Telangana High Court
M/S. S.R. Technologies Unit Ii vs Micro And Small Enterprises ... on 21 March, 2023
Bench: Ujjal Bhuyan, C.V. Bhaskar Reddy
THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
AND
THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY
+ WRIT APPEAL No.734 of 2022
% Date: 21.03.2023
# M/s. S.R.Technologies (Unit-II),
Plot No.102, S.V.C.I.E.,
Jeedimetla, Hyderabad - 500 055,
Represented by its Proprietor Y.Balaji Balram Singh.
... Appellant
v.
$ Micro and Small Enterprises Facilitation Council,
Medchal-Malkajgiri,
3rd Floor, A-Block, Collectorate Complex,
ORR, Keesara - 501 301,
And others.
... Respondents
! Counsel for the appellant : Mr. Suresh Dhole,
Representing Mr. Gollakota Satya Jagannath
^ Counsel for respondents No.2 & 3: Mr.C.V.Mohan Reddy,
learned Senior Counsel
< GIST:
HEAD NOTE:
? CASES REFERRED:
1. (1994) 6 SCC 651
2. 2021 SCC OnLine SC 1257
3. 2015 SCC OnLine Hyd 494 : (2016) 3 ALD 588
4. 2019 SCC OnLine TS 2050 : (2020) 1 ALT 151
5. 2021 SCC OnLine SC 439
6. 1957 SCC OnLine Bom 15 : AIR 1957 Bom 178
7. (1961) 3 SCR 1020 : AIR 1961 SC 1285
2
8. (1996) 5 SCC 411
9. (2008) 4 SCC 755 : 2008 SCC OnLine SC 499
10. (2014) 11 SCC 53 : 2014 SCC OnLine SC 298
11. (2018) 10 SCC 826 : (2019) 1 SCC (Civ) 97 : 2018 SCC OnLine
SC 554
12. (1983) 1 SCC 177 : 1983 SCC (Cri) 143
13. (2020) 15 SCC 533 : 2018 SCC OnLine SC 3245
14. (2020) 15 SCC 161 : 2019 SCC OnLine SC 1102
15. (2020) 2 SCC 540 : (2020) 1 SCC (Civ) 614 : 2020 SCC OnLine
SC 13
16. 2022 SCC OnLine SC 1026
17. 2019 SCC OnLine SC 1154 : AIR 2019 SC 3558
18. 2022 SCC OnLine SC 1492
19. (2006) 5 SCC 658
20. (2006) 5 SCC 638
21. 2022 SCC Online SC 865
22. 2022 SCC Online SC 1322
23. AIR 2006 SC 450
24. (2020) 15 SCC 706
3
THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
AND
THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY
WRIT APPEAL No.734 of 2022
JUDGMENT: (Per the Hon'ble the Chief Justice Ujjal Bhuyan)
Heard Mr. Suresh Dhole, learned counsel
representing Mr. Gollakota Satya Jagannath, learned
counsel for the appellant and Mr. C.V.Mohan Reddy,
learned Senior Counsel for respondents No.2 and 3.
2. This intra-court appeal under Clause 15 of the
Letters Patent has been filed against the judgment and
order dated 14.09.2022 passed by the learned Single Judge
allowing W.P.No.16918 of 2022 filed by respondents No.2
and 3 as the writ petitioners.
3. It may be mentioned that respondents No.2 and 3
had filed the related writ petition assailing the legality and
validity of the award dated 28.10.2021 passed by the Micro
and Small Enterprises Facilitation Council (briefly, "the
Facilitation Council" hereinafter). By the judgment and
4
order dated 14.09.2022, learned Single Judge set aside the
award dated 28.10.2021 by invoking jurisdiction under
Article 226 of the Constitution of India.
4. Appellant before us is M/s. S.R. Technologies (Unit-II)
(referred to hereinafter as, "claimant", "supplier" or
"appellant" as the case may be). Claimant is a small scale
industrial unit bearing registration certificate dated
19.01.2007 issued by the District Industries Centre, Ranga
Reddy, under the small manufacturing enterprises
category. Claimant made a reference on 28.10.2015 under
Section 18(1) of the Micro Small and Medium Enterprises
Development Act, 2006 (briefly, "the MSME Act"
hereinafter) to the Facilitation Council for acting as
Conciliator and Arbitrator in respect of the amount claimed
against M/s. India Glycols Limited (respondent No.2
herein). The amounts claimed by the claimant against
respondent No.2 were as follows: Principal: Rs.
40,29,862.00 and Interest: Rs. 80,89,605.00 (as on the
date of filing the reference). The reference was registered
and admitted by the Facilitation Council on 28.10.2015.
5
4.1. According to the claimant, respondent No.2 had
raised purchase order dated 17.03.2008 for supply of
HVAC, doors, windows, false ceiling etc., including
installation and commissioning at M/s. IGL site for their
NHPS Dehradun Project for an amount of
Rs.2,01,00,000.00 plus excise duty etc., with the terms
and conditions of payment as under:
a) 20% advance against acceptance of purchase
order;
b) 10% against submission of drawings;
c) 50% payment as per the break up approved
by M/s.IGL and on submission of dispatch
documents on prorate basis;
d) 10% payment will be released after
mechanical completion at site to be certified
by M/s.IGL representative;
e) 10% payment shall be paid on submission of
performance bank guarantee of equivalent
amount as per IGL format valid for a period of
24 months from the date of successful
commissioning;
6
4.2. According to the claimant, respondent No.2 had
released 20% of the order value as advance on 08.05.2008
and further 10% of the order value as advance against
submission of drawings on 31.05.2008. Thereafter,
claimant started supply of goods from 04.06.2008 onwards
and deputed erection team to the site. It submitted bill for
supply/services on 21.03.2009. Respondent No.2 released
50% of the bills and retained balance amount. Claimant
and respondent No.2 continued mechanical erection and
submitted inspection report on 24.03.2009 whereafter
claimant requested respondent No.2 to release 10% of the
order value but the same was not responded to by
respondent No.2 though respondent No.2 did not deny the
fact that it owed 20% of the amount to the claimant.
According to the claimant, it had deputed personnel for
carrying out the necessary modifications as requested by
respondent No.2 from time to time besides recording
minutes of the meetings held on 14/15th October, 2009,
20th May, 2011 and 20th April, 2013, duly signed by both
the parties.
7
4.3. Despite request by the claimant for release of the
balance 20% of the purchase order amount, respondent
No.2 had maintained silence without any payment. A
series of correspondences were exchanged between the
parties. Ultimately, claimant issued a legal notice to
respondent No.2 on 18.09.2015 but received no reply. It
was thereafter that the reference was made seeking the
relief as indicated above.
4.4. Before the Facilitation Council both claimant and
respondent No.2 were present. However, process of
conciliation failed. Therefore, Facilitation Council took up
the case for arbitration.
4.5. Respondent No.2 submitted its statement of defence.
According to respondent No.2, claimant could complete
mechanical installation only in the month of April, 2009,
though the date of completion of mechanical installation
was 30.06.2008. There was thus delay of nine months. Of
course, respondent No.2 acknowledged that it had paid
8
80% of the total invoices to the claimant. However, it was
alleged that key mechanical machineries supplied by the
claimant were undersized and of subdued capacities.
Because of faulty installations, respondent No.2 could not
take up the production as planned. Making counter claim,
respondent No.2 requested the Facilitation Council to
direct the claimant to pay an amount of Rs.8,92,04,900.00
to respondent No.2 for financial loss as well as loss of
business opportunity and also on account of damage to
reputation.
4.6. This was contested by the claimant by filing reply
whereafter surrejoinder and reply to surrejoinder were filed
and exchanged.
4.7. After considering the claims and counter claims and
after hearing the parties, Facilitation Council framed the
following four issues for consideration:
i) Is the claim of the claimant supported by
invoices and documentary proof related to the
claim;
9
ii) Can the claimant claim interest on delayed
payment and applicability of delayed
payments as per provisions of the MSME Act
and whether respondent No.2 was liable for
such interest on delayed payment;
iii) Is respondent No.2 eligible for counter claim?
iv) Is the claim barred by limitation?
