Karnataka High Court

M/S. Atc Telecom Infrastructure Pvt. ... vs The State Of Karnataka on 1 August, 2024

Author: M.G.S. Kamal

Bench: M.G.S. Kamal

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                                                     WP No. 49974 of 2017
                                                 C/W WP No. 49814 of 2017
                                                     WP No. 49975 of 2017
                                                             AND 1 OTHER


               IN THE HIGH COURT OF KARNATAKA AT BENGALURU

                      DATED THIS THE 1ST DAY OF AUGUST, 2024

                                        BEFORE
                       THE HON'BLE MR JUSTICE M.G.S. KAMAL
                    WRIT PETITION NO. 49974 OF 2017 (GM-RES)
                                          C/W
                    WRIT PETITION NO. 49814 OF 2017 (GM-RES)
                    WRIT PETITION NO. 49975 OF 2017 (GM-RES)
                    WRIT PETITION NO. 49976 OF 2017 (GM-RES)

               IN WRIT PETITION NO.49974/2017

               BETWEEN:
                  M/S. ATC TELECOM INFRASTRUCTURE PVT. LTD.,
                  (FORMERLY VIOM NETWORKS LIMITED),
                  HAVING ITS CIRCLE OFFICE AT
                  HM TOWERS, 1ST FLOOR,
                  MAGRATH ROAD JUNCTION,
                  BRIGADE ROAD, ASHOK NAGAR,
                  BENGALURU-560 001,
Digitally
signed by           REPRESENTED BY ITS CIRCLE HEAD,
SUMA B N            MR. ANIL PRASAD.
Location:                                                      ...PETITIONER
High Court     (BY SRI. ASHOK HARANAHALLI SENIOR COUNSEL FOR
of Karnataka       SRI. PRASANNA KUMAR P., ADVOCATE)

               AND:

               1.   THE STATE OF KARNATAKA
                    BY ITS SECRETARY,
                    DEPARTMENT OF INDUSTRIES AND COMMERCE,
                    NO.49, 2ND FLOOR,
                    SOUTH BLOCK, KHANIJA BHAVAN,
                    RACE COURSE ROAD,
                    BANGALORE-560 001.
                              -2-
                                          NC: 2024:KHC:30452
                                       WP No. 49974 of 2017
                                   C/W WP No. 49814 of 2017
                                       WP No. 49975 of 2017
                                               AND 1 OTHER


2.   THE DIRECTORATE OF INDUSTRIES AND COMMERCE
     BY ITS ADDITIONAL DIRECTOR (MSME),
     NO.49, 2ND FLOOR,
     SOUTH BLOCK, KHANIJA BHAVAN,
     RACE COURSE ROAD,
     BANGALORE-560 001.

3.   MV COMMUNICATION
     HAVING ITS REGISTERED OFFICE AT
     NO.323, MV HOUSE, 13TH MAIN, 18TH CROSS,
     NARAYANA NAGAR, 1ST BLOCK, BOOHBCS,
     KANAKPURA MAIN ROAD,
     DODDAKALLASANDRA POST,
     BENGALURU-560 060.
                                                ...RESPONDENTS
(BY SRI. RAGHAVENDRA S.H. AGA FOR R1 AND R2;
    SRI. PRAKASH M.H., ADVOCATE FOR R3)

     THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
ENTIRE PROCEEDINGS IN CASE NO.12/2017 PENDING ON THE FILE
OF THE MICRO, SMALL ENTERPRISES FACILIATION COUNCIL, R-2
HEREIN [PRODUCED VIDE ANNEXURE-L].

