Punjab-Haryana High Court
Indian Oil Corporation Ltd vs Haryana Micro And Small ... on 1 August, 2023
Neutral Citation No:=2023:PHHC:105592
CWP-12338-2019 & other connected cases 1 2023:PHHC:105592
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
284(1)
CWP-12338-2019(O&M)
Reserved on:04.05.2023
Date of Decision:01.08.2023
Indian Oil Corporation Limited .....Petitioner
Versus
Haryana Micro and Small Enterprise Facilitation
Council, Chandigarh, Haryana and another .....Respondents
284(2) CWP-15849-2019
Indian Oil Corporation Limited .....Petitioner
Versus
Union of India and others .....Respondents
284(3) CWP-22029-2019
Indian Oil Corporation Limited .....Petitioner
Versus
Union of India and others .....Respondents
284(4) CWP-22103-2019
Indian Oil Corporation Limited .....Petitioner
Versus
Union of India and others .....Respondents
284(5) CWP-26602-2019
Sukhbir Singh .....Petitioner
Versus
Union of India and others .....Respondents
284(6) CWP-28300-2019(O&M)
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M/s Bird Clothing and another .....Petitioners
Versus
Union of India and others .....Respondents
284(7) CWP-3984-2020(O&M)
Rites Limited .....Petitioner
Versus
Haryana MSMEFC and another .....Respondents
284(8) CWP-8086-2020
M/s Global Steel Company .....Petitioner
Versus
Union of India and others .....Respondents
284(9) CWP-169-2020
M/s Piccadily Agro Industries .....Petitioner
Versus
State of Haryana and others .....Respondents
284(10) CWP-173-2020
M/s Piccadily Agro Industries .....Petitioner
Versus
State of Haryana and others .....Respondents
284(11) CWP-25897-2021
M/s Geo Api Solution Pvt. Ltd. .....Petitioner
Versus
Union of India and others .....Respondents
284(12) CWP-5607-2023
Shadowfax Technologies Pvt. Ltd. .....Petitioner
Versus
Haryana MSME and others .....Respondents
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284(13) CWP-5615-2023
Shadowfax Technologies Pvt. Ltd. .....Petitioner
Versus
Haryana MSME and others .....Respondents
285 CWP-15506-2020
Hindustan Petroleum .....Petitioner
Versus
MSME Haryana and others .....Respondents
286 CWP-18246-2021
M/s Pioneer Urban Land and Infrastructure Ltd. .....Petitioner
Versus
Haryana MSME and others .....Respondents
287 CWP-20917-2021
Union of India .....Petitioner
Versus
MSME, Haryana and others .....Respondents
288(1) CWP-1172-2022
Jaichittra Inc. .....Petitioner
Versus
Haryana MSME and others .....Respondents
288(2) CWP-3679-2021
Bio-Med Health Care Products .....Petitioner
Versus
State of Haryana and others .....Respondents
288(3) CWP-22560-2021(O&M)
M/s Xionn Services Pvt. Ltd. .....Petitioner
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Versus
Union of India and others .....Respondents
289(1) CWP-6991-2022(O&M)
The Northern Railways .....Petitioner
Versus
MSME Haryana and others .....Respondents
289(2) CWP-10294-2022(O&M)
Omkar Reatlers and Developers .....Petitioner
Versus
MSME Haryana and others .....Respondents
289(3) CWP-10286-2022(O&M)
Era Realtors Pvt. Ltd. .....Petitioner
Versus
MSME Haryana and others .....Respondents
290 CWP-14053-2022
Reacon Engineers (India) Pvt. Ltd. .....Petitioner
Versus
MSME Haryana and others .....Respondents
291 CWP-22013-2022
M/s Fatehpuria Transformers .....Petitioner
Versus
MSME, Haryana and others .....Respondents
292 CWP-8863-2023
M/s Lifestyle International Pvt. Ltd. .....Petitioner
Versus
MSME, Haryana and others .....Respondents
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126 CWP-3870-2023
M/s Tirupati Plywood .....Petitioner
Versus
MSME Haryana and others .....Respondents
127 CWP-5495-2023(O&M)
M/s Bansal Enterprises .....Petitioner
Versus
MSME Haryana and others .....Respondents
128 CWP-7410-2023(O&M)
M/s Gem Edible Oils Pvt. Ltd. .....Petitioner
Versus
State of Haryana and others .....Respondents
129 CWP-9235-2023
Northern Railways .....Petitioner
Versus
District Level MSME .....Respondent
CORAM: HON'BLE MR. JUSTICE VINOD S. BHARDWAJ.
Present: Mr. Anand Chhibbar, Senior Advocate with
Ms. Ateevraj Sandhu and Mr. Vaibhav Saini, Advocates,
for the petitioners in CWP-12338-2019;
CWP-15849-2019; CWP-22103-2019;
CWP-22029-2019; CWP-169-2020 and CWP-173-2020.
Mr. Ivan Khosa, Advocate with
Mr. Jashan Sekhon, Advocate,
for the petitioner in CWP-7410-2023.
Mr. Chandan Deep Singh, Advocate,
for the petitioner in CWP-8863-2023.
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Mr. Rajat Khanna, Advocate with
Mr. Vijay Pratap Singh and
Mr. Vishal Saini, Advocates,
for the petitioner in CWP-18246-2021.
Ms. Roja Agnihotri, Advocate,
for the petitioner in CWP-22013-2022.
Mr. Jagan Nath Bhandari, Advocate,
for the petitioner in CWP-3870-2023.
Mr. Sumeet Goel, Sr. Advocate with
Mr. Rohan Mittal and Mr. Arush Neeraj Vaid, Advocate
for the petitioner in CWP-5607-2023 and
CWP-5615-2023.
Mr. Prateek Rathee, Advocate with
Mr. Amit Meharia and
Mr. Abhinash Agarwal, Advocates,
for the petitioner in CWP-12338-2019 and CWP-3984-2020.
Ms. Anjali, Advocate for
Mr. Nipun Vashist, Advocate, for the petitioner
in CWP-22560-2021, CWP-8086-2020,
CWP-25897-2021 and CWP-22029-2019.
Mr. Ankush Chaudhary, Advocate with
Mr. Satyaveer Singh, Advocate,
for the petitioner in CWP-10294-2022.
and CWP-10286-2022.
Mr. Akshit Aggarwal, Advocate,
for the petitioner in CWP-5495-2023.
Mr. Atul Nehra, Advocate,
for the petitioner in CWP-15506-2020.
Mr. Vivek Aggarwal, Advocate for Ms. Tina Garg, Advocate,
for the petitioner in CWP-14053-2022
Mr. Shubham Mehta, Advocate
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for the petitioner in CWP-1172-2022.
Mr. Ravish Malhotra (in person)
authorized representative for respondent No.2
in CWP-10286-2022 and CWP-10294-2022.
Mr. Ashutosh Kumar Sharma, Legal Consultant with
Mr. Pankaj Mulwani, DAG, Haryana and
Mr. Vivek Chauhan, Addl. A.G. Haryana.
Mr. Ankur Bali, Advocate,
for respondent No.2 in CWP-12338-2019.
Mr. Sunil Kumar Sahore, Advocate, for respondent No.2.
Mr. Kunwar Rajan, Advocate,
for respondent No.2 in CWP-14053-2022
Mr. Puneet Bali, Sr. Advocate with Mr. Surjeet Badhu and
Mr. Vivek Sharma, Advocates,
for respondent No.2 in CWP-5607-2023;
CWP-5615-2023.
Mr. Munish Kumar Garg, Advocate &
Mr. Rohtash Solanki, Advocate &
Mr. Vikas Mehra, Advocate,
for respondent No.2 in CWP-6991-2021.
Mr. Rajeev Kawatra, Senior Panel Counsel
for respondent No.1-Union of India
in CWP-12338-2019 & CWP-15849-2019.
Mr. Arvind Seth, Advocate, for the petitioner
in CWP-9235-2023 & CWP-20917-2021 and
for respondent No.4 in CWP-22013-2022 &
for respondent No.1 in CWP-25897-2021.
Ms. Gehna Vaishnavi, Advocate,
for respondent No.5-Union of India in CWP-18246-2021.
Mr. Somesh Gupta, Sr. Panel Counsel,
for respondent-Union of India
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in CWP-8086-2020.
Mr. Ajay Kalra, Central Govt. Counsel,
for respondent- No.1-Union of India in CWP-22103-2019,
CWP-22029-2019 and CWP-28300-2019.
Mr. Anil K. Sokal, Advocate for
Mr. Vaibhav Jain, Advocate,
for respondent No.3 in CWP-8086-2020.
Mr. M.K. Sood, Advocate,
for respondent No.2 in CWP-22013-2022.
Mr. Ajay Jain, Advocate,
for respondent No.2 in CWP-3984-2020.
Mr. Rishav Soni, Advocate for
Mr. Surender Gupta, Advocate,
for the petitioner in CWP-3679-2021.
Mr. Shobit Phutela, Advocate,
for the petitioner in CWP-6991-2022 and
Mr. Ajay Sharma, Advocate with
Ms. Kritika Sharma, Advocate,
for respondent No.2 in CWP-3984-2020.
Mr. Manpreet, Advocate for
Mrs. Alisha Arora, Advocate,
for respondent No.1- CWP-26602-2019.
Mr. Suresh Sharma, Advocate with
Ms. Khushika Setia, Advocate,
for respondent No.3 in CWP-26602-2019.
Mr. Pankaj Bali, Advocate and
Mr. Sikandh Mehta, Advocate,
for respondent No.3 in CWP-173-2020.
Mr. Vilas Sharma, Advocate with
Ms. Trisha Gosain, Advocate,
for respondent No.3 in CWP-28300-2019.
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Mr. Mukul Singla, Advocate,
for respondent No.3 in CWP-3679-2021.
Ms. Deepali Verma, Advocate,
for respondent No.4 in CWP-8863-2023.
****
VINOD S. BHARDWAJ , J.
A batch of writ petitions involving similar questions are being
decided by this common judgment. Facts of the respective bunch of cases
are being extracted as under:-
FACTS:
284. CWP-12338-2019 & 12 OTHER CONNECTED CASES
The petitioners seek quashing of the order dated 29.03.2019
(Annexure P-1A) whereby the Haryana Micro and Small Enterprises
Facilitation Council ( herein after referred to as Facilitation Council )
decided to refer the case to the sole Arbitrator empaneled by the Government
vide its order No.02.05.2013-IIB-II-2006 dated 24.10.2013, 08.08.2014 and
23.06.2015 post failure to arrive at a settlement during conciliation and that
the disputed questions are required to be adjudicated under Section 18(3) of
the Micro, Small and Medium Enterprises Development Act, 2006 ( herein
after referred to as the Act of 2006).
The petitioner-Indian Oil Corporation has averred that
respondent No.2 i.e. Paltech Cooling Towers and Equipments Limited,
registered under Act of 2006, is a Company engaged in the business of
manufacture, sale, supply and installation of Cooling Towers and Chilling
Plants and Water Treatment System. On 18.09.2014, a tender was floated by
petitioner-Indian Oil Corporation for design, detail engineering, supply,
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procurement, fabrication, construction, erection, inspection, testing and
painting of 3000 m3/hr. i.e. the "Subject Work" at Haldia Refinery of the
petitioner. Respondent No.2 submitted its bid and finding it to be most
responsive, a letter of acceptance for work order bearing No.24370529 was
issued by the petitioner-IOC to respondent No.2 for a contract value of
Rs.10,02,02,514.01 only. The subject work was to be completed within a
period of 13 months inclusive of one month for commissioning from the
date of handing over of work site or any part thereof. A contract bearing
No.110 of 2014-15 was executed between the parties on 16.07.2015. An
application/representation was submitted to the Facilitation Council by the
respondent No.2 under Section 18(1) of the Act of 2006. It is averred that a
defective notice dated 10.12.2018 was sent by the Facilitation Council,
which carried only the application and not the Annexures, calling upon the
petitioner to make the payment of Rs.3,38,01,259/-. A response was
thereafter filed by the petitioner on 22.12.2018, with a request to provide
complete copies of the petition alongwith Annexures, followed by a
reminder dated 22.01.2019. However, respondent No.1-Facilitation Council
sent a notice dated 27.02.2019 to the petitioner wherein it was informed that
the petition was listed for hearing on 13.03.2019 and that an effort shall be
made by the Facilitation Council for settlement of dispute between the
parties. It is contended that the above auto-generated email dated
27.02.2019 was received by the petitioner giving details of the claim
amount, date of filing and date of hearing etc. The petitioner approached the
office of the respondents to procure the copy of the petition and to accurately
verify the stage of the proceedings. It was alleged that the proceedings
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before the respondent Facilitation Council are in breach of the statute and
the law as laid down through various precedents.
Short reply by way of an affidavit has been filed on behalf of
respondent No.1-Facilitation Council wherein it is stated that no order was
passed by the Facilitation Council on 29.03.2019 which is rather a
communication sent by the Council about the claim lodged before it by
respondent No.2 pertaining to delayed payment. Since the attempts at
amicable resolution through conciliation had failed between the parties. It
was forwarded to a retired Judicial Officer, appointed by the Government,
for his report. It was contended on merits that respondent No.2 had filed a
claim petition against the petitioner-Indian Oil Corporation along with its
Udyog Aadhaar Memorandum on web portal of Ministry of MSME,
Government of India and is located in District Gurgaon, State of Haryana. It
is thus a Small Enterprise under the provisions of the Act of 2006. It is
averred that the petitioner has relied on the Arbitration Agreement between
the parties, as per the contract, that has not been taken into consideration by
the Council but such objection is not sustainable since Section 18(4) of the
Act of 2006 empowers the Council to act as a Conciliator and/or Arbitrator
for resolution of a dispute. Section 24 of the Act of 2006 gives an overriding
effect to the provisions under Sections 15 to 23 of the above Act over any
other law. The Facilitation Council would thus have jurisdiction to entertain
and adjudicate the dispute between the parties. It was also averred that
referring the said matter to the empaneled Facilitator is only to expedite
disposal of the arbitration cases and the empaneled Arbitrators are acting
purely on behalf of the Facilitation Council. It is further averred that there is
no violation of the provisions under Section 18(3) of the Act of 2006.
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All the other aspects and contentions have been dealt with in the later part of
the judgment and the same are not being repeated for the sake of brevity.
285. CWP-15506-2020
The petitioner challenges the notice dated 28.08.2020 as
referred to in the notice dated 31.08.2020 (Annexure P-6) whereby the
dispute had been referred to the Arbitrator/Facilitator in a claim filed by M/s
Creative Consortium bearing Case No.1615 of 2020 pertaining to the
delayed payment. As per the case, the respondent No.2 had been awarded a
purchase order dated 20.01.2016 for providing architectural consultancy
service for renovation of its corporate office. The project awarded included
the work from conceptualization stage to completion stage. The schedule for
completion of the project was eight months. The first design was submitted
by respondent No.2 on 18.02.2016 wherein certain modifications were
advised. The revised design was thereafter re-submitted after a delay of five
months i.e. on 08.07.2016 which was not approved and respondent No.2
was advised to submit fresh designs. Notwithstanding that the project was
still at the initial stages, respondent No.2 submitted a bill of Rs.5,98,000/- on
17.03.2017 towards fee and compensation and refused to submit any further
revised drawings. He rather got issued a legal notice dated 02.01.2020
demanding the said amount along with the compensation.
The petitioner-Corporation did not accept the said bill amount
as the designs submitted by respondent No.2 had not been approved and
fresh designed were required. Without attempting to resolve the issue,
respondent No.2 approached the Facilitation Council by filing a claim
petition and demanding the said amount. Notices in question were not
despatched and/or received and the proceedings were initiated. It is
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contended that no effective opportunity of hearing was given and reference
was made to the Arbitrator.
Separate written statement had been filed by respondent No.2
wherein it was averred that presentation had been submitted by respondent
No.2 as required by the petitioner. Various telephone calls/emails/letters
were sent for expeditious approval and finalization of the drawing so that the
work may be commenced. However, the matter was delayed on the part of
the petitioner and the project was delayed without any fault of the
consultant. Respondent No.2 demanded the compensation of Rs.40,000/- per
month as per terms & conditions mentioned in page No.1 of the purchase
orders and instead of paying the same, the matter is being delayed on some
or the other pretext. The answering respondent has worked extensively
without any payment and is willing to complete the work as per terms &
conditions of the contract. He has already incurred huge expenses and the
dues ought to be settled. The other issues raised do not require to be
repeated.
286. CWP-18246-2021
Challenge is to the notice dated 12.01.2021 (Annexure P-4),
order dated 14.07.2021 (Annexure P-9) and order/notice dated 21.08.2021
(Annexure P-8) as per which the reference has been made of the claim
petition filed by respondent No.2 and the matter has been taken up for
arbitration.
The petitioner claims to be engaged in the business of Real
Estate for the last two decades in Gurugram and had entered into a contract
with respondent No.2 for providing security services on 01.09.2015. It is
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averred that the abovesaid agreement was valid for a period of one year
w.e.f. 16.08.2015 to 15.08.2016 and the contract could be renewed on
mutually agreed terms as per "Article 7.1" thereof. The abovesaid agreement
also contained an arbitration/dispute resolution clause as well as the
governing clause in jurisdiction. The said agreement was thereafter extended
for a further period of one year. It was renewed from time to time and the
relationship eventually came to an end on 30.11.2019 when the respondent
No.2 stopped providing services to the petitioner-company after 01.12.2019.
The petitioner-company received an intimation dated 12.01.2021 from the
Council, wherein they were informed of having received an application from
respondent No.2-contractor against the company under the MSME Act. It
was averred that the said respondent had been registered on 25.08.2020 and
since the services in question were provided from September, 2014 to
November 2019, hence, the registration being later in point of time, the
proceedings could not have been initiated by the authorities. It was
observed that resolution of dispute was to take place in accordance with the
agreement amongst the parties in light of the party autonomy. It is averred
that notwithstanding the objections as regards maintainability of the claim,
the Council has proceeded to make a reference of the dispute disregarding
the statutory provisions. Other objections are not being repeated.
Written statement on behalf of respondent No.4 i.e. Facilitation
Council had been filed wherein similar objections had been raised.
A separate reply by contesting respondent No.2 had been filed
reiterating that respondent No.2 had migrated from the Udyog Aadhaar
Memorandum to Udyam Registration on 25.08.2020 and the date of filing of
its Udyog Aadhaar Memorandum is 06.09.2016 which is also mentioned in
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the Udyam Registration Certificate and as such, the claim in question has
rightly been pressed before the Facilitation Council. It was also averred that
the petitioner is raising frivolous objections to delay the payment of
legitimate dues to the respondent and the present petition deserves to be
dismissed.
287. CWP-20917-2021
Petitioner-Union of India has preferred the instant petition
challenging the reference made by the Facilitation Council to the Arbitrator
in Case No.2450 of 2021 on a claim filed by respondent No.2-M/s Ashok
Timber Industries. Apart from the legal issues pertaining to the legitimacy
of the said proceedings under Section 18, it is averred that respondent No.2
is a manufacturer and supplier of Ammunition boxes to Government and
Private Organizations and claims itself to be registered entity under the
MSMED Act.
Respondent No.2 had submitted its bids for the Storage Chest
Assy. whereupon quotation dated 22.09.2008 submitted by respondent No.2
was accepted. The supply order was awarded in favour of respondent No.2-
M/s Ashok Timber Industries vide order dated 03.01.2009. A security
deposit equal to 5% of the value of the supply order was to be deposited.
However, the delivery schedule as prescribed in the supply order was not
forwarded by respondent No.2 due to which the factory suffered losses.
The contractual breach was on part of the supplier. The breach of the
warranty clause had also been detailed out in the petition. It was also
submitted that the defective goods/rejected stores(goods) had to be replaced,
however, the supplier did not replenish the defective goods and insisted that
the petitioner receives the defective goods first and to thereafter deliver the
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replacement. Despite his own lapses, respondent No.2 filed the claim before
the Facilitation Council in February 2021 whereupon the proceedings were
initiated in violation of the statutory provisions.
Since the issues were legal and similar factual disputes were
already raised in other connected petitions, no reply was required to be filed
and arguments were heard.
288(1) CWP-1172-2022
Challenge in the present petition is to the reference letter dated
29.10.2021 (Annexure P-1) and the subsequent proceedings arising
therefrom wherein the claim petition filed by respondent No.2-M/s Fibrex
Construction Chemicals Private Limited has been referred for arbitration by
the Facilitation Council. It has been averred that the petitioner is a
partnership concern established in the year 1996 and is the leading
distributor, trader and exporter of Lexan-Polycarbonate Embossed Sheets
etc. Various proceedings have been initiated against the petitioner in the
State of Haryana including the reference/order dated 29.10.2021 impugned
herein. Reference is made to the sole empaneled Arbitrator without the
consent of the petitioner which is alleged to be in violation of not only the
principle of nature justice but also the procedure contemplated under Section
18 of the Act of 2006. It is averred that respondent No.2-company used to
supply their products which would thereafter be sold by the petitioner to a
final purchaser for a commission. The invoices were always made in the
name of the final purchaser and role of the petitioner was limited to store the
product of respondent No.2. On 06.07.2019, respondent No.2 provided an
order "Epoxy FIBFLOOR SL" which was to be despatched from the
respondent No.2 to the Bangalore address of the petitioner. Subsequently, the
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salesman of the petitioner-firm left the company and the management of
respondent no.2 company came to an agreement with the petitioner to take
back the said goods and to sell the same directly by itself. However, same
could not fructify due to COVID-19 and the lockdown norms imposed.
