Himachal Pradesh High Court
Director vs Micro & Small on 5 January, 2022
Bench: Mohammad Rafiq, Jyotsna Rewal Dua
REPORTABLE
IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA
.
ON THE 5th DAY OF JANUARY, 2022
BEFORE
HON'BLE MR. JUSTICE MOHAMMAD RAFIQ,
CHIEF JUSTICE
&
HON'BLE MS. JUSTICE JYOTSNA REWAL DUA
CIVIL WRIT PETITIONS NO. 2041 of 2017 AND 1239 of 2018
CWP 2041/2017
Between:
SIMPLEX INFRASTRUCTURES
LIMITED, A COMPANY
INCORPORATED UNDER
THE COMPANIES ACT, 1956
AND HAVING ITS OFFICE
AT SIMPLEX HOUSE, 27
SHAKESPEARE SARANI,
KOLKATA700017 THROUGH
MR. R.K. BAGRI, EXECUTIVE
DIRECTOR.
...PETITIONER
(BY MR. SUBHASH SHARMA ADVOCATE)
AND
1. HIMACHAL PRADESH
MICRO AND SMALL
FACILITATION COUNCIL,
SERVICE THROUGH THE
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CHAIRMAN, HAVING ITS OFFICE
AT THE OFFICE OF THE
DIRECTOR OF INDUSTRIESCUM
CHAIRMAN, UDYOG BHAWAN,
.
SHIMLA 171 001.
2. GTECH SPLICING PRIVATE
LIMITED, A COMPANY
REGISTERED UNDER THE
COMPANIES ACT, 1956,
HAVING ITS REGISTERED
OFFICE AT 411, OSIAN BUILDING,
12 NEHRU PLACE, NEW
DELHI110019 AND ALSO
HAVING AN OFFICE AT
A39, VILLAGE NARYAL,
SECTOR4 PARWANOO,
DISTRICT SOLAN, HIMACHAL
PRADESH THROUGH ITS DIRECTOR.
3. RANJAN SHAH SURI,
DIRECTOR AND SHARE
HOLDER OF THE RESPONDENT
NO. 2 AND WORKING FOR
GAIN AT 411, OSIAN BUILDING,
12 NEHRU PLACE, NEW DELHI110019.
...RESPONDENTS
(MR. ASHOK SHARMA, ADVOCATE
GENERAL WITH MR. NAND LAL
THAKUR, ADDITIONAL ADVOCATE
GENERAL FOR RESPONDENT NO.1.
MS VEENA SHARMA AND
MR. ABHISHEK SHARMA,
ADVOCATES, FOR RESPONDENTS
NO. 2 AND 3)
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CWP 1239/2018
Between:
SIMPLEX INFRASTRUCTURES
.
LIMITED, A COMPANY
INCORPORATED UNDER
THE COMPANIES ACT, 1956
AND HAVING ITS OFFICE
AT SIMPLEX HOUSE, 27
SHAKESPEARE SARANI,
KOLKATA700017 THROUGH
MR. K.L. VAID, EXECUTIVE
DIRECTOR.
...PETITIONER
(BY MR. SUBHASH SHARMA ADVOCATE)
AND
1. HIMACHAL PRADESH
MICRO AND SMALL
FACILITATION COUNCIL,
SERVICE THROUGH THE
CHAIRMAN, HAVING ITS OFFICE
AT THE OFFICE OF THE
DIRECTOR OF INDUSTRIESCUM
CHAIRMAN, UDYOG BHAWAN,
SHIMLA 171 001.
2. GTECH SPLICING PRIVATE
LIMITED, A PROPRIETORSHIP
CONCERN OF MR. GAURAV MALHOTRA
HAVING ITS REGISTERED
OFFICE AT 411, OSIAN BUILDING,
12 NEHRU PLACE, NEW
DELHI110019 AND ALSO
HAVING AN OFFICE AT
A39, VILLAGE NARYAL,
SECTOR4 PARWANOO,
DISTRICT SOLAN, HIMACHAL
PRADESH THROUGH ITS DIRECTOR.
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3. MR. GAURAV MALHOTRA
PROPRIETOR OF THE
RESPONDENT NO.2
AND WORKING FOR
.
GAIN AT 411, OSIAN BUILDING,
12 NEHRU PLACE, NEW DELHI110019.
...RESPONDENTS
(MR. ASHOK SHARMA, ADVOCATE
GENERAL WITH MR. NAND LAL
THAKUR, ADDITIONAL ADVOCATE
GENERAL FOR RESPONDENT NO.1.
MS VEENA SHARMA AND
MR. ABHISHEK SHARMA,
ADVOCATES, FOR RESPONDENTS
NO. 2 AND 3)
These Civil Writ Petitions coming on for admission this
day, Hon'ble Mr. Justice Mohammad Rafiq, passed the
following:
ORDER
These two writ petitions involve common questions of
facts and law, therefore, they were heard together and are being
disposed of by this common judgment.
