Madhya Pradesh High Court
Jabalpur Treasure Island Pvt. ... vs State Of M.P. Through Department ... on 30 December, 2021
Author: Subodh Abhyankar
1
WP No.369/2020
THE HIGH COURT OF MADHYA PRADESH,
INDORE BENCH
Single Bench: Hon'ble Shri Justice Subodh Abhyankar
Writ Petition No.369/2020
(Jabalpur Treasure Island Pvt. Ltd. & others v. State of Madhya Pradesh & others)
1 Case No. Writ Petition No.369/2020
2 Parties Name Jabalpur Treasure Island Pvt. Ltd. & others
Versus
State of Madhya Pradesh and others
3 Date of Order 30th of December, 2021
4 Bench constituted of Single Bench
Hon'ble Justice Hon'ble Shri Justice Subodh Abhyankar
5 Order passed by Hon'ble Shri Justice Subodh Abhyankar
6 Whether approved for Yes
reporting
7 Name of counsel for the Shri Vishal Baheti, learned counsel for the
parties petitioner.
Shri Sameer Verma, learned Panel Lawyer for
respondents No.1, 4 and 5 / State of Madhya
Pradesh.
Shri Yogesh Bhatnagar, learned counsel for
respondent No.3 / Sanfield India Limited.
8 Law laid down 1. A harmonious reading of sub-section (2), (3)
and (4) of S.18 of MSMED Act, 2006 clearly
reveals that even if the Facilitation council has
acted as a Conciliator, it can still act as an
Arbitrator as provided u/s.18(4) of MSMED Act,
2006.
2. Once a notice is served on a party under s.18 of
the MSME Act, it would hold good for
Conciliation proceedings as also the Arbitration
proceedings to be taken up by the Facilitation
Council, after the Conciliation proceedings have
failed and no separate notice is required to be
served by the Council for initiation of Arbitration
proceedings.
9 Judgments relied upon 1. M/s. Cummins Technologies India Private
Limited v. Micro and Small Enterprises
Facilitation Council and Others, (2020) 143
ALR 71;
2
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2. Best Towers Private Limited v. Reliance
Communications Limited, (2019) AIR (Patna)
85;
3. Bhaven Construction through Authorized
Signatory Premjibhai K. Shah v. Executive
Engineer Sardar Sarovar Narmada Nigam
Limited and another, (2021) 1 SCALE 327; and
4. Goodyear India Limited vs. Norton Intech
Rubbers (P) Ltd. and Ors., (2012) 6 SCC 345.
10 Significant paragraph 14, 16, 17, 18 & 20
ORDER
(Case was heard on 30.11.2021)
Post for
30.12.2021
(SUBODH ABHYANKAR)
JUDGE
rcp
WP No.369/2020
High Court of Madhya Pradesh, Jabalpur
Bench at Indore
Writ Petition No.369/2020
(Jabalpur Treasure Island Pvt. Ltd.
Office No.68, 2nd Floor, Juhu Supreme Shopping Centre,
Gulmohar Cross Road No.9, Juhu, Mumbai 400 049 (M.S)
Abhitap Kumar Jain s/o Shri Santosh Kumar Jain,
Age 47 years, Occupation - Service, R/o 9-A, Brajeshwari Main,
Bangali Squire, Indore - 452 001 (MP)
Narayan Khandelwal s/o Shri Kanhaiya Lal Khandelwal
Age 50 years, Occupation - Service,
R/o 1303, Scheme No.114,
Part-I, Indore - 452 001 (MP)
Yogesh Goswami s/o Late Shri R.M. Goswami,
Age - 53 years, Occupation - Service,
R/o - 201, Vaibhav Apartment, Scheme No.54,
Amitesh Nagar, Indore - 452 012 (MP)
Versus
The State of Madhya Pradesh
Through Principal Secretary,
Department of Micro Small & Medium Enterprises,
Mantralaya, Vallabh Bhawan, Bhopal (MP)
Madhya Pradesh Micro & Small Industry Facilitation Council,
Address - Industrial Secretariat, Vindhyachal Bhawan, Bhopal
Sanfield India Limited Through Director,
Mahesh Rajwani s/o Shri Mangdumal Rajwani,
Age 61 years, Occupation - Business,
Address - 31-A, D, Sector,
Industrial Area, Govindpura, Bhopal (MP)
The Collector, Indore (MP)
The Tahsildar Tahsil Kanadia,
District Indore MP)
*****
Shri Vishal Baheti, learned counsel for the petitioners.
Shri Sameer Verma, learned Panel Lawyer for respondents No.1, 4 and 5 /
State of Madhya Pradesh.
Shri Yogesh Bhatnagar, learned counsel for respondent No.3 / Sanfield
India Limited.
*****
ORDER
(Passed on this 30th day of December, 2021)
Heard on IA No.10005/2021, an application on behalf of the
respondent No.3 (Sanfield India Limited) for dismissal of the instant
writ petition for want of jurisdiction and also on availability of
efficacious alternative remedy.