Respondent No.2 thereafter submitted a claim before the Facilitation
Council instead of taking the goods back and raised a claim dated
12.11.2020 bearing No.2281 of 2021 for a sum of Rs.9,88,245/-. The
petitioner claims that without issuing notice or summons in the proceedings,
the matter was referred to the Sole Arbitrator even though there was no
arbitration clause between the parties. Various other legal arguments
regarding the maintainability of the proceedings before the Facilitation
Council were also raised.
Short reply on behalf of respondent No.1 had been filed in the
present petition wherein it was alleged that the true and correct facts have
not been disclosed by the petitioner. While defending the action of the
Council in referring the matter to the Facilitator, it is submitted that the
Council had initiated conciliation and provided sufficient opportunities to
reconcile the matter on 28.07.2021 as well as on 20.08.2021. The petitioner
was duly served through email on the address "bangalore@jaichittra-com",
however, the petitioner failed to participate in the conciliation proceedings.
Since it was impossible to reconcile the dispute in the absence of the
petitioner, the Council decided to terminate the conciliation proceedings and
forwarded the reference for arbitration.
288(2) CWP-3679-2021
The present petition had been filed challenging the reference
dated 29.10.2021 (Annexure P-5) whereby case No.2802/21/2611 preferred
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by M/s Balaji Manpower Recruitment Private Limited was forwarded to the
empaneled Arbitrator/Facilitator by the Facilitation Council. It has been
averred that the Facilitation Council-respondent No.2 has unilaterally
referred the matter by appointing a sole empaneled Arbitrator under the
provisions of the Act of 2006 and against the principles of natural justice. It
was averred that the petitioner is engaged in the manufacturing of medical
devices such as syringes, insulin syringes, infusion set, blood administration
set and various other medical disposables. The petitioner had entered into a
contract dated 17.04.2019 with respondent No.3 for supply of manpower for
the period from 01.05.2019 to 31.03.2020. The said contract was renewed
between the parties vide contract dated 09.03.2020 wherein the terms &
conditions were more or less the same. The Facilitation Council intimated
the petitioner vide notice dated 29.05.2021 about the receipt of application
under Section 18(1) of the Act of 2006 which had been submitted by
respondent No.3 for a sum of Rs.1,35,87,164/- against invoice No.00581
dated 01.03.2021. The petitioner was advised to make the payment. It is
also averred that the abovesaid invoice was issued by respondent No.3 for a
sum of Rs.40,62,047/- only as per the ledger maintained by respondent No.3.
Challenge was raised to the proceedings on the grounds that are similar and
have already been noticed.
Written statement on behalf of respondent No.3 has also been
filed wherein the said respondent has averred that the petitioner had entered
into a contract with respondent No.3 for the abovesaid period and the
amount in question as claimed is outstanding against the petitioner. A sum
of Rs.22,97,458/- was outstanding as principal amount whereas
Rs.85,70,953/- was payable as over-time amount and there was a payment
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towards termination of contract without notice and also the interest of
Rs.25,61,620/- as per provisions of the Act of 2006. The respondent had
issued last invoice on 21.03.2021 for payment of supply to the petitioner
which was refused by him.
Feeling aggrieved, the respondent filed the claim before the
Facilitation Council. The pleadings between the parties to the dispute were
completed and the arguments have commenced before respondent No.4.
The petitioner never objected to the jurisdiction or appointment of
respondent No.4 and it was only when the matter reached at the stage of
final arguments, the present petition has been filed raising a challenge to the
reference. Other submissions and legal aspects are raised, however, the
same have not been extracted to avoid repetition.
288(3) CWP-22560-2021
The petitioner is challenging the proceedings dated 28.07.2021
by the Facilitation Council in its 239th meeting whereby the Council decided
to send the matter pertaining to the claim filed by respondent No.3-M/s
Fibrex Construction Chemicals Private Limited to the empaneled Arbitrator
for seeking his report/recommendations. The petitioner has averred that
respondent No.3 had served a legal notice dated 11.08.2020 calling upon the
petitioner to pay a sum of Rs.18,43,253/- which was replied on 15.09.2020
denying the liability and submitting that the payments have been made and
that no details qua the account and grounds to claim the abovesaid amount
had been given. Respondent No.3 has submitted a claim whereupon a notice
was sent to the petitioner on 07.04.2021 pointing out the date of hearing is
22.04.2021. When the petitioner put appearance before the Facilitation
Council and thereafter filed its reply, without appreciating the response, the
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dispute in question has been referred to the sole Arbitrator requesting him to
decide the issue and to submit its report/recommendation within a period of
12 weeks from the date of receipt of the case. It is alleged that the
proceedings are in violation of the provisions of the Act of 2006.
Separate reply had been filed on behalf of respondent No.3 who
disputed the contention raised by the petitioner and submitted that the true
and correct genesis of the occurrence had not been disclosed by the
petitioner. It has been pointed out that the proceedings were as per the
statutory mandate and that the liability in question remained undisputed.
Separate reply had also been filed by the Facilitation Council
which affirms its action to be within the domain of the Act of 2006 and there
was no breach or violation.
289(1) CWP-6991-2022
This petition is against impugned notice dated 28.06.2021
(Annexure P-5) whereby the Facilitation Council has sought response from
the petitioner, in a reference filed by respondent No.2-M/s Shree Sai
Facilities under Section 18(1) of the Act of 2006. Further, quashing of
Arbitration proceedings referred to the Sole Arbitrator by the Council was
also sought. It has been averred that respondent No.2- M/s Shree Sai
Facilities, a partnership firm and registered under MSME on 30.03.2021, is
engaged in various kinds of mechanised cleaning of Railway Station
Coaches, Railway buildings and outsourcing of manpower supply along
with catering works etc. A contractual agreement was executed between the
petitioner and respondent No.2 for providing comprehensive cleaning and
sanitation work during the years 2016 to 2018. 17 different
contracts/agreements for comprehensive cleaning and sanitation work had
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been executed between the parties from 2016 to 2018 with similar terms &
conditions. One such contract bearing No.27-Comml/CC/CTG/2017 dated
24.07.2018 has been appended with the petition. Respondent No.2 raised
certain invoices to the petitioner but was involved in a monetary fraud at
Ferozepur Division of the Northern Railways, thereby causing huge loss to
the Indian Railways. The Ambala Division of the Northern Railways was
accordingly apprised by the Ferozepur Division about the involvement of
respondent No.2 in the monetary fraud and a vigilance inquiry against the
said firm was pending. The Ambala Division thus stopped clearances of the
bills/payments.
Respondent No.2 approached this High Court by filing Civil
Writ Petition No.15948 of 2018, titled as "M/s Shree Sai Facilities and
another Versus Union of India and others" seeking directions to the
respondents to release the payment for the outstanding bills for the work
executed. The said petition was dismissed vide order/judgment dated
26.04.2019 holding that the respondent No.2 had an alternative remedy of
arbitration for seeking redressal of its disputes. Notwithstanding the
alternative remedy of an Arbitration prescribed in the contract, respondent
No.2 did not invoke arbitration under the agreement and rather approached
the Facilitation Council in 2021 claiming an amount of Rs.6,14,17,495/-
along with interest. It was also stated that the firm got itself registered under
the Act of 2006 only on 30.03.2021 and has claimed benefit for the services
rendered during the years 2016 to 2018. The petitioner thereafter submitted
its response raising objections regarding the maintainability of the said
reference by the firm before the Facilitation Council. However,
notwithstanding the said objections, the Facilitation Council proceeded with
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the matter and forwarded the case to the empaneled Arbitrator appointed by
the State vide memo dated 07.03.2022. The sole Arbitrator so appointed by
the Facilitation Council also proceeded with the matter. Aggrieved whereof,
the present petition has been filed.
A separate written statement had been filed by respondent No.2
wherein it was averred that the reference in question has been sent to
respondent No.3 for adhoc arbitration. It was further averred that the
challenge to the proceedings has been raised on the ground that Section
18(3) of the Act of 2006 has not been complied with whereas the said
Section empowers the Council to exercise an option amongst various
alternatives including taking up the arbitration by itself. It has also been
pointed out that it was in exercise of the power vested in the Facilitation
Council that the dispute has been referred to the empaneled Arbitrator as per
provisions of Rule 4(16) of the Facilitation Council Rules, 2007 (hereinafter
to be referred as the "Rules of 2007") as per which, when the conciliation
between the parties fails to reach to a settlement, the Council shall either
itself act as an Arbitrator or refer it to an institute for such arbitration to be
conducted in accordance with the provisions of the Arbitration and
Conciliation Act, 1996 read along with Rule 4(17) and (18) of the "Rules of
2007". Reference was also made to the new Rules i.e. The Facilitation
Council Rules, 2021 (hereinafter to be referred as the "Rules of 2021") that
have been notified on 09.11.2021 which provides for a detailed procedure
for making the reference under Rule 6 to contend that respondent No.1-
Facilitation Council has been working within the ambit of the statute and
that even though the Udyam Registration Certificate is of 30.03.2021 and
the agreement in question pertains to the years 2016 to 2018, however, the
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units in question were initially required to be registered in terms of the
Notification dated 29.09.2006 which was superseded vide Notification dated
18.09.2015 issued by the Government of India, Ministry of Micro, Small
and Medium Enterprises providing a different procedure for registration of a
Micro, Small and Medium Enterprise Unit. The respondent had got itself
registered and obtained the Udyog Aadhar Registration Certificate under
respective Notifications. The Udyam Registration Certificate issued last
under the subsequent Notification dated 26.06.2020 is only in continuation
of the earlier registration and as such, the claim had rightly been lodged with
the authorities.
Short separate reply had also been filed by the Facilitation
Council emphasizing to be acting within the aegis of the Act of 2006 and the
Rules notified by the State of Haryana in the year 2007 and subsequently
replaced by the Rules of 2021. Reference was also made to the Rules of
2021 for justifying the proceedings initiated by them.
Separate rejoinder to the reply filed on behalf of the contesting
respondent was also filed by the petitioner denying the averments contained
and reiterating his submissions raised in the writ petition. It is averred that
the name mentioned in the new Registration Certificate is "Shree Sai
Facilityies" which is not the same as "Shree Sai Facilities", as such, the firm
in question is distinct/separate entity, thereby doubting the claim made by
the respondent.
A rejoinder was thereafter also filed by respondent No.2
wherein it was pointed out that the spelling of the name being different was
not sustainable as the Registration Certificate dated 30.03.2021 refers to the
old entity itself and it is only a typographical error and would not preclude
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the claim of respondent No.2 under the Act of 2006. It is also pointed out
that the abovesaid error has also been rectified while re-submitting the
details at the time of getting the Enterprise registered in compliance to the
Notification dated 17.07.2019 as well as the Office Memorandum issued by
the Ministry of MSME dated 06.08.2020. He further contends that the
respondents had also allotted various works to the petitioner during the said
period and on the same Certificate.
289(2) CWP-10294-2022
Challenge is to the order/letter bearing Memo
No.MSME/HFacilitation Council/Case No.2389/21/5486 dated 07.04.2022
(Annexure P-2) whereby case of M/s Rajiv Malhotra Engineering
Consultants Private Limited, Gurgaon had been forwarded to the empaneled
Arbitrator. The petitioner has alleged that respondent No.2 is a Private
Limited Company and is engaged in the business of providing technical
management consultancy services and its Udyam Registration Certificate is
dated 18.03.2021 while the date of incorporation/registration of Enterprises
is of 30.11.2011. The services of respondent No.2 had been engaged by the
petitioner in the year, 2016 vide Technical Management Consultancy
Services Agreement dated 01.01.2016. The scope of services to be rendered
by respondent No.2 included inter alia management and review of
architectural plans/designs and drawings, overseeing technical specifications
of construction related works and optimizing on the available space, cost and
quality of the final constructed work. The real estate sector crashed in the
year, 2017 affecting the entire real estate industry including the petitioner-
company. Additionally, the petitioner-company had also to deal with
unforeseen circumstances including delay in getting statutory approvals
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from the authorities, litigations filed by slum dwellers as well as on account
of the COVID-19 pandemic etc. which resulted in issues pertaining to funds
and liquidity. The company had to also seek financial assistance from
Indiabulls. Respondent No.2, however, submitted an application bearing
No.2389/2021 with the Facilitation Council for repayment of the outstanding
amount, whereupon the petitioner-company was called by the Facilitation
Council on 26.08.2021. It was also pointed out that the petitioner-company
repeatedly attempted to settle the matter, however, the offer was rejected by
respondent No.2. Notwithstanding the statutory mandate, reference has been
made by the Facilitation Council to the Sole Arbitrator for passing an award
leading to the present petition being filed.
Separate written statement on behalf of respondent No.2 was
filed wherein while defending the action of the Facilitation Council, it was
submitted that the petitioner does not intend to resolve the issue in question
and wants to only delay the resolution on some pretext. It was also averred
that the petition is based on misconceived understanding and appreciation of
the provisions of the Act of 2006 and that the impugned memo clearly states
that respondent No.3 had only been appointed to facilitate the Arbitral
proceedings related to the case that was being taken up by the Council only
and respondent No.3 has been appointed by the State Government to
facilitate the Arbitral proceedings. Arbitration in question is not being
conducted by any outside agency and is concluded and final award is passed
only by the Facilitation Council. Other factual aspects have not been
disputed or denied, hence, the same are not being adverted to.
289(3) CWP-10286-2022
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Challenge in the present petition has been raised to the Memo
dated 07.04.2022(Annexure P-2) whereby the Facilitation Council referred
the case of respondent No.2-M/s Rajiv Malhotra Engineering Consultants
Private Limited to the Arbitrator. The petitioner-ERA Realtors Private
Limited is a sister concern of Omkar Realtors & Developers Private
Limited(petitioner in CWP-10294-2022) and the parties had raised the same
issues as have already been noticed above. The pleadings being identical,
are not being reiterated for the sake of brevity and to avoid unnecessary
repetition. As legal questions arose for adjudication, response on facts was
not necessary.
290. CWP-14053-2022
The petitioner raised a challenge to the reference/orders dated
25.08.2021 (Annexure P-5), 29.09.2021 (Annexure P-8) and 17.11.2021
(Annexure P-11) whereby the Facilitation Council has initiated the
proceedings under the Act of 2006 on the complaint filed by M/s Gopal
RMC on the ground that the supply/purchase of ready-mix concrete(RMC)
is not covered under the Public Procurement Policy for Micro and Small
Enterprises Order, 2012 in view of the precedent judgments. It has been
averred that the petitioner is a company that has been awarded works
contract by Telecommunications Consultants India Limited (TCIL) for
execution of the work of renovation/expansion of the existing ESI Hospital
at Okhla, New Delhi which included the works of design, engineering,
construction, building and equipping as well as completion of the hospital in
all respects. Respondent No.2-Gopal RMC was to supply ready-mix
concrete (RMC) with different grades in the above work from 09.02.2018 to
10.09.2019 with specific terms & conditions pertaining to loading,
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unloading and replacement of material in case of any defect or shortfall.
The payment is claimed to have been made to respondent No.2 pursuant to
the work order. In November 2018, an inspection of the project was
conducted by the Chief Technical Examiner of the Central Vigilance
Commission, Government of India wherein it was indicated that the quality
of concrete which was supplied by respondent No.2 and used in the work of
RCC water tanks(Block B), Block C retaining wall was of poor quality and
samples were taken by the CVC team.
On receipt of the inquiry report issued by the Chief Technical
Examiner, it was concluded that the RMC-concrete supplied by respondent
No.2-M/s Gopal RMC was of poor quality and in the event of any defect in
quality, the material supplied was to be replaced/supplied at its own cost as
per Clause 7 of the work orders. Respondent No.2 was thus liable to pay
damages to the petitioner for the losses suffered on account of supply of
poor quality of RMC. Despite pendency of the vigilance inquiry and
notwithstanding the payment having been received by respondent No.2 from
TCIL upto 30.06.2021, respondent No.2 approached the Facilitation Council
alleging that a sum of Rs.30,35,176/- had been wrongly withheld. He
contends that as per settled law, the works contract is not amenable to the
jurisdiction of the Act of 2006 and the Facilitation Council, without taking
into consideration the fact that the supply of ready-mix concrete (RMC) is
not covered under the Public Procurement Policy for Micro and Small
Enterprises Order, 2012, still issued the letter/order dated 25.08.2021
directing the petitioner to pay the due amount to respondent No.2 within a
period of 15 days from the receipt of notice. The petitioner submitted its
reply on 09.09.2021. Even against the abovesaid objections, without taking
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into consideration the replies, reference in question was made. The same
being contrary to the statute and the precedent judgments, proceedings are
bad and liable to be set aside.
Short reply had been filed on behalf of respondent No.1
wherein it defended its action and contended that the petitioner did not
submit any response and raised only one issue i.e. poor quality of the
material and both the parties submitted that there were no chances of
conciliation. It was accordingly on the abovesaid statement made by Sh.
Ram Narayan, who was working as an Accountant of the petitioner that the
matter was referred to the Arbitration. It is contended that the matter is still
pending and all issue regarding maintainability, jurisdiction and the merits of
the claim can be duly raised and shall be taken into consideration. It was
also pointed out that the abovesaid statement of Ram Narayan was duly
recorded in the proceedings on 25.11.2021. The issues that have been raised
were thus stated to be raised for the first time in the High Court alone.
291. CWP-22013-2022
Challenge in the present petition is to the communication dated
07.06.2022 (Annexure P-7) whereby Case No.2613 of 2021 filed by M/s SJ
Wire Industries, Palwal has been forwarded to the empaneled Arbitrator
appointed by the State Government to conduct arbitration proceedings under
the MSME Act, 2006.
The petitioner-company is engaged in the supply of
Transformers for the last two decades in Jaipur, Rajasthan. Petitioner has
raised a challenge to the reference made by the Facilitation Council on the
application submitted by respondent No.2 which is engaged in the business
of providing raw material. The petitioner as well as respondent No.2 have
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been working as business associates since 2018. The petitioner-company
procured raw material from respondent No.2 which alleged delayed
payment on the part of the petitioner which claimed that respondent No.2-
company delayed providing the raw material for which the penalty of half
per cent per week (maximum 5%) has been imposed. Additionally, there
was also debit balances against respondent No.2 which were not accounted
for. The petitioner was required by the Facilitation Council to appear in the
case on 18.11.2021. The petitioner had appeared during the conciliation
proceedings but notwithstanding the defence raised by the petitioner, the
matter was forwarded by the Facilitation Council to the Arbitrator. The
petitioner moved an application before the Sole Arbitrator for dropping the
arbitration proceedings and no decision has been taken thereupon.
Written statement on behalf of respondent No.2 had been filed
wherein it was averred that the institution of the petition by concealment of
true facts is that the petitioner was in default for releasing the payment due
to respondent No.2 and that the proceedings have been rightly initiated.
Separate written statement had also been filed by the counsel
for respondent No.4 wherein they have raised similar objections/defence,
that need not be repeated for brevity.
292. CWP-8863-2023
Challenge in the present petition is to the order dated
14.11.2022 (Annexure P-4) whereby the Facilitation Council had passed an
order in its 282nd meeting held on 10.08.2022 resolving for taking up the
matter for arbitration and to seek the expert legal assistance from the experts
notified by the State Government under the Rules 6(8) and (11) of the
Facilitation Council Rules, 2021.
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The petitioner also challenged the notice issued by the
empaneled Facilitator calling upon the petitioner to appear in the
proceedings before respondent No.3 fixed on 28.01.2023 and advised to
deposit the fee/charge. The petitioner claimed that it had entered into
contract with respondent No.4 prior to 2020 for supply of goods i.e. on
20.11.2017 under the SOR(Sale of Return Basis) Model and another
agreement dated 06.02.2013 under OR (Outright purchase) Model,
respectively. Under the SOR Model, the title to the products passes to the
petitioner only upon invoicing to the customers and respondent No.4 is
obligated to take back the unsold products in terms of the said agreement.
Under the paid SOR/OR model, respondent No.4 has no obligation to take
back the unsold products as the title to the products will pass to the
petitioner upon delivery in terms of the said agreement. Both the said
agreements were for supply of footwear/goods. As per the SOR
arrangement, respondent No.4 was to replenish the stocks once in every six
months. Over the time, as the stocks were not moving, they had to be
necessarily liquidated and the petitioner requested respondent No.4 to offer
discounts in line with other competitive brands to boost the sales of the
products of respondent No.4. He was, however, not willing to offer
discounts as a result whereof the products were not being sold out as
expected. The petitioner thus requested respondent No.4 to take back the
remaining/unsold stocks and to pay the dues of the petitioner as per their
ledger and terminated the agreements. An email dated 29.11.2018 was sent
by the petitioner to respondent No.4 containing the details of unsold stocks
of both the agreements and the amount payable by respondent No.4 to the
petitioner. Another reminder through email was sent on 10.01.2019 calling
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upon respondent No.4 to offer more discount for the sales. However, he was
reluctant to offer more discounts and even failed to take back their unsold
stock back and insisted for payments in lieu of those unsold stocks. The
disputes thus broke out amongst the parties and the petitioner was left with
no other option but to liquidate the unsold stocks of respondent No.4 by
increasing the discount on the stocks. Due to which, the petitioner-company
had incurred huge losses.
Respondent No.4, however, claimed that the petitioner owed
them Rs.91,22,367/-. However, as on date of the agreements, respondent
No.4 was not registered as an MSME. The registration in question took
place on 08.07.2020. Respondent No.4 filed the claim applications on
22.09.2021 claiming the principal amount along with interest as per the
provisions. A notice was thereafter received by the petitioner pertaining to
Case No.3530/2021. He contends that the petitioner was not informed about
any other subsequent proceedings and even the records could not be traced.