2. Facts of the case in brief are that the petitioner is a
company incorporated under the Companies Act, 1956 and has its
registered office at Simplex House 27 Shakespeare Sarani,
Kolkata. Respondent No. 1, i.e., Himachal Pradesh Micro and
Small Facilitation Council is a Council established by the State
Government under Section 20 of the Micro, Small and Medium
Enterprises Development Act, 2006 (for short MSMED Act).
.
Respondent No. 2 is also a company incorporated under the
Companies Act. It is registered under the MSMED Act read with
Rule 4 (6) of the Himachal Pradesh Micro & small Facilitation
Rules, 2007. Respondent No. 3 is shareholder and director of the
respondent No. 2company.
3. The petitionercompany has been dealing with the
private respondents in the usual course of business, who supply
materials, i.e., couplers and provide job work to them. The dispute
involved in CWP No. 2041/2017 relates to couplers worth
Rs.22,52,936/ supplied to the petitionercompany and job work
provided to the tune of Rs.12,65,707/, against the orders placed
by it adding up to Rs.35,38,833/ alongwith interest to the tune of
Rs.21,88,187/, with respondent No.2 claiming total outstanding
amount of Rs.57,26,920/ under the MSMED Act. Similarly,
dispute in CWP No. 1239/2018 pertains to claim with regard to
nonpayment of couplers and job work supplied/provided by
respondent No. 2 to the petitioner against the supply order worth
Rs.31,46,165/ and Rs.16,53,192/ respectively, along with interest
thereon of Rs.88,54,718/ (as on 31.3.2016), thus totaling
Rs.1,36,54,075/. Respondents No. 2 and 3 in both the matters
.
made a reference to the Himachal Pradesh Micro and small
Facilitation Council, which was constituted by the State
Government vide Notification No. IndA (F) 1921/2005 dated
12.10.2007 in exercise of the power conferred upon it under
Section 20 of the MSMED Act, for recovery of a sum of
Rs.57,26,920/ and Rs. 1,36,54,075/ respectively. Reference was
made under the provisions of Section 18 of the MSMED Act. The
petitionercompany objected that the reference was not
maintainable inasmuch as no part of cause of action arose within
the State of Himachal Pradesh. Respondent No. 2 is only having
its branch office in Himachal Pradesh, however, purchase orders
were issued by the petitionercompany at Kolkata. Thus, the
reference stood vitiated due to lack of jurisdiction. The reference
was taken up by respondent No. 1Facilitation Council in its 27 th
Meeting on 18.4.2017 and it was resolved that settlement could
not be arrived at between the parties. Since the petitioner
company disputed the outstanding amount as alleged by private
respondents, hence conciliation proceedings under Section 18 (2)
of the MSMED Act failed. All the purchase orders/work order
placed by the petitionercompany with respondent No. 2 had an
.
arbitration clause which reads as under:
"In the event of any difference or dispute arising out of or in
connection with this work order, the same shall be first amicably
settled by mutual dialogue. If the parties fails to settle their
differences or dispute arising out of or in connection with this work
order (including interpretation of the terms thereof), the same shall
be referred to arbitration. The arbitration proceedings shall be
conducted by a sole arbitrator to be appointed by the Managing
Director of Simplex Infrastructures Limited and the
award/decision of such arbitration shall be final and binding
upon both the parties. The venue of the arbitration shall be
Kolkata. However, you will not stop the work during the pendency
of the proceedings/and shall ensure that such work is proceeded
uninterruptedly."
4. The petitionercompany therefore, invoked arbitration
clause incorporated in the purchase orders/work orders as the
dispute arose in connection with the execution of the work orders.
Invoking the aforesaid arbitration clause in the work orders, the
petitionercompany appointed Hon'ble Mr. Justice I.P. Vashishth
(Retired) as a sole arbitrator to adjudicate upon the disputes in
both the matters. Hon'ble Mr. Justice I.P. Vashishth (Retired),
however on 3.5.2017, expressed his inability to act as an
.
arbitrator due to preoccupation and showed his inability to
adjudicate the disputes within the time frame as envisaged under
Section 29 A (1) of the Arbitration and Conciliation Act, 1996 (for
short 'Arbitration Act'). Thereafter the petitionercompany in
respect of disputes pertaining to CWP No. 2041/2017 appointed
Mr. Rudraman r Bhattacharya, Advocate as arbitrator to
adjudicate the disputes about most of the purchase/work orders
pertaining to CWP No. 2041/2017, between the parties and served
a copy of the said letter on private respondents. On 5.6.217, Mr.
Rudraman Bhattacharya, Advocate accepted his appointment as
arbitrtor and fixed first sitting of arbitration before him on
17.7.2017. By another letter dated 11.5.2017, the petitioner
appointed Mr. Subhankar Nag as sole arbitrator by invoking the
arbitration clause in respect of the disputes arising out of another
batch of purchase order/work orders peraining to CWP No.
2041/2017. Mr. Subhankar Nag, Advocate, by his letter dated
22.6.2017, accepted his appointment and fixed first sitting of
arbitration before him on 20.7.2017. In respect of disputes
pertaining to CWP No. 1239 of 2018, since Hon'ble Mr. Justice
I.P. Vashishth (Retd.) had declined to enter into the arbitration
.
proceedings, the petitionercompany appointed Mr. Saptarshi
Basu as the sole arbitrator to adjudicate the disputes between the
parties.