4.8. Insofar issue No.1 is concerned, Facilitation Council
held that there was no lapse on the part of the claimant.
Claimant is entitled to the claim of 20% which would be
Rs.40,29,862.00. As regards issue No.2, Facilitation
Council held that claimant's claim of interest is in
accordance with provisions of the MSME Act, more
particularly Section 16 thereof. Therefore, claimant is
entitled to the same. Third issue pertained to counter
claim of respondent No.2. Facilitation Council firstly
observed that MSME Act is a beneficial legislation enacted
to protect the interest of micro and small enterprises.
Scope of MSME Act is limited only to recovery of amounts
due from the buyer and in this context MSME Act provides
jurisdiction to Facilitation Council to act as a conciliator or
10
arbitrator in respect of matters referred to in Section 17 of
the MSME Act. On merit, Facilitation Council found that
calculations and projections made by respondent No.2 in
the counter claim were not supported by any documentary
evidence. Therefore, the same could not be allowed. As to
the question regarding the claim being barred by
limitation, Facilitation Council held that question of the
claim being barred by limitation does not arise. Sections
15 to 18 of the MSME Act have been enacted to facilitate
promotion, development and enhancing the
competitiveness of micro, small and medium enterprises.
Primary object of the MSME Act is to protect the interest of
such enterprises. Being a special legislation, Sections 15
to 18 give right to recover amounts from the buyers and
confers jurisdiction on the Facilitation Council. Provisions
of the MSME Act override any law in force contradicting its
provisions which would mean that the supplier would have
the right to recover the amount from the buyer irrespective
of any other law. Provisions of Sections 15 to 18 would
override provisions of the Limitation Act, 1963. As a
11
matter of fact, claim of the claimant was admitted in the
proceedings held on 20.02.2019.
4.9. In view of such findings rendered by the Facilitation
Council, award was passed on 28.10.2021 directing
respondent No.2 to pay to the claimant a sum of
Rs.40,29,862.00 towards principal amount; interest with
monthly rests at three times the bank rate prevailing as on
the date of the award as notified by Reserve Bank of India
on the amount adjudicated in terms of Section 16 of the
MSME Act from the date of the appointed day till full and
final payment is made. Facilitation Council further
directed that principal and interest amount be paid by
respondent No.2 to the claimant within a period of one
month from the date of receipt of the award.
5. Aggrieved by the said award dated 28.10.2021,
respondents No.2 and 3 filed the related writ petition.
6. Learned Single Judge vide the judgment and order
dated 14.09.2022 held that the writ court can interfere
12
with the award passed by the Facilitation Council under
Article 226 of the Constitution of India. Section 34 of the
Arbitration and Conciliation Act, 1996 (briefly, 'the 1996
Act' hereinafter) is not an effective alternative and
efficacious remedy. Facilitation Council had not followed
the procedure laid down under Section 18(2) of the MSME
Act and also Sections 65 to 81 of the 1996 Act which are
mandatory requirements. Holding that the writ petition is
maintainable and that the award passed by the Facilitation
Council was in violation of Section 18(2) of the MSME Act
read with Sections 65 to 81 of the 1996 Act, learned Single
Judge set aside the award dated 28.10.2021. Learned
Single Judge further held the claim to be barred by
limitation and also faulted the Facilitation Council for not
considering the counter claim of respondent No.2.
7. Learned counsel for the appellant has referred to the
provisions of the MSME Act as well as to the 1996 Act and
submits that learned Single Judge committed a manifest
error in entertaining the writ petition and setting aside the
award passed by the Facilitation Council. When
13
respondent No.2 had the remedy to assail the award under
Section 34 of the 1996 Act, it was not at all justified for the
learned Single Judge to have entertained the writ petition
and allowed the same. Learned Single Judge examined the
award passed by the Facilitation Council like an appellate
court which is not permissible.
7.1. Adverting to Section 19 of the MSME Act, he submits
that respondents No.2 and 3 did not deposit 75% of the
awarded amount while filing the writ petition. Learned
Single Judge completely overlooked this aspect.
7.2. Setting aside of the award passed by the Facilitation
Council in favour of the appellant has caused grave
prejudice to the appellant. Appellant being a micro, small
and medium enterprise is entitled to the full protection
under the MSME Act.
7.3. Learned counsel for the appellant further submits
that Facilitation Council had earlier passed an award on
20.02.2016 in favour of the appellant which was
14
challenged by respondent No.2 before this Court by filing
W.P.No.15230 of 2016. On the ground that it was not a
reasoned award, this Court had set aside the award vide
the order dated 16.06.2016 and had remanded the matter
back to the Facilitation Council for passing a fresh award
by recording reasons and also to deal with the counter
claim of respondent No.2. He submits that at no stage it
was the case of respondent No.2 that there was no
conciliation between the parties at the instance of the
Facilitation Council and therefore the arbitral proceedings
are void ab initio.
7.4. In the facts and circumstances of the case and in
view of the earlier order of this Court dated 16.06.2016,
question of setting aside the award on the ground of
limitation does not arise.
7.5. In support of his submissions, learned counsel for
the appellant has filed a compilation of judgments
comprising the following decisions:
15
i) Tata Cellular v. Union of India1;
ii) Jharkhand Urja Vikas Nigam Limited v.
State of Rajasthan2;
iii) Indur District Cooperative Marketing
Society Ltd. v. Microplex (India),
Hyderabad3;
iv) M/s. Indu Projects Limited v. Telangana
Micro & Small Enterprises Facilitation
Council4;
v) M/s. Vijeta Construction v. M/s. Indus
Smelters Ltd. (Civil Appeal No.5934 of 2021,
dated 23.09.2021);
vi) M/s. Silpi Industries v. Kerala State Road
Transport Corporation5;
vii) Savitra Khandu Beradi v. Nagar
Agricultural Sale and Purchase Co-
operative Society Ltd., Ahmednagar6;
viii) Dhanrajamal Gobindram v. Shamji Kalidas
and Co.7;
ix) Punjab State Electricity Board, Mahilpur
v. Guru Nanak Cold Storage & Ice Factory,
Mahilpur8;
1
(1994) 6 SCC 651
2
2021 SCC OnLine SC 1257
3
2015 SCC OnLine Hyd 494 : (2016) 3 ALD 588
4
2019 SCC OnLine TS 2050 : (2020) 1 ALT 151
5
2021 SCC OnLine SC 439
6
1957 SCC OnLine Bom 15 : AIR 1957 Bom 178
7
(1961) 3 SCR 1020 : AIR 1961 SC 1285
16
x) Gujarat Urja Vikas Nigam Ltd. v. Essar
Power Ltd.9;
xi) T.N. Generation & Distribution Corpn. Ltd.
v. PPN Power Generating Co. (P) Ltd.10;
xii) Madhya Pradesh Rural Road Development
Authority v. L.G. Chaudhary Engineers and
Contractors11;
xiii) T. Barai v. Henry Ah Hoe12;
xiv) General Manager (Project), National
Highways & Infrastructure Development
Corpn. Ltd. v. Prakash Chand Pradhan13;
xv) National Highways Authority of India v.
Sayedabad Tea Company Limited14;
xvi) State of Gujarat through Chief Scretary v.
Amber Builders15;
xvii) Satyender v. Saroj16; and
xviii) M/s. Sterling Industries v. Jayprakash
Associates Ltd.17
8
(1996) 5 SCC 411
9
(2008) 4 SCC 755 : 2008 SCC OnLine SC 499
10
(2014) 11 SCC 53 : 2014 SCC OnLine SC 298
11
(2018) 10 SCC 826 : (2019) 1 SCC (Civ) 97 : 2018 SCC OnLine SC 554
12
(1983) 1 SCC 177 : 1983 SCC (Cri) 143
13
(2020) 15 SCC 533 : 2018 SCC OnLine SC 3245
14
(2020) 15 SCC 161 : 2019 SCC OnLine SC 1102
15
(2020) 2 SCC 540 : (2020) 1 SCC (Civ) 614 : 2020 SCC OnLine SC 13
16
2022 SCC OnLine SC 1026
17
2019 SCC OnLine SC 1154 : AIR 2019 SC 3558
17
8. Mr. C.V.Mohan Reddy, learned Senior Counsel for
respondents No.2 and 3 submits that the question as to
whether the arbitration proceedings were preceded by
conciliation is a jurisdictional issue. It strikes at the root
of the matter. As was found by the learned Single Judge,
there was no conciliation. In the absence of conciliation,
the award passed by the Facilitation Council would be null
and void. If the award is null and void, a party cannot be
relegated to the forum of alternative remedy. Question of
depositing 75% of the award would also not arise.
