Telangana High Court
M/S. Bharat Heavy Electricals Limited vs State Of Telangana And 3 Others on 12 February, 2024
THE HONOURABLE SMT JUSTICE T.MADHAVI DEVI
W.P.No. 1603 of 2023
ORDER:
In this writ petition, the petitioner is seeking a writ of
Certiorari calling for records leading upto the order passed by
the official respondent No.3, dated 27.10.2022 vide Case
No.193/IC/Mdl-Mlg/2020, as being illegal, arbitrary and nonest
in law as it is contrary to the provisions of Micro, Small and
Medium Enterprises Development (MSMED) Act, 2006 and the
Telangana Micro, Small Enterprises Facilitation Rules, 2014
and consequently to set aside the same and to pass such other
order or orders.
2. Brief facts leading to the filing of the present writ
petition are that the writ petitioner and unofficial respondent
No.4 had an arrangement for supply of products for 4X270 MW
project at Manuguru, Telangana. The unofficial respondent No.4
alleging that it did not receive certain amounts from the
petitioner and claiming to be a registered entity under the
provisions of Micro, Small and Medium Enterprises
Development Act, 2006 (MSME Act), has filed an application
before the official respondent No.3 under Section 18(1) of MSME
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Act vide Case No.192/IFC/Mdl-Mlg/2020, seeking recourse
against the petitioner company under the MSME Act for the
alleged claim amount under Purchase order No.1655132, dated
13.08.2015. Consequent thereto, the dispute was taken up for
Conciliation, wherein the official respondent No.3 acted as a
Conciliator as per the powers granted under Section 30 read
with Section 21(3) of the MSME Act and rule 6(xiii) of the
Telangana Micro, Small Enterprises Facilitation Rules, 2017. It
is submitted that the petitioner's company as well as unofficial
respondent filed their respective responses/statements before
the official respondent No.3, but the conciliation proceedings
failed.
3. Thereafter, the respondent No.3 issued a notice
dated 15.06.2022 to the petitioner's company stating that the
authorized representative of the company should be present to
attend the council meeting at 02.30 p.m., on 29.06.2022, as the
matter was being taken up for arbitration. It is submitted that
the authorized representative of the petitioner's company
appeared on the said date and orally raised objections that no
notice regarding the appointment of the arbitrator or suggesting
an arbitrator, was given to the petitioner company. It was also
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alleged by the learned counsel for petitioner company that due
process has not been followed for taking up the matter for
arbitration. It is submitted that the council had stated that it
would take appropriate steps to carry out the necessary
processes, however, there was no notice or any further
development in the matter until the petitioner received an order
wherein the conciliation proceedings are referred to as
arbitration proceedings and that an award was passed on
27.10.2022. It is submitted that no communication was made to
the petitioner's company informing about the initiation and
furtherance of arbitration proceedings, despite the objections
raised by the authorized representative of the petitioner's
company on 29.06.2022. Therefore, alleging non-compliance of
the procedure for arbitration proceedings, the present writ
petition has been filed.
4. Learned counsel for the petitioner submitted that
under the MSME Act, a dispute can be referred for conciliation
or arbitration within a prescribed period and since the claim
pertains to the year 2015, the unofficial respondent could not
have made reference in the year 2022 and the respondent No.3
ought not to have entertained the same. He further submitted
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that on account of failure of conciliation, the respondents ought
to have intimated about the failure of conciliation proceedings
and only thereafter, should have initiated proceedings for
arbitration and the procedure prescribed under the Arbitration
and Conciliation Act ought to have been followed. It is further
submitted that the respondent No.3, without giving any
opportunity of hearing to the petitioner, has passed the Arbitral
award and therefore, it is in violation of the principles of natural
justice and hence, the Writ of Certiorari should be issued.