5. Respondent No. 1Facilitation Council vide its order
dated 6.5.2017 referred the disputes arising out of CWP No.
2041/2017 to arbitration and appointed Mr. Ravinder Prakash
Verma, District and sessions Judge (Retd.) as the sole arbitrator
to adjudicate the disputes between the parties. Such reference
dated 6.5.2017 was received by the petitionercompany on
8.5.2017. In regard to disputes pertaining to CWP No. 1239/2018,
the respondent No.1Facilitation Council, vide order dated
6.5.2017 appointed Mr. J.S. Mahanatan, District and Sessions
Judge (Retd.) to adjudicate the disputes between the parties. On
receipt of such orders of reference, the petitionercompany vide
letter dated 22.5.2017 informed the respondents as well as the
arbitrators appointed by respondent No. 1 not to proceed with the
adjudication on the ground that the petitionercompany had prior
to the date of the order of reference, invoked the arbitration
clause under the purchase orders/work orders and referred the
disputes to arbitration. According to the petitionercompany, it
.
was under the reasonable belief that the arbitrators appointed by
the respondent No.1Facilitation Council have dropped the
proceedings as no further communication was received from them.
The respondentcompany however invoked the jurisdiction of
Micro and Small Facilitation Councilrespondent No.1 under
Section 18 of the MSMED Act on the basis of which the
facilitation Council passed the order on 6.5.2017 impugned in
both the writ petitions.
6. Mr. Subhash Sharma, learned counsel for the
petitioner argued that when the petitionercompany had already
invoked the arbitration clause of the purchase order prior in
point of time, in accordance with the Arbitration Act, it was not
open to the respondents/suppliers to subsequently invoke Section
18 of the MSMED Act and submit their claim before the
Facilitation Council. Therefore, reference of disputes in both the
matters to Mr. Ravinder Prakash Verma, and Mr. J.S. Mahantan,
retired District and Sessions Judges, was bad in law and not
accepted by the petitionercompany. On receipt of order dated
6.5.2017 petitionercompany sent such reply to the Chairman of
the Facilitation Council and Mr. Ravinder Prakash Verma,
.
District and Sessions Judge (Retd.) and Mr. J.S. Mahantan, also
District and Sessions Judge (Retd.). On receipt of notice from the
arbitrators nominated by the Facilitation Council, petitioner
company sent communication to both the arbitrators informing
them that since it had already invoked the arbitration clause
prior to the respondents/supplier approaching the Facilitation
Council, the Council ought to withdraw/recall its order dated
6.5.2017 and that they may not proceed with the arbitration
proceedings. Mr. Ravinder Prakash Verma, however, vide
communication dated 23.5.2017 called upon the parties to appear
before him for 19.5.2017 and 23.5.2017 for filing statement of
claim by the supplier which has been filed and the petitioner
company was called upon to file written statement, if any, to the
claim of the supplier on or before 5.6.2013, failing which, ex parte
proceeding was ordered to be taken. The petitionercompany vide
letter dated 6.5.2017, addressed to Mr. Ravinder Prakash Verma,
District and Sessions Judge (Retd.) reiterated its earlier stand
that since it has already invoked the arbitration clause between
the parties, the Facilitation Council had no authority to appoint
another arbitrator and therefore, the arbitrator so appointed
.
ought not to proceed with the matter after being made aware of
the appointment of an independent arbitrator by the petitioner
company. Similar reply was sent to another arbitrator Mr. J.S.
Mahantan. However, both arbitrators chose to proceed with the
arbitration proceedings in violation and/or contrary to the
position of law as laid down by the Bombay High Court in Steel
Authority of India Ltd & Anr. Vs. Micro & Small
Enterprises Facilitation Council & Anr. reported in AIR
2012 Bombay 178.
7. Mr. Rudraman Bhattacharyya, Advocate, the sole
arbitrator appointed by the petitionercompany however, held his
sitting on 16.6.2017, ex parte against the respondent company and
fixed next sitting on 8.7.2017. The petitioner through their
Advocate Abhishek Rai and Associate, Advocates, called upon him
to dismiss the claim and informed him that since the Facilitation
Council had appointed Mr. Ravinder Prakash Verma, District and
Sessions Judge (Retd.) as the sole arbitrator in respect of
disputes, which fact was well within the knowledge of the
petitioner company, his appointment as an arbitrator was
malafide and therefore, it was prayed that he should dismiss the
.
claim submitted by the petitionercompany. Shri Rudraman
Bhattacharayya, Advocate however, still proceeded with the
further proceedings on 16.6.2017 and fixed 8.7.2017 as the next
date.
8. Mr. Ravinder Prakash Verma, District and Sessions
Judge (Retd.), the sole arbitrator appointed by the Facilitation
Counsel passed the award on 20.6.2017, which is subject matter
of CWP No. 2041/2017, for a sum of Rs.57,26,920/. Mr. J.S.