8.1. Since the above issue is a jurisdictional one, it is
immaterial whether the same had been urged by
respondent No.2 in any prior proceedings.
8.2. He submits that judgment of the learned Single
Judge is a well reasoned one and no case for interference is
made out.
8.3. Mr. C.V.Mohan Reddy, learned Senior Counsel has
elaborately referred to the award passed by the Facilitation
18
Council as well as to the order of the learned Single Judge
and submits that learned Single Judge, as a matter of fact,
had perused the original record and thereafter had come to
the definite conclusion that there was no conciliation as
mandatorily required under Section 18(2) and (3) of the
MSME Act. In such circumstances, the award passed by
the Facilitation Council is null and void and has been
rightly set aside by the learned Single Judge.
8.4. He also supports the judgment and order of the
learned Single Judge on the point of limitation and
non-consideration of the counter claim of respondent No.2
by the Facilitation Council.
9. Submissions made by learned counsel for the parties
have received the due consideration of the Court.
10. Before adverting to the order passed by the learned
Single Judge, it would be apposite to briefly dilate on the
MSME Act.
19
11. The Micro, Small and Medium Enterprises
Development Act, 2006 (already referred to as, "the MSME
Act") has been enacted by the Parliament to provide for
facilitating the promotion, development and enhancing the
competitiveness of micro, small and medium enterprises
and for matters connected therewith or incidental thereto.
As per the statement of objects and reasons, at the time of
introduction of the related Bill in Parliament there were
only two provisions viz., Section 11B and Section 29B in
the Industries (Development and Regulation) Act, 1951
which dealt with small scale industrial sector. It may be
mentioned that medium industry or enterprise was not
even defined in any law. While Section 11B provided for
definition of small scale industry by way of notification,
Section 29B provided for notifying reservation of items for
exclusive manufacture in the small scale industrial sector.
Except these two provisions there existed no legal
framework for this dynamic and vibrant sector of the
country's economy. Following suggestions by many expert
groups or committees it was emphasised that there should
be a comprehensive central legislation to provide for an
20
appropriate legal framework for the micro, small and
medium enterprises to facilitate its growth and
development. Therefore, to address the concerns of the
entire small and medium enterprises sector, the related Bill
was introduced in Parliament providing for a single legal
framework.
11.1. Section 2 under Chapter I defines various words and
expressions finding place in the MSME Act. Chapter II
deals with establishment of a national board for micro,
small and medium enterprises. While Chapter III provides
for classification of enterprises, advisory committee and
memorandum of micro, small and medium enterprises,
Chapter IV focuses on measures for promotion,
development and enhancement of competitiveness of micro,
small and medium enterprises.
11.2. Chapter V deals with delayed payments to micro and
small enterprises. Sections 15 to 25 of the MSME Act form
part of Chapter V. As per Section 15 of the MSME Act,
where any supplier i.e., a micro or small enterprise
21
supplies any goods or renders 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. As per the proviso, in no case the period
agreed upon shall exceed forty five days from the day of
acceptance or the day of deemed acceptance.
11.3. Section 16 of the MSME Act deals with payment of
interest and rate of interest. It says that 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 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.
22
11.4. Section 17 of the MSME Act clarifies that 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.
11.5. Section 18 of the MSME Act is relevant for the
present discourse. It deals with reference to Micro and
Small Enterprises Facilitation Council (already referred to
hereinabove as, 'the Facilitation Council'). Section 18
comprises of five sub-sections. Sub-section (1) starts with
a non obstante clause. It says that 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
Facilitation Council. Sub-section (2) deals with the
procedure to be followed on receipt of a reference under
sub-section (1). The Facilitation 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, in which
23
event provisions of Sections 65 to 81 of the Arbitration and
Conciliation Act, 1996 (already referred to hereinabove as,
'the 1996 Act') shall apply to such a dispute as if the
conciliation was initiated under Part III of the 1996 Act
comprising of Sections 65 to 81. As per sub-section (3),
where the conciliation initiated under sub-section (2) is not
successful and stands terminated without any settlement
between the parties, the Facilitation 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. In such a case, provisions of
the 1996 Act would apply to the dispute as if the
arbitration was in pursuance of an arbitration agreement
referred to in sub-section (1) of Section 7 of the 1996 Act.
Sub-section (4) clarifies 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 Section 18 in a dispute
between the supplier located within its jurisdiction and a
buyer located anywhere in India. Finally, sub-section (5)
24
provides that every reference under Section 18 shall be
decided within a period of ninety days from the date of
making such reference.
11.6. Pausing here for a moment, we find that as per the
scheme of Section 18 of the MSME Act, once a reference is
made to the Facilitation Council with regard to any amount
due under Section 17, the Facilitation Council shall first
conduct conciliation either by itself or through the
assistance of any institution or centre providing alternate
dispute resolution services. During conciliation
proceedings, provisions of Sections 65 to 81 of the 1996
Act would be applicable. If the conciliation proceedings are
not successful, the Facilitation Council shall proceed for
arbitration either by itself or through any institution or
centre providing alternate dispute resolution services, in
which event, provisions of the 1996 Act would be
applicable as if the arbitration was in pursuance of an
arbitration agreement referred to in sub-section (1) of
Section 7 of the 1996 Act. Such a reference is required to
25
be decided expeditiously; the time limit provided is a period
of ninety days from the date of making such a reference.
11.7. This brings us to Section 19 of the MSME Act which
deals with application for setting aside decree, award or
order. As per Section 19, no application for setting aside
any decree, award or other order made either by the
Facilitation Council or by any institution or centre
providing alternate dispute resolution services to which a
reference is made by the Facilitation Council shall be
entertained by any court unless the appellant (not being a
supplier) has deposited with the court 75% of the amount
in terms of the decree, award or other order. As per the
proviso, once such deposit is made and during pendency of
the application for setting aside decree, award or order, the
court shall order that such percentage of the amount
deposited shall be paid to the supplier i.e., micro and small
enterprise as may be considered reasonable.
11.8. From a careful analysis of Section 19 of the MSME
Act, it is evident that Parliament has used the expression
26
"shall" to make the provision a mandatory one. Therefore,
it is crystal clear that no application for setting aside any
decree, award or order made by the Facilitation Council or
by any institution providing alternate dispute resolution
services under Section 18 of the MSME Act shall be
entertained by any court unless the appellant has
deposited with the court 75% of the decretal or awarded
amount. It is clarified that this provision will not be
applicable, if the appellant is a micro or small enterprise.
The proviso further mandates that once such a deposit is
made, it is obligatory for the court to order such percentage
of the amount deposited as may be considered reasonable
be paid to the supplier i.e., micro or small enterprise.
11.9. Sections 20 and 21 of the MSME Act deal with
establishment and composition of Facilitation Council.
11.10. Section 22 of the MSME Act requires a buyer to
furnish information pertaining to unpaid amount with
interest to the supplier in the annual statement of
accounts.
27
11.11. Section 23 of the MSME Act which again starts
with a non obstante clause says that notwithstanding
anything contained in the Income Tax Act, 1961, the
amount of interest payable or paid by any buyer under or
in accordance with the provisions of the MSME Act shall
not be allowed as a deduction for the purposes of
computation of income under the Income Tax Act, 1961.
11.12. Section 24 of the MSME Act clarifies that provisions
of Sections 15 to 23 of the MSME Act, as discussed above,
shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in
force.