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2. In brief, the facts giving rise to the present petition are that the
petitioner and respondent No.3 entered into a business transactions
with effect from 08.02.2011, regarding supply of construction
material. Subsequently, a dispute arose between the parties and
respondent No.3 filed an application under Section 18 of the Micro
Small & Medium Enterprises Development Act, 2006 (herein after
referred to as "the Act") for adjudication of the dispute (vide claim
statement dated 17.04.2015 Annexure P/5) before the Madhya
Pradesh Micro & Small Industry Facilitation Council, Bhopal (MP),
respondent No.2 (herein after referred to as "the Facilitation
Council").
3. In the aforesaid proceedings, the Facilitation Council vide its
award dated 27.12.2017 (Annexure P/7) directed the petitioners to
pay a sum of Rs.33,78,745/- (rupees thirty three lakh seventy eight
thousand seven hundred forty five only) along with penal interest of
Rs.23,07,729 (rupees twenty three lakh seven thousand seven
hundred twenty nine only) as on 15.04.2015, as well as additional
interest till the payment is made.
4. The said award dated 27.12.2017 is assailed before this Court
on the ground that the Facilitation Council, although entered into
conciliation proceedings, as provided under Section 18 of the Act,
failed to give further notice to the petitioners, after coming to a
conclusion that the conciliation proceedings have failed and as per
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the petitioners, immediately after holding that the conciliation
proceedings have failed, the Facilitation Council decided to conclude
the proceedings on the same day holding that the matter can be
decided on its merits; and passed the final award.
5. The aforesaid interlocutory application IA No.10005/2021, has
been filed by the respondent No.3 on the ground that against an
award passed under Section 18 (3) of the Act, the remedy under
Section 34 of the Arbitration and Concilliation Act, 1996 is available
which is to be filed before the appropriate District Court of
competent jurisdiction, along with 75% of the awarded amount, as a
precondition and only to circumvent the aforesaid precondition of
depositing the 75% of the awarded amount, this petition has been
filed and on this ground only, the present petition is liable to be
dismissed.
6. A reply to the aforesaid application has also been filed by the
petitioners assailing that in the present case, the Facilitation Council
has erred in not issuing notice to the petitioners, after holding that
the conciliation proceedings are not successful as provided under
Section 18 of the Act which is against the principles of natural
justice, hence the petition is maintainable.
7. Learned counsel for the petitioners has pressed upon sub-
section (3) of Section 18 of the Act which provides that if the
conciliation proceedings initiated by the Facilitation Council are not
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successful and stand terminated without any settlement between the
parties, the Council shall either itself take up the dispute for
arbitration or refer it to any institution; and in such proceedings, the
provisions of Arbitration & Conciliation Act, 1996 shall apply, as if
the dispute is in respect of the arbitration agreement itself.
8. In support of his contention, Shri Vishal Baheti, learned
counsel for the petitioners has also relied upon a decision rendered
by the Bombay High Court in the case of Gujarat State Petronet
Limited, Gujarat v. Micro and Small Enterprises Facilitation
Council, Thane and others reported as AIR 2018 Bombay 265
(paras 17, 18, 19, 21 and 23) wherein also in similar circumstances,
where after the conciliation proceedings stood terminated and the
Facilitation Council went on to arbitrate the matter, the Bombay
High Court has emphatically quashed the proceedings, holding that
after conciliation proceedings failed before the Facilitation Council,
it did not have the jurisdiction to decide the dispute, as provided
under Section 80 of the Arbitration & Conciliation Act, 1996.
Similar finding has also been given in another decision of
Patna High Court in the case of Reliance Communications
Limited, Patna (Bihar) v. State of Bihar & others reported as AIR
2018 Patna 186 (paras 22 and 24).
In addition, Shri Baheti has also submitted that the petitioners
were also not given any opportunity to present their case as soon
WP No.369/2020
after the conciliation proceedings came to an end, the matter was
fixed for passing of the final order and thus, there is a clear violation
of principles of natural justice.
9. In reply, Shri Yogesh Bhatnagar, learned counsel for
respondent No.3 has submitted that the decision rendered by the
Patna High Court has already been reversed by the Division Bench
of Patna High Court in case of Best Towers Private Limited v.
Reliance Communications Limited reported as (2019) AIR
(Patna) 85.