The petitioner made detailed submissions regarding maintainability of the
claim in light of the legal positions, however, the Facilitation Council made
a reference to the Arbitrator. No decision has been taken on the
maintainability of the proceedings and the petitioner has not been granted
any opportunity to place the submissions before the authorities. The
proceedings are thus sought to be challenged on the ground that respondent
No.4 was not an MSME entity on the date of contract and therefore, the Act
has no application. Besides, the proceedings were in violation of the
principles of natural justice as well as in violation of Section 18 of the Act of
2006.
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Since the questions involved were only legal, the matter was
heard along with other batch of petitions wherein similar controversies as
regards the scope of Section 18 of the Act of 2006 were raised.
126. CWP-3870-2023
Challenge in the present petition is to the claim application
dated 25.01.2022 as well as reference No.3826/2022 being in conflict with
the law laid down in the precedent judgments. It is averred that respondent
No.2 used to supply raw materials to the petitioner and on 03.10.2021,
petitioner made full and final payment to respondent No.2. There was
nothing due between the parties and no material was ever supplied by
respondent No.2 thereafter. The invoices in question pertain to the year
2019 i.e. before the full and final settlement between the parties. It is also
pointed out that at the time when the business transactions took place
between the parties, respondent No.2 was not registered as a MSME entity
and its registration took place only on 27.08.2021. Respondent No.2
remained silent for the period from the year 2019 till January 2022 and no
demand was raised. Notices were submitted only on 13.01.2022 and the
same were duly responded to. However, notwithstanding the response, the
reference was made for arbitration. The said Arbitrator also issued notices to
the petitioner for conducting the arbitration proceedings notwithstanding that
the petitioner has no liability to make any payment.
127. CWP-5495-2023
Challenge in the present petition is to the submission of claim
before the Facilitation Council and its subsequent reference to the Arbitrator
and issuance of notice to the Arbitrator. The petitioner claims that the
respondent No.2 had supplied raw material to the petitioner-firm upto
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11.03.2020 and has made payment of the purchased raw material to
respondent No.2 through cheque or by account transfer. However,
respondent No.2 was adamant to receive the payment in cash. Various
amounts were received by respondent No.2 in cash on different dates that
have been set out in the petition. However, respondent No.2 has not given
due credit of the amount already received by him in cash and instead wants
to capitalize absence of banking record of the said transactions. An illegal
demand was thereafter raised and that only an amount of Rs.1,00,000/- is
due towards the petitioner as per statement of accounts. It is also submitted
that prior to registration of the petitioner as an MSME unit, he had filed a
civil suit before the Civil Judge (Senior Division), Yamuna Nagar for the
recovery as well and all the aforesaid facts have not been noticed by the
Facilitation Council before making a reference for arbitration.
128. CWP-7410-2023
The issues raised in the present petition are identical to the
issues raised in CWP-12338-2019. Notice in the present case happens to be
issued on 06.09.2022 on a reference filed by M/s Sarthak Engineering. The
petitioner claims to be in the business of manufacturing edible oil and
mainly operates in South India. Respondent No.4 approached the petitioner
for supply of a machine i.e. (Oil Refinery Separator) in the year 2018. The
quotation was accepted on 05.01.2018 resulting in finalization of a contract.
The purchase order was thereafter placed. An advance payment was also
released in favour of respondent No.4. However, the machinery so supplied
never worked as a result whereof, the petitioner suffered heavy losses.
Various communications were exchanged between the parties about the
machine not being upto the standards and seeking replacement/repairs
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therein. The petitioner suffered tremendous loss as a result of sub-standard
machine supplied by respondent No.4. It was also pointed out that
respondent No.4 got its Udyam Registration Certificate on 13.10.2020
whereas a claim petition was filed on 18.08.2022. It is thus contended that
the agreement in question had been entered much prior to the registration of
the respondent as MSME unit and resultantly, the claim in question is not
maintainable.
129. CWP-9235-2023
Challenge in the present petition is to the notice dated
17.03.2023 (Annexure P-1) passed by respondent No.2. The issues raised by
the petitioner in the present writ petition are identical to the issues raised in
CWP-20917-2021, the same are not being reiterated accordingly. It has
been contended that an issue has been raised as regards the respondent not
being an MSME unit as on the date the parties entered into the business
relationship.
QUESTIONS:
The questions which primarily arise for adjudication in the
present batch of petitions are:-
(1) Whether the conduct of conciliation under Section 18(2)
of the Act of 2006 is mandatory pre-requisite for commencement of
adjudication by way of arbitration under Section 18(3) of the Act of 2006.
(2) Whether the MSME/Facilitation Council could appoint a
Facilitator/Sole Arbitrator/Expert under Section 18(3) of the Act of 2006 and
as to whether the award passed by such Sole Arbitrator is a valid award in
terms of the Act of 2006.
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(3) Whether the Facilitation Council could have engaged a
Facilitator to submit a report and as to whether an award based on such
report would be in conformity with the object of the Act of 2006.
(4) Whether the Facilitation Council would have jurisdiction
to entertain the disputes instituted before it for a period prior to registration
of the claimant as a Micro, Small and Medium Enterprise under the Act of
2006 even though the invoice may have been raised after the registration.
(5) Whether the entire process of conciliation and arbitral
award has to be passed within the time period specified under Section 18(5)
of the Act of 2006 failing which the award would be vitiated.
(6) Whether the Facilitation Council would be competent to
examine the counter-claims during the course of conciliation/adjudication
brought before it.
(7) Whether the proceedings before the Facilitation Council
in relation to a work's contract would be not maintainable.
(8) Whether an award that has been passed in violation of
law can be set aside under writ jurisdiction despite alternative remedy(ies).
STATUTORY PROVISIONS
Before proceeding further into the matter, certain essential
statutory provisions are being extracted here-in-after-below:-
Micro, Small and Medium Enterprises Development Act, 2006
"Section-2(b): "appointed day" means the day following
immediately after the expiry of the period of fifteen days from
the day of acceptance or the day of deemed acceptance of any
goods or any services by a buyer from a supplier.
Explanation.--For the purposes of this clause,--
(i) "the day of acceptance" means,--
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(a) the day of the actual delivery of goods or the
rendering of services; or
(b) where any objection is made in writing by the buyer
regarding acceptance of goods or services within fifteen
days from the day of the delivery of goods or the
rendering of services, the day on which such objection is
removed by the supplier;
(ii) "the day of deemed acceptance" means, where no objection
is made in writing by the buyer regarding acceptance of goods
or services within fifteen days from the day of the delivery of
goods or the rendering of services, the day of the actual
delivery of goods or the rendering of services;
(d) "buyer" means whoever buys any goods or receives any
services from a supplier for consideration;
(e) "enterprise" means an industrial undertaking or a business
concern or any other establishment, by whatever name called,
engaged in the manufacture or production of goods, in any
manner, pertaining to any industry specified in the First
Schedule to the Industries (Development and Regulation) Act,
1951 (65 of 1951) or engaged in providing or rendering of any
service or services;
(g) "medium enterprises" means an enterprise classified as
such under sub-clause (iii) of clause (a) or sub-clause (iii) of
clause (b) of sub-section (1) of section 7;
(h) "micro enterprise" means an enterprise classified as such
under sub-clause (i) of clause (a) or sub-clause (i) of clause (b)
of sub-section (1) of section 7;
(k) "prescribed" means prescribed by rules made under this
Act;
(n) "supplier" means a micro or small enterprise, which has
filed a memorandum with the authority referred to in sub-
section (1) of section 8, and includes,--
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(i) the National Small Industries Corporation, being a
company, registered under the Companies Act, 1956 (1 of
1956);
(ii) the Small Industries Development Corporation of a
State or a Union territory, by whatever name called,
being a company registered under the Companies Act,
1956 (1 of 1956);
(iii) any company, co-operative society, trust or a body,
by whatever name called, registered or constituted under
any law for the time being in force and engaged in
selling goods produced by micro or small enterprises and
rendering services which are provided by such
enterprises."
Chapter V
Delayed payments to Micro and Small Enterprises
"15.Liability of buyer to make payment.--Where any supplier
supplies any goods or renders any services to any buyer, the
buyer shall make payment therefor on or before the date agreed
upon between him and the supplier in writing or, where there is
no agreement in this behalf, before the appointed day:
Provided that in no case the period agreed upon between the
supplier and the buyer in writing shall exceed forty-five days
from the day of acceptance or the day of deemed acceptance.
16. Date from which and rate at which interest is payable.--
Where any buyer fails to make payment of the amount to the
supplier, as required under section 15, the buyer shall,
notwithstanding anything contained in any agreement between
the buyer and the supplier or in any law for the time being in
force, be liable to pay compound interest with monthly rests to
the supplier on that amount from time the appointed day or, as
the case may be, from the date immediately following the date
agreed upon, at three times of the bank rate notified by the
Reserve Bank.
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17. Recovery of amount due.--For any goods supplied or
services rendered by the supplier, the buyer shall be liable to
pay the amount with interest thereon as provided under section
16.
18.Reference to Micro and Small Enterprises Facilitation
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
disputes 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.
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(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.
20.Establishment of Micro and Small Enterprises Facilitation
Council.--The State Government shall, by notification,
establish one or more Micro and Small Enterprises Facilitation
Councils, at such places, exercising such jurisdiction and for
such areas, as may be specified in the notification.
21. Composition of Micro and Small Enterprises Facilitation
Council.--(1) The Micro and Small Enterprise Facilitation
Council shall consist of not less than three but not more than
five members to be appointed from amongst the following
categories, namely:--
(i) Director of Industries, by whatever name called, or any
other officer not below the rank of such Director, in the
Department of the State Government having administrative
control of the small scale industries or, as the case may be,
micro, small and medium enterprises; and
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(ii) one or more office-bearers or representatives of
associations of micro or small industry or
enterprises in the State; and
(iii) one or more representatives of banks and financial
institutions lending to micro or small enterprises; or
(iv) one or more persons having special knowledge in the field
of industry, finance, law, trade or commerce.
(2) The person appointed under clause (i) of sub-section (1)
shall be the Chairperson of the Micro and Small Enterprises
Facilitation Council.
(3) The composition of the Micro and Small Enterprises
Facilitation Council, the manner of filling vacancies of its
members and the procedure to be followed in the discharge of
their functions by the members shall be such as may be
prescribed by the State Government.
22.Requirement to specify unpaid amount with interest in the
annual statement of accounts.--Where any buyer is required
to get his annual accounts audited under any law for the time
being in force, such buyer shall furnish the following additional
information in his annual statement of accounts, namely:--
(i)the principal amount and the interest due thereon (to be
shown separately) remaining unpaid to any supplier as at the
end of each accounting year;
(ii) the amount of interest paid by the buyer in terms of Section
16, along with the amount of the payment made to the supplier
beyond the appointed day during each accounting year;
(iii) the amount of interest due and payable for the period of
delay in making payment (which have been paid but beyond the
appointed day during the year) but without adding the interest
specified under this Act;
(iv) the amount of interest accrued and remaining unpaid at the
end of each accounting year; and
(v) the amount of further interest remaining due and payable
even in the succeeding years, until such date when the interest
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dues as above are actually paid to the small enterprise, for the
purpose of disallowance as a deductible expenditure under
Section 23.
23.Interest not to be allowed as deduction from income.--
Notwithstanding anything contained in the Income-tax Act,
1961 (43 of 1961), the amount of interest payable or paid by
any buyer, under or in accordance with the provisions of this
Act, shall not, for the purposes of computation of income under
the Income-tax Act, 1961, be allowed as deduction.
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.
Chapter VI:: Miscellaneous
26.Appointment of Officers and other employees. (1) The
Central Government or the State Government may
appoint such officers with such designations and such
other employees as it thinks fit for the purposes of this
Act and may entrust to them such of the powers and
functions under this Act as it may deem fit.
(2). The Officers appointed under sub section (1) may,
for the purposes of this Act, by order require any person
to furnish such information, in such form, as may be
prescribed.
(Emphasis supplied)
HARYANA MICRO SMALL ENTERPRISES FACILITATION
COUNCIL RULES, 2007
"2. In these rules, unless the context otherwise requires,-
(d) "Council" means the Haryana Micro and Small Enterprises
Facilitation Council, established by the Government under
section 20 of the Act;
(g) "institute" means any institute or centre providing alternate
dispute resolution services referred to in sub-sections (2) and
(3) of section 18;
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3. (a) The Council shall consist of the following members
namely:-
(1) The Director of Industries and Commerce, Haryana. :
Chairperson
(2) The General Manager, Haryana Financial Corporation or
his representative not below the rank of Assistant General
Manager. : Member
(3) The Company Secretary, Haryana State Industrial and
Infrastructure Development Corporation. :Member
(4) The President or his representative not below the rank of
General Secretary of a prominent Industrial Association in the
State. : Member
(5) Technical Expert (Mechanical Engineer), Department of
Industries and Commerce, Haryana.
xx xx xx xx
4. (3) The Council may appoint/or engage the services of one
or more experts in terms of section 26 of the Arbitration and
Conciliation Act, 1996 (26 of 1996).
xx xx xx xx
(6) The reference/application in Form 1 of the aggrieved micro
or small enterprise supplier shall contain full particulars of the
petitioner supplier and its status, supplied goods or services,
terms of payment, if any, agreed to between the supplier and
buyer, actual payment received with date, amount due and the
interest duly calculated under section 16, supported by an
affidavit, with necessary court fee stamp affixed thereon
alongwith initial deposit towards costs of an amount of rupees
one thousand by way of demand draft in the name of the
Council. The Chairperson may require any petitioner to provide
further particulars of the claim or any relevant documents in
support of the claim as he may consider necessary for the
purpose of the proceedings. If the petitioner fails or omits to do
so within fifteen days of receipt of such communication or
within such further times as the Chairperson may, for sufficient
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cause, allow, the Council may terminate the proceedings
without prejudice to the right of the petitioner to make fresh
reference if he is otherwise entitled so to do. The petitioner
shall also simultaneously send a copy of the reference to the
buyers or buyers against whom the reference is directed.
(7) The reference/application shall be acknowledged forthwith
if it is delivered at the office of the Council. Where the
reference/application is received by registered post, its receipt
shall be acknowledged on the same day. The Council may
require any petitioner supplier to provide any better statement
or particulars of claim or any further documents in support of
the claim as it may consider necessary for the purpose of the
proceedings and if the petitioner supplier fails or omits to do so
within thirty days of receipt of any such communication or
within such further time as the Council may, for sufficient
cause, allow, the Council may terminate the proceedings
without prejudice to the right of the petitioner to make any fresh
reference if he is otherwise entitled so to do. The Chairperson
shall cause the buyer in Form 2 to furnish his detailed response
to the reference.
(8) On receipt of a reference under section 18, the Chairperson
shall cause the reference and the buyers response thereto to be
examined and, on being satisfied with the reference making a
prima-facie case of delayed payment, cause the reference to be
placed before the Council at its next immediate meeting for
consideration. The Chairperson shall also ensure that each
reference received within two weeks of the date of the last
preceding meeting of the Council is examined and, if found in
order, is placed for consideration of the Council at its next
immediate meeting. The Council shall if it is satisfied that, on
the facts stated therein, it has jurisdiction to proceed with the
reference and that the petitioner is entitled under the Act to
make a reference, cause a copy of the statement of claim to be
sent by registered post to the respondent along with copies of
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the attached documents and issue notice in Form 2 to the
respondent asking him to furnish within fifteen days of receipt
of the reference by the buyer or within such further time not
exceeding fifteen days, as he may, for sufficient cause allow, a
response to the reference in Form 3 with such documents and
facts in support of his defense or having a bearing on the
matter under reference together with his half share of deposit
for costs in such manner as may be specified therein and within
the time allowed to the respondent for furnishing his response
to the reference.
(9) A copy of the notice in Form 2 shall also be sent by
registered post to the petitioner along with a notice in Form 4
calling upon the petitioner to pay a further amount after
adjusting the initial deposit made by him towards his half share
of deposit for costs in such manner as may be specified therein
and within the time allowed to the respondent for furnishing his
response to the reference.
(10) The Council may, on an application made by the
respondent showing sufficient cause, allow such further time
for the response to the reference as it may consider fit but not
exceeding thirty days form the date of dispatch of notice to the
respondent of the notice under sub-rule(1).
(11) On receipt of the response to the reference and if the
amount of deposits has been paid by the parties, the Council it
shall send a copy of the response to the reference to the
petitioner and fix a date for appearance and hearing of the
parties and issue notice by registered post in Form 5.
(12) If the respondent fails or omits to send a response to the
reference within the time allowed to him, the Council shall
proceed to fix a date for appearance and hearing of the parties
and issue notice by registered post in Form 5.
Provided that if the respondent has failed or omitted to
pay his share of the deposit, the council shall call upon the
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petitioner to pay the share also within fifteen days of receipt of
the notice.
Provided further that if the petitioner has not paid the
aforesaid share, the Council may suspend or terminate the
proceedings.
(13) At the first hearing, the Council shall not proceed to enter
upon the merits of the subject matter in dispute, till it has
decided on any challenge to jurisdiction or any challenge to
any of its member.
(14) The Council shall either itself conduct conciliation in each
reference placed before it or seek the assistance of any institute
or centre providing alternate dispute resolution services by
making a reference to such an institution or centre, for
conducting conciliation. The provisions of sections 65 to 81 of
the Arbitration and Conciliation Act, 1996 (26 of 1996), shall
apply to such a reference as if the conciliation was initiated
under Part III of that Act.
(15) The Council or the institute to which the dispute has been
referred for conciliation, shall require the petitioner supplier
and the respondent buyers concerned to appear before it by
issuing notices to both parties in this behalf. On appearance of
both parties, the Council or the institute shall first make efforts
to bring about conciliation between the buyer and the supplier.
The institute shall submit its report to the Council within fifteen
days of reference from the Council or within such period as the
Council may specify.
(16) When such conciliation does not lead to settlement of the
dispute, the council shall either itself act an arbitrator for final
settlement of the dispute or refer it to an institute for such
arbitration, in accordance with the provisions of the Arbitration
and Conciliation Act, 1996 (26 of 1996). The supplier or the
buyer may, either in person or through his lawyer registered
with any court, present his case before the Council or the
institute during the arbitration proceedings. The institute shall
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submit its report to the Council within such time as the Council
may stipulate.
(17) Any decision of the Council shall be made by a majority of
its members present at the meeting of the Council.
(18) Copy of proceedings of the Council shall be made
available to the petitioner and respondent on written request.
(19) The Council shall make an arbitral award In accordance
with section 31 of the Arbitration and Conciliation Act 1996,
(26 of 1996) and within the time specified in sub- section (5) of
section 18 of the Act. The award shall be stamped in
accordance with the relevant law in force. Copies of the award
shall be stamped in accordance with the relevant law in force.
Copies of the award shall be made available within seven days
of filing of an application."
HARYANA MICRO SMALL ENTERPRISES FACILITATION
COUNCIL RULES, 2021
"3. (1) The Council shall consist of the following members,
namely :-
(a) An officer from the Micro, Small and Medium Enterprises
Department, Haryana, not below the rank of Director;
Chairperson
(b) An officer from the office of Financial Advisor, Haryana
Bureau of Public Enterprises, not below the rank of Group-A
officer; Member
(c) An officer from the Administration of Justice Department,
Haryana, not below the rank of Deputy District Attorney;
Member
(d) The President or his representative not below the rank of
General Secretary of Micro and Small Industries Association in
the State of Haryana appointed by the State Government; Non-
official Member
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(e) An officer from the Micro, Small and Medium Enterprises
Department, Haryana, not below the rank of Joint Director.
Member Secretary.
xx xx xx xx
6. (1) An aggrieved Micro and Small Enterprise supplier
registered within the State of Haryana, may move reference to
the Council in Form-I with interest calculation in Form-II
alongwith supportive documents and soft copy of the reference.
The reference shall be accompanied with fees of rupees three
thousand five hundred i.e. one thousand rupees towards
application fee and two thousand five hundred rupees towards
administrative expenses by way of demand draft/ Cheque/
NEFT in favour of the Chairperson of the Council. An
aggrieved Micro and Small Enterprise supplier shall also
submit an undertaking in Form-III to the extent that he has not
moved a reference before any Civil Court on the same dispute.
The aggrieved Micro and Small Enterprise supplier shall also
simultaneously send a copy of the reference along with
complete set of documents to the buyer or buyers against whom
the reference is made.
(2) Upon receipt of reference from the Micro and Small
Enterprise supplier, the Council shall enter the data in the
official web portal created for this purpose.
(3) After entering the data, acknowledgement of the receipt of
reference shall be issued by the Council to the Micro and Small
Enterprise supplier through digital mode of communication.
(4) The Council shall examine the reference at preliminary
stage to check regarding fee or competency of Micro and Small
Enterprise supplier to file the reference. In case the particulars
entered in the reference are not found as per provisions of the
Act or rules made thereunder, the Council shall give an
opportunity to the said supplier with the request to supply the
requisite information/documents within such period as
specified in the notice. If the supplier fails to supply the above
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said information/documents within specified period to the
Council then the reference shall be returned in original without
taking further necessary action.
(5) The Council shall, if satisfied with the facts stated in the
reference that the Micro and Small Enterprise supplier is
entitled to make a reference under the provisions of the Act or
rules made thereunder, shall issue a notice to the respondent
alongwith a copy of the statement of claim and other documents
attached to the reference by registered post or any digital mode
of communication, asking him to furnish a response to the said
reference within fifteen days of receipt of the said notice
alongwith fees of two thousand five hundred rupees towards the
administrative expenses by way of demand draft/ Cheque/
NEFT in favour of Chairperson of the Council.
(6) The Council shall take action in the reference as per
provisions specified in subsection (2) of section 18 of the Act.
The notice shall be issued to the parties through speed post or
any digital mode of communication.