Mahantan, District and Sessions Judge (Retd.), appointed by the
Facilitation Council as the sole arbitrator passed the award for a
total sum amounting to Rs. 1,36,54,075/ which is subject matter
of CWP No. 1239/2018. It is against the background of these facts
that the petitioner has in these two writ petitions challenged the
order dated 6.5.2017 passed by the Facilitation Council by
questioning jurisdiction and competence of the said Council. In
both these writ petitions, order dated 6.5.2017, passed by the
Facilitation Council appointing the arbitrators is under challenge
with the prayer that the respondent No.1Facilitation Council
may be commanded to withdraw, recall and /or rescind the order
dated 6.5.2017 and further all purported proceedings thereunder
.
and/or relating thereto an/or in pursuance thereof an/or arising
thereof may be withdrawn and quashed and set aside and
respondent No. 1Facilitation Council may be restrained from
giving effect to the same. It may be significant to note at this
stage that execution of the awards in both the matters has
remained stayed pursuant to interim orders passed by this Court.
9. We have heard Mr. Subhash Sharma, Advocate, for
the petitioner in both the writ petitions, Mr. Ashok Sharma,
learned Advocate General for the respondentsState and Ms.
Veena Sharma and Mr. Abhishek Sharma, Advocates, for
respondents No. 2 and 3.
10. Mr. Subhash Sharma, learned counsel for the
petitionercompany argued that order dated 6.5.2017 passed by
the Facilitation Council appointing retired District and Sessions
Judges as sole arbitrators in both the cases is wholly without
jurisdiction because by that time, the petitioner had already
invoked the arbitration clause and appointed separate arbitrators
in both the matters. It is argued that after seeing the order dated
6.5.2017, appointing two retired District Judges as the
arbitrators in two separate claims, the petitionercompany vide
.
letter dated 22.5.2017, had duly informed both of them that since
it has already invoked the arbitration clause and appointed the
arbitrators who have entered the arbitral proceedings, the
arbitrators appointed by the Facilitation Council had no
jurisdiction inasmuch as they should not proceed with the arbitral
proceedings. The petitionercompany was under the reasonable
belief that on receipt of said communication the arbitrators so
appointed by the Facilitation Council would have dropped the
proceedings, particularly because no communication was
thereafter received from them by the petitioner. But the
petitionercompany was shocked and surprised to receive copy of
the award dated 21.8.2017, subject matter of CWP No. 1239/2018
and copy of the award dated 20.6.2017, subject matter of CWP No.
2041/2017, whereby the total claim of the respondent company
has been accepted without there being any evidence in support
thereof. It is argued that the Facilitation Council could not
proceed on the same subject on which the arbitrators had already
been appointed by the petitionercompany invoking independent
arbitration clause in the purchase orders at an earlier point of
time.
.
11. Reference is made to the arbitration clause which inter
alia provides that "if any difference arises or arising out in
connection with this work order, the same shall be first amicably
settled by mutual dialogue and if the party fails to settle their
differences or dispute arising out of or in in connection with this
work order (including interpretation of the terms thereof), the
same shall be referred to arbitration." No doubt, the petitioner
company had appeared before the Facilitation Council but it was
only at the initial stage to facilitate the efforts of the Conciliation
as envisaged under the arbitration clause between the parties. It
is contended that the petitionercompany did not dispute the
continuation of the proceedings before the Facilitation Council
only to the limited extent of facilitating the amicable settlement
between the parties by mutual consent. Therefore, its appearance
before the Facilitation Council should not be taken as a waiver on
its part as submission to the jurisdiction of the Facilitation
Council. Even while appearing before the Council, the petitioner
duly informed the Facilitation Council of the arbitrators already
appointed by it at an earlier point of time. The learned counsel for
the petitioner heavily relied on the judgment of the Bombay High
.
Court in Steel Authority of India Ltd, supra in which it was
held that there is no provision in the MSMED Act, which negates
or renders an arbitration agreement entered into between the
parties ineffective. It was held therein that Section 24 of the Act,
which is enacted to give an overriding effect to the provisions of
Sections 15 to 23 including Section 18, would not have the effect
of negating an arbitration agreement since that section overrides
only such things that are inconsistent with Sections 15 to 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 the provisions of the Arbitration and
Conciliation Act, 1996 shall thus apply to the disputes as if in an
arbitration in pursuance of arbitration agreement referred to in
Section 7(1) of the Arbitration and Conciliation Act, 1996. This is
precisely the procedure under which all arbitration agreements
are dealt with. The Bombay High Court thus held that it cannot
be said that only 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.
12. Learned counsel for the petitioner further submitted
that in view of the above position of law, the awards passed by the
arbitrators appointed by the Facilitation Council are liable to be
set aside because the petitionercompany in both the writ
petitions has challenged basic order making reference to the
arbitration dated 6.5.2017, with an ancillary prayer that all
proceedings thereunder and /or in pursuance thereof and/or
arising thereof should also be quashed and set aside. It is
therefore, argued that the fact that the award has itself not been
challenged, would not be a lacuna in the writ petitions especially
because the prayer clause in the writ petition is broadly worded so
as to challenge every subsequent order, including the award
passed by the arbitrators. Learned counsel for the petitioner has,
in support of his arguments relied on judgment of the Supreme
Court in Jharkhand Urja Vikas Nigam Limited vs. The
.