Shri Bhatnagar has also relied upon the following judgments: -
Bhaven Construction through Authorized Signatory Premjibhai
K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam
Limited and another reported as (2021) 1 CTC 450 = (2021) 1 JT
9 = (2021) 1 SCALE 327;
Goodyear India Limited v. Norton Intech Rubbers (P) Limited
and another reported as (2012) 2 CTC 829 = (2012) 6 SCC 345;
Decision rendered by the Supreme Court dated 29.06.2021, in the
case of M/s. Silpi Industries etc. v. Kerala State Road Transport
Corporation and another etc. in Civil Appeal No.1570-1578 of
2021 and M/s. Khyaati Engineering v. Prodigy Hydro Power
Private Limited in Civil Appeal No.1620-1622 of 2021;
TBED (India) Transformer Private Limited v. U.P. Micro and
Small Enterprises and another reported as (2020) 4 ADJ 681 =
WP No.369/2020
(2020) 3 AllLJ 243 = (2020) 3 AllWC 2220 = (2020) 142 ALR 617
= (2020) 149 RD 826;
M/s. Cummins Technologies India Private Limited v. Micro and
Small Enterprises Facilitation Council and others reported as
(2020) 10 ADJ 611 = (2020) 3 AllWC 2845 = (2020) 143 ALR 71 =
(2021) 150 RD 99;
Ballarpur Industries Limited v. Andhra Pradesh Micro, Small
Enterprises Facilitation Council reported as (2014) 5 ALT 502 =
(2014) 6 AndhLD 266;
and a judgment dated 02.11.2018 of Madhya Pradesh High Court in
the case of Fives Stein India Project Pvt. Ltd. Kolkata v. State of
MP and others in Writ Petition No.22577 of 2018.
Regarding the objection as to opportunity of hearing, it is
submitted that the petitioner was already represented by a counsel
who stopped appearing subsequently hence it cannot be said that no
opportunity of hearing was afforded to the petitioner.
It is also submitted by Shri Bhatnagar that even a writ petition
cannot be entertained by this court unless the 75% of the awarded
amount is deposited as has been held by the Supreme Court in the
case of Goodyear India Limited (supra).
10. In rebuttal, Shri Baheti has submitted that the Division Bench
of Patna High Court has passed the order on the ground that the
petitioner in that case, after filing the petition in the High Court
WP No.369/2020
under Article 226 of the Constitution of India, also filed an
application under Section 34 of the Arbitration and Conciliation Act,
1996 but no intimation was given to the High Court which was
already seized of the matter, before the final order could be passed
by the High Court and thus, it is submitted that the Division Bench
has taken note of the aforesaid supression of facts to reverse the
order passed by the Single Bench.
11. Heard learned counsel for the parties and perused the record.
12. In the considered opinion of this Court, the question that,
'whether, after the initiation of the conciliation proceedings by the
Facilitation Council, it could also take up the arbitration
proceedings between the parties, and if the answer is yes, 'whether
the petitioner was prevented from contesting the arbitration
proceedings as no separate notice was served on them of the
arbitration proceedings', have already been answered by the
Division Bench of the High Court of Patna as also of the Allahabad
High Court.
13. So far as the first issue is concerned, i.e., whether, after the
initiation of the conciliation proceedings by the Facilitation
Council, it could also take up the arbitration proceedings between
the parties, this court finds that Section 18 and 19 of the MSME Act
provides for the same which read, as under:-
"18. Reference to Micro and Small Enterprises Facilitation
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Council.-- (1) Notwithstanding anything contained in any other
law for the time being in force, any party to a dispute may, with
regard to any amount due under section 17, make a reference to
the Micro and Small Enterprises Facilitation Council.
(2) On receipt of a reference under sub-section (1), the Council
shall either itself conduct conciliation in the matter or seek the
assistance of any institution or centre providing alternate dispute
resolution services by making a reference to such an institution or
centre, for conducting conciliation and the provisions of sections
65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of
1996) shall apply to such a dispute as if the conciliation was
initiated under Part III of that Act.
(3) Where the conciliation initiated under sub-section (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 it to 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 sub-section
(1) of section 7 of that Act.
(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) Every reference made under this section shall be decided
within a period of ninety days from the date of making such a
reference.
19. Application for setting aside 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."
Section 34 of the Arbitration & Conciliation Act, 1996 reads, as
under: -
"34. Application for setting aside arbitral award.-- (1)
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Recourse to a Court against an arbitral award may be made only
by an application for setting aside such award in accordance with
sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if--
(a) the party making the application furnishes proof that--
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to
which the parties have subjected it or, failing any
indication thereon, under the law for the time being in
force; or
(iii) the party making the application was not given proper
notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case;
or
(iv) the arbitral award deals with a dispute not contemplated
by or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration: Provided that, if
the decisions on matters submitted to arbitration can be
separated from those not so submitted, only that part of
the arbitral award which contains decisions on matters not
submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of
the parties, unless such agreement was in conflict with a
provision of this Part from which the parties cannot
derogate, or, failing such agreement, was not in
accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time being
in force, or
(ii) the arbitral award is in conflict with the public policy of
India.
[Explanation 1.--For the avoidance of any doubt, it is
clarified that an award is in conflict with the public policy
of India, only if,--
(i) the making of the award was induced or affected by
fraud or corruption or was in violation of section 75
or section 81; or
(ii) it is in contravention with the fundamental policy of
Indian law; or
(iii) it is in conflict with the most basic notions of
morality or justice.
Explanation 2.--For the avoidance of doubt, the test as to
whether there is a contravention with the fundamental policy of
Indian law shall not entail a review on the merits of the dispute.]
[(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by
the Court, if the Court finds that the award is vitiated by patent
illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the
ground of an erroneous application of the law or by re-
appreciation of evidence.]