(7) If the reference is sent by the Council to any institution, the
said institution shall make efforts to bring about conciliation
and shall submit its report to the Council within fifteen days of
sending the reference by the Council or within such period as
the Council may specify.
(8) Where conciliation initiated under sub-rule (7) is not
successful and stands terminated without any settlement
between the parties, the Council shall take-up the dispute for
arbitration as per the provisions specified in sub-section (3) of
section 18 of the Act. The notice shall be issued to the parties
through speed post or any digital mode of communication.
(9) If the matter is referred to the institution, the institution
shall arbitrate the issue as per provisions of the Arbitration and
Conciliation Act, 1996 (Central Act 26 of 1996) and refer the
award to the Council.
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(10) The Council shall conduct its proceedings through
physical appearance or video conferencing as deemed fit.
(11) The Council shall consider the arbitral findings/reports
and recommendations and pass appropriate final award/order
in the matter.
(12) The Council may appoint/or engage the services of one or
more experts in terms of section 26 of the Arbitration and
Conciliation Act, 1996 (Central Act 26 of 1996) for taking
assistance while conducting the proceedings."
(Emphasis supplied)
CONSIDERATION:
QUESTION NO.1
Whether the conduct of conciliation under Section 18(2) of the
Act of 2006 is a mandatory pre-requisite for commencement of adjudication
by way of arbitration under Section 18(3) of the Act of 2006?
ARGUMENT OF THE PETITIONERS
An argument has been raised by the petitioners that the
conciliation proceedings stipulated under Section 18(2) of the Act of 2006
has to be mandatorily resorted to before a reference under Section 18(3) can
be made and that in the absence thereof, initiation of the arbitration
proceedings by the respondent-Facilitation Council/Sole Arbitrators would
be vitiated and liable to be set aside in a challenge before the High Court
notwithstanding that the petitioners may have an alternative remedy under
Section 19 of the Act of 2006. It is further contended that the adjudication of
the dispute by way of an arbitration can commence under the statutory
scheme only after the conciliation has failed. They further argue that when
statute requires a thing to be done in a particular manner, the same has to be
done accordingly and a breach thereof would render the proceedings liable
to be set aside.
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ARGUMENT BY THE RESPONDENTS
Counsel for the respondents contend that the scheme of the Act
does not mandate that a reference to the Arbitration, without following the
conciliation would be vitiated. If the legislative intent would have been
such, it would have prescribed the above consequences. Hence,
notwithstanding the expression used in the statute for reference for
arbitration under section 18(3) of the Act of 2006, however, the same was
not intended to be mandatory. The procedural requirement has to be
interpreted for furtherance of the statutory objective and not as a means to
scuttle an early adjudication of the disputes pertaining to the micro and small
enterprises.
ANALYSIS AND CONCLUSION:
I have heard the learned counsel for the respective parties and
have gone through the impugned record of the file.
The Statutory scheme uses a specific expression "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........." and lays down the
procedural stage at which the adjudication by way of arbitration is to be
conducted. Conciliation is thus the first endeavour to be made by the
Facilitation Council on registration of the claim and adjudication by way of
arbitration is to be initiated after failure of conciliation.
It is a basic rule of interpretation that the words have to be first
assigned their plain and simple meaning unless such meaning is not in
consonance with the scheme or object of the Statute or is likely to lead an
absurd final outcome. Once a statute prescribes a way for certain things to be
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done, the same have to be done in the said manner, is again a settled
cardinal legal principle. The stages having been prescribed by the statute are
required to be given effect to and the legislative intent cannot be diluted or
be rendered meaningless by assigning an interpretation that the steps and
stages can be skipped notwithstanding the letter of the statute.
The issue in question has been examined by the Hon'ble
Supreme Court in the matter of M/s Silpi Industries Versus Kerala State
Road Transport Corporation, 2021 SCC OnLine SC 439 as per which the
conciliation proceeding under Section 18(2) of the Act of 2006 has been
held as mandatory for commencement of arbitration under Section 18(3) of
the Act of 2006. Failure of the conciliation being a pre-requisite, the
requirement becomes mandatory before reference for arbitration is made.
Such conciliation proceedings may however be undertaken by the Council
itself or through any other agency providing Alternative Dispute Resolution
as per the provisions of the Act of 2006.
In view of the judgment of the Hon'ble Supreme Court referred
to above, it is well-settled that the Facilitation Council must take recourse to
the process of conciliation before reference for arbitration under section
18(3) can be proceeded with.
2. Whether the MSME/Facilitation Council could appoint a
Facilitator/Sole Arbitrator/Expert under Section 18(3) of the Act of 2006 and
as to whether the award passed by such Sole Arbitrator is a valid award in
terms of the Act of 2006?
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3. Whether the Facilitation Council could have engaged a
Facilitator to submit a report and as to whether an award based on such
report would be in conformity with the object of the Act of 2006?
ARGUMENT OF PETITIONERS
Both these issues being inter-connected, the same are being
dealt with together. Learned counsel for the petitioners have vehemently
argued that the respondent-Facilitation Council has been conducting
proceedings in violation of the provisions of the Act of 2006 and has been
making references to the Sole Arbitrators to pass an award which is
impermissible. It is for the Facilitation Council to conduct the arbitration
proceedings either by itself or through any institution or centre providing
alternative disputes resolution services. They contend that engagement of
the Sole Arbitrators not being a reference of arbitration to an institution or
centre providing alternative dispute resolution, the references made by the
Facilitation Council to Sole Arbitrators are per se in conflict with the statute.
Proceedings thus suffer from an illegality and are hence liable to be set aside
by the High Court in exercise of its powers of judicial review under Articles
226/227 of the Constitution of India despite alternative remedy(ies) available
under the statute to challenge the final award. It would be a travesty of
justice to direct that the aggrieved petitioners should first exhaust their
remedy(ies) as per the Act of 2006 and be subjected to aggravated hardship
of mandatory pre-deposit of 75% to challenge an award when the
proceedings suffer from procedural impropriety, lack of authority and are not
in consonance with the statutory scheme. When the procedure for challenge
is stringent, it is all the more essential for the Council to conduct its
proceedings as per procedure prescribed by law.
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Reference is also made to notices/information sent by the
Haryana Micro, and Small Enterprises Facilitation Council and the notices
sent by the Arbitrators/Facilitators to the parties. An illustrative extract of
Memo No.TS/Facilitation Council/Case no. 921/19/7566-A dated
29.03.2019 in Civil Writ Petition No.12338 of 2019 is reproduced below.
Similar notices have also been issued in other cases by the Facilitation
Council.
"From
Chairman Facilitation Council -cum-
Director General of Industries & Commerce, Haryana
30-Bays Building, Sector-17,
Chandigarh.
To
Sh. C.B. Jaglan,
District & Sessions Judge (Retd.),
Flat no. D-503, Alaknanda Society,
Sector-56, Gurgaon.
Memo No. TS/Facilitation Council/Case no. 921/19/7566-A
Dated, Chandigarh, the 29.03.2019
Subject: In the matter of M/s. Paltech Cooling Towers &
Equipments Ltd. Gurgaon Vs. M/s. Indian Oil Corporation Ltd.,
West Bengal (Case No. 921/19)- delayed payments.
Kindly refer to the subject cited above.
2. It is Informed that the Facilitation Council in its 153th
meeting held on 13.03.2019 has decided to refer the case to the
Arbitrator empaneled by the Government order no. 2/5/13-IIB-
II-2006 dated 24.10.2013, 08.08.2014 & 23.06.2015 as the
buyer/supplier failed to come to any kind of conciliation. As per
provisions contained under section 18 (5) of Act of 2006 the
dispute regarding the delayed payment is required to be
decided with in a period of 90 days by way of
conciliation/arbitration.
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3. As such, the case no. 921/19 is being sent to you for
arbitration preferably within a period of 12 weeks under
Chapter V of Micro Small & Medium Enterprises Development
Act, 2006 and the Facilitation Council Rules, 2007 made there
under.
4. It is further submitted that under section 16 of the Act of
2006, where any buyer fails to make payment of the amount of
the supplier, as required under section 15, the buyer shall,
notwithstanding anything contained in any agreement between
the buyer and the supplier or in any law for the time being in
force, be liable to pay compound interest with monthly rests to
the supplier on that amount from the appointed day or, as the
case may be, from the date immediately following the date
agreed upon, at three times of the bank rate notified by the
Reserve Bank.
5. The file containing page no. 1 to 293 noting page 1 to 4 are
enclosed herewith."
Reference is also made to the communication sent by the Sole
Arbitrator/Facilitator to the respective parties and copy of one such notice
sent by the Arbitrator/Facilitator in CWP No.12338 of 2019 reads thus:-
"Arbitration Case No. 921 of 2019.
Before Sh. C B JAGLAN, Distt & Sessions Judge (Retd.), Sole
Arbitrator
To M/s. Indian Oil Corporation Limited through CEO
Haldia Refinery, Purba Medinipur, West Bengal 721606
Subject In the matter of M/S Paltech Cooling Towers &
Equipments Limited Gurgaon versus M/s Indian Oil
Corporation Limited West Bengal (Case of delayed payment)
Please take notice I have been appointed sole Arbitrator
by the Chairman HMSEFC Director of Industries and
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Commerce, Haryana, in the dispute between the subject cited
parties per clause of Chapter V of Micro, Small and Medium
Enterprises Development Act, 2006
So you are called upon to appear before the undersigned on 19-
4-2019 at 3:00 PM at the address given below in person or
through pleader or a duly authorised person able to answer
and reply question/reply/points relating to arbitration in
support of your case.
Please take notice that in case of your non appearance on the
date fixed action in accordance with law, would be taken in the
matter without any further intimation/notice to you."
Referring to the aforesaid, counsel contend that the
communication sent by the Facilitation Council itself shows that the matter
in question has been referred to the Arbitrator empaneled by the Government
for passing of the award and that even at the stage of making the reference,
the Facilitation Council has pre-determined the liability to pay compound
interest with monthly rest. The Facilitation Council having recorded an
expression about outstanding amount and the liability of the petitioner, has
suggested the Arbitrator/Facilitator to submit his award/report against the
buyer.
They further draw attention to the communication received
from the Arbitrator and contend that the notices issued to them establish that
such Arbitrators conduct proceedings in such capacity even though they do
not fall under the definition of an 'Institute' or ' any other Centre Providing
Alternative Dispute Resolution Services '. All proceedings undertaken by
the Sole Arbitrator are thus non-est, without jurisdiction, in conflict with law
and hence are liable to be set aside.
Counsel also argued that the respondents have justified making
of a reference to the Sole Arbitrator/empaneled Facilitator by relying on the
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Rules notified by the State of Haryana and that in the absence of any such
enabling provisions in the statute, the Rule would be in conflict with the
statute.
They claim that the Arbitration and Conciliation Act, 1996 is a
complete code unto itself and that the procedure prescribed thereunder is
required to be followed by the Facilitation Council. Even though the
provisions of the Arbitration and Conciliation Act, 1996 do not prohibit
engagement of any expert for assisting the Arbitration, however, authority of
the expert is limited to a reference to be made for his opinion. The reference
to the expert has not been prescribed due to which the experts are passing
the award instead of submitting any report on the issue.
Counsel for the petitioners have placed reliance on the
following judgments to substantiate their arguments on the issue as to
whether arbitration proceedings have to be conducted by the Facilitation
Council itself or/can be referred to an institution or council and cannot be
referred to a Sole Arbitrator. A reference is made to the judgment in the
matter of M/s Silpi Industries etc. Versus Kerala State Road Transport
Corporation and another etc.(supra):-
"18. ..................... 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,
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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.
...........................................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 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. ................"
While advancing arguments that the provisions of Section 18(3)
do not permit any non-institutional Arbitration, they have placed reliance on
the judgment of Delhi High Court in the matter of Bharat Heavy Electricals
Limited Versus The Micro and Small Enterprises Facilitations Centre and
another, 2017 SCC OnLine Del 10604:-
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"17. It is at once clear that the provision of Section 18(3) of the
Act do not leave any scope for a non-institutional arbitration.
In terms of Section 18 (3) of the Act, it is necessary that the
arbitration be conducted under aegis of an institution either by
MSEFC or under the aegis of any "Institution or Centre
providing alternate dispute resolution services for such
arbitration.
*************
***************
28. This Court - for the reasons as stated hereinbefore - is
unable to subscribe to the view that there is no inconsistency
between the arbitration agreement and section 18(3) of the Act;
Section 18(3) contemplates only an institutional arbitration and
not an ad hoc arbitration. In the present case, the provision that
only BHEL would appoint the arbitrator, plainly, runs contrary
to the mechanism under section 18(3) of the Act. Further, in
terms of Section 19 of the Act, the award rendered pursuant to
an arbitration under Section 18(3) of the Act cannot be assailed
by the party (other than the supplier), without depositing
seventy-five percent of the amount awarded. Concededly,
Section 19 would be inapplicable to an award, which is
rendered pursuant to an arbitration that is not conducted in
terms of Section 18(3) of the Act."
Counsel also referred to the judgment of a Division Bench of
Allahabad High Court in the matter of Paper and Board Convertors Versus
U.P. State Micro and Small Enterprises and others, 2014 SCC OnLine All
5825:-
"14. Under sub-section (4) of Section 18, this position is made
abundantly clear because it stipulates that notwithstanding
anything contained in any other law for the time being in force,
the 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
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between a supplier located within its jurisdiction and a buyer
located anywhere in India.
15. The petitioner invoked the provisions of the 2006 Act by
filing a reference to the Facilitation Council on 3 October 2011.
There was undoubtedly a dispute between the petitioner and the
respondents in regard to the claim of the petitioner arising out
of non payment of its bills. The respondents appointed a sole
arbitrator on 5 October 2011 after the petitioner had invoked
the intervention of the Facilitation Council on 3 October 2011
under Section 18 of the 2006 Act. Once the jurisdiction of the
Facilitation Council has been validly invoked, the Council has
exclusive jurisdiction to enter upon conciliation in the first
instance and after conciliation has ended in failure, to refer the
parties to arbitration. The Facilitation Council could either
have conducted the arbitration itself or could have referred the
parties to a centre or institution providing alternate dispute
resolution services. The Facilitation Council was clearly in
error in entertaining the objection filed the respondents and
referring the petitioner to the sole arbitrator so designated by
the respondents.
16. The non-obstante provision contained in sub-section (1) of
Section 18 and again in sub-section (4) of Section 18 operates
to ensure that it is a Facilitation Council which has jurisdiction
to act as an arbitrator or Conciliator in a dispute between a
supplier located within its jurisdiction and a buyer located
anywhere in India. The Facilitation Council had only one of the
two courses of action open to it: either to conduct an
arbitration itself or to refer the parties to a centre or institution
providing alternate dispute resolution services stipulated in
sub-section (3) of Section 18.
17. In this view of the matter, the impugned order of the
Facilitation Council directing the parties to a reference before
the sole arbitrator appointed by the respondents was manifestly
illegal. We would, accordingly, have to allow the petition and
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set aside the impugned order dated 13 February 2014. We
order accordingly."
ARGUMENTS BY RESPONDENTS
Learned State Counsel has, on the other hand, argued that the
Act of 2006 had been introduced with an object to provide for facilitating
promotion, development and enhancing competitiveness of the Micro and
Small Enterprises and the matter connected therewith or incidental thereto.
The State Government had constituted the Facilitation Council in the year
2007 as per provisions of the Act of 2006 and to facilitate expeditious
recovery of delayed payments of the Micro and Small Enterprises. The
Facilitation Council Rules of 2007 were repealed by the Facilitation Council
Rules of 2021. He contends that as per the procedure, the Facilitation
Council receives the references on its portal whereafter hard-copies are
required to be submitted. Once the defects, if any, are removed, the claim is
listed before the Facilitation Council. It issues notices for conciliation
proceedings as per Section 18(2) of the Act of 2006. Given the time-lines
prescribed under the Act and also the rate of interest provided in the Act, the
process is required to be completed expeditiously. Hence, two/three
opportunities are given to the parties during conciliation proceedings to
resolve the issue amicably. In case there is a settlement amongst the parties
during the conciliation, the case is closed. However, where the parties fail to
settle the dispute in conciliation, the matters are forwarded for the
arbitration proceedings to be conducted by the Council itself. In
discharge of its functions, the Facilitation Council seeks assistance of
empaneled Arbitrators/experts/facilitators (the expression used in the
communication sent by the Council to the empanelists) appointed by the
State Government. A report/recommendation is submitted to the Council by
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the empaneled Arbitrators/legal experts/facilitators and the said report is
examined by the Facilitation Council. Parties are afforded opportunities to
submit their arguments/objections against the aforesaid report and thereafter
a final award is passed by the Council on the reference.
It is further pointed out that the Facilitation Council has been
working as an effective and efficient Forum for timely disposal of the
disputes and has been awarded the second best performing Council in terms
of absolute number of cases disposed of, by the Chairman of Indian Micro,
Small and Medium Enterprises. It also received the award of outstanding
Council by the Minister, MSME. Currently, it is at number 3 all over the
country in terms of the number of references. Around 11,000 references
have been received by it so far and more than 4,000 such cases have been
decided by the Council.
He further contends that the Government of Haryana vide order
bearing No.2/5/13/II/B/11/2006 dated 24.10.2013 had decided to empanel
retired Judicial Officers for appointment as Arbitrators. Other empanelment
were also vide similar orders issued by the Government of Haryana in the
Department of Industries and Commerce. It is contended that the private
respondents who are experts/facilitators/arbitrators have been appointed by
the State Government with an object to render assistance to the
Facilitation Council to take decisions.
He further submits that the Facilitator/Expert/Arbitrator so
appointed by the Council does not pass the final award and that he only
submits his report after following the principles of natural justice and after
affording an opportunity of hearing to the respective parties to submit their
claims/responses as well as the evidence in support thereof. All the
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principles of natural justice including transparency, fairness and the equality
of opportunity are taken care of by the Facilitator/Experts. Upon receipt of
the abovesaid report from the Facilitator/Expert, the Arbitration Council
ensures that copy of the aforesaid report is handed over to the respective
contesting parties to enable them to examine the same and to furnish their
objections/comments thereupon. The matter is thereafter heard by the
Facilitation Council before a final award is passed as to whether the report of
the Facilitator is to be accepted, modified or is to be set aside. The final
award is thus passed by the Council itself. Hence, it cannot be suggested
that the Council has not undertaken the arbitration proceedings by itself after
failure of conciliation proceedings under Section 18(2) and that a mere
engagement of a Facilitator/Expert would not vitiate the final award or be
alleged to have been passed by some person other than the Council.
He also contends that even though the nomenclature
'Arbitrator/Sole Arbitrator' has been used in the memo communicating
engagement of such Facilitator and that they also resort to the usage of the
above expression 'Sole Arbitrator' while conducting the proceedings,
however, any such mistaken nomenclature and/or expression used by them
would not determine the nature of the proceedings especially when the
Facilitation Council is the authority which passes and authors the final
award. The mere nomenclature/expression thus cannot be interpreted to be
as if the said engaged person has passed the final award or is competent to
do so. The arguments of the petitioners are thus bad, unsustainable,
misconceived and without considering the above procedure and nature of
engagement.
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He further contends that the provisions of The Arbitration and
Conciliation Act, 1996 cannot override the provisions of the Act of 2006 and
since the Act of 2006 is a special statute, it has to be governed by the
procedure stipulated therein in view of Section 24 of the Act of 2006 which
contains a "non-obstante" clause and gives an overriding effect to the
provisions of Sections 15 to 23 notwithstanding anything contained in any
other law for the time being time in force. Hence, the process as has been
stipulated in the aforesaid provisions above alone is to be examined and the
order passed as per the abovesaid procedure cannot be tested for its
legitimacy and validity on the parameters/touchstone of any other statute. It
is also contended by the State Counsel that the condition of mandatory pre-
deposit under Section 19 of the Act of 2006 has to be given effect to by the
petitioners, more so, when no challenge has been raised to the statute.
Hence, the petitioners cannot be permitted to contend that they suffer any
prejudice on account of a statutory mandate of compulsory pre-deposit.
It has also been argued that the empaneled facilitator/experts are
former Judicial Officers of the rank of District Judge and above and that the
petitioners have failed to point out any prejudice, bias or irreparable loss or
injury that may have so occasioned. He submits that in all cases, conciliation
proceedings were initiated and arbitration was conducted only after the
conciliation failed to arrive at an amicable resolution of the dispute.
It has also been argued that the issue of engagement of the
Arbitrators/Experts was before a Division Bench of this High Court in
Welspun Corp. Ltd. Vs. The Micro and Small, Medium Enterprises
Facilitation Council, Punjab and others, 2011 SCC OnLine P&H 16956
wherein it was directed that the Facilitation Council should consider the
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desirability of referring the arbitration disputes to an independent umpire as
a substitute of "Alternate Dispute Resolution Services" within the meaning
of sub-section 3 of Section 18. The empaneled Arbitrators were required to
conduct the proceedings in a time bound manner. The engagement of the
Sole Arbitrators/Experts was hence undertaken pursuant to the above order
dated 13.12.2011. There is no illegality or impropriety in such engagements
after the order had been passed by a Division Bench on consideration of
Sections 18(2) and 18(3) of the Act of 2006 as a substitute of ADR Services.
He further submits that a petition under Section 14 of The
Arbitration and Conciliation Act, 1996 in Arbitration Case No.86 of 2020,
titled as M/s SGM Packaging Industries Versus M/s Goyal Plywood LLP
decided on 10.06.2022 had been filed for seeking termination of the mandate
of Sole Arbitrator. The respondent therein had filed the claim before the
Facilitation Council and that the matter was referred to the Sole Arbitrator.