State of Rajasthan and others (Civil Appeal No. 2899 of 2021)
decided on 15.12.2021 and argued that in that case also, the order
making reference as well as the award passed by the Facilitation
Council were set aide by the Supreme Court.
13. Ms. Veena Sharma, the learned counsel for the
respondents opposed the writ petition and submitted that the writ
petition against any order that may be passed by the Arbitral
Tribunal is not maintainable. The only remedy available with the
petitionercompany, particularly when the award has already
been passed in both the matters, is to file objections against the
award under Section 34 of the Arbitration Act and thereafter, if
objections are dismissed, to challenge the said order in appeal
before the High Court under section 37 of the Arbitration Act. The
learned counsel in support of her argument relied upon the
judgment of the Supreme Court in Bhaven Construction
through Authorized Signatory Premjibhai K. Shah versus
Executive Engineer Sardar Sarovar Narmada Nigam Ltd.
and another reported in 2021 (1) Scale 327, and the Division
Bench of the Madhya Pradesh High Court in M.P. Road
Development Corporation versus The Ministry of road,
.
Transport and Highways (MORT and H) and another WP
No. 11783/2021 decided on 3.9.2021.
14. We have given our anxious consideration to the rival
submissions, perused the material on record and have gone
through the judgments cited by the learned counsel for the
parties.
15. The contention of the learned counsel for the petitioner
company placing reliance on the judgment of Bombay High Court
in Steel Authority of India Ltd. case supra that since a
separate arbitration agreement was entered into between the
parties, independent of the provisions of the MSMED Act and that
the petitionercompany had informed that the arbitration clause
had been invoked earlier in point of time and that it had
appointed arbitrator in both the matters, who had entered into
the arbitral proceedings, the proceedings under the MSMED Act
would be barred in so far as the appointment of the arbitrators by
the Facilitation Council is concerned, is noted to be rejected for
the reasons to be recorded hereinafter. The Division Bench of the
Bombay High Court in Steel Authority of India, supra, held
that there is no provision in the Act, which negates or renders an
.
arbitration agreement entered into between the parties
ineffective, because Section 24 of the Act, which is enacted to give
an overriding effect to the provisions of Sections 15 to 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 Sections 15 to 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. Bombay
High Court therefore, held that it cannot be said that only
because Section 18 provides for a forum of arbitration, an
independent arbitration agreement entered into between the
parties will cease to have effect. It was held that 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.
16. With great respect, the above analogy adopted by the
Bombay High Court fails to answer the question whether two
parallel proceedings can go on simultaneously and in our
considered view, they cannot. The very fact that in the present
case, there were two parallel proceedings, the arbitral proceedings
commenced by the arbitrator unilaterally appointed by the
petitioner and another arbitral proceedings conducted by the
arbitrator appointed by the Facilitation Council certainly give rise
to a situation when there could be conflict of opinion between the
two and this is where Section 24 of the 1996 Act comes into play.
Since Section 24 has given over riding effect to the provisions of
Sections 15 to 23 including Section 18. Obviously, arbitration
proceedings conducted by the arbitrator appointed by the
Facilitation Council shall have precedence over the arbitration
.
proceedings conducted by the arbitrator unilaterally appointed by
the petitioner, which it could not, even otherwise appoint in view
of the law enunciated by the Supreme Court in Perkins
Eastman Architects DPC v. HSCC (India) Pvt. Ltd. 2019
SCC OnLine SC 1517.
17. The question involved in the present case is no longer
res integra following the recent judgment of the Supreme Court in
Silpi Industries etc. versus Kerala State road Transport
Corporation and another (2021) SCC OnLine SC 439. In that
case, the Kerala State Road Transport Corporation (for short
KSRTC) invited tenders for supply of thread rubber for tyres
rebuilding. The appellants before the Supreme Court, who were
the claimants before the arbitrator, were given purchase orders.
As per the terms of the purchase order, 90% of the total purchase
price was payable to the appellants/claimants on supply of
materials and the balance 10% was to be paid subject to final
performance report. This was so, since it was the condition that
the thread rubber supplied by the appellants was to run a
minimum number of kilometers. When the 10% balance amount
was not paid as per the purchase order, the appellants/claimants
.
approached the Industrial Facilitation Council [previously
constituted under the Interest on Delayed Payments to Small
Scale and Ancillary Industrial Undertakings Act, 1993 (for short,
'IDPASC Act')] presently under the Micro and Small Enterprises
Facilitation Council constituted under Micro, Small and Medium
Enterprises Development Act, 2006 (hereinafter referred to as 'the
MSMED Act'). The earlier IDPASC Act was replaced by MSMED
Act and earlier Act was repealed. As the conciliation failed, the
claims made by the appellants herein were referred to arbitration
under provisions of the Arbitration Act. The awards were passed
in favour of the claimants and such awards were challenged by
way of applications for setting aside the same under Section 34 of
the Arbitration Act. The said application filed by the
respondent before the Supreme Court was opposed by the
appellant mainly on the ground that it has already moved the
Micro and Small Enterprises Facilitation Council for resolution of
disputes, as such, the respondent as well participated in the
proceedings before the Council, prayed for dismissal of application
filed under Section 11(6) of the Arbitration Act. Before the High
Court, the case of the respondent was that the Facilitation
.