(3) An application for setting aside may not be made after three
months have elapsed from the date on which the party making
that application had received the arbitral award or, if a request
had been made under section 33, from the date on which that
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request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was
prevented by sufficient cause from making the application within
the said period of three months it may entertain the application
within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court
may, where it is appropriate and it is so requested by a party,
adjourn the proceedings for a period of time determined by it in
order to give the arbitral tribunal an opportunity to resume the
arbitral proceedings or to take such other action as in the opinion
of arbitral tribunal will eliminate the grounds for setting aside the
arbitral award.
(5) An application under this section shall be filed by a party only
after issuing a prior notice to the other party and such application
shall be accompanied by an affidavit by the applicant endorsing
compliance with the said requirement.
(6) An application under this section shall be disposed of
expeditiously, and in any event, within a period of one year from
the date on which the notice referred to in sub-section (5) is
served upon the other party."
14. A harmonious reading of sub-section (2), (3) and (4) clearly
reveals that even if the Facilitation council has acted as a Conciliator,
it can still act as an Arbitrator as provided u/s.18(4) which starts with
a non-obstante clause in the following manner:-
"(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."
15. This issue, i.e., the power of the Facilitation Council to take up
the arbitration proceedings after the failure of conciliation
proceedings, is also dealt with by the Supreme Court, in a recent
decision rendered in the case of M/s. Silpi Industries etc. v. Kerala
State Road Transport Corporation and another etc. passed in
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Civil Appeal No.1570-1578 of 2021 where the primary issue was of
limitation and right of the defendant to counter claim, had had the
occasion to reflect upon the various provisions/scheme of the Act
and in paras 18, 20 and 23 the same read as under: -
"18. With regard to first issue, namely, applicability of
Limitation Act, 1963 to the arbitration proceedings initiated under
provisions of Micro, Small and Medium Enterprises
Development Act, 2006, we need to notice certain relevant
sections of the Act. As per Section 15 of the said Act, where
supplier supplies any goods or renders any services to any buyer,
the buyer shall make payment on or before the agreed date
between the parties in writing or where there is no agreement,
before the appointed day. Section 16 deals with date from which
and rate of interest payable in the event of not making the
payment. The recovery mechanism for the amount due is covered
by Sections 17 and 18 of the said Act. If any party has a dispute
with regard to amount due under Section 17, a reference is
required to be made to the Micro and Small Enterprises
Facilitation Council. On such reference, the Council is
empowered to conduct conciliation in the matter or seek
assistance of any institution or centre providing alternate dispute
resolution services by making a reference to such institution for
conducting conciliation. If the conciliation is not successful, as
contemplated under Section 18(2) of the said Act, same stands
terminated under Section 18(3) of the said Act. Thereafter, the
Council shall either itself take up the dispute for arbitration or
refer it to any institution or centre providing alternate dispute
resolution services for such arbitration and the provisions of
Arbitration and Conciliation Act, 1996 are made applicable as if
the arbitration was in pursuance of arbitration agreement between
the parties, under sub-section (1) of Section 7 of the 1996 Act.
Applicability of Limitation Act, 1963 to the arbitrations is
covered by Section 43 of the 1996 Act. The High Court, while
referring to above-said provisions and the judgment of this Court
in the case of Andhra Pradesh Power Coordination
Committee & Ors. v. Lanco Kondapalli Power Ltd. & Ors.
(2016) 3 SCC 468 has held that the Limitation Act, 1963 is
applicable to the arbitrations covered by Section 18(3) of the
2006 Act. A reading of Section 43 itself makes it clear that the
Limitation Act, 1963 shall apply to the arbitrations, as it applies
to proceedings in court. When the settlement with regard to a
dispute between the parties is not arrived at under Section 18 of
the 2006 Act, necessarily, the Micro and Small Enterprises
Facilitation Council shall take up the dispute for arbitration under
Section 18(3) of the 2006 Act or it may refer to institution or
centre to provide alternate dispute resolution services and
provisions of Arbitration and Conciliation Act 1996 are made
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applicable as if there was an agreement between the parties under
sub-section (1) of Section 7 of the 1996 Act. ....................."
20. From a reading of Section 18(3) of the 2006 Act it is clear
that when the conciliation initiated under sub-section (2) of
Section 18 of the said Act is not successful, the Council shall
either itself take up the dispute for arbitration or refer to any
institution for arbitration. Further Section 18(3) of the said Act
also makes it clear that the provisions of 1996 Act are made
applicable as if there is an agreement between the parties under
sub-section (1) of Section 7 of the 1996 Act. Section 23 of the
1996 Act deals with the statement of claim and defence. Section
23(2A), which gives a right to respondent to submit a counter
claim or plead set-off with regard to claims within the scope of
the arbitration agreement, is brought into Statute by Amending
Act 3 of 2016. If we look at the Statement of Objects and
Reasons of the Amending Act, same is also enacted to provide for
speedy disposal of cases relating to arbitration with least court
intervention. Clause 11 of the Bill, by which sub-section (2A)
was proposed to be inserted, states that sub-section (2A) was
intended to give an opportunity to the respondent, in support of
his case, to submit counter-claim or a set-off if such counterclaim
or set-off falls within the scope of arbitration agreement. When
Section 18(3) makes it clear that in the event of failure by the
Council under Section 18(2) if proceedings are initiated under
Section 18(3) of the 1996 Act, the provisions of 1996 Act are not
only made applicable but specific mention is made to the effect as
if the arbitration was in pursuance to an arbitration agreement
referred to in sub-section (1) of Section 7 of the 1996 Act. When
there is a provision for filing counter-claim and set-off which is
expressly inserted in Section 23 of the 1996 Act, there is no
reason for curtailing the right of the respondent for making
counter-claim or set-off in proceedings before the Facilitation
Council.