11.13. Even in case of closure of business of micro, small
and medium enterprises Section 25 of the MSME Act
requires the Central Government to notify a scheme to
facilitate such closure within one year from the date of
commencement of the MSME Act.
28
12. Thus from a conjoint reading of Sections 15 to 25 of
the MSME Act, it is evident that Parliament has bestowed
special attention on this significant sector of the Indian
economy. It is clear that focus of the legislation is to
safeguard the interest of the micro, small and medium
enterprises. While a buyer is mandated to make payment
to the micro or small enterprise within a definite period not
exceeding forty five days from the day of acceptance or
deemed acceptance, failure to make such payment would
make the buyer liable to pay compound interest at three
times of the bank rate notified by the Reserve Bank. The
idea is to encourage prompt payment by the buyer to the
supplier by making default extremely expensive. To clarify
the matter further, Section 17 makes it mandatory for the
buyer to make payment with interest statutorily prescribed
for any goods supplied or services rendered by the
supplier. In case of any dispute with regard to any amount
due under Section 17, a reference may be made to the
Facilitation Council. Thus Facilitation Council gets the
jurisdiction in case of a dispute with regard to any amount
due under Section 17 and not otherwise. Facilitation
29
Council will first try conciliation and if that fails, will resort
to arbitration. In both instances relevant provisions of the
1996 Act would be applicable. Such a reference is to be
decided expeditiously within a period of ninety days. In
case any application is filed to set aside such award, the
same shall not be entertained by any court unless the
appellant deposits 75% of the awarded amount before the
court. However, if the appellant is a micro or small
enterprise, it would be exempted from such deposit. All
these indicate the focus of the legislation. After the deposit
is made, the court shall order such percentage of the
deposit to be paid to the supplier i.e., micro or small
enterprise. Parliament has also made it abundantly clear
that payment of interest by the buyer under the MSME Act
would not be deducted for the purpose of computation of
its income under the Income Tax Act, 1961. There is a
rationale behind it. In order to incentivise payment by the
buyer to the supplier under the MSME Act within the
period specified in which event no further interest would be
accrued, the said provision has been inserted. In other
words, payment of compound interest by the buyer to a
30
micro or small enterprise on account of delayed payment of
principal amount would not be allowed as a deduction
while computing income under the Income Tax Act, 1961.
To further clarify the matter, it is made clear that
provisions of Sections 15 to 23 of the MSME Act would
have overriding effect over anything inconsistent contained
in any other law for the time being in force.
13. Earlier, on the reference made by the appellant,
Facilitation Council had passed award dated 20.02.2016
(page No.465 of the paper book). From a perusal of the
said award it is seen that the case was placed before the
Facilitation Council on 02.01.2016 wherein both claimant
and respondent No.2 were present. In paragraph 12 of the
said award it was mentioned that as the process of
conciliation had failed, Facilitation Council took up the
case for hearing. During the arbitration proceedings which
followed, respondent No.2 had filed statement of defence
which was summed up by the Facilitation Council in
paragraph 13 to which rejoinder was filed by the claimant.
It was thereafter that respondent No.2 filed surrejoinder
31
which was referred to in paragraph 16. After examining
the evidence on record and considering the rival
contentions, Facilitation Council directed respondent No.2
to make the following payments:
A) Rs. 40,29,862/-(Rupees Forty Lakh Twenty Nine
Thousand Eight Hundred and Sixty Two Only) towards
principal & Rs.1,21,21,495 /- (Rupees One Crore
Twenty One Lakh Twenty One Thousand Four Hundred
and Ninety Five Only) towards interest totalling to
Rs.1,61,51,357/- (Rupees One Crore Sixty One Lakh
Fifty One Thousand Three Hundred and Fifty Seven
only).
B) Further interest with monthly rests at three times
bank rate prevailing as on date of the award as notified
by RBI on the amount adjudicated in terms of Section-
16 of MSMED Act 2006 till such date the respondent
makes full and final payment.
14. We have carefully gone through the statement of
defence and surrejoinder filed by respondent No.2 before
the Facilitation Council. Nowhere in the statement of
defence or in the surrejoinder was it pleaded that there was
no conciliation. Of course, respondent No.2 pleaded that
the claim was barred by limitation.
32
15. Be that as it may, after the aforesaid award was
passed by the Facilitation Council, the same was assailed
by respondent No.2 before the combined High Court at
Hyderabad in W.P.No.15230 of 2016. In the writ affidavit
the primary ground of challenge to the award dated
20.02.2016 was that it was an unreasoned one and thus in
violation of the principles of natural justice. Nowhere was
it pleaded that there was no conciliation. On the other
hand, there was a clear finding by the Facilitation Council
in paragraph 12 of the award dated 20.02.2016 that as the
process of conciliation had failed, Facilitation Council took
up the case for hearing. By the order dated 16.06.2016, a
learned Single Judge of this Court disposed of
W.P.No.15230 of 2016 by setting aside the award dated
20.02.2016 and remanded the matter back to the
Facilitation Council for passing a proper award.
15.1. From a perusal of the order dated 16.06.2016, it is
seen that learned Senior Council who had appeared on
behalf of respondent No.2 (petitioner in W.P.No.15230 of
2016) had argued that the award did not contain any
33
reasons as envisaged in Section 31 of the 1996 Act.
Learned Single Judge concurred with the said submission
and found that no reasons were recorded. After setting
aside the award, the matter was remanded back to the
Facilitation Council for passing a proper award by
recording reasons. When learned Senior Counsel for
respondent No.2 (petitioner in W.P.No.15230 of 2016) had
submitted that it had filed counter claim which was not
considered, learned Single Judge directed that Facilitation
Council should deal with the counter claim in accordance
with law while passing the award.
16. After the matter was remanded by the High Court to
the Facilitation Council, respondent No.2 filed an
application for amendment of counter claim on
05.04.2019. While elaborating on the counter claim and
liquidated damages for delay in delivery, there was no
whisper that there was no conciliation.
17. We have already noted the substance of the claim
made by the appellant and that of statement of defence by
34
respondent No.2. We have also noted the issues framed by
the Facilitation Council for consideration following the
remand.
18. In paragraphs 11 and 13 of the impugned award
dated 28.10.2021 we find that the parties were present
before the Facilitation Council on 02.01.2016 and as the
process of conciliation had failed, Facilitation Council took
up the case for hearing under arbitration. The matter was
heard thereafter on a number of dates which would be
evident from the impugned award dated 28.10.2021.
Objections were raised by respondent No.2 as to
jurisdiction of the Facilitation Council in view of the
purchase order which provided for arbitration. Overruling
the objection as to jurisdiction of the Facilitation Council
when the purchase order dated 17.03.2008 provided for an
arbitration clause, Facilitation Council referred to Section
18 of the MSME Act more particularly to sub-section (4)
thereof and recorded that provisions of the MSME Act from
Sections 15 to 23 have got overriding effect over any other
law for the time being in force, including the 1996 Act.
35
Therefore, Facilitation Council itself decided to conduct
conciliation and on its failure arbitration proceedings on its
own.
18.1. Thereafter Facilitation Council framed four issues for
consideration which we have already noted in paragraph
4.7 above.
18.2. On issue No.1 pertaining to the merit of the claim of
the claimant, Facilitation Council held as follows:
The claimant had submitted his claim along with
an affidavit with details of the accounts and with actual
date of payments made by the respondent. These
documents were supplied to the respondent and all
these documents are on record of the claim statement.