IN WRIT PETITION NO. 49814 OF 2017

BETWEEN:
   M/S. ATC TELECOM INFRASTRUCTURE PVT. LTD.,
   (FORMERLY VIOM NETWORKS LIMITED)
   HAVING ITS CIRCLE OFFICE AT
   HM TOWERS, 1ST FLOOR,
   MAGRATH ROAD JUNCTION,
   BRIGADE ROAD, ASHOK NAGAR,
   BENGALURU-560 001,

     REPRESENTED BY ITS CIRCLE HEAD,
     MR. ANIL PRASAD, AGED ABOUT 51 YEARS
                                                  ...PETITIONER
(BY SRI. ASHOK HARANAHALLI SENIOR COUNSEL FOR
    SRI. PRASANNA KUMAR P., ADVOCATE)

AND:
1. THE STATE OF KARNATAKA
   BY ITS SECRETARY,
   DEPARTMENT OF INDUSTRIES AND COMMERCE,
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                                          NC: 2024:KHC:30452
                                       WP No. 49974 of 2017
                                   C/W WP No. 49814 of 2017
                                       WP No. 49975 of 2017
                                               AND 1 OTHER


     NO.49, 2ND FLOOR,
     SOUTH BLOCK, KHANIJA BHAVAN,
     RACE COURSE ROAD,
     BANGALORE-560 001.

2.   THE DIRECTORATE OF INDUSTRIES AND COMMERCE
     BY ITS ADDITIONAL DIRECTOR (MSME),
     NO.49, 2ND FLOOR,
     SOUTH BLOCK, KHANIJA BHAVAN,
     RACE COURSE ROAD,
     BANGALORE-560 001.

3.   KMC ENTERPRISES
     HAVING ITS REGISTERED OFFICE AT
     90/2A, VIDYAPEETHA MAIN ROAD,
     KENGERI KOTTE ROAD,
     BENGALURU-560 060
     REPRESENTED BY ITS AUTHORISED REPRESENTATIVE

                                               ...RESPONDENTS
(BY SRI. RAGHAVENDRA S.H. AGA FOR R1 AND R2;
    SRI. SANDESH C.R., ADVOCATE FOR
    SRI. D.S. JAYARAJ, ADVOCATE FOR R3)

     THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
ENTIRE PROCEEDINGS IN CASE NO.9/2017 PENDING ON THE FILE
OF THE MICRO, SMALL ENTERPRISES FACILIATION COUNCIL, R-2
HEREIN [PRODUCED VIDE ANNEXURE-M]

IN WP.NO. 49975/2017

BETWEEN:

     M/S. ATC TELECOM INFRASTRUCTURE PVT. LTD.,
     (FORMERLY VIOM NETWORKS LIMITED),
     HAVING ITS CIRCLE OFFICE AT
     HM TOWERS, 1ST FLOOR,
     MAGRATH ROAD JUNCTION,
     BRIGADE ROAD, ASHOK NAGAR,
     BENGALURU-560 001,

     REPRESENTED BY ITS CIRCLE HEAD,
     MR. ANIL PRASAD.
                                                  ...PETITIONER
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                                          NC: 2024:KHC:30452
                                       WP No. 49974 of 2017
                                   C/W WP No. 49814 of 2017
                                       WP No. 49975 of 2017
                                               AND 1 OTHER


(BY SRI. ASHOK HARANAHALLI SENIOR COUNSEL FOR
    SRI. PRASANNA KUMAR P., ADVOCATE)

AND:

1.   THE STATE OF KARNATAKA
     BY ITS SECRETARY,
     DEPARTMENT OF INDUSTRIES AND COMMERCE,
     NO.49, 2ND FLOOR,
     SOUTH BLOCK, KHANIJA BHAVAN,
     RACE COURSE ROAD,
     BANGALORE-560 001.

2.   THE DIRECTORATE OF INDUSTRIES AND COMMERCE
     BY ITS ADDITIONAL DIRECTOR (MSME),
     NO.49, 2ND FLOOR,
     SOUTH BLOCK, KHANIJA BHAVAN,
     RACE COURSE ROAD,
     BANGALORE-560 001.