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
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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 C.A.Nos.1570-1578 of 2021 etc. 35 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 counter-claim 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 counter-claim,
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. ......................................"
(emphasis supplied)
16. The Division Bench of Allahabad high Court wherein the
same issue was involved, in the case of M/s. Cummins
Technologies India Private Limited v. Micro and Small
Enterprises Facilitation Council and Others (supra) has in Paras
29, 59, 61 and 62 held as under: -
"29. Section 24 says that Sections 15 to 23 shall have effect
notwithstanding anything contained in any other law for the
time being in force and this provision is also of utmost
importance in this petition, hence reproduced as under:-
"S.24. Overriding effect - The provisions of sections 15 to
23 shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in
force."
(Emphasis added)
***********************
59. Karnataka High Court in fact followed the judgment of
Bombay High Court in Gujarat State Petronet Ltd. Vs. Micro
and Small Enterprises Facilitation Council and others (supra)
and Gujarat High Court in Principal Chief Engineer Vs. M/s.
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Manibhai and Brothers (supra). We find that in para-15, learned
Single Judge has observed that Section 80 of Act, 1996
incorporates a salutary principle that a 'Conciliator' cannot act
also as an Arbitrator and this salutary principle cannot be
whittled down or excluded by inferring a contrary intent in the
provisions of Section 18(3) and applying Section 24.
Unfortunately, when we enquired, are not shown any such
alleged salutary principle which could have been given an
overriding effect over express statutory provision providing
otherwise. Further, we also find that Section 18(4) has been
completely overlooked and no reason has been given by
referring to Section 18(4) as to why MASEF Council cannot act
as Arbitrator, when a specific declaration has been made that it
shall have jurisdiction to act an Arbitrator. For application of
Section 18(4) to that extent, there is no such condition provided.
In our view, therefore, aforesaid Single Judge judgment will not
help petitioners and we record our respectful disagreement
with the aforesaid authority of the learned Single Judge of
Karnataka High Court."
"61. There is one more aspect. Normally an Arbitral Tribunal
consists of sole Arbitrator or two Arbitrators with or without an
Umpire. In such a case, there may be an element of personal
prejudice or bias on the part of such persons constituting
Arbitral Tribunal, if one of them or all of them have also acted
as Conciliator. However, that is not the position in respect of a
Reference made under Section 18 (1) of MSMED Act, 2006
since MASEF Council is a statutory body. Section 21 of
MSMED Act, 2006 provides that such Conciliator shall have
members not less than three but not more than five. The
composition of Council is also given in Section 21(1) (i) to (iv)
and it includes Director of Industries or any other officer not
below the rank of such Director, in the Department of State
Government; Office Bearer or Representatives of Association of
Micro or Small Industries or Enterprises; Representatives of
Banks and Financial Institutions lending to micro or small
enterprises. The persons mentioned in Clause (iv) of Section
21(1) may be brought in Council in the alternative of
Representative of Banks and financial institutions lending to
Micro and Small Enterprises, if it is found necessary to include
persons having special knowledge in the field of industry,
finance, law, trade or commerce. Director is Chairperson of
MASEF Council. Therefore, the statutory body like MASEF
Council does not suffer the element of personal prejudice or
bias as is available in the case of individual persons constituting
Arbitral Tribunal. It may be that persons constituting MASEF
Council at the time of conciliation may not be the same when
the said Conciliator took up the matter for arbitration.
Therefore, central idea beyond the embargo created by Section
80(1) available in case of individuals constituting Arbitral
Tribunal is absent in the matter covered by Section 18 of
MSMED Act, 2006 since here, the Council, which is permitted
to act as Conciliator as well as Arbitrator is a statutory body
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having not less than there persons but upto five persons and,
therefore, the element of personal bias, prejudice is absent in
such a case."
"62. Even otherwise, as we have already discussed, Section 80
itself permits an otherwise agreement between the parties.
Meaning thereby the embargo that Conciliator shall not be
Arbitral Tribunal is not absolute. That being so, the mandatory
and overriding effect contained in Section 18(3) and 18(4) and
Section 24 of MSMED Act, 2006 cannot be whittled down by
referring to a salutary principle though, in our view, no such
salutary principle having force of law to the extent that a
legislative provision must be read as sub-serving is recognized
or available."
