M/S.Raster Images Pvt. Ltd vs The Micro Small Enterprises ...
2023 Latest Caselaw 4878 Mad

                                                       1

                                  IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                              DATED : 27.04.2023

                                                   CORAM

                         THE HONOURABLE MR. JUSTICE N. ANAND VENKATESH

                                              W.P No.13059 of 2023

            M/s.Raster Images Pvt. Ltd.,
            Represented by its Director,
            No.50/3, Brindavan Road,
            Alagapuram,
            Salem.                                                                     Petitioners

                                                      vs.

            1.The Micro Small Enterprises Facilitation Council,
              Coimbatore Region,
              Rep. by its Chairperson.
              No.2, Raja Street,
              Coimbatore – 641 001.

            2.M/s.Jai Prakash Narain Apex Trauma Centre,
              AIIMS, Ring Road, Raj Nagar,
              New Delhi – 110 059.                                                   Respondents

            Prayer: Writ Petition filed under Article 226 of the Constitution of India for
            issuance of a Writ of Certiorarified Mandamus, calling for the records of the 1st
            respondent culminating in the impugned dismissal order MSEFC/CBER/82/2020-
            online application No.TN020E0045478/S/00002 dated 07.09.2021 and quash the
            same and consequently direct the 1st respondent to refer the parties to arbitration in
            terms of section 18 of the Mirco, Small and medium enterprises Development Act,
            2006 (MSMED Act), 2006.


https://www.mhc.tn.gov.in/judis
                                                         2


                                  For Petitioner     : Mr.M.Santhanaraman

                                  For Respondents : Mr.C.Selvaraj
                                                    Additional Government Pleader for R1

                                                    ORDER

This writ petition has been filed challenging the impugned order passed by the

1st respondent dated 07.09.2021 and for a consequential direction to the 1st

respondent to comply with the mandatory requirements under Section 18 of the

Micro, Small & Medium Enterprises Development Act, 2006 (hereinafter referred to

as “MSMED Act”).

2.The case of the petitioner is that they are Micro Manufacturing enterprises

registered with the MSME and they are in the business of software and hardware

service. They entered into an agreement with All India Institute of Medical Sciences

(AIIMS), New Delhi for hardware and software service through Agreement dated

25.05.2015. Pursuant to this agreement, they had also rendered services to the 2nd

respondent. The 2nd respondent did not make the payments in spite of the petitioner

raising several invoices between the year 2017 to 2019. Thereby, the petitioner is

claiming that the total of amount of Rs.86,45,861/- is due and payable to the

petitioner.

https://www.mhc.tn.gov.in/judis

3.The petitioner filed a petition before the 1st respondent under Section 18 of

the MSMED Act seeking for a direction to the 2nd respondent to make the payments

with interest.

4.The grievance of the petitioner is that the 1st respondent without following

any of the procedure under Section 18 of the MSMED Act, straight away proceeded

to dismiss the petition on a ground which is unsustainable in law. Aggrieved by the

same, the present writ petition has been filed before this Court.

5.Heard Mr.M.Santhanaraman, learned counsel appearing on behalf of the

petitioner and Mr.C.Selvaraj, learned Additional Government Pleader appearing on

behalf of the 1st respondent. There is no requirement to issue any notice to the 2nd

respondent in this case, since the 1st respondent did not dismiss the petition on merits

and this Court finds that the very dismissal itself is in gross violation of the

procedure contemplated under Section 18 of the MSMED Act.

6.This Court has carefully considered the submissions made on either side and

also the materials available on record.

7.The Apex Court in Silpi Industries etc., vs. Kerala State Road Transport

Corporation and Another reported in 2021 SCC Online SC 439 has succinctly https://www.mhc.tn.gov.in/judis

extracted the procedure to be followed by the Council when a petition is made and

the same is extracted hereunder:

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 counter-claim 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 https://www.mhc.tn.gov.in/judis

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.

8.The Division Bench of this Court in M/s.Super Steam Boilers Engineers

Pvt. Ltd, Rep. by its Director Nazeer A. Kazi, Navi Mumbai vs. The Micro, Small

Enterprises Facilitation Council Coimbatore Region, Rep. by its Chairperson,

Guindy, Chennai 600 032 in W.A.No.2655 of 2021 dated 07.03.2022 also had an

occasion to deal with the procedure to be followed by the Council when a petition is

filed under Section 18 of the MSMED Act and the relevant portions are extracted

hereunder:

8. A perusal of the order passed by the Council shows that initially the matter was taken up for conciliation and was deferred from time to time to settle the disputes in the interest of the parties. When the conciliation failed, an order was passed to take up the matter for arbitration invoking Section 18(3) of the Act of 2006. While taking a decision to arbitrate the matter, the procedure required for it has not been followed. The matter was ordered to be posted directly for arguments and for that, to lead evidence by the parties. Without realising that, after the failure of conciliation proceedings, the matter was to be taken up for https://www.mhc.tn.gov.in/judis arbitration as per the procedure.