The petitioner moved an application under Section 12 of The Arbitration and
Conciliation Act, 1996 seeking valid disclosure and also raised objections
that as there was no clause for arbitration in the supply agreement and in the
absence of any arbitration agreement as stipulated under Section 7 of The
Arbitration and Conciliation Act, 1996, the matter could not have been
referred by the Facilitation Council for arbitration. Upon considering various
objections including the provisions of the Act of 2006, this Court
specifically held that Act of 2006 is a special Act and shall prevail over The
Arbitration and Conciliation Act, 1996. It was held that the statutory
provisions would override any specific arbitration clause even if it is so
contained in the agreement amongst the parties. The writ petition was
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dismissed and the petitioner was directed to await the final outcome of the
proceedings and to avail the remedy(ies) thereafter.
Counsel appearing on behalf of the private respondents have
additionally argued that the Act of 2006 confers exclusive jurisdiction with
the Facilitation Council to decide the issues pertaining to the Micro, Small
and Medium Enterprises. It is argued that once the provisions of the Act of
2006 are invoked, recourse to an ad hoc arbitration is not available and that
to the said extent as well, the provisions of the Act of 2006 would override
any clause of the agreement between the parties or The Arbitration and
Conciliation Act, 1996. However, once the disputes are referred to
Arbitration under sub-section 3 of Section 18 of the Act of 2006, the
arbitration would proceed in the same manner as it would have pursuant to
an agreement under Section 7 of The Arbitration and Conciliation Act, 1996.
They contend that it is a settled principle of statutory construction that
provisions of statutes have to be construed harmoniously and should be
consistent with the scheme of the statute. It is the duty of the Court to avoid
"a head-on clash" between two sections/provisions and endeavour must be
made to construct the provisions, which appear to be in conflict, in a
manner that they harmonize. The provisions are required to be read as an
integral whole considering their mutual interdependence and to reconcile
them avoiding repugnancy.
They further contend that the Division Bench of this Court had
directed the Facilitation Council to engage sole Arbitrators as a substitute for
Centre Providing Alternative Dispute Resolution Services and that the
engagement of sole Arbitrators is thus supported and protected by orders of
the High Court and that the proceedings cannot thus be held to be bad,
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illegal, improper, non-est and/or liable to be set aside. They also referred to
the judgment in the matter of Gujarat State Civil Supplies Corporation
Limited Versus Mahakali Foods Private Limited (Unit 2) and another,
2022 SCC Online SC 1492 to contend that the Act of 2006 has an over-
riding effect and that the Facilitation Council shall have an exclusive
jurisdiction in the matter.
Reference is also made to the judgment in the matter of M/s
Sew Infrastructure Limited Versus Micro & Small Enterprises Facilitation
Council and others of the Chhattisgarh High Court dated 14.01.2022 passed
in WPC No.4235 of 2021 as well. Reference to the other judgments by
different High Courts including the Bombay High Court in the matter
bearing Arbitration Application No.02 of 2022 titled as Bajaj Electricals
Limited Versus Chanda S. Khetawat and another, and decided on
16.01.2023 are however not being made to avoid repetition.
They further contend that the Hon'ble Supreme Court has
already upheld the statutory vires of Section 19 of the Act of 2006 in the
judgment of M/s Tirupati Steels Versus M/s Shubh Industrial Component
and another, 2022 SCC OnLine SC 462 and as such the said issue of pre-
deposit cannot be raised to plead victimization and/or deprivation of any
right especially when the Clause has already been upheld by the Hon'ble
Supreme Court. No one can be permitted to plead hardship and prejudice by
pleading that their rights to constitutional remedies are being taken away
after the legality of the said Clause has been upheld. Reference is also made
to the judgment of this Court bearing CWP No.24306 of 2015 dated
30.08.2016 in the matter of Haryana Power Generation Corporation
Limited Versus Haryana State Micro and Small Enterprises Facilitation
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Council and another, wherein the Facilitation Council had referred the
matter to an empaneled Arbitrator notified by the Government by seeking
aid of Rule 4(16) of the Rules of 2007. It was held by this Court that
technicalities must not outweigh the cause of justice and judicial
intervention is required to be minimized in such proceedings. The Courts
would keep in view the legislative intent and objects of the statute and
interpret them in a manner as are likely to advance the same and not to
create hurdles. Relevant extract of the same is reproduced here-in-under:-
"7. As per the agreement between the parties, petitioner
purchased and 2nd respondent supplied the goods. Dispute
arose between the parties regarding the payment of goods,
received by the petitioner and supplied by 2nd respondent.
When the petitioner failed to make the payment to the supplier-
2nd respondent in time, 2nd respondent-supplier approached
the Council- 1st respondent by a reference petition, invoking
the jurisdiction of the respondent-Council under the Act of
2006. Respondent-council found the supplier-respondent No.2
as a small scale enterprise, who had made the supply under the
contract, for which the buyer-petitioner was under legal
obligation to make the payment. Thus, the Council had the
jurisdiction in the matter.
********
*********
12. Giving due respect to the legislative intent, it is held that
the provisions contained in Chapter V of the Act of 2006 would
have overriding effect and are also mandatory in nature. Any
other interpretation would run counter to the true intention of
the legislature and shall defeat the above said objects of the Act
of 2006. The provisions of law, as and when fall for
consideration of the courts, for the purpose of interpretation,
the courts would always keep in view the legislative intent and
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objects of the Statute, so as to interpret in a manner that the
aims and objects of the Statute are not defeated but achieved.
*******
*******
17. The Division Bench of Madras High Court had a detailed
deliberation on the ambit and scope of the provisions of law,
contained in Section 18 of the Act of 2006 and observed as
under in para 21 of its judgment :-
"21. A cursory reading of the aforesaid provision makes
it clear that a conciliator could not act as an arbitrator. It is no
doubt true that Sections 18(2), 18(3) and 18(4) have given dual
role for the Facilitation Council to act both as Conciliators and
Arbitrators. According to the learned counsel for the
appellants, the Facilitation Council should not be allowed to
act both as Conciliators and Arbitrators. This contention,
though prima facie appears to be attractive, it is liable to be
rejected on a closer scrutiny. Though the learned counsel
would vehemently contend that the Conciliators could not act
as Arbitrators, they could not place their hands on any of the
decisions of upper forums of law in support of their
contentions. As rightly pointed out by the learned single Judge,
Section 18(2) of MSMED Act has borrowed the provisions of
Sections 65 to 81 of the Arbitration and Conciliation Act for the
purpose of conducting conciliation and, therefore, Section 80
could not be a bar for the Facilitation Council to conciliate and
thereafter arbitrate on the matter. Further, the decision of the
Supreme Court in Institute of Chartered Accountants of India v.
L.K. Ratna, (1986) 4 SCC 537, on this line has to be borne in
mind. One should not forget that the decision of the Facilitation
Council is not final and it is always subject to review under
Article 226 of the Constitution of India and, therefore, the
appellants are not left helpless."
In fact, the Division Bench was hearing the writ petition
as well as writ appeals against the judgment rendered by the
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learned Single Judge of Madras High Court. The Division
Bench also considered the scope of judicial intervention in the
arbitration proceedings and held that it should be minimal.
20. Case of the petitioner has been found based on
technicalities and super-technicalities alone. It is the settled
proposition of law that technicalities must not weigh with the
Court, while doing complete and substantial justice between
the parties. As noticed herein above, facts of the case, including
liability of the petitioner to make payment to the 2nd
respondent, had never been in dispute. Even during the course
of the hearing, learned counsel for the petitioner could not
deny the liability of the petitioner. In such a situation, neither
the contentions raised by the learned counsel for the petitioner
have been found in consonance with the provisions of the Act of
2006 nor the same appeal to reason.
23. Considering the peculiar facts and circumstances of the
case noted above, coupled with the reasons aforementioned,
this Court is of the considered view that since the respondent-
Council committed no error of law, while passing the impugned
order, the same deserves to be upheld. Instant writ petition is
wholly misconceived, bereft of merit and without any
substance, thus, it must fail. No case for interference has been
made out."
Emphasis is also laid on the judgment of this Court in the matter
of The Chief Administrative Officer, COFMOW Versus The Micro &
Small Enterprises Facilitation Council of Haryana and others, 2015 SCC
OnLine P&H 755 wherein the reference to an Arbitrator was upheld after
noticing that there is no prejudice at all that may be suffered by the
petitioners as there is no issue of bias. The provisions of the Act are
sufficient to make it possible to raise challenge to any part or issue which
has not been properly examined/assessed. The relevant extract of this
judgment reads thus:-
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"2. The grievance is that the Council could not have directed
an arbitration to be carried out by an arbitrator appointed by it
without reference to the provision under clause 3 that
contemplates to such reference only on the failure of the
Council to resolve the dispute by itself under clause (2). I have
seen through the order and when the Director makes a
reference on behalf of the Council to an Arbitrator, It must be
taken that it was not possible to conciliate and resolve the
dispute itself and therefore, the reference was made. It would
make no difference that the reference is made to an institution
or centre which will provide for alternative dispute resolution
services or a direct reference to the arbitrator itself. There can
be really no prejudice at all for the petitioner, for, there is no
issue of bias. The provisions of Arbitration Act are sufficient to
make possible for any party who is not satisfied with the
Arbitrator to take such an issue before him and invite a
decision thereon which is still capable of being assailed in
higher forums in the manner contemplated under the
Arbitration and Conciliation Act.
3. The counsel says that there is an independent arbitration
agreement under the contract and that must allow for the
parties to choose the arbitrator in the manner contemplated
under the contract. It must be taken only as an additional
method of appointment of an arbitrator and cannot exclude the
application of the provisions of this Act. This is so in view of the
non obstante clause that is set forth under Section 18 which
begins with these expressions "notwithstanding anything
contained in any other law for the time being in force". A
contract that provides for appointment of an arbitrator must be
seen as a contract as recognized by law and that provision will
stand eclipsed by the non obstante clause that Section 18
provides for."
Counsel for the respondents have also argued that in certain
cases, the buyers have approached this Court despite the award having
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already been passed and the limitation period prescribed for raising a
challenge to the award having expired. The proceedings are at the stage of
execution of the said award and the petitioners have filed the present
petitions challenging the initial reference and are thus seeking annulment of
the award that have already attained finality and where the aggrieved party
has already lost its remedy of raising a challenge as per law. Institution of a
writ petition as a means to bypass statutory remedy needs to be curtailed so
as to give finality to a procedure and that such persons cannot be permitted
to contend that the initial reference itself being bad, the award ought to be
set aside at this belated stage. The lis having already attained finality
amongst the parties, the same cannot be reopened. The law being well-
settled that what cannot be done directly cannot also be permitted to be done
indirectly.
Learned counsel appearing on behalf of the respondents have
also submitted that the petitioners are deliberately misreading the notice
issued by the Facilitation Council and/or reference made by it to the Sole
Arbitrator to contend that there is an expression on the merits of the claim.
They submit that a reading of the said notice/reference clearly shows that
there is no expression on the merit of the claim raised and it is only an
intimation about the statutory provisions. Hence, the argument advanced by
the petitioners that there is an expression on the entitlement of the supplier
even before a reference is made, is clearly misconceived and is not borne out
from a plain reading of the reference itself.
They also contend that the Facilitation Council is not
approving/stamping the reports submitted by the Arbitrator in a mechanical
manner and as a matter of practice, the Council grants opportunity to the
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respective parties to make submissions on the report after the same has
already been furnished to the respective parties before a final award is
passed by the Council. Hence, the procedure is being followed, in a fair,
impartial and transparent manner after affording complete opportunity to the
stake holders.
Query:
A specific query was also raised to the petitioners as to the
prejudice that has so occasioned by engaging services of Facilitators/Sole
Arbitrators and/or the irreparable loss or injury that may have occasioned
resultantly.
Counsel for the petitioners have responded to the same by
averring that the illegality in the proceedings is a prejudice unto itself and
that if the proceedings do not have the backing of law, they cannot derive
any force from consent or because of the petitioners submitting to the same.
An award derives its legality and strength from the power vested in an
authority by the statute and in the absence thereof, such award or orders
cannot be approved or be stamped as having authority of law.
ANALYSIS AND CONCLUSION:
I have heard the learned counsel for the respective parties and
have gone through the impugned record of the file.
Section 18(2) of the Act of 2006 provides that the Council may
conduct conciliation itself or may seek assistance of any Institution or
Centre Providing Alternative Dispute Resolution Services. Section 18(3) of
the Act of 2006 specifies that the Council shall either itself take up the
dispute for arbitration or refer it to any Institution or Centre Providing
Alternative Dispute Resolution Services for such arbitration. Hence, the Act
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stipulates that the Facilitation Council is empowered to conduct the
arbitration proceedings itself or to get the arbitration conducted through any
other agency.
Counsel for the petitioners have placed reliance on para 20 of
the judgment in the matter of Silpi Industries case(supra), to substantiate
that the proceedings of arbitration are to be conducted by the Facilitation
Council by itself or by any Institution or Centre providing for arbitration and
by no one else.
A perusal of the same shows that the above para does not
support the argument of the petitioners that the facilitation council cannot
take any external aid for passing of the final award and conducting
arbitration. No finding has been recorded by the Hon'ble Supreme Court on
the scope, limitations, sphere or domain of Section 18(3) of the Act of 2006
or about the outcome in a circumstance where the Facilitation Council
engages any expert and/or Facilitator for carrying out the objective of the
Act of 2006. Reference to Section 18(3) in the paragraphs relied by the
petitioners is only in the context of reproduction of the statutory schemes
and not as laying down any interpretation as suggested.
A judgment has to be read in the context in which it has been
rendered. A reference to the provision is not to be constructed as an
interpretation thereof. The issue involved in the present case was not under
consideration before the Hon'ble Supreme Court in the above case and no
ratio was laid in this regard. The abovesaid judgment definitely does reflect
on the interpretation of the Hon'ble Supreme Court about the intent and
object of the statute and the rules of interpretation that have been applied
while examining the provisions of the Act of 2006. The reading of the
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aforesaid judgment shows that a purposive rule of interpretation has been
applied by the Hon'ble Supreme Court to further the object of the statute
rather than creating any impediment in expeditious disposal of the cases
relating to dues of the Micro, Small and Medium Enterprises.
It was held in the judgment of Edukanti Kistamma (Dead)
through L.Rs. Versus S. Venkatareddy (Dead) through L.R.s., 2009 SCC
OnLine SC 1872 that the purport and object of the Act must be given its full
effect by applying the principles of purposive construction and therefore the
provisions of the Act of 2006 are required to prevail in light of Section 24 of
the Act as against any other rule of law.
In so far as the reference made to the judgment of the Delhi
High Court titled as Bharat Heavy Electricals Limited Versus The Micro
and Small Enterprises Facilitation Centre and another(supra) is
concerned, the High Court of Delhi in its abovesaid judgment has held that
the provisions of Section 18(3) of the Act of 2006 do not leave any scope
for non-institutional arbitration and that the arbitration ought to be
conducted under the 'aegis' of the Facilitation Council or any Institution or
Centre Providing Alternative Dispute Resolution Services for such
arbitration. The relevant extract reads thus:-
"17. It is at once clear that the provision of Section 18(3) of the
Act do not leave any scope for a non-institutional arbitration.
In terms of Section 18 (3) of the Act, it is necessary that the
arbitration be conducted under aegis of an institution either by
Facilitation Council or under the aegis of any "Institution or
Centre providing alternate dispute resolution services for such
arbitration".
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Paragraph 28 of the aforesaid judgment provides that Section
18(3) contemplates only an Institutional arbitration and not an adhoc
arbitration. The same is extracted as under:-
"28. This Court - for the reasons as stated hereinbefore - is
unable to subscribe to the view that there is no inconsistency
between the arbitration agreement and section 18(3) of the Act;
Section 18(3) contemplates only an institutional arbitration and
not an ad hoc arbitration. In the present case, the provision
that only BHEL would appoint the arbitrator, plainly, runs
contrary to the mechanism under section 18(3) of the Act.
Further, in terms of Section 19 of the Act, the award rendered
pursuant to an arbitration under Section 18(3) of the Act
cannot be assailed by the party (other than the supplier),
without depositing seventy-five percent of the amount awarded.
Concededly, Section 19 would be inapplicable to an award,
which is rendered pursuant to an arbitration that is not
conducted in terms of Section 18(3) of the Act."
A perusal of the aforesaid paragraphs of the said judgment also
do not substantiate the argument proposed to be advanced by the petitioners.
The High Court of Delhi rather holds that such arbitration can be conducted
under the 'aegis' of an institution/either by the Facilitation Council or any
other Institution or Centre and hence accepts the engagement of some
persons/institution for discharging the duties under the Act. The said
judgment thus upholds the arbitration which is conducted under the 'aegis' of
the Facilitation Council as well and does not rule that the Facilitation
Council alone or any other Institution or a Centre are the Sole Repository of
the powers under Section 18(3) of the Act of 2006. The said interpretation is
derived from the principles of purposive construction of the statute and
intended to advance the object of the Act.
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The Division Bench of Allahabad High Court in the matter of
Paper and Board Convertors Versus U.P. State Micro and Small
Enterprises and others(supra) has, on the other hand, ruled that the
reference by the Facilitation Council to a Sole Arbitrator to conduct the
arbitration was impermissible in the statute and that reference before the
Arbitrator was manifestly illegal. The proceedings were thus restored before
the Micro and Small Enterprises Facilitation Council to conduct the
proceedings as per the statutory mandate. The facts of the said case however
show that the respondents had appointed the sole arbitrator who had been
stipulated as per the agreement and thus sending them back to arbitration
stipulated in the agreement, which is not the factual aspect here. Besides,
there is no discussion as regards the statutory rules and the manner or mode
of such engagement and also whether the final award was to be passed by
the Arbitrator or the Council. Hence, in the absence of the same, it cannot be
safely presumed that the above judgment of the Allahabad High Court ruled
on the scope, limitations or mandate of section 18(3) of the Act of 2006.
Further, it is evident from the Rules notified by the State of
Haryana initially in the year 2007 and thereafter in the year 2021 that the
said Rules provide for appointment/engagement of service of one or more
experts. Further, Section 26 of the Act of 2006 empowers the State
Government to appoint such officers with such designations and to entrust
them of such powers and functions under the Act as it may deem fit.
The High Court of Punjab and Haryana in the matter of The
Chief Administrative Officer, COFMOW Versus The Micro & Small
Enterprises Facilitation Council of Haryana and others(supra) had upheld
the award passed by an Arbitrator appointed by the Facilitation Council for
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the reason that it would not make any difference whether the reference is
made to Institution or Centre which provides an Alternative Dispute
Resolution Service or a direct reference is made to the Arbitrator itself and
there can fairly be no prejudice at all for the petitioners as there is no issue
of bias.
Similarly, challenge to the order passed by the Sole Arbitrator
on an application under Sections 12 and 13 of The Arbitration and
Conciliation Act, 1996 was dismissed by this Court in Case titled as M/s
SGM Packaging Industries Versus M/s Goyal Plywood LLP(supra).
Further, this Court in the matter of Haryana Power Generation
Corporation Limited Versus Haryana Small and Medium Enterprises
Facilitation Council(supra) held that the Facilitation Council had power to
refer the matter to an empaneled Arbitrator notified by the Government
under Rule 3(16) of the Rules of 2007. It was ruled that technicalities do not
outweigh the interest of justice and judicial intervention should be reduced
to minimum in such cases. Rule3( 16) of the Rules of 2007 empowers the
Facilitation Council to refer the dispute to an Institute for such arbitration
and that a report was to be submitted by such Institute to the Council within
the time so specified whereafter the Council was to make an award. The
said rule is similar to sub-rule 12 of Rule 6 of the Rules of 2021. It is,
however, further seen that a Division Bench of this Court in Wellspun
Versus Micro and Small and Medium Enterprises Facilitation Council,
Punjab(supra) had directed the Facilitation Council to consider desirability
of referring the arbitration dispute to an independent umpire as a substitute
to Alternative Dispute Resolution Services within the meaning of section
18( 3) and that the empaneled Arbitrator may pass such an award under the
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MSMED Act for all intents and purposes. It has also come-forth that the
engagement of empaneled Arbitrators has been done by the Government of
Haryana for discharging functions under the Micro, Small and Medium
Enterprises Development Act, 2006.
Other than the Division Bench judgment of Allahabad High
Court which held, in the facts of that case which are distinct, that the
Facilitation Council cannot make a reference to a Sole Arbitrator and is
required to pass an award by itself or any other Institution or Centre, the
Division Bench of the Delhi High Court has held that the arbitration
proceedings are required to be conducted by the Institution under the aegis
of the Facilitation Council or under the aegis of any other Institute or Centre
Providing such services.
'Aegis' means 'control or guidance or under controlling or
conditioning influence'. The abovesaid word having Greek and Latin roots
entered the English language in the 15th Century as a Noun referring to the
shield or protective garment and by the late 19th Century it had acquired the
extended senses of "auspices" and "sponsorship". Thus a proceeding, which
is carried out under the control, guidance or protection of an Institution
would be construed as a proceeding under the aegis of such Institution.
It is the specific case of the respondents that the Facilitation
Council has been itself passing the final award and the Arbitrator/ facilitator/
expert, as the case may be, are only entrusted to submit the report to the
Council. The facilitator not being competent to pass an award, there
proceedings are thus in accordance with the statute and there is no violation
of the Statute.
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Section 18(3) of the MSMED Act 2006 even though uses the
expression "shall" for conduct of arbitration by the Council or by an
Institution or Centre, however, it does not provide any consequences in the
event of failure to do it entirely as per the letter of law. Hence, the meaning
and scope of the aforesaid expression needs to be ascertained as to whether
the same is mandatory or directory.
The issue as to when a mandatory expression is directory and
vice versa has been under judicial scrutiny in various precedent judgments.