3.   MS INFRA SERVICES PRIVATE LIMITED
     HAVING ITS REGISTERED OFFICE AT
     NO.323, MV HOUSE, 13TH MAIN, 18TH CROSS,
     NARAYANA NAGAR, 1ST BLOCK BOOHBCS,
     KANAKPURA MAIN ROAD,
     DODDAKALLASANDRA POST,
     BENGALURU-560 060.
     REP. BY ITS AUTHORISED REPRESENTATIVE.
                                                ...RESPONDENTS
(BY SRI. RAGHAVENDRA S.H. AGA FOR R1 AND R2;
    SRI. PRAKASH M.H., ADVOCATE FOR R3)

     THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
ENTIRE PROCEEDINGS IN CASE NO.11/2017 PENDING ON THE FILE
OF THE MICRO, SMALL ENTERPRISES FACILIATION COUNCIL, R-2
HEREIN [PRODUCED VIDE ANNEXURE-L]

IN WP NO. 49976/2017

BETWEEN:

1.   M/S. ATC TELECOM INFRASTRUCTURE PVT. LTD.,
     (FORMERLY VIOM NETWORKS LIMITED),
     HAVING ITS CIRCLE OFFICE AT
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                                      WP No. 49974 of 2017
                                  C/W WP No. 49814 of 2017
                                      WP No. 49975 of 2017
                                              AND 1 OTHER


     HM TOWERS, 1ST FLOOR,
     MAGRATH ROAD JUNCTION,
     BRIGADE ROAD, ASHOK NAGAR,
     BENGALURU-560 001,

     REPRESENTED BY ITS CIRCLE HEAD,
     MR. ANIL PRASAD.
                                                ...PETITIONER
(BY SRI. ASHOK HARANAHALLI SENIOR COUNSEL FOR
    SRI. PRASANNA KUMAR P., ADVOCATE)

AND:
1. THE STATE OF KARNATAKA
   BY ITS SECRETARY,
   DEPARTMENT OF INDUSTRIES AND COMMERCE,
   NO.49, 2ND FLOOR, SOUTH BLOCK,
   KHANIJA BHAVAN, RACE COURSE ROAD,
   BANGALORE-560 001.

2.   THE DIRECTORATE OF INDUSTRIES AND COMMERCE
     BY ITS ADDITIONAL DIRECTOR (MSME),
     NO.49, 2ND FLOOR, SOUTH BLOCK,
     KHANIJA BHAVAN, RACE COURSE ROAD,
     BANGALORE-560 001.

3.   M/S. CHAITANYA ELECTRICALS
     HAVING ITS REGISTERED OFFICE AT NO.24,
     KANNURAMMA LAYOUT,
     KANNURAMMA TEMPLE RAOD,
     DEVINAGAR, RMV 2ND STAGE,
     BANGALORE-560 094.
     REP. BY ITS AUTHORISED REPRESENTATIVE.
                                             ...RESPONDENTS
BY SRI. RAGHAVENDRA S.H. AGA FOR R1 AND R2;
   SRI. HEMANTH BHARADWAJ ADVOCATE FOR
   SRI. SARAVANA S., ADVOCATE FOR R3(VK NOT FILED)

     THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
ENTIRE PROCEEDINGS IN CASE NO.10/2017 PENDING ON THE FILE
OF THE MICRO, SMALL ENTERPRISES FACILIATION COUNCIL, R-2
HEREIN [PRODUCED VIDE ANNEXURE-N]
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                                            WP No. 49974 of 2017
                                        C/W WP No. 49814 of 2017
                                            WP No. 49975 of 2017
                                                    AND 1 OTHER


       THESE PETITIONS, COMING ON FOR PRELIMINARY HEARING
IN 'B' GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

CORAM:      HON'BLE MR JUSTICE M.G.S. KAMAL
                          ORAL ORDER

Common petitioner in these petitions is before this Court

seeking quash of proceedings in case Nos.12/2017, 9/2017,

11/2017, 10/2017 filed by the private respondents before the

Micro and Small Enterprises Facilitation Council (hereinafter

referred as 'the Council'), invoking the provisions of The Micro,

Small and Medium Enterprises Development Act, 2006

(hereinafter referred as 'the Act, 2006').