(emphasis supplied)
17. Similarly, the Division Bench of Patna High Court, in the case
of Best Towers Private Limited v. Reliance Communications
Limited (supra), in which an appeal was preferred against the order
dated 19th June, 2018 passed by Single Bench in a petition having the
same title on which heavy reliance is also placed by the learned
counsel for the petitioner, it has been held in paras 15, 20, 26 and 27,
as under: -
"15. It is urged that the provisions of Section 18 (3) of the 2006
Act have an overriding effect and, therefore, there is a statutory
requirement and obligation on the part of the Facilitation Council
to enter upon arbitration as if the said proceedings are in
pursuance of an agreement referred to under Section 7 of the 1996
Act. It is submitted that in view of this express arrangement under
the 2006 Act, which is a special Act, the Facilitation Council was
well within its authority to enter upon arbitration and deliver an
Award. The same, therefore, could have been appropriately
challenged through proceedings under Section 34 of the 1996 Act,
that was actually done by the respondent petitioner, and the writ
petition ought not to have been entertained as there was no lack of
jurisdiction on the part of the Facilitation Council. Learned
counsel for the appellant has relied on the judgment of a learned
Single Judge of the Delhi High Court in the case of GE T&D
India Limited. Vs. Reliable Engineering Projects and Marketing
[O.M.P. (COMM) 76/2016], decided on 15th February, 2017 to
contend Patna High Court LPA No.1035 of 2018 dt.14-02-2019
that the 2006 Act is a special Act and has invited the attention of
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the Court to Paragraphs 38 and 39 of the said judgment which is
extracted herein under:-
"38. In the present case, therefore, the Court is satisfied that the
MSMED Act to the extent it provides for a special forum for
adjudication of the disputes involving a 'supplier' registered
thereunder, overrides the Act i.e., the Arbitration and
Conciliation Act, 1996. The following observations in Snehadeep
Structures Pvt. Ltd. V Maharashtra Small Scale Industries
Development Corporation Ltd. (supra) which deal with the
statute of 1993 proceeding the MSMED Act equally applies to
the MSMED Act:
"47. The requirement of pre-deposit of interest is introduced as a
disincentive to prevent dilatory tactics employed by the buyers
against whom the small-scale industry might have procured in
award, just as in cases of a decree or order. Presumably, the
legislative intent behind Section 7 was to target buyers, who only
with the end of pushing off the ultimate event of payment to the
small-scale industry undertaking, institute challenges against the
award/decree/order passed against them. Such buyers cannot be
allowed to challenge arbitral awards indiscriminately, especially
when the section requires predeposit of 75% interest even when
appeal is preferred against an award, as distinguished from an
order or decree."
39. Likewise, in Edukanti Kistamma (Dead) through LRs. v. S.
Venkatareddy (dead) through LRs. (supra), the Supreme Court
explained that a special statute would be preferred over a general
one where it is beneficial. It was explained that the purport and
object of the Act must be given its full effect by applying the
principles of "purposive construction." The question whether the
dispute resolution mechanism under Section 18 of the MSMED
Act overrides the arbitration clause under the contract has to be
answered in the affirmative. As was explained in Waman
Shriniwas Kini v. Ratilal Bhagwandas & Co. (supra) an
agreement contrary to a statutory provision that prohibits it
would be unenforceable."
*********************
20. We may at the outset undertake a comparative study of the
provisions of the MSMED Act, 2006 and the Arbitration and
Conciliation Act, 1996. To begin with the object and reasons for
enacting the 2006 Act was to clearly protect the development of
Micro, Small and Medium Enterprises and to extend support to
them to enable them to grow and adopt higher levels and higher
productivity to remain competitive in a fast globalization era. It is
for this reason, a single legal framework was required to facilitate
the promotion and development of such industries. The statement
of objects and reasons in Clause 2(d)(h) clearly recites that the
procedure also envisages to make further improvements in respect
of delayed payments. In this background, the appellant before us
is a supplier within the meaning of Section 2 (n) of the 2006 Act
and the respondent- petitioner is a buyer within the meaning of
Section 2 (d) of the Act. To facilitate the resolution of disputes
relating to delayed payments, Chapter-5 was incorporated in the
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Act fixing a statutory liability on the buyer to make payments
within a specified time. Section 16 fixes the liability of payment
of interest and Section 17 empowers the supplier to receive
payments with interest thereon. On a dispute being raised with
Patna High Court LPA No.1035 of 2018 dt.14-02-2019 regard to
delay in payments or any amount due, a forum named as a
Facilitation Council is created under Section 18 of the Act where
any party to a dispute may make a reference to the Facilitation
Council. Sub-section (2) of Section 18 enjoins upon the Council
to either itself conduct a conciliation or seek the assistance of any
Institution or Centre providing alternate dispute resolution
services by making a reference to it. The provisions of Section 65
to Section 81 of the Arbitration and Conciliation Act, 1996 are to
apply to such a dispute as if the conciliation was under Part-III of
the 1996 Act. Thus, the first step on the reference of a dispute is to
undertaking a conciliation effort by the Council or reference of
such conciliation to any Institution or Centre as provided therein.