The Hon'ble Supreme Court has, through its judgments laid down some
guiding principles for ascertaining the true legislative import of such
expression. Reference is hence required to be made to the precedent
judgments. The relevant extract of the same is reproduced herein-after-
below:-
Sharif-Ud-Din vs Abdul Gani Lone - (1980) 1 SCC 403
Para 9- The question whether a provision of law is mandatory
or not, depends upon its language, the context in which it is
enacted and its object. The difference between a mandatory
rule and a directory rule is that while the former must be
strictly observed, in the case of the latter substantial
compliance may be sufficient to achieve the object regarding
which the rule is enacted. Certain broad propositions which
can be deduced from several decisions of courts regarding the
rules of construction that should be followed in determining
whether a provision of law is directory or mandatory may be
summarised thus:
The fact that the statute uses the word 'shall' while laying
down a duty is not conclusive on the question whether it is a
mandatory or directory provision. In order to find out the true
character of the legislation, the Court has to ascertain the
object which the provision of law in question is to sub-serve
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and its design and the context in which it is enacted. If the
object of a law is to be defeated by non- compliance with it, it
has to be regarded as mandatory. But when a provision of law
relates to the performance of any public duty and the
invalidation of any act done in disregard of that provision
causes serious prejudice to those for whose benefit it is enacted
and at the same time who have no control over the performance
of the duty, such provision should be treated as a directory one.
Where however, a provision of law prescribes that a certain act
has to be done in a particular manner by a person in order to
acquire a right and it is coupled with another provision which
confers an immunity on another when such act is not done in
that manner, the former has to be regarded as a mandatory one.
A procedural rule ordinarily should not be construed as
mandatory if the defect in the act done in pursuance of it can be
cured by permitting appropriate rectification to be carried out
at a subsequent stage unless by according such permission to
rectify the error later on, another rule would be contravened.
Whenever a statute prescribes that a particular act is to be
done in a particular manner and also lays down that failure to
comply with the said requirement leads to a specific
consequence, it would be difficult to hold that the requirement
is not mandatory and the specified consequence should not
follow.
(Emphasis supplied)
The issue was again examined by the Hon'ble Supreme Court in
the matter as under:-
State of Haryana and Anr. v. Raghubir Dayal - (1995) 1 SCC
Para 5 - The use of the word 'shall' is ordinarily mandatory but
it is sometimes not so interpreted if the scope of the enactment
or consequences to flow from such construction would not so
demand. Normally, the word 'shall' prima facie ought to be
considered mandatory but it is the function of the Court to
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ascertain the real intention of the legislature by a careful
examination of the whole scope of the statute, the purpose it
seeks to serve and the consequences that would flow from the
construction to be placed thereon. The word 'shall', therefore,
ought to be construed not according to the language with which
it is clothed but in the context in which it is used and the
purpose it seeks to serve. The meaning has to be described to
the word `shall; as mandatory or as directory accordingly.
Equally, it is settled law that when a statute is passed for the
purpose of enabling the doing of something and prescribes the
formalities which are to be attended for the purpose, those
prescribed formalities which are essential to the validity of such
thing, would be mandatory. However, if by holding them to be
mandatory, serious general inconvenience is caused to innocent
persons or the general public, without very much furthering the
object of the Act, the same would be construed as directory.
Similarly, it was held by the Hon'ble Supreme court in the
matter of Sarla Goel vs. Kishan Chand - (2009) 7 SCC 658 that whether
the word 'may' shall be used as 'shall' would depend upon the intention of
the legislature and it is not to be taken that once the word 'may' is used, it
per se would be directory. In other words, it is not merely the use of a
particular expression that would render a provision directory or mandatory.
It would have to be interpreted in the light of the settled principles, and
while ensuring that intent of the Rule is not frustrated.
Hence, an expression used has to be seen from the context of
the statute, the object of the statute, the consequence of the expression and
also as to whether the construction would further the object. The doctrine of
workability mandates a constitutional court to harmoniously construct the
provisions so as to make them workable and not to give rise to a roadblock.
Applying the above tests, the suggestion of the petitioner that no external aid
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can be sought by the council, if conducting the arbitration itself, tends to fail
the object of the statute, if accepted. The petitioners have failed to point out
how the statutory objective would be defeated or any right would be
prejudiced by seeking a report from an independent third party more so
when none of the petitioners have alleged or suggested any bias, malice or
prejudice. Besides, the act of the facilitation council in seeking a report is
more in the nature of the completion of the procedural requirement while the
substantive power to pass the award is retained by the Facilitation Council
and the final award under section 18(3) of the Act of 2006 is passed by it.
Barring a few awards, there is no award under challenge that has been
authored by the Sole arbitrator. Hence, there is no reason for this court to
assume that the awards are in fact being passed by the sole arbitrator(s) and
not by the Council itself.
At the same time, in so far as the Institute of Arbitration, as
stipulated in the Act of 2006 is concerned, so far there is no Arbitration
institute that has been recognized or graded in the States of Punjab and
Haryana. Hence, even though the act contemplates conduct of arbitration by
such institute, however, in reality, the same are required to be conducted by
the Council itself.
The Act was promulgated with an object of providing an
expeditious adjudication of the disputes pertaining to the small and micro
enterprise and there is only one Facilitation Council in the State of Haryana.
With more than 11,000 cases having been filed, the object of the statute
would be defeated if the Facilitation Council is burdened with the entire task
and not to seek any external aid under its aegis. The arbitrators would thus
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be actually working under the aegis of the Facilitation Council and are just
facilitators for ensuring attainment of the statutory object.
The petitioners are rather swayed in their arguments more by
the use of expression Arbitrator(s) in the appointment and also in section
18(3) of the Act of 2006. A mere use of such an expression cannot
automatically bring in the rigors of the Arbitration and Conciliation Act,
1996. It is well settled that when there is a general reference in the Act in
question to some earlier Act, but there is no specific mention of the
provisions of the former Act, then it is a case of legislation by reference and
even the amending laws of the former Act may become applicable.
However, where the provisions of the Act are specifically referred to and
incorporated in the latter statute, then those provisions alone are applicable.
This is the principle of legislation by incorporation. Thus even though
certain provisions of the Arbitration and Conciliation Act, 1996 may be
applicable by reference, however, the reference should not result in defeating
the object and purpose of the Act of 2006. The procedural provisions of the
Act of 1996 are thus to come to the aid of the Act of 2006 and not over
shadow the same to occupy the field despite the Act of 2006 being a special
statute. Hence, notwithstanding the nomenclature used as Arbitrator/ sole
arbitrator, he continues to remain as a facilitator in view of the letter of
engagement and cannot travel beyond the terms of his appointment.
To illustrate the manner of appointment, one such order
published in the Haryana Government Gazette dated 08.08.2014 is extracted
as under:-
"Haryana Government
Industries and Commerce Department
Order
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The 8th August, 2014
No.2/5/13-IIB-II-2006:-
Subject: Panel for appointment of Arbitrators in respect of
cases filed under the provisions of the Micro, Small
and Medium Enterprises Development Act, 2006,
before the Haryana Micro and Small Enterprises
Facilitation Council.
In pursuance to order No.2/5/13-IIB-II-2006 dated 24.10.2013,
the Government has decided to appoint following more retired Judicial
Officers as Arbitrators in accordance with the provisions under Section 18(3)
of Micro, Small and Medium Enterprises the Act, 2006 and Rule 16 of
Facilitation Council Rules, 2007 after obtaining their consent, to adjudicate
the payment disputes of small scale industrial units under the provisions of
chapter V of the Micro, Small and Medium Enterprises Development Act,
2006:-
Sr. No. Name Address
(i) Sh. C.B. Jaglan, District and House No.19, Sector 16-A,
Sessions Judge (Retired) Near Magpie, Faridabad.
(ii) Sh. Mohinder Kumar Bansal, Flat No.175, HOPE
District and Sessions Judge Apartment, Sector-15, Part-II,
(Retired) Gurgaon.
(iii) Sh. J.S. Jangra, Additional House No.1387, Sector 23-A.
District and Sessions Judge Gurgaon
(Retired)
(iv) Sh. Prem Parkash Chhabra, House No.369, Sector-14,
Additional District and Sessions Faridabad.
Judge (Retired)
Further, the Government has also decided to revise the structure
of the arbitration fee for these matters as under:-
Sr. No. Claim amount on the day of Arbitration fee
making reference to Arbitrator
(i) Up to Rs.10.00 Lakh Rs.25,000/-
(ii) Rs.10.00 Lakh to Rs.25.00 Lakh Rs.30,000/-
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(iii) Rs.25.00 Lakh to Rs.50.00 Lakh Rs.40,000/-
(iv) Above Rs.50.00 Lakh Rs.50,000/-
Any matter regarding apportionment of the fees between the
parties shall be decided by the Arbitrator.
Y.S. MALIK
Additional Chief Secretary to Government Haryana
Industries and Commerce Department."
A perusal of the above order clearly shows that the
appointment/engagement of the Judicial Officers has been done under
Section 18(3) of the Act read with Rule 4(16) (wrongly mentioned as Rule
16) of the Facilitation Council Rules, 2007. Rule 4(3) of the Rules of 2007
stipulates engagement of services of one or more experts in terms of Section
26 of The Arbitration and Conciliation Act, 1996. The engagement of the
Arbitrators/Facilitators (expression used in the Gazette is Arbitrators) is not
done as an expert under Rule 4(3) which is akin to appointment of an expert
under Section 26 of The Arbitration and Conciliation Act, 1996 and is rather
done under Rule 4(16) of the Facilitation Council Rules, 2007 which flows
from section 26 of the Act of 2006. Such engagement thus has to be read in
confirmity with Section 26 of the Micro, Small and Medium Enterprises
Development Act, 2006 which empowers the Government to appoint such
officer, with such designation and such other employees, as it thinks fit for
the purposes of this Act and may entrust to them such of the powers and
functions under this Act as it may deem fit.
Even though the expression used in Rule 4(16) of the Rules of
2007 is "Arbitrator", the said expression has to be read in consonance with
Section 26 of the Act of 2006 and is only a 'designation as may be so
prescribed'. The Government also being competent to entrust such powers
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and functions as it deems fit, hence, the designation
"Arbitrator/Facilitator/Expert'', as the case may be, cannot be interpreted in
terms of the definition as provided under The Arbitration and Conciliation
Act, 1996. Any such extension of definition and/or meaning from The
Arbitration and Conciliation Act, 1996 would amount to importing the
provisions of The Arbitration and Conciliation Act, 1996 and super-imposing
the same and reading them into the Micro, Small and Medium Enterprises
Development Act, 2006. The suggested reading of the petitioner is thus not
based on the correct principles of law. As the Hon'ble Supreme Court has
already held that the Act of 2006 is a special statute and The Arbitration and
Conciliation Act, 1996 is the general statute, hence, the provisions of the Act
of 2006 have to prevail over and above the provisions of The Arbitration and
Conciliation Act, 1996.
The expression "Arbitrator" as used in the Rules of 2007 which
stands substituted by the expression "Experts" in Rule 6(12) of the Rules of
2021 thus remains a designation only for the defined object and purpose and
does not confer authority to pass an award under the Arbitration and
Conciliation Act, 1996. The role of the facilitator in the present case being
restricted to submit a comprehensive report on the totality of claims, such
person engaged/appointed thus has not been given the adjudicatory power to
pass an award as per Section 18(5) of the Act of 2006. Rather Rule 4(19)
mandated the Facilitation Council to pass the award. Similarly, Rule 6(11)
of the Rules of 2021 also stipulate that the Council shall consider the arbitral
finding/report/recommendations and thereafter pass the final award/order in
the manner. Hence, the power and authority to pass the final award has
always been vested with and is being exercised by the Facilitation Council
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itself. The initial confusion brought about by use of the expression
Facilitator in the Rules of 2021 and such expression can be used as an
external aid to interpretation of the erstwhile provision as well. The
strenuous attempt made by petitioners to read the provisions of The
Arbitration and Conciliation Act, 1996 into the Act of 2006 and to contend
that the same are inherently imbibed in the Act of 2006 is clearly a mis-
adventure.
The petitioners have not challenged any provision of the statute
or the Rules framed thereunder and as such, they have accepted the said
provisions. There is thus no occasion to examine legality or vires thereof.
The court is thus called upon only to reconcile the provisions and to ensure
their workability. A provision in the Rule is required to be read down only
where it is in conflict with the substantive Act or Constitution of India and
not where an interpretation sought to be projected is not conforming to the
statute. A confusion sought to be created by misapplying different statutes
cannot be perceived as a conflict of the Rules.
The counsel for the petitioners contend that the experts engaged
by the Facilitation Council do not fall under the definition of Section 26 of
the Act of 2006 since they cannot be construed as appointed by the State
Government since their salaries are not paid by the Government and the fee
is to be paid by the parties themselves. Section 26 contemplates an
'appointment' and that in the absence of the service jurisprudence based
nuances of an appointment, engagement of the Facilitators cannot be
perceived as an appointment within the meaning of Section 26. The said
argument may appear logical but has to be rejected since the nature of
engagement/appointment has to be examined in the backdrop of the statutory
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scheme. The traditional test of appointment and creation of an employee-
employer relationship may not be the requirement prescribed under the Act
of 2006. The nature of appointment contemplated under Section 26 has not
been qualified. Hence, the suggestive interpretation of the petitioners, if
accepted, would require the provisions to be read as "Regular Appointment"
and thus mandate a pre-fix "Regular" to the expression appoint/appointment
as stipulated under Section 26. Rule 6(12) of the MSME Rules, 2021 also
uses the expression appoint or engage.
As per the meaning in Oxford Dictionary, 'appointment' refers
to a 'job or requisition of responsibility and may be temporary/permanent'.
It is 'an act of choosing somebody to discharge some responsibilities/duties'.
Hence, such engagement cannot be qualified or made subjective by any
suggestive interpretation which is likely to restrict the expression which has
been left wide by the Parliament itself. If the Legislature wanted the
engagement to be in any specific manner/status, there would be no
impediment for the Legislature to have specifically prescribed the mode and
manner in which such appointment of officers shall be made just as it has
provided for the Establishment of the Facilitation Council; the Advisory
Committee as well as the Facilitation Council in the statutory scheme itself.
It is evident that the Parliament wanted to leave the nature of such
appointment/engagement to the discretion of the respective State
Government. It would indeed be a curtailment of the rights of the State
Government to hold that even though the Parliament intended to confer a
discretion with the State Legislature for the appointment/engagement of any
such officer for the purposes of this Act, however, the nature of such
appointment had to be in any specific manner only. It has remained
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undisputed that the Arbitrators engaged by the Facilitation Council are
amongst those who have been appointed by the State Government.
In view of the above, there is no prohibition in the engagement
of an arbitrator/ expert/ facilitator, as the case may be, under the Act of 2006
or the Rules framed thereunder, for submission of a report to the Facilitation
Council. The Arbitrator so appointed is however not competent to pass an
enforceable award as no such power has been conferred upon him under the
Rules or the statutory scheme and only the Council is competent to pass the
final award. Since the arbitrator/ expert/ facilitator is only acting under the
aegis of the Council, which is in fact the Arbitrator, the adjudication has to
be done by it. If any such award has actually been passed by the Sole
Arbitrator, the same is thus beyond the terms of engagement even as per the
respondents themselves.
QUESTION NO.4
Whether the Facilitation Council would have jurisdiction to
entertain the disputes instituted before it for a period prior to registration of
the claimant as a Micro, Small and Medium Enterprise under the Act of
2006 even though the invoice may have been raised after the registration?
ARGUMENT OF THE PETITIONERS
The petitioners have argued that in various cases, the suppliers
were not registered as Micro, Medium or Small Enterprises and that their
claims have been received by the respondent-Facilitation Council despite the
claim not being entertainable. The suppliers/claimants have relied on the
date of raising of invoice to be the relevant date for invoking the jurisdiction
of the Facilitation Council, which is contrary to law as per which the
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supplier is required to be registered as on the date when the agreement is
executed between the parties.
In support of their arguments that if any registration is obtained
under the Act of 2006, the same will be prospective and applies for supply of
goods and services subsequent to the registration and cannot operate qua the
supplies made prior to the registration, they place reliance on the judgment
in the matter of M/s Silpi Industries etc. Versus Kerala State Road
Transport Corporation and another etc.(supra), wherein the Hon'ble
Supreme Court has held as under:-
"26. Though the appellant claims the benefit of provisions
under MSMED Act, on the ground that the appellant was also
supplying as on the date of making the claim, as provided under
Section 8 of the MSMED Act, but same is not based on any
acceptable material. The appellant, in support of its case
placed reliance on a judgment of the Delhi High Court in the
case of GE T&D India Ltd. v. Reliable Engineering Projects
and Marketing, but the said case is clearly distinguishable on
facts as much as in the said case, the supplies continued even
after registration of entity under Section 8 of the Act. In the
present case, undisputed position is that the supplies were
concluded prior to registration of supplier. The said judgment
of Delhi High Court relied on by the appellant also would not
render any assistance in support of the case of the appellant. In
our view, to seek the provisions under MSMED Act, the seller
should have registered under the provisions of the Act, as on
the date of entering into the contract. In any event, for the
supplies pursuant to the contract made before the registration
of the unit under provisions of the MSMED Act, no benefit can
be sought by such entity, as contemplated under MSMED Act.
While interpreting provisions of Interest on Delayed Payments
to Small Scale and Ancillary Industrial Undertakings Act, 1993,
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this Court, in the judgment in the case of Shanti Conductors
Pvt. Ltd. v, Assam State Electricity Boards has held that date of
supply of goods/services can be taken as the relevant date, as
opposed to date on which contract for supply was entered, for
applicability of the aforesaid Act. Even applying the said ratio
also, the appellant is not entitled to seek the benefit of the Act.
There is no acceptable material to show that, supply of goods
has taken place or any services were rendered, subsequent to
registration of appellant as the unit under Act of 2006. By
taking recourse to filling memorandum under sub-section (1) of
Section 8 of the Act, subsequent to entering into contract and
supply of goods and services, one cannot assume the legal
status of being classified under Act of 2006, as an enterprise, to
claim the benefit retrospectively from the date on which
appellant entered into contract with the respondent. The
appellant cannot become micro or small enterprise or supplier,
to claim the benefits within the meaning of MSMED Act 2006,
by submitting a memorandum to obtain registration subsequent
to entering into the contract and supply of goods and services.
If any registration is obtained, same will be prospective and
applies for supply of goods and services subsequent to
registration but cannot operate retrospectively. Any other
Interpretation of the provision would lead to absurdity and
confer unwarranted benefit in favour of a party not intended by
legislation."
The Hon'ble Supreme Court, in the matter of Gujarat State
Civil Supplies Corporation Limited Versus Mahakali Foods Private
Limited (Unit 2) and another(supra), has also held as under:-
"51. Following the above-stated ratio, it is held that a party
who was not the "supplier" as per Section 2 (n) of the Act of
2006 on the date of entering into the contract, could not seek
any benefit as a supplier under the Act of 2006. A party cannot
become a micro or small enterprise or a supplier to claim the
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benefit under the Act of 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 arbitral
tribunal under the Act of 2006."
The Hon'ble Supreme Court in the matter of M/s Nitesh Estates
Limited Versus Micro and Small Enterprises Facilitation Council of
Haryana and others, 2022 SCC OnLine SC 1198 held as under :-
4. Having heard learned counsel appearing on behalf of the
respective parties, the question which is posed for
consideration of this Court is whether the proceedings initiated
by respondent no.2 under MSMED Act would be maintainable
and/or permissible as at the time of entering into the brokerage
agreement, respondent no.2 was not registered as micro
enterprise. The issue involved is squarely covered against the
respondents in view of the decision of this Court in Silpi
Industries Etc. Vs. Kerala State Road Transport Corporation
and Another 2021 SCC Online SC 439 as well as the
subsequent decision of this Court in Vaishno Enterprises Vs.
Hamilton Medical AG and Another 2022 SCC OnLine SC 355,
taking the view that for initiation of proceedings under the
MSMED Act, the registration of the complainant/application as
micro enterprise shall be must. The subsequent registration of
respondent no.2 with retrospective effect from 10 years back
will not be of any assistance and/or help to respondent no.2.
5. In view of the above, the impugned judgment and order
passed by the High Court is unsustainable and the same is
hereby quashed and set aside. Consequently, the notices issued
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by the Council and the notice issued by the Arbitrator,
appointed by the Council, are hereby quashed and set aside.
However, it will be open for respondent no.2 to take recourse to
law, may be to revive the proceedings before NCLT, if
permissible under the law and as and when such proceedings
are initiated, the same be considered in accordance with law
and on its own merits."
They also place reliance on the judgments of the Hon'ble
Supreme Court in the matter of Gujarat State Civil Supplies Corporation
Limited Versus Mahakali Foods Private Limited (Unit 2) and
another(supra) and M/s Vaishno Enterprises Versus Hamilton Medical AG
and another, 2022 SCC Online SC 355 wherein it was observed as under:-
"15. It is not in dispute that the contract/agreement between
the appellant and the respondent has been executed on
24.08.2020. Therefore, the laws of India applicable at the time
of contract/agreement shall be applicable and therefore the
parties shall be governed by the laws of India
prevailing/applicable at the time when the contract was
executed. It is admitted position that the date on which a
contract/agreement was executed i.e. on 24.08.2020 the
appellant was not registered MSME. Considering the relevant
provisions of the MSME Act more particularly Section 2(n)
read with Section 8 of the MSME Act, the provisions of the
MSME Act shall be applicable in case of supplier who has filed
a memorandum with the authority referred to in sub-section (1)
of Section 8. Therefore, the supplier has to be a micro or small
enterprise registered as MSME, registered with any of the
authority mentioned in sub-section (1) of Section 8 and Section
2(n) of the MSME Act. It is admitted position that in the present
case the appellant is registered as MSME only on 28.08.2020.