Council has been constituted primarily to deal with the disputes
that are raised by the supplier and does not envisage the laying of
counter claim by other party to a contract, as such it can seek
appointment of arbitrator under Section 11(6) of the Arbitration
Act. The High Court, while considering the definition of 'supplier'
under Section 2(n) of MSMED Act and also by placing reliance on
Section 17 and 18 of MSMED Act, allowed the application and
appointed the 2nd arbitrator.
18. It was against the backdrop of above mentioned facts
that the Supreme Court held that Section 23 (2A) of the
Arbitration Act inserted by amendment gives rights to the
respondents to submit counter claim and plead set off with regard
to arbitration agreement that would be applicable in view of
Section 18 (3) of the MSMED Act which clearly provides that
where the conciliation initiated under subSection (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 to it 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 dispute as if the arbitration was in
pursuance of an arbitration agreement referred to in subsection
(1) of section 7 of that Act. The Supreme Court held that if the
counterclaim made by the buyer in the proceedings arising out of
claims made by the seller is not allowed, it may lead to parallel
proceedings before the various fora. On one hand, in view of
beneficial legislation, seller may approach the Facilitation Council
for claims, in the event of failure of payment by the buyer under
provisions of MSMED Act, at the same time, if there is no
separate agreement between the parties for any arbitration in a
given case, buyer may approach the civil court for making claims
against the seller, or else if there is an agreement between the
parties for arbitration in the event of dispute between the parties,
parties may seek appointment of arbitrator. At the same time if
the seller is covered by definition under micro, small and medium
enterprises, seller may approach the Facilitation Council for
making claims under the provisions of MSMED Act. In such
event, it may result in conflicting findings, by various Foras.
19. As regards the aspect with which we are concerned in
the present case, the Supreme Court in Silpi Industries, supra
.
observed that when the seller approached the Facilitation Council
making certain claims against the buyer, and the buyer after his
appearance, approached the High Court under Section 11(6) of the
Arbitration Act for appointment of arbitrator on the ground that
there is an agreement between the parties for arbitration. Though
it was pleaded before the High Court by the appellant that it has
already approached the Facilitation Council where the
proceedings are pending, the respondent as well contest the
proceedings and also lay its counterclaim, the High Court has
rejected such plea on the ground that the MSMED Act primarily
deals with the claims of the seller only. The High Court held that
as the buyer cannot make counterclaim, the proceedings cannot
be proceeded with before the Council under MSMED Act and
accordingly ordered by appointing second arbitrator. In those
facts, the Supreme Court held that the provisions of Sections 15 to
23 of the Act are given overriding effect notwithstanding anything
inconsistent therewith contained in any other law for the time
being in force. From the Statement of Objects and Reasons also it
is clear that it is a beneficial legislation to the small, medium and
micro sector. The Arbitration and Conciliation Act, 1996 is a
.
general law whereas the Micro, Small and Medium Enterprises
Development Act, 2006 is a special beneficial legislation which is
intended to benefit micro, small and medium enterprises covered
by the said Act. The MSMED Act contemplates a statutory
arbitration when conciliation fails. A party, which is covered by
the provisions of MSMED Act, allows a party to apply to the
Council constituted under the Act to first conciliate and then
arbitrate on the dispute between it and other parties. There are
fundamental differences in the settlement mechanism under the
MSMED Act and the Arbitration Act. The first difference is, the
Council constituted under the MSMED Act to undertake
mandatory conciliation before the arbitration which is not so
under the Arbitration Act. Secondly, in the event of failure of
conciliation under the MSMED Act, the Council or the centre or
institution is identified by it for arbitration. The Arbitration Act
allows resolution of disputes by agreed forum. The third difference
is that, in the event of award in favour of seller and if the same is
to be challenged, there is a condition for predeposit of 75% of the
amount awarded. Such is not the case in the Arbitration Act.
When such beneficial provisions are there in the special
.
enactment, such benefits cannot be denied on the ground that
counterclaim is not maintainable before the Council. In any case,
if this was to be allowed whenever buyer wishes to avoid the
jurisdiction of the Council, the buyer can do on the spacious plea
of counterclaim, without responding to the claims of the seller
which it cannot do in view of the provisions of Sections 15 to 23
which are given overriding effect under Section 24 of the Act. The
relevant observations in para 23 of the judgment read as under:
"23.The obligations of the buyer to make payment, and
award of interest at three times of the bank rate notified
by Reserve Bank in the event of delay by the buyer and
the mechanism for recovery and reference to Micro and
Small Enterprises Facilitation Council and further
remedies under the 2006 Act for the party aggrieved by
the awards, are covered by Chapter V of the 2006 Act.