The Members of the Council have carefully examined all
the said documents and found that there was no
dispute. It was observed by the Council that these
documents were also not denied by the respondent and
are treated as a part and parcel of the claim. As per the
terms of the payment the respondent company retained
20% of the payment without there being any reason and
there was no whisper from the respondent company
within 45 days from the date of supply of material that
the said material was defective in nature, The
respondent failed to make the payments as
36
contemplated under the above said section, therefore
the claimant is entitled to the recovery of the 20% of the
balance amount from the respondent within 45 days
from the date of acceptance or the day of deemed
acceptance. The entire material supplied are as per the
specifications, custom made as per the annexure to the
purchase order. It is to be noted that the claimant and
respondent met several times and recorded the minutes
of the meeting, no alleged discrepancies and defects in
various supplies made by the claimant were recorded as
issues. The minutes of the meetings recorded and
signed by the representatives of claimants and the
respondents on various dates are evidence for carrying
out the modifications/relocation and even the claimant
executed additional works out of the scope of the
purchase order for which not paid any amounts by the
respondents. It is further to be noted that the
mechanical check report dated 23-03-2009 is of
submission of mechanical completion report and the
delay is due to non completion of civil works and non
availability of site clearance at the project which is clear
in the recorded minutes of the meetings. Therefore there
is no lapse on the part of the claimant and the claimant
is entitled to the claim of 20% to the tune of
Rs.40,29,862/- and the above claim is supported by
invoices, documentary proof relating to the supplies and
erection of the same at the site. Therefore this issue is
decided in favour of the claimant.
37
18.3. Thereafter Facilitation Council dealt with the claim of
interest made by the claimant on the delayed payment
whereafter it has been held as follows:
i) As per section 16 of the MSMED Act 2016, the
claimant is entitled for the interest on the non
payments/delayed payments. The buyer is 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 as per sections 16 and 17 of MSMED Act.
i) The claim amount was Rs.40,29,862/- along with
interest on delayed payment as per the provisions of the
MSMED Act of 2006.
ii) As per section 16 of the MSMED Act the claim was
admitted so the interest accumulating till this date is
also admissible as per provisions of the MSMED Act of
2006:
Therefore the claimant's claim of interest is in
accordance with the provisions of the MSMED Act and
therefore it is entitled for the same. Hence the issue
No.2 is answered in favour of the claimant.
18.4. On the counter claim of respondent No.2 view taken
by the Facilitation Council is that MSME Act is a beneficial
legislation enacted to protect the interest of micro and
small enterprises. Scope of the MSME Act is limited only
38
to recovery of amounts due from the buyer. Facilitation
Council has the jurisdiction only in respect of matters
referred to in Section 17 of the MSME Act. That apart, the
counter claim of respondent No.2 was found to be not
supported by any documentary evidence. It has been held
as follows:
That the calculations and projections made by
the respondent in terms of the counter claim were not
supported by any documentary evidence and their claim
is based on surmises and conjectures. Hence the
counter claim of the respondent is not allowed. It is
pertinent hereto mention here that the MSMED Act
2006 is being a beneficial legislation enacted to protect
the interest of micro small enterprises and the scope of
the said act is limited only to recovery of amounts due
from the buyer and provisions of the said act provides
jurisdiction to MSEF Council to act as an arbitrator
conciliator in respect of the matters referred to in
section 17 of MSMED Act.
18.5. A separate issue, being issue No.4, was framed on the
objection raised by respondent No.2 that the claim lodged
by the appellant was barred by limitation. It has been held
by the Facilitation Council as follows:
39
The respondents raised the plea of limitation
stating that the claim is hopelessly barred by
limitation. In this aspect, this Council observes that
sections 15 to 18 of the MSMED Act 2006 is
enacted for facilitating the promotion and
development and enhancing the competitiveness of
micro, small and medium enterprises and for
matters connected therewith for incidental thereto.
The primary object of the above Act is to protect the
interest of the enterprises covered under the Act
and it being a special legislation specifically
provided securities to the suppliers from the buyers
a bare perusal of sections 15 to 18 gives a right to
recover amounts from the buyers and conferred
jurisdiction on the councils established under the
said Act. The provisions of the MSMED Act 2006
overrides any law in force which contradicts the
provisions of MSMED Act 2006, this means the
supplier is having right to recover the amounts
from the buyer irrespective of any stand under
other laws. These provisions from 15 to 18 even
overrides the Limitation Act 1963. Hence this issue
is answered accordingly in favour of claimant. Even
otherwise also, the respondent admitted his claim
in the proceedings of 20-02-2019 and the same
were recorded by the Council. Hence the question
of barring by limitation does not arise.
40
18.6. Thus, according to the Facilitation Council, Sections
15 to 18 of the MSME Act have been enacted to facilitate
promotion and development of micro and small enterprises
and in the process to enhance their competitiveness;
primary objective is to protect the interest of the
enterprises covered by the MSME Act. Sections 15 to 18
confer a right on the supplier i.e., the micro and small
enterprise to recover amounts from the buyer and in the
event of default confers jurisdiction on the Facilitation
Council to initiate conciliation and arbitration. Provisions
of the MSME Act override any other law for the time being
in force which are in contradiction to the provisions of the
MSME Act. Therefore, Facilitation Council has held that
Sections 15 to 18 of the MSME Act override the provisions
of the Limitation Act, 1963. It was thereafter that the
impugned award was passed.
19. We may now advert to the pleadings in W.P.No.16918
of 2022 whereby the award dated 28.10.2021 was
challenged. There is no averment in the entire writ affidavit
to the effect that there was no conciliation and without any
41
attempt at conciliation the Facilitation Council proceeded
for arbitration. Without any such pleading, oral
submissions were made on behalf of respondent No.2 (as
recorded by the learned Single Judge) that there was no
conciliation proceedings which is mandatory. Without any
conciliation proceedings Facilitation Council passed the
impugned award which is therefore illegal.
20. Learned Single Judge in the judgment and order
dated 14.09.2022 after referring to the provisions of the
1996 Act as well as the MSME Act came to the conclusion
that Facilitation Council had not conducted any
conciliation in terms of Section 18(2) of the MSME Act
which is mandatory. However, learned Single Judge held
that as per procedure laid down in the 1996 Act, a
conciliator cannot act as an arbitrator in the same dispute.
Learned Single Judge held as follows:
7. xxx xxx xxx xxx
x) Perusal of the impugned award and the record of
respondent No.1 in the impugned award would reveal
that respondent No.1 has not conducted any
conciliation in terms of Section 18 (2) of the Act, 2006,
42
which is mandatory. It is also relevant to note that prior
to adjudicating the matter, respondent No.1 has to refer
the matter to conciliation mandatorily as prescribed by
the Statute. If the conciliation is failed, respondent No.1
will adjudicate upon the matter on merits. As discussed
above, in the present case, respondent No.1 failed to
conduct conciliation proceedings before adjudicating
the reference. Thus, there is violation of the mandatory
procedure laid down under the Act, 2006. Contrary to
the same, respondent No.1 in the impugned award
mentioned that conciliation is failed. The said finding of
respondent No.1 in the impugned award is contrary to
the record and not supported by any documentary
evidence.
xi) It is also relevant to note that as per the procedure
laid down under the Act, 1996, Conciliator cannot act
as an Arbitrator in the same dispute. In the impugned
award, it is stated that Members of respondent No.1
Council have conducted conciliation and arbitration
proceedings on their own. The same is impermissible.
Viewed from any angle, the impugned award is contrary
to the procedure laid down under the Act, 2006, more
particularly, Section 18(2).
***
xv) As discussed above, perusal of the original record in
the impugned award and the impugned award would
reveal that respondent No.1 has not followed the said
mandatory procedure under Sections 18 (2) and 18 (3)
of the Act, 2006 and also Sections - 65 to 81 of the Act,
1996. Thus, in the absence of the same, the impugned
award is a nullity.
21. Pausing here for a moment, learned Single Judge
overlooked the fact that the impugned award dated
28.10.2021 is a continuation of the award or continuation
of the proceedings which had culminated in the award
dated 20.02.2016. In that award it was clearly mentioned,
"as the process of conciliation was failed, the council took up
the case for hearing". When this award was assailed before
this Court in W.P.No.15230 of 2016, the challenge was on
the ground that it was not a reasoned award. Therefore,
learned Single Judge had set aside the award and relegated
the parties to the forum of Facilitation Council for passing
proper award by recording reasons, further directing the
Facilitation Council to deal with the counter claim in
accordance with law. Facilitation Council was directed to
complete the entire exercise of passing award within four
weeks. This was what was held by a learned Single Judge
of this Court vide the order dated 16.06.2016 while
disposing of W.P.No.15230 of 2016:
A perusal of the impugned award goes to show
that no reasons are recorded as envisaged under Section
31 of the Arbitration Act. Without going into the merits
of the case, the impugned award is set aside, and the
matter is remanded to the first respondent for passing
proper award, in accordance with law, by recording
reasons, as envisaged under Section 31 of the
Arbitration Act. It is stated by the learned counsel for
the petitioner that the petitioner filed counter claims.