5. Learned counsel for the petitioner has relied upon
the following decisions in support of his contentions:
(i) Srirasthu Shopping Mall Vs. Micro and Small
Enterprises and Others 1;
(ii) Alvittas Electricals Private Limited Vs. Micro Small
Enterprises Facilitation Council and Others 2;
6. Learned counsel for the respondent, however
submitted that the writ petition is not maintainable as the
petitioner is challenging the Arbitral Award before this Court,
without availing the alternative remedy of filing an appeal
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against the Arbitral Award under the MSME Act. He submitted
that the petitioner has to approach the Appellate Authority by
making payment of 50% of the Arbitral Award, but to avoid the
same, the present writ present is filed and therefore, the writ
petition has to be dismissed. He also referred to Section 18(3) of
MSMED Act which provides that where the conciliation
proceedings failed, the council on its own, shall either take up
the dispute for arbitration or may on his own, refer it to any
other institution providing such arbitration facilities. It is
submitted that, in this case, since the conciliation proceedings
have failed, the conciliation officer has himself taken up the
arbitration proceedings and has accordingly issued notice to the
petitioner and thereafter, proceeded with the matter and
therefore, there was no case for interference and prayed for
dismissal of the writ petition. He also placed reliance upon the
following judgments in support of his contentions that where
the alternative remedy of appeal is available, the writ
jurisdiction cannot be invoked.
(1) M/s.Anupam Industries Limited Vs. State of Orissa
and Others 3;
HC of Orissa at Cuttack
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(2) M/s.Anupam Industries Limited Vs. State of Odisha
and Others 4;
(3) Romantic Garments Vs. P.Vellaichamy and
Others 5;
(4) Orient Cement Limited Vs. Unicon Engineers 6;
(5) The Executive Engineer Vs. The Telangana State
Micro and Small Enterprises 7.
7. Having regard to the rival contentions and the
material on record, this Court finds that the issue in this writ
petition is whether the respondent authority has followed the
due procedure under the Arbitration and Conciliation Act before
passing the impugned arbitral award dated 27.10.2022 and
whether this Writ Petition is maintainable due to the alternative
remedy available under Section 19 of the Act. As seen from the
impugned order, the Conciliation proceedings were initiated by
issuing a notice on 28.01.2021 calling for statement of defense
in Form-2 and enclosures to be submitted in Form-3 along with
claim application in Form-I and documents submitted by the
claimant. It is noticed that the council meeting was held on
4 W.P.(C) No.20234 of 2020, HC of Orissa at Cuttack
5 2020 SCC OnLine Mad 25463
6 2019 SCC OnLine TS 2497
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26.02.2021, wherein the counsel of both sides attended and the
respondent's counsel requested time for submitting his defence
statement. Thereafter, the council meeting was held on
28.08.2021 wherein both the claimant as well as respondents
attended the meeting and the respondent submitted his defense
statement and a copy of the same was communicated to the
claimant. Council then required the respondent to submit
documentary evidence to prove that the respondent company
incurred loss for non supply of goods by claimant company in
time and hence enforced LD. The case was posted for next
hearing under Arbitration treating the conciliation proceedings
as failed. The conciliator himself became the arbitrator. It is
noticed that thereafter, claimant vide his letter dated
18.10.2021 submitted a rejoinder to the defence statement.
Subsequently, through mail dated 28.05.2022, claimant
informed the council that the respondent had not attended the
meeting and also that they have not received any counter
statements to the replies for statement of defence against
claimant sent through post. Thereafter, the case was placed in
the council meeting held on 25.03.2022, wherein the claimant
was present and the counsel for the respondent also attended
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and requested for adjournment as the concerned officers dealing
with the issue are busy with financial year closing work.
Therefore, the council asked both the claimant and the
respondent to submit detailed written arguments along with
supportive documents before 13.04.2022. It is submitted that
case was placed in the council meeting held on 29.06.2022,
wherein both the claimant and the respondent attended the
meeting. After hearing both the parties and observing that the
counsel for the respondent failed to produce any evidences for
the losses incurred due to delay in supply of the goods by the
claimant and also that the respondent had put on hold for one
year and one month period and as such claiming of LD is not
justified and the council asked claimant to furnish details in the
given format certified by CA and the council decided to issue
award for payment of principle (LD amount) without interest.