The words "shall apply" in respect of Section 65 to Section 81of
the 1996 Act, therefore, clearly stipulates that in an effort of
conciliation the same process will be adopted in respect of
conciliation proceedings with a specific bar in Section 80 that the
Conciliator shall not act as an Arbitrator or as a representative or
Counsel of a party in "any arbitral or judicial proceedings in
respect of a dispute that is the subject of conciliation
proceedings". Thus, according to Section 80 the Conciliator
cannot act as an Arbitrator. The question raised before us by the
Patna High Court LPA No.1035 of 2018 dt.14-02-2019 learned
counsel for the respondent petitioner is that if the Facilitation
Council acts as a Conciliator then the Council cannot act as an
Arbitrator as in the present case when after having attempted
conciliation proceedings and its termination in failure, the Council
itself has proceeded to arbitrate which it could not have done in
terms of Section 80 of the 1996 Act read with Section 18 (2) of
the 2006 Act. This argument on behalf of the respondent
petitioner has been accepted by the learned Single Judge that has
been questioned by the appellant contending that Section 24 of the
2006 Act clearly provides that Section 15 to 23 thereof shall have
effect notwithstanding anything inconsistent therewith contained
in any other law for the time being in force. What we find is that
sub-section (2) of Section 18 only refers to conciliation and the
procedure to be followed in terms of Part-III of the 1996 Act to
the extent of Section 65 to Section 81 thereof. Immediately
thereafter, sub- section (3) of Section 18 introduces an absolutely
novel procedure allowing the commencement of arbitration
proceedings with a mandate on the Council that in the event
conciliation ends in failure, the Council shall "either itself" take
up the dispute for arbitration or refer it to any Institution or Centre
providing alternate dispute resolution services for such Patna
High Court LPA No.1035 of 2018 dt.14-02-2019 arbitration and
the provisions of the 1996 Act "shall then" apply to the disputes as
if the arbitration was in pursuance of an agreement. The
overriding effect given to this provision in terms of Section 24 of
the 2006 Act, in our opinion, clearly overrides any bar as
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suggested by the learned counsel for the respondent petitioner
under Section 80 of the 1996 Act. It is trite law that the meanings
assigned and the purpose for which an enactment has been made
should be construed to give full effect to the legislative intent and
we have no doubt in our mind that the provisions of Section 18
(3) mandates the institution of arbitration proceedings under the
2006 Act itself and it is "then" that the provisions of the
Arbitration and Conciliation Act, 1996 shall apply. The institution
of arbitration proceedings would be governed by sub-section (3)
of Section 18 of the 2006 Act which having an overriding effect
cannot debar the Facilitation Council from acting as an Arbitrator
after the conciliation efforts have failed under sub-section (2) of
Section 18 of the Act. A combined reading of sub-section (2) and
sub-section (3) of Section 18 of the 2006 Act read with the
overriding effect under Section 24 thereof leaves no room for
doubt that any inconsistency that can possibly be read keeping in
view Section 80 of the 1996 Act stands overridden and the
Facilitation Patna High Court LPA No.1035 of 2018 dt.14-02-
2019 Council can act as an Arbitrator by virtue of the force of the
overriding strength of sub-section (3) of Section 18 of the 2006
Act over Section 80 of the 1996 Act. The conclusion of the
learned Single Judge that there is a prohibition on the Council to
act in a dual capacity is, therefore, contrary to the clear intention
of the legislature and, therefore, the verdict that the Facilitation
Council lacked inherent jurisdiction does not appear to be a
correct inference. Thus, on a comparative study of the provisions
referred to herein above, there is no scope for any doubt with
regard to the overriding effect of the provisions of the 2006 Act
that empowers the Facilitation Council to act as an Arbitrator
upon the failure of conciliation proceedings. The cloud of
suspicion and doubt about the role of the Facilitation Council,
therefore, stands clarified on the basis of the analysis made by us
herein above.
26. For all the reasons given herein above, we find that the
judgment of the learned Single Judge cannot be sustained and
costs deserve to be imposed on the respondent petitioner for
having attempted to delay the proceedings as observed herein
above.
27. The appeals are accordingly allowed and the impugned
judgment dated 19th June, 2018 is set aside with cost of Rs.
50,000/- (fifty thousand) on the respondent No. 1 petitioner
payable and to be deposited with the Patna High Court Legal
Services Committee within one month from today."
Similar findings have also been recorded by a Division Bench
of Allahabad High Court in TBED (India) Transformer Private
Limited v. U.P. Micro and Small Enterprises and another (supra).
WP No.369/2020
18. The Supreme Court in the case of Bhaven Construction
through Authorized Signatory Premjibhai K. Shah v. Executive
Engineer Sardar Sarovar Narmada Nigam Limited and another
(supra) has also emphasized that even if the Arbitrator has failed to
adjudicate upon its jurisdiction in that case, the remedy lies under
Section 34 of the Arbitration & Conciliation Act, 1996 and petition
under Article 226 / 227 of the Constitution of India would not be
maintainable. Paras 25 and 26 of the said decision read, as under: -
"25. It must be noted that Section 16 of the Arbitration Act,
necessarily mandates that the issue of jurisdiction must be dealt
first by the tribunal, before the Court examines the same under
Section 34. Respondent No. 1 is therefore not left remediless, and
has statutorily been provided a chance of appeal. In Deep
Industries case (supra), this Court observed as follows:
"22. One other feature of this case is of some importance. As stated
herein above, on 09.05.2018, a Section 16 application had been
dismissed by the learned Arbitrator in which substantially the same
contention which found favour with the High Court was taken up.