9. The Council could have taken up the matter for arbitration or send it for independent arbitration as given under Section 18 of the Act of 2006. If at all the matter is taken up for arbitration, it should have been after calling for the claim and thereupon written statement from the side opposite with counter claim, if any. The procedure aforesaid was not followed and in view of the judgment of the Apex Court in the case of Jharkhand Urja Vikas Nigam Limited, it becomes clear that the procedure given under Section 18 of the Act of 2006 is mandatory in nature and when conciliation fails, the Council is empowered either to take up arbitration on its own or to refer it to any institution providing alternative dispute resolution services and the provisions of the Arbitration and Conciliation Act, 1996 to apply therein.

9.In the present case, on carefully going through the orders passed by the 1st

respondent, it is seen that the 1st respondent has not followed the procedure under

Section 18 of the Act and has dismissed the petition in a hasty manner. The order

passed by the 1st respondent suffers from patent illegality. This is not the first

occasion where the Court is encountering such illegal orders and it has become a

regular feature for the Council to pass such hasty orders in almost all cases where a

petition is filed seeking for a claim.

10.A plain reading of Section 18 of MSMED Act shows that the Council is

obliged to conduct conciliation as mandated under Section 18(2) and 18(3) of the Act https://www.mhc.tn.gov.in/judis

for which Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 will apply

and it will be construed as if the conciliation was initiated under Part III of the 1996

Act. When the conciliation fails under Section 18(3), the dispute between the parties

must thereafter be resolved by arbitration. At that juncture, the Council is empowered

either to take up arbitration on its own or to refer the arbitration proceedings to any

other institution as specified in the very same provision. If the Council decides to

conduct the arbitration, it has to enquire the parties and deal with the materials

placed before them and thereafter, pass an Award. It goes without saying that while

undertaking this exercise, the relevant provisions under the Arbitration and

Conciliation Act, 1996 will apply and the procedure contemplated under Section 20,

23, 24 and 25 must be followed.

11.It is quite unfortunate that the Council is not following this procedure

strictly in spite of a series of orders being passed by the Apex Court and also this

Court. This Court finds that in many of the cases, the Council does not even initiate

the Conciliation proceedings. If in case, any conciliation proceedings are initiated

and it ends in a failure, the Council straight away passes an order on merits without

conducting the arbitration proceedings by dealing with the case on merits. The

Council must bear in mind that it is a creature of a statute and they are bound to

comply with the procedure mandated by the statute and they cannot evolve their own

procedure. In view of the hastiness that is shown by the Micro Small Enterprises https://www.mhc.tn.gov.in/judis

Facilitation Council, this Court is unnecessarily burdened with writ petitions on a

daily basis. In every other case, this Court also interferes with such orders passed by

the Council. If the Council takes conscious effort to follow the procedure, there is no

occasion for the parties to approach this Court by filing a writ petition and they have

to necessarily challenge the final Award before the appropriate forum and workout

their remedy in the manner known to law. The non-compliance of the mandate

prescribed under Section 18 of the MSMED Act makes every other order illegal and

hence, the parties straight away approach this Court and file writ petitions. Repeated

orders passed in the writ petitions pinpointing the procedure to be followed, seems to

be falling in deaf ears and the Council is not willing to consciously rectify

themselves and follow the proper procedure. In view of this attitude of the Council,

this Court is constrained to write this order with the fond hope that in future the

Council does not adopt such illegal procedure and they strictly follow the mandate

of Section 18 of the MSMED Act and the judgments of the Apex Court and this

Court without fail. It is made clear that if in spite of this order, if such illegal orders

are passed by the Council by not following the mandate under Section 18 of the

MSMED Act, this Court will be constrained to impose cost against the concerned

Ministry, who are expected to immediately bring in correctional measures. If

required, the concerned Ministry can make the Council Members undergo training to

understand the purport of the provisions under the MSMED Act. In view of the same,

a copy of this order is also marked to the Secretary, Ministry of Micro, Small and https://www.mhc.tn.gov.in/judis

Medium Enterprises, Guindy Industrial Estate Complex, Guindy, Chennai – 600 004.

12.In the light of the above discussion, the impugned order passed in

MSEFC/CBER/82/202-online application No.TN020E0045478/S/00002 dated

07.09.2021, is hereby set aside. The matter is remanded back to the file of the 1st

respondent and the 1st respondent is directed to strictly comply with the mandate

under Section 18 of the MSMED Act. All efforts shall be taken to complete the entire

process including the passing of the Award, within a period of three months from the

date of receipt of copy of this order.

13.In the result, this writ petition is allowed with the above directions. No

Costs.

                                                                                        27.04.2023

            Index        : Yes
            Internet     : Yes
            Speaking Order/Non-Speaking Order
            Neutral Citation Case : Yes
            ssr

            To

            The Chairperson.

Micro Small Enterprises Facilitation Council Coimbatore Region, No.2, Raja Street, Coimbatore – 641 001.

https://www.mhc.tn.gov.in/judis

N. ANAND VENKATESH, J.

ssr

W.P No.13059 of 2023

27.04.2023 https://www.mhc.tn.gov.in/judis