After going through the documentary evidences i.e., claimant
statement, defence statement as well as the replies given by the
claimant, the council opined that the claimant company's claim
for payment of principle amount of Rs.30,49,071/- which was
deducted under LD is justified without interest as the cause of
delay and LD cannot be totally attributed to either respondent
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or claimant and the respondent is liable for payment of principle
amount.
8. In this whole process, it is to be examined if the
procedure prescribed under the Arbitration and Conciliation Act
i.e., MSME Act, has been followed. On filing of an application
under Section 18 and under sub-clause (2) thereof and on
receipt of a reference under sub-section (1) thereof, 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 shall apply to such a dispute as if the
conciliation was initiated under Part-III of that Act. The sub-
section (3) thereof provides that 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 shall then apply to the
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dispute as if the arbitration was in pursuance of an arbitration
agreement referred to in sub-section (1) of Section 7 of that Act.
Sub-section (4) thereof provides that 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. Therefore,
the Arbitration and Conciliation proceeding have to be
conducted in accordance with the provisions of Sections 65 to
81 of the Arbitration and Conciliation Act, 1996.
9. Sections 65 to 76 of the Arbitration and Conciliation
Act refer to the Conciliation proceedings. Under Section 65, the
conciliator upon his appointment, may request each party to
submit to him a brief written statement describing the general
nature of the dispute and the points at issue and Section 75
provides that the conciliator and the parties shall keep
confidential all information relating to the conciliation
proceedings and the confidentiality shall extend also to the
settlement agreement, except where its disclosure is necessary
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for the purposes of implementation and enforcement of such a
settlement. Section 76 provides for Termination of conciliation
proceedings by prescribing a procedure thereunder. For the
ready reference, Section 76 is re-produced hereunder:
The conciliation proceedings shall be terminated--
(a) by the signing of the settlement agreement by the
parties, on the date of the agreement; or
(b) by a written declaration of the conciliator, after
consultation with the parties, to the effect that further
efforts at conciliation are no longer justified, on the date of
the declaration; or
(c) by a written declaration of the parties addressed
to the conciliator to the effect that the conciliation
proceedings are terminated, on the date of the declaration;
or
(d) by a written declaration of a party to the other
party and the conciliator, if appointed, to the effect that the
conciliation proceedings are terminated, on the date of the
declaration.
Therefore, the first and foremost step should be taken for
termination of conciliation proceedings is to declare the same as
terminated in writing either by the conciliator himself or by any
of the parties to the proceedings.
10. Section 77 of the Arbitration and Conciliation Act
provides that the parties shall not initiate, during the
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conciliation proceedings, any arbitral or judicial proceedings in
respect of a dispute that is the subject-matter of the conciliation
proceedings except that a party may initiate arbitral or judicial
proceedings where, in his opinion, such proceedings are
necessary for preserving his rights.
11. Section 80 also provides that unless otherwise
agreed by the parties --
(a) the conciliator shall not act as an arbitrator or as a
representative or counsel of a party in any arbitral or judicial
proceeding in respect of a dispute that is the subject of the
conciliation proceedings;
(b) the conciliator shall not be presented by the parties as a
witness in any arbitral or judicial proceedings.
12. Section 81 also provides that the parties shall not
rely on or introduce as evidence in arbitral or judicial
proceedings, whether or not such proceedings relate to the
dispute that is the subject of the conciliation proceedings --
(a) views expressed or suggestions made by the other party
in respect of a possible settlement of the dispute;
(b) admissions made by the other party in the course of the
conciliation proceedings;
(c) proposals made by the conciliator;
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(d) the fact that the other party had indicated his
willingness to accept a proposal for settlement made by the
conciliator.
13. Thus, the conciliation proceedings are confidential
and any material or information expressed during the said
proceeding cannot be relied upon subsequently in the arbitral or
judicial proceedings.
