Madras High Court
Madurai Kamaraj University vs The Chairman on 1 February, 2022
W.A(MD)No.1002 of 2021
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED: 01.02.2022
CORAM:
THE HONOURABLE MRS.JUSTICE PUSHPA SATHYANARAYANA
AND
THE HONOURABLE MR.JUSTICE P.VELMURUGAN
W.A(MD)No.1002 of 2021
and
C.M.P(MD)Nos.4539 and 6834 of 2021
Madurai Kamaraj University,
Rep. by its Registrar,
Palkalai Nagar,
Madruai – 625 021. ... Appellant /
Petitioner
Vs.
1.The Chairman,
Micro & Small Enterprises Facilitation Council,
(Industries Commissioner and Director of
Industries & Commerce, Chennai)
Coimbatore Region,
District Industries Centre,
Coimbatore – 641 001.
2.M/s.SET INFOTECH PVT LTD.,
726.B, II Floor, Sri Venkey Complex,
SND Layout,
Tatabad,
Coimbatore – 641 012.
... Respondents/Writ Petitioners
Prayer: Writ Appeal filed under Clause 15 of the Letters Patent,
against the order dated 18.03.2021 passed in W.P(MD)No.6051 of
2021.
1/16
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W.A(MD)No.1002 of 2021
For Appellants : Mr.Sricharan Rangarajan for
Mr.T.Sakthi Kumaran
For R-1 : No Appearance
For R-2 : Mr.K.V.Om Prakash for
M/s.Conscientia Law Associates
JUDGMENT
PUSHPA SATHYANARAYANA, J.
This Writ Appeal has been filed challenging the order dated
18.03.2021 passed in W.P(MD)No.6051 of 2021.
2. The appellant Madurai Kamaraj University has preferred this
appeal claiming that the agreement entered into between the
University and the second respondent with the specific terms and
conditions, is binding on both the parties and the statutory
provisions of Micro, Small and Medium Enterprises Development
Act, 2006(in short 'MSMED Act'), is not applicable.
3. The appellant University had entered into a memorandum
of agreement dated 28.02.2014 with the second respondent herein
for “Creation of e-Learning Portal and Development of Digital
Content for Directorate of Distance Education” with payment
gateway and data records of users Development of Digital Content,
Text, Voice Over, Animations, Illustrations and interactive on the
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W.A(MD)No.1002 of 2021
terms and conditions agreed to in the agreement.
4. Clause 14 of the agreement stipulates arbitration clause for
settlement of disputes. There was a dispute with respect to
payment and a legal notice was issued by the second respondent on
08.12.2020 and the appellant also had replied for the same. While
so, contrary to the memorandum of agreement dated 28.02.2014,
the second respondent had filed a petition before the first
respondent under Section 18 of the MSMED Act, with a prayer to
direct the appellant to pay the interest.
5. Now, the question that arose for consideration in the writ
petition was whether the terms of the contract govern the
transaction between the writ petitioner and the second respondent
or the provisions of the MSMED Act will apply. The writ petition was
dismissed by the Writ Court holding that the dispute falls within the
realm of private law and in any event when an alternative
mechanism has been created for the settlement of the dispute
through the first respondent council, the University has to respond
to the same. Challenging the said order, the University has filed this
writ appeal.
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W.A(MD)No.1002 of 2021
6. Heard the learned counsel appearing on either side and
perused the materials available on record.
7. Now, the point that had arisen for consideration in this writ
appeal is whether provisions of the MSMED Act will supersede the
arbitration clause in the memorandum of agreement. In other
words, despite a contractual agreement setting out the scope and
ambit of arbitration, when the second respondent seeks recourse to
the remedy provided under the special Statue, whether the
appellant is bound by it or not.
8. It is well settled principle that a special Statute would
prevail over General Statute in the event of any inconsistency or
ambiguity. However, it has to be decided whether the said principle
automatically apply in the context of arbitration.
9. The MSMED Act provides for facilitating the promotion and
development and enhancing the competitiveness of Micro, Small and
Medium Enterprises for matters connected therewith or incidental
thereto.
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W.A(MD)No.1002 of 2021
10. The learned counsel appearing for the appellant would
submit that the agreement between the parties was entered into on
28.02.2014, wherein Clause 14 is for arbitration in the event of
dispute. The second respondent had registered its Company under
the Ministry of Micro, Small and Medium Enterprises, Government of
India from 17.01.2015 subsequent to the agreement with the
appellant University.
11. It is relevant to extract Section 24 of the MSMED
ACT:
“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.”