Therefore, when the contract was entered into the appellant was
not MSME and therefore the parties would not be governed by
the MSME Act and the parties shall be governed by the laws of
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India applicable and/or prevailing at the time of execution of
the contract. If that be so the Council would have no
jurisdiction to entertain the dispute between the appellant and
the Respondent no.1, in exercise of powers under Section 18 of
the MSME Act. Therefore, in the aforesaid peculiar facts and
circumstances of the case, more particularly the terms of the
Agreement, the order passed by the learned Single Judge
confirmed by the Division Bench holding the Council would
have not jurisdiction with respect to Respondent No.1 is not
required to be interfered with."
ARGUMENT BY THE RESPONDENTS
The respondents further submit that there is no dispute to the
proposition that the date of registration of the claimant/supplier is the prime
consideration for vesting of the jurisdiction and that benefit of Chapter V of
the Act of 2006 is being extended only where the supplies or services were
obtained post-registration and not for any period prior thereto.
Counsel also contend that the contentions of the petitioners
regarding the suppliers not being registered under the Act of 2006 are
misleading inasmuch as the Micro, Small and Medium Enterprises used to
be registered under the Entrepreneurship Memorandum-II which came into
move upon implementation of the Act of 2006. Thereafter, the Ministry of
MSME notified a one-page Udyog Aadhaar Memorandum(UAM) to replace
the Entrepreneurship Memorandum-II through a Gazette of India
Notification SO(E) 2576(E) dated 18.09.2015. As per the Notification
No.SO 85(E) issued on 10.01.2017 by the Ministry of Micro, Small and
Medium Enterprises, any Micro, Small and Medium Enterprise could file
Udyog Aadhaar Memorandum in Form-I through online process only and it
also mentioned that existing Enterprises which had the EM-II or the holder
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of Small Scale Industrial Registration prior to the coming into force of
MSME Act, 2006 shall not be required to file Udyog Aadhaar Memorandum
but may do so if they so desire. The practice of Entrepreneurship
Memorandum-I Registration was thereafter discontinued. Subsequently, the
Advisory Committee of Ministry of Micro, Small and Medium Enterprises
notified revised criteria for classifying the Enterprises as Micro, Small and
Medium and specified the Forum and procedure for filing the Memorandum
i.e. Udyam Registration Certificate w.e.f. 01.07.2020 as per Notification
No.SO 2119(E) dated 26.06.2020. Hence, the Udyam Registration replaced
the Udyog Aadhaar Memorandum introduced vide Gazette Notification
dated 18.09.2015 as well as Entrepreneurship Memorandum Part-I and II.
As per clause 7 of the aforesaid Notification dated 26.06.2020, all existing
Enterprises were required to get themselves registered again on the Udyam
Registration Portal on or after 01.07.2020. The office Memorandum
No.5/II/I/2020/P&G policy was issued on 17.07.2020 by the Government of
India, Ministry of Micro, Small and Medium Enterprises directing
replacement of Udyam Aadhaar Memorandum with Udyam Registration
Certificate and an office Memorandum was subsequently issued on
06.08.2020 by the Ministry holding validity of the registration issued earlier
till 30.06.2020 shall continue to be valid only on 31.03.2021.
Resultantly, the existing Registrations as EM Part-II or UAM
remained valid upto 31.03.2021. A Notification No.SO 1296(e) dated
20.03.2023 was issued again by the Ministry specifying that the Certificate
issued on the Udyam platform would be treated at par with Udyam
Registration Certificate for availing priority. It is thus contended that a mere
objection that the Udyam Registration Certificate was issued later in point of
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time would not be sufficient by itself to hold that the claim in question
cannot be considered for want of Udyam Registration Certificate especially
when the suppliers may hold valid registrations as per the applicable
Notifications issued under the Act of 2006 and which were valid as on the
date of institution of the claim before the Facilitation Council. A mere
revision of the form and/or mandate of seeking re-registration/a fresh
registration cannot be construed that the supplier did not enjoy the status as a
micro or a small enterprise despite having a valid registration.
ANALYSIS AND CONCLUSION:
I have heard the learned counsel for the respective parties and
have gone through the impugned record of the file.
So far as the issue No.4 regarding the Facilitation Council
having jurisdiction to entertain the dispute instituted before it which relate to
the period prior to the registration of the claimant as a Micro, Small and
Medium Enterprise under the Act of 2006 or the dispute having been
brought before it in relation to the date of invoice/claim being after getting
the registration is concerned, the said issues do not require any further
examination. The Hon'ble Supreme Court has already laid down in the
matter of Silpi Industries case(supra), as well as the judgments referred to
above that date of registration as Micro, Small and Medium Enterprises is
the cardinal date for assuming jurisdiction qua a dispute brought before the
Council. The date of the invoice is thus inconsequential. If the supplier was
not registered with the competent authority as a Micro, Small and Medium
Enterprise on the date when the contract was entered into, merely because it
was registered as on the date when invoice was raised, would not confer
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jurisdiction of the Facilitation Council to adjudicate the payment dispute
under the Act of 2006.
The position in law being well settled, it cannot still be held that
the application cannot be received at all. There can be no judicial scrutiny or
examination at the stage of submission of an application since adjudicatory
process is not set in motion until the conciliation fails. The process prior
thereto is either ministerial or pertains to exploring amicable resolution of
the dispute and the same does not stipulate adjudication. Whether a claim
deserves dismissal or there is a continuity of registration is a question of fact
which has to be established by producing documentary evidence. Hence, a
claim cannot be rejected outrightly and opportunities have to be granted to
the respective parties to establish their case. The Council may, if so advised,
devise an appropriate procedure for obtaining any such report and take a
decision as per law on such objections as to the maintainability of the
claims.
QUESTION NO.5
Whether the entire process of conciliation and arbitral award
has to be passed within the time period of 90 days specified under Section
18(5) of the Act of 2006 failing which the award would be vitiated?
ARGUMENT OF THE PETITIONERS
It has been argued that Section 18(5) of the Act of 2006
prescribes a time span within which the award is to be passed. Once the
period of 90 days prescribed under Section 18(5) comes to an end, the
Facilitation Council would have no further jurisdiction to proceed in the
matter and/or to pass any award. The orders/awards passed thereafter are a
nullity and have to be so declared.
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ARGUMENT BY THE RESPONDENTS
The respondents however submit that merely because the award
is not passed within a period of 03 months as specified under Section 18(5)
of the Act of 2006, the mandate would not terminate and the proceedings
before the Council would not vitiate. The requirement to pass the award
within the prescribed time period, although uses the expression "shall",
however, such expression is only directory and not mandatory and is
intended to convey an expeditious adjudication of the disputes/issues
brought before this Court. It is not intend to entail a consequence of
termination of the mandate on failure in meeting the timelines. Reliance in
this regard is also placed on the judgment of High Court of Delhi in the
matter of Indian Highways Management Company Limited Versus
Mukesh & Associates, 2021 SCC OnLine Del 2868:-
"32. As observed above, Sub-section (5) of Section 18 of the
MSME Act does not provide for any consequences for not
deciding the reference within the stipulated period of ninety
days. Further, it is held that failure to decide the reference
within the period of ninety days would result in termination of
the mandate and the parties would be relegated to other
remedies and, would not further the objective of Section 18 of
the MSME Act which is to provide expeditious resolution of
disputes either by conciliation or by arbitration. Surely, the
timelines as set out in Sub-section (5) of Section 18 of the
MSME Act must be substantially adhered to. However, the
same does not mean that in case the time lines get exceeded for
some reason, the proceedings itself stand frustrated. This
militates against the scheme of Section 18 of the MSME Act."
The legislative intent under Section 18(5) of the Act of 2006 is
to be seen while determining whether the provision was desired to be
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mandatory or directory and also from the context and the scheme. The
provisions of the statute do not provide for any consequences for non-
compliance of the aforesaid end-line and under such circumstances, the
judicial pronouncements have leaned in favour of holding that such
provisions, even though couched in a mandatory form, are still directory in
their import and effect. Section 18(5) of the Act of 2006 does not provide
any consequences that fall on failure of the reference being decided within
the stipulated period and as such, the same ought to be construed to be
directory in nature.
ANALYSIS AND CONCLUSION:
I have heard the learned counsel for the respective parties and
have gone through the impugned record of the file.
I am of the opinion that the time limit prescribed under Section
18(5) of the Act of 2006 cannot be construed as mandatory notwithstanding
the use of expression "shall". I find support from the judgment of the High
Court of Delhi in the matter of Indian Highways Management Company
Limited Versus Mukesh & Associates(supra) that Section 18(5) of the Act
of 2006 does not provide for any consequences for not deciding the
reference within the stipulated period of 90 days and that acceptance of any
such argument as would result in termination of the mandate and the parties
being compelled to avail other remedy(ies) would not further the object of
Section 18 of the Act of 2006 aimed to provide expeditious resolution of the
dispute. I would find myself in agreement with the aforesaid point of view
not only for the reasoning recorded by the Hon'ble Delhi High Court but also
for an additional reason that wherever the legislature intended to terminate
the mandate, it has expressed such intention. The Arbitration and
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Conciliation Act, 1996 can be referred to for understanding the said aspect.
Section 29A of the Arbitration and Conciliation Act, 1996 provides for time
limit for an arbitral award to be passed. It also specifically provides that
where the award is not made within the period specified under Section
29A(1) of the Arbitration and Conciliation Act, 1996 and/or within the
further extended period, the mandate of the Arbitrator shall stand terminated.
Hence, the Legislature has been conscious and specific about its intent,
wherever it so desired, about the consequence to follow on failure to
complete the proceedings within the prescribed time. No such similar
provision has been incorporated under the Act of 2006. It would thus flow
that the Legislature did not intend the aforesaid consequence to spring from
inaction or crossing the timeline. The issues with respect to the purposive
interpretation of the statutes, the doctrine of workability and harmonious
construction would also be applicable to the above issue. Testing on any of
the said parameters, the argument of the petitioners that the arbitration
would lapse for failure to pass an award in 90 days does not subserve the
legislative intent.
Resultantly, it is held that an award cannot be said to be vitiated
or terminated merely on account of the proceedings having been continued
or the arbitral award having been passed beyond a period of 90 days of
making of the reference.
QUESTION NO.6
Whether the Facilitation Council would be competent to
examine the counter-claim during the course of conciliation/adjudication
brought before it?
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ARGUMENT OF THE PETITIONERS
While supporting the submissions that even a counter-claim has
to be examined by the Facilitation Council, reference is made to the
judgment of the Hon'ble Supreme Court in the matter of M/s Silpi
Industries etc. Versus Kerala State Road Transport Corporation and
another etc.(supra):-
"23. The obligations of the buyer to make payment, and award
of Interest at three times of the bank rate notified by Reserve
Bank in the event of delay by the buyer and the mechanism for
recovery and reference to Micro and Small Enterprises
Facilitation Council and further remedies under the 2006 Act
for the party aggrieved by the awards, are covered by Chapter
V of the 2006 Act. The provisions of Section 15 to 23 of the Act
are given overriding effect notwithstanding anything
inconsistent therewith contained in any other law for the time
being in force. From the Statement of Objects and Reasons also
it is clear that it is a beneficial legislation to the small, medium
and micro sector. The Arbitration and Conciliation Act, 1996 is
a general law whereas the Micro, Small and Medium
Enterprises Development Act, 2006 is a special beneficial
legislation which is intended to benefit micro, small and
medium enterprises covered by the said Act. The Act of 2006
contemplates a statutory arbitration when conciliation fails. A
party which is covered by the provisions of 2006 Act allows a
party to apply to the Council constituted under the Act to first
conciliate and then arbitrate on the dispute between it and
other parties. There are fundamental differences in the
settlement mechanism under the 2006 Act and the 1996 Act.
The first difference is, the Council constituted under the 2006
Act to undertake mandatory conciliation before the arbitration
which is not so under the 1996 Act. Secondly, In the event of
failure of conciliation under the 2006 Act, the Council or the
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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 pre-
deposit 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. Even in cases where there is no agreement for
resolution of disputes by way of arbitration, if the seller is a
party covered by Micro, Small and Medium Enterprises
Development Act, 2006, if such party approaches the Council
for resolution of dispute, other party may approach the civil
court or any other forum making claims on the same issue. If
two parallel proceedings are allowed, it may result in
conflicting findings. At this stage, it is relevant to notice the
judgment of this Court in the case of Edukanti Kistamma
(Dead) through LRS. v. S. Venkatareddy (Dead) through LRS,
where this Court has held that a special Statute would be
preferred over general one where it is beneficial one. It was
explained that the purport and object of the Act must be given
its full effect by applying the principles of purposive
construction. Thus, it is clear that out of the two legislations,
the provisions of MSMED Act will prevail, especially when it
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has overriding provision under Section 24 thereof. Thus, we
hold that MSMED Act, being a special Statute, will have an
overriding effect vis-à-vis Arbitration and Conciliation Act,
1996, which is a general Act. Even if there is an agreement
between the parties for resolution of disputes by arbitration, if
a seller is covered by Micro, Small and Medium Enterprises
Development Act, 2006, the seller can certainly approach the
competent authority to make its claim. If any agreement
between the parties is there, same is to be ignored In view of
the statutory obligations and mechanism provided under the
2006 Act. Further, apart from the provision under Section
23(2A) of the 1996 Act, it is to be noticed that if counter-claim
is not permitted, buyer can get over the legal obligation of
compound interest at 3 times of the bank rate and the "75%
pre-deposit" contemplated under Sections 16 and 19 of the
MSMED Act.
xx xx xx xx
25. In C.A. Nos. 1620-1622 of 2021, the High Court, while
negating the plea of the appellant, on the maintainability of
counter-claim, has allowed the application filed by the
respondent under Section 11(6) of the 1996 Act and appointed
the second arbitrator. Though, we are of the view that counter-
claim and set-off is maintainable before the statutory
authorities under MSMED Act, appellant in this set of appeals
is not entitled for the relief, for the reason that on the date of
supply of goods and services the appellant did not have the
registration by submitting the memorandum as per Section 8 of
the Act. The bids were invited on 23.02.2010, appellant
submitted its bid on 17.05.2010, respondent awarded contract
to the appellant on 24.09.2010 and the parties signed the
contract documents for supply of material,
installation/commissioning of the power plant on 29.07.2011.
Thereafter, supplies were made and the appellant has raised
first invoice on 02.11.2011 for supply contract and also raised
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the first invoice pursuant to contract for Installation on
07.07.2012 and the appellant has raised the last invoice in
furtherance of contract for supply of material, on 29.03.2014.
The appellant also claims to have raised last invoice on
29.03.2015 in furtherance of contract for installation. It is to be
noticed that appellant approached the District Industrial
Centre for grant of entrepreneur memorandum only on
25.03.2015."
ARGUMENT BY THE RESPONDENTS
Counsel for the respondents have also supported that the
jurisdiction of the Facilitation Council cannot be ousted merely on account
of raising of a counter-claim. Any other suggestion would make it easy to
defeat the object of the statute. Every buyer would thus set-up a counter-
claim for seeking to ouster of the jurisdiction merely by lodging of claim
before other forum. The possibility of contradictory findings thus would
increase manifold.
ANALYSIS AND CONCLUSION:
I have heard the learned counsel for the respective parties and
have gone through the impugned record of the file.
The said aspect has been examined by the Hon'ble Supreme
Court in the judgment of Silpi Industries case(supra). Scheme of the Act
of 2006 specifically entitles the supplier to approach the Facilitation Council
for recovery of the outstanding payments. Section 18(1) of the Act of 2006
uses the expression "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". Hence, the emphasis is on use of expression "any
party to a dispute" for making a reference to the Micro and Small
Enterprises Facilitation Council. Consequently, even the counter-claim by a
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party to a dispute can be examined by the Facilitation Council even though
such party is not a Micro, Small and Medium Enterprise.
The Hon'ble Supreme Court rejected the contention that the Act
of 2006 is a beneficial legislation solely for the Micro and Small Enterprises
and the scope of the Act cannot be expanded to allow counter-claims by the
buyer. It was held that the seller cannot be denied jurisdiction of the
Facilitation Council merely on a plea of a counter-claim by the buyer. If
such a contention is accepted, the remedy of the supplier/seller to approach
the Facilitation Council, in the event of providing goods/services to a large
Enterprise, would be rendered otiose. Any buyer would thus be in a
situation to get over the legal obligation of payment of compound interest
and oust the jurisdiction of the Facilitation Council by lodging a counter-
claim. The expression "any party" referred to Section 18 cannot be narrowly
construed to refer to the supplier alone. It was also noticed that Section
18(3) of the Act of 2006 makes it clear that the provision of The Arbitration
and Conciliation Act, 1996 are made applicable as if there is an agreement
between the parties under Section 1 sub-section 7 of the Arbitration and
Conciliation Act, 1996. Section 23 of The Arbitration and Conciliation Act,
1996 deals with the statement of claim in defence while Section 23(2A)
gives a right to the respondent to submit a counter-claim or plead a set-off
with regard to the claim within the scope of the arbitration agreement by
virtue of amending Act 3 of 2006. Furthermore, the object of the amending
Act was to provide speedy disposal of cases relating to arbitration -- with
minimal Court intervention, sub-section 2A of Section 23 was intended to
give an opportunity to the respondent to submit his counter-claim or to plead
a set-off within the scope of the arbitration agreement. Since Section 18(3)
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of the Act of 2006 makes it clear that the procedure of The Arbitration and
Conciliation Act, 1996 would be applicable to such proceedings, there is no
reason for curtailing the right of the respondent for making a counter-claim
or set-off in proceedings before the Facilitation Council. When such
provision for filing of counter-claim and/or to plead set-off is expressly
inserted in Section 23 of the Act of 1996. It was also observed that denial of
the right to plead set-off and/or file a counter-claim may lead to parallel
proceedings before various Fora and may result in conflicting findings by
different Fora. Hence, the issue having been already answered by the
Hon'ble Supreme Court, it requires no further determination and the
Facilitation Council would be competent to examine the counter-claim and
the plea of set-off during the course of adjudication by way of arbitration
brought before it.
QUESTION NO.7
Whether the proceedings before the Facilitation Council in
relation to a work's contract would be not maintainable?
ARGUMENT OF THE PETITIONERS
Counsel have argued that in certain matters, the Facilitation
Council has taken cognizance even though the tender/work is a work's
contract and that it would not fall within the definition of supply of goods or
rendering any service. However, notwithstanding the nature of the contract
amongst the parties, the Facilitation Council has taken cognizance of the
dispute and proceeded further in the matter instead of declining to proceed
further.
While substantiating the submission that the provisions of the
Act of 2006 are not applicable to the works' contract, reliance is placed upon
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the following judgments i.e. M/s Shree Gee Enterprises vs. Union of India
and Anr. - 2015 SCC OnLine Del 13169; Sterling and Wilson Private
Limited vs. Union of India - 2017 SCC OnLine Bom 6829; Surya
International vs. Union of India & Ors. - 2014 SCC OnLine All 15192
and M/s Rahul Singh vs. Union of India & 5 Ors. - 2017 SCC OnLine All
3949 .
ARGUMENT OF THE RESPONDENTS
While countering the argument advanced by the counsel for the
petitioners that the provisions of the Act of 2006 not being applicable on the
works' contract, reference was made to the judgment of the Bombay High
Court in the matter of National Textile Corporation Ltd. and others Versus
Elixir Engineering Pvt. Ltd. and another, 2023 SCC OnLine Bom 653 to
contend that the question as to whether the contract would be said to be a
works contract would depend on the facts and circumstances of each case
and that unless the issue is examined by the MSME Facilitation Council, it
cannot be ruled outrightly that a contract is a works' contract. They contend
that even though the provisions of the MSMED Act have been held to be
not applicable to a works' contract, which is essentially an indivisible
contract that may involve not just the supply of goods but also the provisions
of labour and services, however, such a finding cannot be returned without
allowing the parties to bring their evidence in support of their respective
claim. Since the process of adjudication commences only after the reference
under section 18(3) of the Act of 2006, hence, there is no scope for ruling on
the same any time prior thereto.
Reference was also made to the judgment of Calcutta High
Court in the case of Hindustan Petroleum Corp. Ltd. & Anr. Versus West
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Bengal State MSME & Ors., 2023 SCC OnLine Cal 1700 to contend that
such question can only be decided after the parties enter appearance before
the Facilitation Council and raised their objections and establish the nature
of the contract as to whether it is a contract for supply of goods and services
or it is in the nature of a works' contract or a composite contract.
ANALYSIS AND CONCLUSION:
I have heard the learned counsel for the respective parties and
have gone through the impugned record of the file.
The plea as to whether the contract is a works contract or a
composite contract or a contract in relation to supply of goods and service or
may be back to back agreement are questions that require an adjudication.
The process of MSMED Act, 2006 does not empower adjudication before
reference under section 18(3), hence, an application for seeking rejection of
claim on the ground that the contract is a works contract, being a plea of
defence and question of law and fact, cannot be rejected at the threshold.
The ouster of jurisdiction to deny opportunities to the buyer without
affording him opportunities to prove his case is likely to defeat the object of
the statute. There can be no presumption that the Council would not consider
the settled law while deciding the claims. The argument is more
apprehensive rather than substantive and has to be rejected. The statutory
presumption in law is that the authorities discharge their duties as per law
and not to the contrary. Hence, the petitioner cannot claim that he is
aggrieved merely because the matter is referred to arbitration on failure of
the conciliation proceedings. He is at liberty to establish his claim during the
arbitration proceedings and seek dismissal of the application as per law.