Needless to mention that the first respondent shall deal
with the counter claims in accordance with law while
passing the award. The first respondent is directed to
complete the entire exercise of passing award within a
period of four weeks from the date of receipt of a copy of
this order.
22. Learned Single Judge did not advert to the aforesaid
order of this Court dated 16.06.2016. The direction was to
pass a reasoned award and also to deal with the counter
claim of respondent No.2 which could be done only at the
stage of arbitration post conciliation. When this Court had
directed the Facilitation Council to pass a fresh award by
recording reasons, question of reverting back to
conciliation did not arise. That apart, there was no
pleading at all at any stage either before the Facilitation
Council or before this Court in W.P.No.15230 of 2016 that
there was no conciliation or that conciliation had ended in
failure. In the absence of any such pleading only on an
oral submission made on behalf of respondent No.2 that
there was no conciliation proceedings, learned Single
Judge set aside the award; though learned Single Judge
recorded that he had perused the record, he did not
mention whether he had perused the record which led to
passing of the award dated 20.02.2016 which had clearly
mentioned that there was conciliation but it had ended in
failure.
23. That being the position, learned Single Judge fell in
error in holding that there was no conciliation and in the
absence of conciliation the impugned award is a nullity.
24. Learned Single Judge further fell in error by holding
that under the 1996 Act a conciliator cannot act as an
arbitrator. But in the impugned award Facilitation Council
conducted conciliation and arbitration proceedings on its
own which has been held to be impermissible.
25. The aforesaid finding that Facilitation Council had
conducted both conciliation and arbitration is in
contradiction to the finding rendered by the learned Single
Judge that there was no conciliation proceedings. Learned
Single Judge has held that there was no conciliation which
is mandatory. Therefore conducting arbitration and
passing the award is illegal. If that be so, learned Single
Judge could not have held that Facilitation Council had
conducted both conciliation and arbitration which is not
permissible under the 1996 Act.
26. That apart, from a reading of Section 18 of the MSME
Act, more particularly sub-sections (2) and (3) thereof, the
Facilitation Council is mandated either to itself conduct
conciliation and on its failure to take up the dispute for
arbitration or to refer such conciliation or arbitration to an
institution or centre providing alternate dispute resolution
services. Section 24 of the MSME Act makes it abundantly
clear that provisions of Sections 15 to 23 of the MSME Act
would have effect notwithstanding anything inconsistent
contained in any other law for the time being in force which
would include the 1996 Act. Therefore, Facilitation
Council is competent to conduct both conciliation and
arbitration under Sections 18(2) and (3) of the MSME Act.
27. Supreme Court in Gujarat State Civil Supplies
Corporation Ltd. v. Mahakali Foods Pvt. Ltd.18 examined
the following questions of law for consideration:
i) Whether the provisions of Chapter V of the MSME
Act would have an effect overriding provisions of the
1996 Act?
ii) Whether any party to a dispute with regard to any
amount due under Section 17 of the MSME Act would
be precluded from making a reference to the Facilitation
Council under sub-section (1) of Section 18 of the
MSME Act, if an independent arbitration agreement
existed between the parties as contemplated in Section 7
of the 1996 Act?
iii) Whether the Facilitation Council itself could take
up the dispute for arbitration and act as an arbitrator,
when the Facilitation Council had conducted the
conciliation proceedings under sub-section (2) of Section
18 of the MSME Act in view of the bar contained in
Section 80 of the 1996 Act?
2022 SCC OnLine SC 1492
27.1. After a threadbare analysis of the provisions of the
MSME Act as well as the 1996 Act, Supreme Court came to
the conclusion that MSME Act is a special enactment
governing specific nature of disputes arising between
specific categories of persons. On the other hand, the
1996 Act focuses and covers the law relating to arbitration
and conciliation. Thus, it is a general law relating to
domestic arbitration, international commercial arbitration
and conciliation. Supreme Court held that MSME Act
being a special legislation would override the provisions of
the 1996 Act which is a general legislation. Otherwise also,
the MSME Act having been enacted subsequently i.e., in
the year 2006, it would have an overriding effect over the
1996 Act enacted prior in point of time, more particularly
in view of Section 24 of the MSME Act which specifically
gives an effect to the provisions of Sections 15 to 23 of the
MSME Act over any other law for the time being in force.
Thus, Supreme Court has held in no uncertain terms that
Chapter V of the MSME Act would have an effect overriding
provisions of the 1996 Act. Supreme Court has held as
follows:
23. Having regard to the purpose, intention and
objects as also the scheme of the MSMED Act, 2006 and
having regard to the unambiguous expressions used in
Chapter-V thereof, following salient features emerge:
(i) Chapter-V is "party-specific", in as much as the party
i.e. the 'Buyer' and the 'Supplier' as defined in Sections
2(d) and 2(n) respectively are covered under the said
Chapter.
(ii) A specific provision is made fastening a liability on
the buyer to make payment of the dues to the supplier
in respect of the goods supplied or services rendered to
the buyer, as also a liability to pay compound interest at
three times of the bank rate notified by the Reserve
Bank, if the buyer fails to make payment within the
prescribed time limit. The said liability to pay compound
interest is irrespective of any agreement between the
parties or of any law for the time being in force.
(iii) A dedicated statutory forum i.e., Micro and Small
Enterprises Facilitation Council is provided to enable
any party to a dispute with regard to any amount due
under Section 17, to make reference to such Council.
(iv) A specific procedure has been prescribed to be
followed by the Facilitation Council after the reference is
made to it by any party to the dispute.
(v) The Facilitation Council or the centres providing
alternative dispute resolution services have been
conferred with the jurisdiction to act as an Arbitrator or
Conciliator under Section 18(4), notwithstanding
anything contained in any law for the time being in
force, in a dispute between the supplier located within
its jurisdiction.
(vi) The provisions of Arbitration Act, 1996 has been
made applicable to the dispute only after the
Conciliation initiated under sub-section (2) does not
succeed and stands terminated without any settlement
between the parties.
(vii) Sub-section (1) and sub-section (4) of Section 18
starting with non obstante clauses have an effect
overriding the other laws for the time being in force.
(viii) As per Section 24, the provisions of Sections 15 to
23 have an effect notwithstanding anything inconsistent
therewith contained in any other law for the time being
in force.
24. As against the above position, if the purpose,
objects and scheme of the Arbitration Act, 1996 are
considered, as stated hereinabove, the said Act was
enacted to consolidate and amend the law relating to the
domestic arbitration, international commercial
arbitration and enforcement of foreign arbitral awards
and also to define the law relating to conciliation. It was
enacted taking into account the UNCITRAL Model Law
on international commercial arbitration. The main
objectives amongst others of the said Act were to make
provision for an arbitral procedure which was fair,
efficient and capable to meet the needs of the specific
arbitration and to minimize the supervisory role of
courts in the arbitral process, as also to permit arbitral
tribunal to use mediation, conciliation or other
procedures during the arbitral proceedings in the
settlement of disputes etc (Bharat Sewa Sansthan v.
U.P.Electronics Corporation (AIR 2007 SC 2961). The
Arbitration Act, 1996 focuses and covers the law relating
to arbitration and conciliation, providing for the
requirements of the arbitration agreement, composition
of arbitral tribunal, conduct of arbitration proceedings,
finality and enforcement of domestic arbitral awards as
well as of certain foreign awards, and covers the law
relating to conciliation. Having regard to the entire
scheme of the Arbitration Act 1996, it appears that it is
a general law relating to the domestic arbitration,
international commercial arbitration and for
conciliation. It does not specify any specific dispute or
specific class or category of persons to which the Act
shall apply, as has been specified in the MSMED Act,
2006.
