rejection. Additionally, Petitioner is right that the
Respondent participated in the proceedings upto the stage of admission
and denial of documents and took no steps to challenge the proceedings at
the start.
29. The Petitioner has averred in the petition that the DIAC
Proceedings were at the stage of admission/denial of the documents by
the Respondent when they were adjourned sine die. In my view, the
Petitioner has made out a case of extension of time for completion of the
proceedings and passing of the Award.
30. Accordingly, time for completion of the proceedings and passing
of the Award is extended by a period of 6 months from 19.05.2020. The
period between 18.11.2018 till 19.05.2020 is hereby regularized.
Petitioner is at liberty to file an appropriate application before the learned
Arbitrator for revival of the proceedings in terms of the order passed by
this Court today.
31. Petition is allowed in the aforesaid terms.
32. Pending application also stands disposed of.
JYOTI SINGH, J.
MAY 19th , 2020
yo/rd