12. The above Section states that 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. The
second respondent had filed petition before the first respondent
under Section 18 of the MSMED Act. The proceedings had been
entertained by the first respondent in pursuance of the provisions of
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W.A(MD)No.1002 of 2021
the Act. Though there is an arbitration clause in the agreement
dated 28.02.2014, the provisions of Section 18(4) specifically
contain a non-obstante Clause empowering the Facilitation Council
to act as an Arbitrator.
13. The learned counsel appearing for the appellant argued
that the pre-existing independent arbitration agreement between
the appellant and the second respondent specifically provided for a
procedure to appoint an Arbitrator and that the arbitration shall be
in Madurai and in English language. However, the second
respondent Company is in Coimbatore and registered under the
department of Industries and Commerce only in the year 2015 and
the certificate was issued only on 17.01.2015 after entering into an
agreement with the appellant university. Though the Court may
view the agreement as an additional method of appointment of an
Arbitrator, the provisions of the MSMED Act cannot be excluded.
Clause 14 of the agreement is recognized by law, the same shall
stand eclipsed by the non-obstante Clause that Section 18 of the
MSMED Act provides for. As reference has already been made, the
parties have to undergo the conciliation proceedings as mentioned
in Section 18(2) of the Act.
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W.A(MD)No.1002 of 2021
13.a. (i) Section 18 of the Act has been a subject matter of
dispute in various cases where a Non-MSME party involved in a
dispute with a MSME party challenging the applicability of the said
Section to their dispute in the light of the Arbitration Agreement
between them. In AIR 2012(Bom) 178(M/s.Steel Authority of
India Ltd., and another vs. the Micro, Small Enterprise
Facilitation Council & Another, which was the case on
maintainability of an Arbitration clause against MSMED Act, it was
held that by virtue of the non-obstante Clause under Section 18 of
MSMED Act, it cannot be said that an independent arbitration
agreement between the parties will cease to have effect.
Accordingly, it was held that since the parties had already entered
into an independent agreement, the Council could not proceed. (as
per Section 18(3) of the Act). Relevant portion of the said Judgment
is extracted hereunder:
“11. Having considered the matter, we find that
Section 18(1)of the Act, in terms allows any party to a
dispute relating to the amount due under Section 17
i.e. an amount due and payable by buyer to seller; to
approach the facilitation Council. It is rightly
contended by Mrs. Dangre, the learned Addl.
Government Pleader, that there can be
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W.A(MD)No.1002 of 2021
variety of disputes between the parties such as about
the date of acceptance of the goods or the deemed
day of acceptance, about schedule of supplies etc.
because of which a buyer may have a strong objection
to the bills raised by the supplier in which case a
buyer must be considered eligible to approach
the Council. We find that Section 18(1) clearly allows
any party to a dispute namely a buyer and a supplier
to make reference to the Council. However, the
question is; what would be the next step after such a
reference is made, when an arbitration agreement
exists between the parties or not. We find that there
is no provision in the Act, which negates or renders an
arbitration agreement entered into between the
parties ineffective. Moreover, 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
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W.A(MD)No.1002 of 2021
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. This procedure for arbitration and conciliation is
precisely the procedure under which all arbitration
agreements are dealt with. We, thus find that it
cannot be said that 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. At this stage, it is necessary to deal with
another contention raised on behalf of the Council by
Mrs. Dangre, the learned Addl. Government Pleader.
According to the learned Addl. Government Pleader,
the procedure of conciliation contemplated by Section
18(2) of the Act is a procedure, which has been
specially enacted for the purposes providing a Forum
for conciliation which itself is capable of settling a
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W.A(MD)No.1002 of 2021
dispute between the micro, small and medium
enterprises and any other party. We find that the
arbitration agreement in question, like most
arbitration agreements, does not contain a specific
provision for conciliation and, therefore, it would be
necessary for the parties to submit to the conciliation
process under Section 18(2) of the Act
notwithstanding the existence of an arbitration
agreement. Undoubtedly, the Council may either itself
conduct the conciliation in accordance with the
provisions of Sections 65 to 81 of the Arbitration and
Conciliation Act, 1996 or as provided by Section
18(2) of the Act refer it to any institute or centre
provided for alternate dispute resolution.
....
14. In the circumstances, we hold that
respondent No. 1 Council is not entitled to proceed
under the provisions of Section 18(3) of the Act in
view of independent arbitration agreement dated
23.9.2005 between the parties. The petitioners and
respondent No. 2 shall, however, participate in the
conciliation, which shall be conducted by respondent
No. 1 Council under the provisions of Section 18(1)
and (2) of the Act. Respondent No. 1 Council shall
complete the process of conciliation within a
period of two weeks from the date the parties appear
before it. The parties are directed to appear before
respondent No. 1 Council on 25.10.2010. Rule made
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W.A(MD)No.1002 of 2021
absolute in the above terms. No order as to costs.”