The drill of Section 16 of the Act is that where a Section 16
application is dismissed, no appeal is provided and the challenge to
the Section 16 application being dismissed must await the passing of
a final award at which stage it may be raised under Section 34."
(emphasis supplied)
26. In view of the above reasoning, we are of the considered
opinion that the High Court erred in utilizing its discretionary
power available under Articles 226 and 227 of the Constitution
herein. Thus, the appeal is allowed and the impugned Order of the
High Court is set aside. There shall be no order as to costs. Before
we part, we make it clear that Respondent No. 1 herein is at
liberty to raise any legally permissible objections regarding the
jurisdictional question in the pending Section 34 proceedings."
(emphasis supplied)
19. On the aforementioned discussion, with due respect to the
learned judge of the Bombay High Court, the decision in the case of
Gujarat State Petronet Limited, Gujarat (supra) cannot be relied
upon, as the aforesaid decision does not lay down the lay down the
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correct legal preposition in respect of MSME Act, 2006 read with the
provisions of Arbitration & Conciliation Act, 1996 because the same
view taken by the Single Bench of Patna High Court in the case of
Reliance Communications Limited v. Best Towers Private
Limited has already been negated by the Division Bench of the
Patna High Court in the case of Best Towers Private Limited v.
Reliance Communications Limited (supra). Thus, the contentions,
as advanced by Shri Baheti, learned counsel for the petitioner, have
not legs to stand and are liable to be rejected.
20. So far as the contention regarding non-service of notice to the
petitioner in respect of commencement of Arbitration proceedings
after the failure of Conciliation proceedings before the Facilitation
Committee is concerned, it is found that the petitioner was
represented by its counsel on 30.05.2015, 08.10.2015 and
27.04.2016. On 27.04.2016, a detailed reply was also filed by the
petitioners but as per the request of the parties, to allow them to
discuss if any settlement is possible, they were directed to meet in
Indore on 18.05.2016 but no settlement could be arrived at and on
the next date of hearing before the Facilitation Council, i.e., on
03.11.2016, the petitioners or their counsel failed to appear before
the Council and thus, the final award was passed on 27.12.2017. It is
apparent that after failing to appear before the Facilitation Council,
the petitioner is now claiming that proper opportunity of hearing was
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not given to them which is not tenable and is liable to be rejected.
This court is of the considered opinion that once a notice is served on
a party under s.18 of the MSME Act, it would hold good for
Conciliation proceedings as also the Arbitration proceedings to be
taken up by the Facilitation Council, after the Conciliation
proceedings have failed and no separate notice is required to be
served by the Council for initiation of Arbitration proceedings.
21. Another aspect of the matter, of pre-deposit of 75% of the
awarded amount as provided u/s.19 of the Act need not engage this
court in the light of the aforementioned discussion.
22. Resultantly, this Court finds the present petition to be totally
misconceived and misplaced, as this Court cannot exercise its
jurisdiction under Article 226 / 227 of the Constitution of India
against the award passed by the Facilitation Council under Section
18 the MSME Act.
22. It is also a matter of concern, the manner in which the process
of this court has been misused by filing this petition. It is found that
the impugned award was passed on 27.12.2017 and the demand
notice was issued on 04.05.2019, whereas, the petition has been filed
on 06.01.2020 and there is no explanation provided in clause 4 of the
petition. It is also found that the decisions relied upon by the counsel
for the petitioners viz. Bombay and Patna High Courts in the case of
Gujarat State Petronet Limited, Gujarat v. Micro and Small
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Enterprises Facilitation Council, Thane and others (supra) and
Reliance Communications Limited, Patna (Bihar) v. State of
Bihar & others (supra) respectively, already stood reversed by the
Division bench of the Allahabad High Court and the Patna High
Court, but the counsel has cited the aforesaid decisions rendered by
the single benches in the petition itself by relying upon the
judgments which have already been held to be bad in law by the
Division benches of two High Courts.
23. In view of the same, Writ Petition No.369/2020 being devoid
of merits is hereby dismissed with a cost of Rs.1,00,000/- (Rupees
One Lakh) out of which Rs.50,000/- be given to the respondent,
whereas Rs.50,000/- to be paid to the COVID Fund in the office
of Zila Balsanrakshan Samiti, District Indore (MP) [Axis Bank
Account No.911010007267684 IFSC Code UTIB000053].
IA No.10005/2021; IA No.6066/2021; and IA No.6067/2021,
stand disposed of.
(Subodh Abhyankar)
Judge
Pithawe RC
RAMESH CHANDRA PITHWE
2021.12.31 16:48:47 +05'30'