25. Thus, the Arbitration Act, 1996 in general governs
the law of arbitration and conciliation, whereas the
MSMED Act, 2006 governs specific nature of disputes
arising between specific categories of persons, to be
resolved by following a specific process through a
specific forum. Ergo, the MSMED Act, 2006 being a
special law and Arbitration Act, 1996 being a general
law, the provisions of MSMED Act would have
precedence over or prevail over the Arbitration Act,
1996. In M/s. Silpi Industries etc. v. Kerala State
Road Transport Corporation (2021 SCC OnLine SC
439) also, this Court had observed while considering the
issue with regard to the maintainability and counter
claim in arbitration proceedings initiated as per Section
18(3) of the MSMED Act, 2006 that the MSMED Act,
2006 being a special legislation to protect MSMEs by
setting out a statutory mechanism for the payment of
interest on delayed payments, the said Act would
override the provisions of the Arbitration Act, 1996
which is a general legislation. Even if the Arbitration
Act, 1996 is treated as a special law, then also the
MSMED Act, 2006 having been enacted subsequently in
point of time i.e., in 2006, it would have an overriding
effect, more particularly in view of Section 24 of the
MSMED Act, 2006 which specifically gives an effect to
the provisions of Section 15 to 23 of the Act over any
other law for the time being in force, which would also
include Arbitration Act, 1996.
26. The court also cannot lose sight of the
specific non obstante clauses contained in sub-section
(1) and sub-section (4) of Section 18 which have an
effect overriding any other law for the time being in
force. When the MSMED Act, 2006 was being enacted in
2006, the Legislature was aware of its previously
enacted Arbitration Act of 1996, and therefore, it is
presumed that the Legislature had consciously made
applicable the provisions of the Arbitration Act, 1996 to
the disputes under the MSMED Act, 2006 at a stage
when the conciliation process initiated under sub-
section (2) of Section 18 of the MSMED Act, 2006 fails
and when the Facilitation Council itself takes up the
disputes for arbitration or refers it to any institution or
centre for such arbitration. It is also significant to note
that a deeming legal fiction is created in Section 18(3) by
using the expression 'as if' for the purpose of treating
such arbitration as if it was in pursuance of an
arbitration agreement referred to in sub-section (1) of
Section 7 of the Arbitration Act, 1996. As held in
K. Prabhakaran v. P. Jayarajan ((2005) 1 SCC 754), a
legal fiction presupposes the existence of the state of
facts which may not exist and then works out the
consequences which flow from that state of facts. Thus,
considering the overall purpose, objects and scheme of
the MSMED Act, 2006 and the unambiguous
expressions used therein, this court has no hesitation in
holding that the provisions of Chapter-V of the MSMED
Act, 2006 have an effect overriding the provisions of the
Arbitration Act, 1996.
27.2. Insofar the second question is concerned, Supreme
Court following on its answer to the first question held that
a private agreement between the parties as contemplated
under Section 7 of the 1996 Act cannot obliterate statutory
provisions. Once the statutory mechanism under sub-
section (1) of Section 18 of the MSME Act is triggered by
any party, it would override any other agreement
independently entered into between the parties.
27.3. Answering the third question, Supreme Court held
that the Facilitation Council which had conducted
conciliation proceedings under Section 18(2) of the MSME
Act would be entitled to act as an arbitrator despite the bar
contained in Section 80 of the 1996 Act. Thus, Supreme
Court summed up its conclusions in the following manner:
34. The upshot of the above is that:
(i) Chapter-V of the MSMED Act, 2006 would
override the provisions of the Arbitration Act, 1996.
(ii) No party to a dispute with regard to any amount
due under Section 17 of the MSMED Act, 2006 would be
precluded from making a reference to the Micro and
Small Enterprises Facilitation Council, though an
independent arbitration agreement exists between the
parties.
(iii) The Facilitation Council, which had initiated the
conciliation proceedings under Section 18(2) of the
MSMED Act, 2006 would be entitled to act as an
arbitrator despite the bar contained in Section 80 of the
Arbitration Act.
(iv) The proceedings before the Facilitation
Council/institute/centre acting as an arbitrator/
arbitration tribunal under Section 18(3) of MSMED Act,
2006 would be governed by the Arbitration Act, 1996.
(v) The Facilitation Council/institute/centre acting as an
arbitral tribunal by virtue of Section 18(3) of the
MSMED Act, 2006 would be competent to rule on its
own jurisdiction as also the other issues in view of
Section 16 of the Arbitration Act, 1996.
(vi) A party who was not the 'supplier' as per the
definition contained in Section 2(n) of the MSMED Act,
2006 on the date of entering into contract cannot seek
any benefit as the 'supplier' under the MSMED Act,
2006. If any registration is obtained subsequently the
same would have an effect prospectively and would
apply to the supply of goods and rendering services
subsequent to the registration.
28. That being the position, the aforesaid finding
returned by the learned Single Judge is wholly
unsustainable in law and is therefore liable to be set aside.
29. Learned Single Judge then proceeded to deal with the
issue of limitation and held that reference made by the
appellant was barred by limitation.
30. Facilitation Council while deciding issue No.4 held
that provisions of Sections 15 to 18 of the MSME Act
overrides any law in force which contradicts provisions of
the MSME Act which includes the Limitation Act, 1963.
The MSME Act is a special legislation, the primary object of
which is to protect the interest of the micro, small and
medium enterprises. The supplier under the MSME Act
has the right to recover the amount due under Section 17
irrespective of any stand taken by the buyer under other
laws. That apart, respondent No.2 had presented its claim
in the proceedings of the Facilitation Council on
20.02.2019 and which was recorded by the Facilitation
Council. Therefore, question of the claim being barred by
limitation does not arise.
31. As against this, the only averment made by
respondents No.1 and 2 in the writ affidavit was in
paragraph 42 wherein it was contended that provisions of
the Limitation Act, 1963 would apply to arbitration
proceedings under Section 18(3) of the MSME Act. It was
contended that cause of action arose on 18.04.2011
whereas appellant lodged the claim before the Facilitation
Council only on 26.10.2015 beyond the period of three
years. Therefore, the claim was barred by limitation.
Facilitation Council should have dismissed the claim on
the point of limitation.
32. Learned Single Judge first held in paragraph 7(xvi)
that under Section 43(1) of the 1996 Act, limitation would
apply to arbitration. Adverting to Article 137 of the
Limitation Act, 1963, it has been held that in so far the
subject reference is concerned period of limitation is three
years. Learned Single Judge held in paragraph 7(xix) that
respondents No.2 and 3 had not pleaded limitation before
the Facilitation Council. Learned Single Judge went on to
hold that there is no finding with regard to limitation in the
impugned award. This is contrary to the record as the
Facilitation Council had specifically framed an issue on
limitation and rendered a finding thereon. However,
according to the learned Single Judge, being a legal
ground, point of limitation can be raised at any time and at
any stage. Thereafter, learned Single Judge proceeded and
rendered a finding of fact that appellant had not made the
reference within the limitation period of three years and
therefore, was barred by limitation; thus, the award was
liable to be interfered with on that ground as well.
33. We are afraid, learned Single Judge has committed a
grave error in deciding the issue of limitation as a finding
of fact in a writ proceeding under Article 226 of the
Constitution of India. As mentioned above, only statement
of respondents No.2 and 3 on the point of limitation was
that cause of action arose on 18.04.2011 whereas the
claim was lodged only on 26.10.2015 after a lapse of more
than three years. Nothing was mentioned or averred as to
how cause of action arose on 18.04.2011. It is not
understood on what basis learned Single Judge decided on
the starting point of limitation. In the absence of adequate
pleadings and evidence, learned Single Judge ought not to
have adjudicated this aspect.
34. Supreme Court in Balasaria Construction (P) Ltd. v.
Hanuman Seva Trust19 in the context of an application filed
under Order VII Rule 11(d) of the Civil Procedure Code,
(2006) 5 SCC 658
1908 (CPC) for rejection of plaint on the ground of being
barred by limitation, opined that the related suit could not
be dismissed as barred by limitation without proper
pleadings, framing of issue of limitation and taking of
evidence. Question of limitation is a mixed question of law
and fact.