(ii) In 2014(3) ADJ 67 (M/s. Bharat Heavy Electricals
Limited vs. State of U.P. & Others), the Allahabad High Court,
held that though there may be an arbitration agreement between
the parties, Section 18(4) of the Act, specifically contains a non-
obstante Clause empowering the Council to act as an Arbitrator and
took a divergent view. Relevant portion of the said Judgment is
extracted hereunder:
“(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.
......
(7)In this view of the matter, the relief of
certiorari for quashing all the proceedings before
the Council is manifestly misconceived. The
proceedings had been entertained by the Council
in pursuance of the provisions of the Act. Though
there may be an arbitration agreement between
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W.A(MD)No.1002 of 2021
the parties, the provisions of Section 18 (4)
specifically contain a non obstante clause
empowering the Facilitation Council to act as an
Arbitrator. Moreover, section 24 of the Act states
that sections 15 to 23 shall have effect
notwithstanding anything inconsistent therewith
contained in any other law for the time being in
force.”
(iii) The Gujarat High Court in 2016 AIR(Guj) 151
(Principal Chief Engineer vs. M/s.Manibhai and Brothers
(Sleeper) & Another), also rejected the view of the Bombay High
Court referred supra and held that the MSMED Act, shall prevail over
the Arbitration Act. The relevant portion of the Judgment is
extracted hereunder:
“6.1. It cannot be disputed that the Act 2006 is a
Special Act and as per Section 24 of the Act, 2006, 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.
Therefore, Section 18 of the Act, 2006 would have
overriding effect or any other law for the time being in
force including Arbitration Act, 1996 and therefore, if
there is any dispute between the parties governed by
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W.A(MD)No.1002 of 2021
the Act, 2006, the said dispute is required to be
resolved only through the procedure as provided under
Section 18 of the Act, 2006. Thus, considering Section
18 of the Act, 2006, after conciliation has failed as per
Section 18(2) of the Act, 2006, thereafter as per
subsection (3) of Section 18, 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. ....”
14. The Delhi High Court in GE T & D; India Limited vs.
Reliable Engineering Projects (O.M.P. (COMM.) 76/2016, dated
February 15, 2017), has categorically held that the MSMED Act,
overrides the Arbitration Act to the extent that it provides for a
special forum for adjudication of disputes. After advent of the
MSMED Act, the non-obstante Clause found in Section 24 of the
MSMED Act, has been strictly followed and had given an
interpretation that a Special Law will prevail over the General Law.
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W.A(MD)No.1002 of 2021
Therefore, it appears that it has been well settled that validity of a
contractual arbitration will be superseded by the provisions of the
MSMED Act. It is also to be noted that MSMED Act only provides for
arbitration through MSME Council and it also supports and promotes
institutional arbitration. Therefore, when the MSMED Act is aimed at
promoting alternate form of resolution in the form of conciliation
and arbitration, it can be stated that the Act will supersede the pre-
existing agreement between the appellant and the second
respondent. However, the Arbitration under Section 18 of the Act,
is confined to unpaid dues. For other disputes, the Arbitration
agreement will prevail. To be noted is that the second respondent
respondent had already invoked the jurisdiction of the MSME
Council.
14.a.The MSMED Act is a step in aid for Micro & Small
Industries. The Act prescribes 90 days of limitation to complete
both reconciliation and arbitration which is a speedy remedy.
Besides it is clear that MSMED Act being a Special Act will oversee
the Arbitration Act in case of any inconsistency.
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W.A(MD)No.1002 of 2021
15. In the light of the above discussion, this Court sees that
there is no infirmity in the order passed by the Writ Court and the
same is confirmed and the appeal is dismissed. No Costs.
Consequently, connected Miscellaneous Petitions are closed.
[P.S.N.,J] [P.V.,J.]
01.02.2022
Index :Yes/No
Internet :Yes/No
pm
Note :
In view of the present lock
down owing to COVID-19
pandemic, a web copy of
the order may be utilized
for official purposes, but,
ensuring that the copy of
the order that is presented
is the correct copy, shall
be the responsibility of the
advocate / litigant
concerned.
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W.A(MD)No.1002 of 2021
PUSHPA SATHYANARAYANA,J.
and
P.VELMURUGAN,J.
pm
JUDGMENT MADE IN
W.A(MD)No.1002 of 2021
01.02.2022
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