The provisions of Section 15 to 23 of the Act are given
overriding effect notwithstanding anything inconsistent
therewith contained in any other law for the time being
in force. From the Statement of Objects and Reasons
also it is clear that it is a beneficial legislation to the
small, medium and micro sector. The Arbitration and
Conciliation Act, 1996 is a general law whereas the
Micro, Small and Medium Enterprises Development Act,
2006 is a special beneficial legislation which is intended
.
to benefit micro, small and medium enterprises covered
by the said Act. The Act of 2006 contemplates a statutory
arbitration when conciliation fails. A party which is
covered by the provisions of 2006 Act allows a party to
apply to the Council constituted under the Act to first
conciliate and then arbitrate on the dispute between it
and other parties. There are fundamental differences in
the settlement mechanism under the 2006 Act and the
1996 Act. The first difference is, the Council constituted
under the 2006 Act to undertake mandatory conciliation
before the arbitration which is not so under the 1996
Act. Secondly, in the event of failure of conciliation
under the 2006 Act, the Council or the centre or
institution is identified by it for arbitration. The 1996
Act allows resolution of disputes by agreed forum. The
third difference is that, in the event of award in favour
of seller and if the same is to be challenged, there is a
condition for predeposit of 75% of the amount awarded.
Such is not the case in the 1996 Act. When such
beneficial provisions are there in the special enactment,
such benefits cannot be denied on the ground that
counterclaim is not maintainable before the Council. In
any case, whenever buyer wish to avoid the jurisdiction
of the Council, the buyer can do on the spacious plea of
counterclaim, without responding to the claims of the
seller. When the provisions of Sections 15 to 23 are given
.
overriding effect under Section 24 of the Act and further
the 2006 Act is a beneficial legislation, we are of the view
that even the buyer, if any claim is there, can very well
subject to the jurisdiction before the Council and make
its claim/ counter claim as otherwise it will defeat the
very objects of the Act which is a beneficial legislation to
micro, small and medium enterprises. Even in cases
where there is no agreement for resolution of disputes by
way of arbitration, if the seller is a party covered by
Micro, Small and Medium Enterprises Development Act,
2006, if such party approaches the Council for resolution
of dispute, other party may approach the civil court or
any other forum making claims on the same issue. If two
parallel proceedings are allowed, it may result in
conflicting findings. At this stage, it is relevant to notice
the judgment of this Court in the case of Edukanti
Kistamma (Dead) through LRs. v. S. Venkatareddy
(Dead) through LRs. & Ors., 2010 1 SCC 756 where this
Court has held that a special Statute would be preferred
over general one where it is beneficial one. It was
explained that the purport and object of the Act must be
given its full effect by applying the principles of
purposive construction. Thus, it is clear that out of the
two legislations, the provisions of MSMED Act will
prevail, especially when it has overriding provision
under Section 24 thereof. Thus, we hold that MSMED
.
Act, being a special Statute, will have an overriding
effect vis vis Arbitration and Conciliation Act, 1996,
which is a general Act. Even if there is an agreement
between the parties for resolution of disputes by
arbitration, if a seller is covered by Micro, Small and
Medium Enterprises Development Act, 2006, the seller
can certainly approach the competent authority to make
its claim. If any agreement between the parties is there,
same is to be ignored in view of the statutory obligations
and mechanism provided under the 2006 Act. Further,
apart from the provision under Section 23(2A) of the
1996 Act, it is to be noticed that if counterclaim is not
permitted, buyer can get over the legal obligation of
compound interest at 3 times of the bank rate and the
"75% predeposit" contemplated under Sections 16 and
19 of the MSMED Act."
20. The judgment of the Supreme Court in Jharkhand
Urja Vikas Nigam Limited, supra, relied by the learned counsel
for the petitioner is distinguishable on facts as well as law and
does not provide any help to the petitioner. The respondents in
that case approached the Rajasthan Micro and Small Enterprises
Facilitation Council, claiming an amount of Rs.74,74,041/
towards the principal amount of bills and an amount of
.
Rs.91,59,705.02 paise towards interest. On the ground that
the appellant has not responded to earlier notices, the
Council issued summons dated 18.07.2012 for appearance of
the appellant before the Council on 06.08.2012. Only on the
ground that on 06.08.2012 the appellant has not appeared,
the order dated 06.08.2012 was passed by the Council
directing the appellant to make the payment to the 3 rd
respondent, as claimed, within a period of thirty days from
the date of the order. The Supreme Court held that the order
dated 6.8.2012 was nullity and quashed and set aside the same.