34.1. This position was reiterated by the Supreme Court in
Ramesh B. Desai v. Bipin Vadilal Mehta20 wherein Supreme
Court held that a plea of limitation cannot be decided as an
abstract principle of law divorced from facts as in every
case the starting point of limitation has to be ascertained
which is entirely a question of fact; further reiterating that
a plea of limitation is a mixed question of law and fact.
34.2. In Principal Secretary, Revenue Department v.
B.Rangaswamy21, it was for the first time contended before
the Supreme Court that the suit was barred by limitation.
It was contended that since limitation was a mixed
question of fact and law, the appellate Court should frame
(2006) 5 SCC 638
2022 SCC Online SC 865
an issue and remit it to the trial court to render a finding
on the same. However, Supreme Court brushed aside such
contention on the ground that the said question cannot be
considered in the abstract without reference to the facts.
34.3. Again in Sukhbiri Devi v. Union of India22 Supreme
Court held that though limitation is a mixed question of
law and facts it would become a question of law only when
foundational facts determining the starting point of
limitation is vividly and specifically made in the plaint.
35. In M/s. Silpi Industries (supra), one of the issues
considered by the Supreme Court was whether provisions
of the Indian Limitation Act, 1963 would be applicable to
arbitration proceedings initiated under Section 18(3) of the
MSME Act. Supreme Court held that provisions of the
Limitation Act, 1963 would apply to arbitrations covered by
Section 18(3) of the MSME Act. However, insofar the
question as to whether the claims/counter claims were
within limitation or not, it was left open to the primary
2022 SCC Online SC 1322
authority to record its own findings on merit. We may
mention that this two judge bench decision of the Supreme
Court was rendered on 29.06.2021. It was also held that
counter claim is maintainable under the MSME Act.
36. While the two judge bench of the Supreme Court in
M/s. Silpi Industries (supra) held that provisions of the
Limitation Act, 1963 would apply to arbitrations covered by
Section 18(3) of the MSME Act, a subsequent two judge
bench of the Supreme Court in Gujarat State Civil Supplies
Corporation Ltd. (supra) held in clear terms that provisions
of Sections 15 to 23 of the MSME Act would have
overriding effect over any other law for the time being in
force which would include the 1996 Act.
36.1. The law of limitation was introduced into arbitrations
qua the 1996 Act by virtue of Section 43 of the 1996 Act. If
that be so, the view taken by the Facilitation Council that
provisions of Sections 15 to 18 of the MSME Act would
override the Limitation Act, 1963 would be in tune with the
judgment of the Supreme Court in Gujarat State Civil
Supplies Corporation Ltd. (supra).
36.2. At this stage, we may mention that both M/s. Silpi
Industries (supra) and Gujarat State Civil Supplies
Corporation Ltd. (supra) are judgments delivered by
benches of two judges of the Supreme Court. While the
decision in M/s. Silpi Industries (supra) was rendered on
29.06.2021, the decision in Gujarat State Civil Supplies
Corporation Ltd. (supra) was rendered on 31.10.2022; in
other words, it is a later judgment.
37. Be that as it may, without entering into this aspect of
the matter what is evident is that without adequate
pleadings and without any evidence, learned Single Judge
determined the question of limitation like a fact-finding
forum and thereafter rendered a finding of fact. This is not
permissible.
38. Insofar maintainability of the writ petition is
concerned, when respondents No.2 and 3 had an adequate,
efficacious and alternate remedy under Section 34 of the
1996 Act, learned Single Judge ought not to have
entertained the writ petition. While maintainability of a writ
petition is one aspect, entertainability is the relevant
question. Considering the objective of the MSME Act and
the provisions of Sections 15 to 23 thereof, learned Single
Judge erred in entertaining the writ petition.
39. A three judge bench of the Supreme Court in Sterling
Industries (supra) examined the decision of the High Court
in entertaining a writ petition under Article 227 of the
Constitution of India against an order passed under
Section 20 of the 1996 Act read with Section 19 of the
MSME Act. The application was made to the District Judge
by Jayprakash Associates Ltd., against a partial award
made under Section 16 of the 1996 Act. Supreme Court
observed that when such an application was not tenable,
the High Court ought not to have set aside the partial
award in a writ petition which is clearly contrary to law.
Reference in this connection was made to paragraph 44 of
the judgment of the Supreme Court in SBP and Co. v. Patel
Engineering Ltd.23. In the aforesaid judgment, Supreme
Court in no uncertain terms disapproved interference in
arbitral awards under Articles 226 or 227 of the
Constitution of India. Following the same, judgment of the
High Court was set aside.
40. Again, a three judge bench of the Supreme Court in
Deep Industries Limited v. Oil and Natural Gas Corporation
Limited24 examined the exercise of jurisdiction by the High
Court under Article 227 of the Constitution of India when it
comes to matters that are decided under the 1996 Act. In
that context, Supreme Court observed that if petitions were
to be filed under Articles 226/227 of the Constitution of
India against orders passed in appeals under Section 37 of
the 1996 Act, which grants a constricted right of first
appeal against certain judgments and orders and no other,
the entire arbitral process would be derailed and would not
come to fruition for many years. However, having regard to
the fact that Article 227 is a constitutional provision and
therefore petitions can still be filed under the said article
AIR 2006 SC 450
(2020) 15 SCC 706
against judgments allowing or dismissing first appeals
under Section 37 of the 1996 Act, it has been held that the
High Courts should be extremely circumspect in interfering
with the same so that interference is restricted to orders
that are passed which are patently lacking in inherent
jurisdiction.
41. This is more so when there was no compliance to the
mandate of Section 19 of the MSME Act inasmuch as 75%
of the awarded amount was not deposited by respondents
No.2 and 3 before the Registry of this Court at the time of
filing the writ petition. It is true that Article 226 of the
Constitution of India being a constitutional provision would
not be subject to the rigor of Section 19 of the MSME Act.
Nonetheless, having regard to the specific objective of the
MSME Act and the fact that respondents No.2 and 3 had
not availed the statutory remedy and that the award is in
the nature of a money decree, entertaining the writ petition
without insisting on any deposit of the awarded amount
was not at all justified.
42. Finally, we find that though learned Single Judge had
taken great pains in deciding the writ petition, from a
perusal of the judgment and order passed by the learned
Single Judge it is seen that learned Single Judge had
clearly exceeded the bounds of judicial review and had
transgressed into the domain of facts and factual
determination without any pleadings and evidence.
43. Learned Single Judge also held that there was no
consideration of the counter claim of respondent No.2 by
the Facilitation Council while passing the award though
directed by this Court vide the order dated 16.06.2016
passed in W.P.No.15230 of 2016. On this ground also the
award was faulted. Learned Single Judge failed to note that
this aspect was considered and decided by the Facilitation
Council under issue No.3 by holding that Facilitation
Council has the mandate only to decide a matter referred
to it under Section 17 of the MSME Act which does not
include a counter claim of the buyer. Though such a
finding may run contrary to the decision of the Supreme
Court in M/s. Silpi Industries (supra), Facilitation Council
however found as a matter of fact that the counter claim of
respondent No.2 was not supported by any documentary
evidence, rather it was based on surmises and conjectures.
Therefore, it would not be correct to say that Facilitation
Council did not consider the counter claim of respondent
No.2.
44. Thus for the aforesaid reasons, we are of the
unhesitant view that learned Single Judge fell in error in
not only entertaining the writ petition but also in allowing
the same by setting aside the award dated 28.10.2021
passed by the Facilitation Council.
45. Consequently, judgment and order dated 14.09.2022
passed by the learned Single Judge in W.P.No.16918 of
2022 is set aside.
46. Writ appeal is accordingly allowed.
Miscellaneous applications pending, if any, shall
stand closed. However, there shall be no order as to costs.
______________________________________
UJJAL BHUYAN, CJ
______________________________________
C.V.BHASKAR REDDY, J
21.03.2023
Note: LR copy be marked.
(By order)
vs