2. Sri.Ashok Haranhalli, learned senior counsel appearing

for Sri.Prasanna Kumar P, learned counsel for the petitioner

taking this Court through the petition averments and the

Annexures enclosed therewith submits that the petitioner is

before this Court seeking quash of above proceedings on four

primary grounds:

(i). That the facts involved in the matter are

ridden with the tales of fraud, mischief and

misrepresentation, preceded with filing of criminal

complaints resulting in filing of the charge sheet

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against some of the employees of the petitioner

as well as the employees and Managing Directors

of the private respondents pertaining to the very

same transactions over which claims and counter

claims have been made by the parties. As such

the Council is incompetent to deal with the same.

(ii). That a suit in O.S.No.3436/2015 has already

been initiated by the petitioner against the private

respondents seeking recovery of the amounts

which were received by the private respondents

fraudulently on the basis of fabricated invoices.

(iii). That the respondent who appeared in the

said suit have not whispered anything about their

entitlement of seeking remedy under the

provisions of the Act, 2006 by filing necessary

application under Section 8 as contemplated

under the Arbitration and Conciliation Act, 1996.

That being so, they have forfeited their right to

pursue the remedy before the Micro and Small

Enterprises Facilitation Council.

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(iv). That even on merits the transaction

pertaining to the period between the years 2012

and 2014 and that the private respondents had

not even registered themselves as Small Scale

industries as mandatorily required under the

provisions of the Act, 2006. Thereby the Council

lacks complete jurisdiction.

3. In support of these primary grounds learned senior

counsel appearing for the petitioner relied upon following

judgments:

(1). Gujarat State Civil Supplies Corporation Limited Vs. Mahakali Foods (P) Limited reported in (2023) 6 SCC 401.

(2). United Machinery and Appliances Vs. Greaves Cotton Limited reported in (2024) SCC Online Cal 2802.

(3). Vidya Drolia and Others Vs. Durga Trading Corporation reported in (2021) 2 SCC 1.

4. Thus he submits that the law with regard to

maintainability/entertainability of the dispute which involved

consideration of allegation of fraud, completely bars the

jurisdiction of the Arbitration/Tribunal/Council, as that of the

respondent No.2 and therefore, coercing the petitioner to

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submit itself to the jurisdiction is an exercise in futility. Hence,

seeks for allowing of the petitions.

5. In response, Sri.Prakash M.H, learned counsel for the

private respondents submit that:

(i) The proceedings before the Micro and Small

Enterprises Facilitation Council has been initiated by them on

18.04.2017 and the suit in question was filed by the petitioner

on 11.04.2017, that is, much prior to receipt of any

notice/summons in the suit.

(ii) That the petitioner herein has submitted itself the

jurisdiction of the Council by filing detailed statement of

objections, in that apart from denying the claim of the

petitioner they have also raised issue of jurisdiction and also

issue with regard to maintainability of the proceedings on the

count of respondents not having qualified themselves to avail

the remedies under the said Act, 2006.

(iii) As regards the consideration of allegation of fraud, it

is submitted that it is for the Council to decide, considering the

material/pleading made available by the parties, whether or

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not it has jurisdiction to proceed with the matter and since the

petitioner has already raised this issue, without even waiting

for the adjudication on the issue of jurisdiction, has rushed to

this Court which is premature in nature.

6. Referring to the judgment of the Apex in the case of

Gujarat State Civil Supplies Corporation Limited, learned

counsel for the respondents submits that even the issue with

regard to whether or not private respondents fit into the

definition of "supplier" also required to be considered by the

Council as it is a mixed question of fact and law and cannot be

gone into in the Writ proceedings. Hence, seeks for dismissal

of the Petition.

7. Sri.S.H.Raghavendra, learned AGA appearing for the

respondent Nos.1 and 2 justifying the proceeding initiated

before the Council submits that the Council which is an

instrumentality of the state is exercising its jurisdiction strictly

in terms of Sections 18 and 21 of the Act, 2006 and it has

jurisdiction to decide even on the issue of maintainability and

the same cannot be gone into in the Writ proceedings. Hence,

seeks for dismissal of the Petition.

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8. Heard and perused the records.