The Supreme Court held that from a bare perusal of Section 18(2)
and 18(3) of the MSMED Act, it is clear that the Council is obliged
to conduct conciliation for which the provisions of Sections 65 to
81 of the Arbitration and Conciliation Act, 1996 would apply, as if
the conciliation was initiated under Part III of the said Act. Under
Section 18(3), when conciliation fails and stands terminated, the
dispute between the parties can be resolved by arbitration. The
Council is empowered either to take up arbitration on its own or
to refer the arbitration proceedings to any institution as specified
.
in the said Section. It is open to the Council to arbitrate and pass
an award, after following the procedure under the relevant
provisions of the Arbitration and Conciliation Act, 1996,
particularly Sections 20, 23, 24, 25. The Supreme Court further
held that there is a fundamental difference between conciliation
and arbitration. In conciliation, the conciliator assists the parties
to arrive at an amicable settlement, in an impartial and
independent manner. In arbitration, the Arbitral Tribunal/
arbitrator adjudicates the disputes between the parties. Further,
if the appellant had not submitted its reply at the conciliation
stage, and failed to appear, the Facilitation Council, at best, could
have recorded the failure of conciliation and proceeded to initiate
arbitration proceedings in accordance with the relevant provisions
of the Arbitration and Conciliation Act, 1996, to adjudicate the
dispute and make an award. The Facilitation Council in that
case, however, has passed the order/award dated 6.8.2012
directing the Jharkhand State Electricity Board to pay the
amount claimed by the respondents/suppliers which clearly shows
that it did not initiate arbitration proceedings in accordance with
the relevant provisions of the Arbitration and Conciliation Act,
.
1996. The order dated 6.8.2012 was thus held to be nullity being
not only contrary to the to the provisions of Rajasthan Micro and
Small Enterprises Facilitation Council Act but contrary to various
mandatory provisions of Arbitration and Conciliation Act, 1996.
Such are not the facts of the present case. The judgment in
Jharkhand Urja Vikas Nigam Limited, supra, cited by the
learned counsel for the petitioner is distinguishable on facts and
ratio thereof does not apply to the present matters.
21. The judgments cited by the learned counsel for
respondents in Bhavan construction case supra and Madhya
Pradesh High Court authored by one of us (Justice Mohammad
Rafiq, Chief Justice), may not be applicable to the facts of the
present case because what is under challenge in both the present
petitions is not an interlocutory or interim order passed by the
Arbitral Tribunal but the order dated 6.5.2017 by which the
Facilitation Council appointed the sole arbitrator in each of the
cases. Therefore, it is basically the order passed by the
Facilitation Council making reference of arbitration to the
arbitrator appointed by it under Section 18 (3), which is under
challenge and not any interlocutory order passed by the Arbitral
.
Tribunal which was the issue before the Supreme Court in
Bhaven construction case and Division Bench of the Madhya
Pradesh High Court in both of which reliance was placed on an
earlier judgment of the Supreme Court in M/s Deep Industries
Ltd vs. Oil and Natural Gas Corporation Ltd. (2019) SCC
OnLIne SC 1602. in which it was held that Arbitration Act is a
self contained code dealing with every aspect of arbitration. The
legislative policy in consolidating all the laws relating to domestic
arbitration, international commercial arbitration, enforcement of
foreign arbitral awards is aimed at ensuring not only speedy
disposal of arbitration cases but also timely execution of the
awards. Section 16(2) of the Arbitration Act stipulates that a
plea that the Arbitral Tribunal does not have jurisdiction shall be
raised not later than the submission of the statement of defence;
however, a party shall not be precluded from raising such a plea
merely because that he has appointed, or participated in the
appointment of, an arbitrator. Subsection (5) of Section 16
provides that the Arbitral Tribunal shall decide on a plea referred
to in sub Section (2) or subSection (3) and, where the Arbitral
Tribunal takes a decision rejecting the plea, continue with the
.
arbitral proceedings and make an arbitral award. The language
employed by the Parliament in this subSection thus makes its
intention clear that once if the Arbitral Tribunal takes a decision
to reject the plea, it shall continue with the arbitral proceedings
and make an arbitral award. It cannot however be said for this
that the aggrieved party has been left remediless against the
rejection of its objection as to the jurisdiction of the arbitral
tribunal. The only thing is that its remedy has been deferred till
the stage of Section 34 of the Arbitration Act arises as is evident
from sub Section (6) of Section 16 of the Arbitration Act, which
inter alia provides that the parties aggrieved by such an arbitral
award may make an application for setting aside such an arbitral
award in accordance with Section 34. This is also evident from section
37 (2) of the Arbitration Act which, vide its subClause (a), while
providing for an appeal to a Court from an order of the Arbitral
Tribunal accepting the plea referred to in subSection (2) or subSection
(3) of Section 16, purposely does not provide for an appeal against an
order of the Arbitral Tribunal rejecting the plea referred to in sub
Section (2) or subSection (3) of Section 16 rejecting such objections.
22. In view of the above discussion, both the writ petitions fail
and are hereby dismissed, with however liberty to the petitioner to
.
avail their remedy against the award passed by the Arbitrator in
accordance with the provisions of Section 34 and Section 37 of the
Arbitration Act in accordance with law. With the dismissal of writ
petitions, the interim orders passed therein also stand vacated. There
shall be no order as to costs.
23.
disposed of.
r to
Pending miscellaneous applications, if any, shall also stand
(Mohammad Rafiq)
Chief Justice
(Jyotsna Rewal Dua)
Judge
January 05, 2022
(cm Thakur)