There is no such case brought before this court in the batch of petitions
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where a final award has been passed in a works contract. Hence, the
apprehensions are not corroborated by any valid cause or concern.
No person can claim that he is prejudiced merely on account of
an application/claim having been filed before the Facilitation Council and
decide not to appear before such Council at all. The illegality or impropriety
in an award would come into existence, if any, only after the said contention
is rejected wrongly and erroneously and not at any time prior thereto. Such
objections and grounds for raising a challenge to the award and/or
proceedings by means of approaching the High Court under writ jurisdiction
at the outset are thus unsustainable and the proceedings are liable to be set
aside.
The Facilitation Council may however, if so advised, examine
the possibility of determination of preliminary objections so that the disputes
do not get prolonged for such reasons.
QUESTION NO.8
Whether an award that has been passed in violation of law can
be set aside under writ jurisdiction despite alternative remedy(ies)?
ARGUMENT OF THE PETITIONERS
To substantiate the argument that where the orders/awards are
illegal; incorrect; irregular or not being in accordance with law, such
violation/breach cannot be overlooked or ignored. When the authority lacks
inherent jurisdiction for passing an order, such order would be non-est and
void ab initio. A defect of jurisdiction would go to the root of the matter and
strike at the very authority of the Court/authority to pass such an order. The
said defect is always to be treated as basic and fundamental, and a decree or
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order by such Court or in rendering such proceedings has to be treated as a
nullity.
Reliance is placed on the judgment of the Hon'ble Supreme
Court in the matter of Balvant N. Viswamitra and others Versus Yadav
Sadashiv Mule (Dead) through LRs and others, 2004 SCC OnLine SC
881:-
" 9. The main question which arises for our consideration is
whether the decree passed by the trial court can be said to be
"null" and "void", In our opinion, the law on the point is well
settled. The distinction between a decree which is void and a
decree which is wrong, incorrect, irregular or not in,
accordance with law cannot be overlooked or ignored. Where a
court lacks inherent jurisdiction in passing a decree or making
an order, a decree or order passed by such court would be
without jurisdiction, non est and void ab initio. A defect of
jurisdiction of the court goes to the root of the matter and
strikes at the very authority of the court to pass a decree or
make an order. Such defect has always been treated as basic
and fundamental and, a decree or order passed by a court or
an authority having no jurisdiction is a nullity. Validity of such
decree or order can be challenged it any stage, even in
execution or collateral proceedings.
10. Five decades ago, in Kiran Singh v. Chaman Paswan this
Court declared: (SCR p. 121) "It is a fundamental principle
well established that a decree passed by a court without
jurisdiction is a nullity, and that its invalidity could be set up
whenever and wherever it is sought to be enforced or relied
upon, even at the stage of execution and even in collateral
proceedings. A defect of jurisdiction, strikes at the very
authority of the court to pass any decree, and such a defect
cannot be cured even by consent of parties."
(Emphasis supplied)
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11. The said principle was reiterated by this Court in Hiralal
Patni v. Kali Nath. The Court said: (SCR pp 75152)
"Competence of a court to try a case goes to the very root of the
jurisdiction, and where it is licking, it is a case of inherent lack
of jurisdiction."
14. Suffice it to say that recently a Bench of two Judges of this
Court has considered the distinction between null and void
decree and illegal decree in a Rafique Bibi v. Sayed Waliuddin.
One of us (R.C. Lahoti, J., as His Lordship then was), quoting
with approval the law laid down in Vasudev Dhanjibhai Modi³
stated: (SCC pp. 291-92, paras 6-8)
To substantiate their argument that the High Court would have
the power to entertain a writ petition notwithstanding an alternative remedy,
reference is made to the judgment of the Hon'ble Supreme Court in the
matter of Radha Krishan Industries Versus State of Himachal Pradesh
and others, 2021 SCC OnLine SC 334:-
"27. The principles of law which emerge are that:
27.1. The power under Article 226 of the Constitution to issue
writs can be exercised not only for the enforcement of
fundamental rights, but for any other purpose as well.
27.2. The High Court has the discretion not to entertain a writ
petition. One of the restrictions placed on the power of the
High Court is where an effective alternate remedy is available
to the aggrieved person.
27.3. Exceptions to the rule of alternate remedy arise where:
(a) the writ petition has been filed for the enforcement of a
fundamental right protected by Part III of the Constitution: (b)
there has been a violation of the principles of natural justice:
(c) the order or proceedings are wholly without jurisdiction: or
d.) the vires of a legislation is challenged.
27.4. An alternate remedy by itself does not divest the High
Court of its a powers under Article 226 of the Constitution in
an appropriate case though ordinarily, a writ petition should
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not be entertained when an efficacious alternate remedy is
provided by law.
27.5. When a right is created by a statute, which itself
prescribes the remedy or procedure for enforcing the right or
liability, resort must be had to that particular statutory remedy
before invoking the discretionary remedy under Article 226 of
the Constitution. This rule of exhaustion of statutory remedies
is a rule of policy, convenience and discretion.
27.6. In cases where there are disputed of fact, the High Court
may decide to decline jurisdiction in a writ petition. However, if
the High Court is objectively of the view that the nature of the
controversy requires the exercise of its writ jurisdiction, such a
view would not readily be interfered with.
(emphasis supplied)
It is further argued that when law prescribes a thing to be done
in a particular manner, the same has to be done in that manner. The Hon'ble
Supreme Court, in the matter of State of Uttar Pradesh Versus Singhara
Singh and others, AIR 1964 SC 358, has held as under:-
"7. In Nazir Ahmed case the Judicial Committee observed that
the principle applied in Taylor v. Taylor to a court, namely, that
where a power is given to do a certain thing in a certain way,
the thing must be done in that way or not at all and that other
methods of performance are necessarily forbidden, applied to
judicial officers making a record under Section 164 and,
therefore, held that the Magistrate could not give oral evidence
of the confession made to him which he had purported to record
under Section 164 of the Code. It was said that otherwise all
the precautions and safeguards laid down in Sections 164 and
364, both of which had to be read together, would become of
such trifling value as to be almost idle and that "it would be an
unnatural construction to hold that any other procedure was
permitted than that which is laid down with such minute
particularity in the sections themselves".
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8. The rule adopted in Taylor v. Taylor is well recognised and is
founded on sound principle. Its result is that if a statute has
conferred a power to do an act and has laid down the method
in which that power has to be exercised, it necessarily prohibits
the doing of the act in any other manner than that which has
been prescribed. The principle behind the rule is that if this
were not so, the statutory provision might as well not have been
enacted. A Magistrate, therefore, cannot in the course of
investigation record a confession except in the manner laid
down in Section 164. The power to record the confession had
obviously been given so that the confession might be proved by
the record of it made in the manner laid down. If proof of the
confession by other means was permissible, the whole provision
of Section 164 including the safeguards contained in it for the
protection of accused persons would be rendered nugatory. The
section, therefore, by conferring on Magistrates the power to
record statements or confessions, by necessary implication,
prohibited a Magistrate from giving oral evidence of the
statements or confessions made to him."
The Hon'ble Apex Court, in the matter of J. Jayalalithaa and
others Versus State of Karnataka and others, 2013 SCC OnLine SC 901,
has observed as under:-
"34. There is yet an uncontroverted legal principle that when
the statute provides for a particular procedure, the authority
has to follow the same and cannot be permitted to act in
contravention of the Statute. In other words, where a statute
requires to do a certain thing in a certain way, the thing must
be done in that way and not contrary to it at all. Other methods
or mode of performance are impliedly and necessarily
forbidden. The aforesaid settled legal proposition is based on a
legal maxim expressid unius est exclusio alterius, meaning
thereby that if a statute provides for a thing to be done in a
particular way, then it has to be done in that manner and in no
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other manner and following any other course is not
permissible.
The Hon'ble Apex Court, in the matter of Badrinath Versus
Government of Tamil Nadu and others, 2000 SCC OnLine SC 1401, has
observed as under:-
"27. This flows from the general principle applicable to
"consequential orders". Once the basis of a proceeding is gone,
may be at a later point of time by order of a superior authority,
any intermediate action taken in the meantime like the
recommendation of the State and by the UPSC and the action
taken thereon would fall to the ground. This of consequential
orders which is applicable to judicial and quasi-judicial
proceedings is equally applicable to administrative orders. In
other words, where an is passed by an authority and its validity
is being reconsidered by a superior authority (like the
Governor in this case) and if before the superior authority has
given its decision, some further action has been taken on the
basis of the initial order of the primary authority, then such
further action will fall to the ground the moment the superior
authority has set aside the primary order."
The Hon'ble Supreme Court, in the matter of Chairman-cum-
Managing Director, Coal India Limited and others Versus Ananta Saha
and others, 2011 SCC OnLine SC 586, has held as under:-
"32. It is a settled legal proposition that if initial action is not
in consonance with law, subsequent proceedings would not
sanctify the same. In such a fact situation, the legal maxim
sublato fundamento cadit opus is applicable, meaning thereby,
in case a foundation is removed, the superstructure falls.
33. In Badrinath v. Govt. of TN this Court observed that once
the basis of a proceeding is gone, all consequential acts,
actions, orders would fall to the ground automatically and this
principle of consequential order which is applicable to judicial
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and quasi-judicial proceedings is equally applicable to
administrative orders. (See also State of Kerala v. Puthenkavu
N.S.S. Karayogam and Kalabharati Advertising v. Hemant
Vimalnath Narichania.)
34. As in the instant case, there had been no proper initiation of
disciplinary proceedings after the first round of litigation, all
other consequential proceedings stood vitiated and on that
count no fault can be found with the impugned judgment and
order of the High Court."
ARGUMENT BY THE RESPONDENTS
The respondents contend that in so far as the issues with respect
to the maintainability of the claim petition on any consideration vis-a-vis. the
cause of limitation, the date of registration, and/or whether the jurisdiction of
the Council would be barred or not cannot be gone into at the stage of
institution of the claim itself or at the stage of conciliation and that the
Council can examine the said aspects only after it takes cognizance of the
dispute for adjudication. There is no mechanism before the Council to refuse
submission/filing of a claim by a Micro and Small Enterprises under
Chapter V of the Act of 2006.
It is further argued by the respondents that the petitioners have
an efficacious alternative remedy(ies) to impugn the orders as per procedure
known to law and by filing objections and/appeal thereafter. Filing of the
present writ petitions is an abuse of the process of law. Since the petitioners
have an alternative efficacious remedy, there is no occasion why a writ Court
should examine the issues and step in when the grievances being espoused
by the petitioners are not real but are only intended to delay finalization of
the proceedings that have been initiated before the Facilitation Council. The
object of the petitioners-buyers being to defeat the rights of the Micro and
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Small Enterprises and to compel them to surrender into settlements which
are to their detriment, would amount to abusing the process of law for
causing prejudice and harm to the Micro and Small Enterprises having small
financial resources and liquidity. Delay in finalization of their claims as well
as release of payments to them is likely to force them to forego their rights
and settle for less. The object of statute would be defeated in case the buyers
are allowed to bleed the Micro and Small Enterprises to death knowing that
liquidity and capital are the lifeline of such industry. Running them dry or
denying them an early flow of their money is likely to cascade into a
devastating effect. Same would defeat the object and legislative intent of the
Act of 2006.
ANALYSIS AND CONCLUSION:
I have heard the learned counsel for the respective parties and
have gone through the impugned record of the file.
While counsel for the petitioners have vehemently argued that
the proceedings being in conflict with law, the same can be agitated at any
stage by invoking the writ jurisdiction of the High Court, the stand of the
respondents is that the petitioners have recourse to alternative efficacious
remedy(ies) under the statutory scheme and that they should not be permitted
to bypass the statutory procedure and rigors of the applicable law by filing
the writ petition. It has further been argued by the counsel that in a large
number of cases, the awards had already attained finality and that the same
were never challenged by the petitioners and that the institution of the
present writ petitions is only a means to bypass an award that has already
attained finality amongst the parties and that the writ petitions deserve to be
dismissed on account of delay and laches itself.
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A perusal of the judgment in the matter of Radha Krishan
Industries Versus State of Himachal Pradesh and others(supra), shows
that an aggrieved party may approach the High Court by means of filing a
writ petition in circumstances where the impugned order is void and/or is
violative of the principles of natural justice or in complete disregard to the
applicable laws. Where the defect is legal and is evident ex-facie, the writ
jurisdiction of High Court would not be barred.
The Hon'ble Supreme Court, in the judgment of Balvant N.
Viswamitra and others Versus Yadav Sadashiv Mule (Dead) through LRs
and others(supra), has observed as under:
"9. The main question which arises for our consideration is
whether the decree passed by the trial Court can be said to be
'null' and 'void'. In our opinion, the law on the point is well
settled. The distinction between a decree which is void and a
decree which is wrong, incorrect, irregular or not in
accordance with law cannot be overlooked or ignored. Where a
Court lacks inherent jurisdiction in passing a decree or making
an order, a decree or order passed by such Court would be
without jurisdiction, non est and void ab initio. A defect of
jurisdiction of the Court goes to the root of the matter and
strikes at the very authority of the Court to pass a decree or
make an order. Such defect has always been treated as basic
and fundamental and a decree or order passed by a Court or an
authority having no jurisdiction is nullity. Validity of such
decree or order can be challenged to any stage, even in
execution or collateral proceedings."
Apart therefrom, the Hon'ble Supreme Court had held in the
matter of M/s Deep Industries Limited Versus Oil and Natural Gas
Corporation Limited and another, 2019 SCC OnLine SC 1602 that the
jurisdiction under Articles 226/227 of the Constitution of India cannot be
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invoked when adjudication is under the Arbitration and Conciliation Act and
not in relation to a matter which is decided under any other statute even
though the provisions/procedure of the Arbitration and Conciliation Act,
1996 may have been adopted for expeditious adjudication of the lis brought
before it. Such an order/award cannot be said to have been passed under the
Arbitration and Conciliation Act, 1996 and would remain an award passed
under Section 18(3) of the Act of 2006 which is challenged by way of an
appeal under section 19 of the Act of 2006 instead of objections under
section 34 of the Arbitration and conciliation Act, 1996. So much so, it has
already been held that the provisions of Limitation Act, 1963 are applicable
to the awards/proceedings initiated under the Act of 2006 whereas the
Arbitration and Conciliation Act, 1996, being a complete code unto itself,
the Hon'ble Supreme Court has specifically held that Section 5 of the
Limitation Act, 1963 cannot be invoked over and above the specific
provision enshrined in the Arbitration and Conciliation Act, 1996.
Hence, I am of the opinion that a writ may be entertained by the
High Court notwithstanding an efficacious and alternative remedy available
to the respective parties, in exceptional and exigent circumstances when
glaring illegality is evident and a pure question of law arises and where
delaying the matter through the process of statute is more likely to prejudice
the interest of the Micro and small enterprise. The defect of jurisdiction
having been held basic and going to the root, such an issue can be examined
under a writ jurisdiction.
The filing of a writ petition solely for the purpose of avoiding a
pre-deposit should not be promoted or be allowed to take recourse to as a
routine. The contention of the petitioners that some of the disputes are not
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arbitrable being in the nature of work's contract and would not fall within the
domain of the Act of 2006 or that the award in question was passed in an ex
parte proceedings or that no effective opportunity was granted to the
respective parties to plead their case etc. are grounds of challenge to an
award on merits and the same would not per se be sufficient to invoke the
writ jurisdiction. The person aggrieved is required under such circumstance
to raise a challenge to such an award/proceeding as per the procedure
prescribed in the Statute.
Hence, where the challenge has been made to the reference
which has already culminated in passing of a final award by the facilitation
council , there is no expedient urgency as to why a challenge to the award
should be considered under the writ petition when the petitioners have an
efficacious remedy(ies) available to them in accordance with law and such
remedy(ies) have not been availed. However, where the award has been
passed by the sole arbitrator instead of the facilitation council, the stand of
the respondent itself being that the sole arbitrator is not competent to pass
the award, the same would be unsustainable for want of jurisdiction.
Taking into consideration the statutory provisions and the stand
of the respondents along with the object of the Act and findings recorded
above, all these writ petitions are disposed of with the following directions.
DIRECTIONS:
(i) The provisions of the Micro, Small and Medium Enterprises
Development Act, 2006 being a special Act shall override the provisions of
The Arbitration and Conciliation Act, 1996.
(ii) The application for claim may be preferred before the
Facilitation Council by the Micro and Small Enterprises Facilitation Council
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for recovery of the due amount for any goods supplied or services rendered
by the supplier.
(iii) The Facilitation Council may on receipt of such reference under
Section 18(1) of the Act of 2006 either conduct the conciliation itself or seek
assistance of any institution or centre providing alternative dispute
resolution services by making a reference to such institute or centre.
(iv) The conduct of the conciliation proceedings under Section 18(2)
of the Act of 2006, is a mandatory procedural requirement.
(v) In the event of failure of the conciliation initiated under Section
18(2) of the Act of 2006, the dispute may be taken up for arbitration by the
Council itself or may be referred to any institution or centre providing
alternate dispute resolution services for such arbitration.
(vi) The counter-claim filed by the other party can also be examined
and adjudicated by the Facilitation Council.
(vii) Even though a period of 90 days is prescribed under Section
18(5) of the Act of 2006 for deciding the reference, however, the said time
period is only desirable and directory in nature and would not vitiate the
award that is finally passed merely on account of delay in passing of such an
award.
(viii) The State Government may appoint any such officer, with such
designation, as it thinks fit for the purposes of this Act and entrust to them
such powers and functions under the said Act as may deem fit.
(ix) The designation of "Arbitrator/Expert/Facilitator" for the
persons appointed under Section 26 of the MSMED Act, 2006 with the aid
of Rule 4(16) of the Facilitation Council Rules of 2007/under Rule 6(12) of
the Facilitation Council Rules of 2021 has to be construed in terms of
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Section 26 alone and does not confer upon such appointee the status of an
Arbitrator under The Arbitration and Conciliation Act, 1996 notwithstanding
any expression used in the communications impugned in the present
petitions.
(x) The power of the State Government to appoint is not qualified
by any specific nature or terms and conditions of appointment and is not to
be construed as an appointment which may be fulfilling the test and
requirements of the Services Rules.
(xi) As the discretion with respect to the appointment, the powers
and functions have been vested entirely with the State Government, hence,
exercise of such power cannot be held to be bad and vitiated merely because
the appointment and the terms of payment do not confirm to the hyper-
technical understanding of appointment as per service law considering that
the fee which is charged is prescribed by the government.
(xii) The scheme of the Act, as followed by the State of Haryana in
its statutory Rules, confers the power to pass the award with the Facilitation
Council itself and the person engaged using the expression/designation as
"Arbitrator/Expert/Facilitator" is not competent to pass a final award as the
respondent-State has also admitted that only the Facilitation Council has
been passing the final award and that no such power to pass a final award
has been conferred on the person engaged by them notwithstanding the
nomenclature used in the term of engagement and/or reference made to him.
(xiii) Even though the report may have been termed as an award, a
final award can only be passed by the Facilitation Council, as per rules,
after consideration and affording an opportunity of hearing to the respective
parties.
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(xiv) The petitions noticed above and where the award has been
passed by the Arbitrator/Expert/Facilitator engaged by the Facilitation
Council in exercise of the powers conferred under Section 26 of the Act of
2006 cannot be held to be an enforceable award. The same can at best be
construed only as a report for consideration by the Facilitation Council to
pass the final award after granting an opportunity of hearing to the
respective parties. Such awards as may have been passed by the Sole
Arbitrator are thus set aside, along with all consequential proceedings, at this
stage, and are declared to be only a report for consideration by the
Facilitation Council.
(xv) The respective parties shall appear before the Facilitation
Council within a period of four weeks from the date of receipt of a certified
copy of the judgment and the Facilitation Council shall thereafter proceed
with the matter in accordance with law and pass a final award as per law.
(xvi) Where the challenge has been made to an award passed by the
Facilitation Council along with the reference made to the
Arbitrator/Facilitator/Expert, for grounds that are a matter of defence and
mixed questions of law and fact, there is no reason for this Court to
entertain a writ petition directly as efficacious alternative remedy has been
prescribed under Section 19 of the Act of 2006. The said writ petitions are
accordingly disposed off at this stage, without commenting on merits, with
liberty to the respective parties to prefer an appeal as per the Act before the
competent Forum, if so advised.
(xvii) Where the challenge has been made to the award and/or the
proceedings of the Facilitation Council on the ground that they have been
wrongly proceeded against ex parte and/or without considering their
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defence/merit, the said writ petitions are also disposed off, at this stage,
without commenting on merits, with liberty to the petitioners to challenge
the award/the proceedings as per the remedy provided under the statute and
in accordance with law.
(xviii) The remedy(ies) being efficacious, there is no reason why the
writ jurisdiction should be invoked solely to bypass the operation of the
provisions of the Act of 2006.
(xix) The condition of pre-deposit is not a subject matter of challenge
and any argument to the effect that the condition is onerous and takes away
the right of the petitioners to take recourse to constitutional remedy(ies) is
rejected. The abovesaid clause and its constitutionality has already been
upheld by the Hon'ble Supreme Court.
The parties are thus relegated to take recourse to their
remedy(ies) as may be available to them in accordance with law and
approach the competent Court/Facilitation Council which shall then proceed
to pass appropriate orders in accordance with law. The period during which
the proceedings remained pending before this Court shall be reckoned by the
competent Court while dealing with the issue of delay and laches/limitation.
All the pending miscellaneous applications, if any, are disposed
of, in view of the aforesaid judgment.
August 01, 2023 (VINOD S. BHARDWAJ)
seema JUDGE
Whether speaking/reasoned: Yes/No
Whether Reportable: Yes/No
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