9. The primary ground on which the petitioner is before

this Court is that the claim being made by the Private

respondents is based on the forged and fabricated invoices

which were allegedly prepared in collusion with its own

employees and that the petitioner has initiated criminal

proceedings punishable for the offences under various sections

of Indian Penal Code and that the charge sheet in this regard

has already been filed and the said matter is pending

consideration. That a suit in O.S.No.3436/2015 is filed by the

petitioner seeking recovery of the certain amounts against the

private respondents on the premise of petitioner having been

made to pay the said amount on the basis of false and

fabricated documents. Thus there is no doubt, there seems to

be serious allegations and counter allegations with regard to

fabrication, fraud and forgery of the documents. The said

allegations have been reiterated in the statement of objections

which is already filed before the Council. Question of

arbitrability of dispute involving serious allegations of fraud

and forgery is no more res integra. Such allegations or the

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case involving consideration of such allegations, no doubt

excludes the jurisdiction of Arbitral Tribunal as it is not

competent to deal with such allegations. However, such

decision on jurisdiction and maintainability needs to be taken

by the Arbitral Tribunal which is seized of the matter

considering the allegation made in the pleadings before it,

which stage admittedly has not reached before the Council in

this matter yet.

10. As regards the maintainability of the claim petition by

the respondents for want of they qualifying themselves to be

called as ''Suppliers'' as defined under Section 2(n) of the Act,

2006 on the ground of they purportedly not complying Section

8 of the Act, 2006 as contended by the learned senior counsel

appearing for the petitioner, is concerned the same is a mixed

question of law and fact, which needs to be considered based

on requirement and conditions contemplated under Section 8

of the Act, 2006. The said mixed question of fact and law

cannot be gone into in the proceedings under Article 226 of the

Constitution of India.

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11. As rightly pointed out by the learned Counsel

appearing for the respondents the judgment of the Apex Court

in the case of Gujarat State Civil Supplies Corporation

Limited (Supra) at paragraph No.51 is held as under:

"51. Following the abovestated ratio, it is held that a party who was not the "supplier" as per Section 2(n) of the MSMED Act, 2006 on the date of entering into the contract, could not seek any benefit as a supplier under the MSMED Act, 2006. A party cannot become a micro or small enterprise or a supplier to claim the benefit under the MSMED Act, 2006 by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods or rendering services. If any registration is obtained subsequently, the same would have the effect prospectively and would apply for the supply of goods and rendering services subsequent to the registration. The same cannot operate retrospectively. However, such issue being jurisdictional issue, if raised could also be decided by the Facilitation Council/Institute/Centre acting as an d Arbitral Tribunal under the MSMED Act, 2006."

Thus, the Council is also not having any legal

impediment to adjudicate on this issue as well.

12. As regards the contention of petitioner filing the suit

and the respondents not filing application under Section 8 of

the Arbitration and Conciliation Act, 1996 is concerned, on a

query by this Court, it was clarified that the suit filed by the

petitioner is based on the allegation of fabricated invoices and

not based on any agreement containing arbitration clause. On

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the other hand, the claim being raised by the respondent

before the Council is on the basis of they claiming to be the

"suppliers" within the meaning of Act, 2006 and in view of the

statutory/fictional arbitration-provided under Section 18 of the

Act, 2006.

13. For the aforesaid reasons and analysis, without

expressing any view on the merits and demerits of the claim

being made by the parties, this Court is of the considered view

that matter may be remitted to the Council to first adjudicate

on the following issues before proceeding further in the

matter:

(i). Whether in view of the allegations made by the petitioner of fraud, fabrication and collusion, can the Council proceed further in the matter in the light of the judgment of the Apex Court in the case of Vidya Drolia and Others Vs. Durga Trading Corporation reported in (2021) 2 SCC 1?

(ii). Whether or not the respondents qualify themselves to be the "Suppliers" within the meaning of Section 2(n) of the Act 2006 and to seek remedies as provided under the Act, 2006?

14. The Council shall determine these issues after

affording sufficient opportunity to the parties, keeping open all

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contentions to be urged including the contention with regard to

respondents not seeking leave by filing application under

Section 8 of the Arbitration and Conciliation Act, 1996, within

period of 60 (Sixty) days from the date of receipt of certified

copy of this order.

15. With the above observation, petitions are disposed

of.