14. The arbitration proceedings are governed by the
provisions of Sections 18 to 33 of the Arbitration and
Conciliation Act, 1996. Under this Act, the procedure prescribed
for arbitration proceedings vis-a-vis the conciliation proceedings
is different. Therefore, the conciliation proceedings cannot be
automatically converted into arbitral proceedings without first
declaring that the conciliation proceedings have failed and
hence terminated. Therefore, this Court is of the opinion that
after the failure of the conciliation proceedings in the case
before this Court, the Conciliator ought to have passed a written
declaration of termination of conciliation proceedings and ought
to have intimated the same to the parties and only thereafter,
initiated the arbitral proceedings. The conciliator could not have
become the member of the arbitral tribunal as he was privy to
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the confidential information submitted by both the parties in
confidence and he ought to have referred the matter to another
arbitrator.
15. The Madras High Court in the case of Alvittas
Electricals Private Limited Vs. Micro Small Enterprises
Facilitation Council and Others 8 had an occasion to deal with
the case under Section 18 of the MSMED Act and has observed
that in the said case council had not conducted any conciliation
proceedings either by itself or as stated in the sub-section (2) of
the Section 18 applying the provisions of Sections 65 to 81 of
the Arbitration and Conciliation Act of 1996 and therefore, the
inevitable conclusion is that no conciliation proceedings was
conducted by the council and the order was passed by the first
respondent in total violation of sub-section (2) of Section 18 of
the MSMED Act. It was further observed that a plain reading of
sub-section (3) of Section 18 shows that if the conciliation
proceedings are not successful and stands terminated without
any settlement between the parties, then the council can either
by itself take up the dispute for arbitration or refer it to any
institution or centre for arbitration and the provisions of the
8 MANU/TN/1740/2022
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Arbitration and Conciliation Act, 1996 shall then apply to the
dispute as if the arbitration was in pursuance of an arbitration
agreement referred to in sub-section (1) of Section 7 of that Act.
16. In the case of Srirasthu Shopping Mall vs. Micro
and Small Enterprises and Others 9, the Co-ordinate bench of
this Court has held that where there is no mention that
respondent therein had followed the procedure laid down under
Sections 65 to 8l of the MSME Act and particularly, Section 76,
there is a violation of the mandatory procedure laid under both
the Acts, 2006 and Act, 1996.
17. From the communication received from the
Chairman of MSMED to the Government Pleader, this Court
finds that after conducting the conciliation meetings on
26.02.2021, 28.08.2021 and 25.03.2022, the respondent No.3
had come to the conclusion that the conciliation proceedings
failed and therefore, conducted the arbitration conciliation on
25.03.2022 and 29.06.2022. Thus, it is clear that the
declaration under Section 76 has not been given by the
conciliator before referring the matter for arbitration under the
Arbitration and Conciliation Act.
9 MANUI/TL/0157/2023
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18. Further, when the arbitration proceedings are to be
initiated, the arbitrator has to be appointed under Section 11 of
the Arbitration and Conciliation act, 1996 and the Court should
examine whether the agreement provides for an arbitration
between the parties in case of a dispute between them. There
must be strict compliance with the agreement procedure by
parties and institutions nominated in the agreement procedure.
Therefore, the appointment of an arbitrator has to be with the
concurrence and agreement of both the parties and where the
parties to the arbitration agreement failed to comply with the
provisions of Sub-Section (6) of 11 of the Act, only the Court can
appoint an arbitrator as held by the Hon'ble Supreme Court in
the case of Rajasthan Small Industries Corporation Limited
Vs. Ganesh Containers Movers Syndicate 10. Further, the
Hon'ble Supreme Court, in the case of Union of India Vs.
Pradeep Vinod Construction Company 11, as observed that
when agreement specifically provides for appointment of named
arbitrators, appointment should be in terms of agreement,
unless there are exceptional reasons for departing from
agreement procedure for appointment of an arbitrator, as per
10 (2019) 3 SCC 282
11 (2020) 2 SCC 464
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settled principles and only in the cases where an independence
and impartiality of the arbitrator appointed/nominated in terms
of the arbitration agreement is in doubt, or where the Arbitral
Tribunal appointed in the manner provided in the arbitration
agreement has not functioned and it becomes necessary to
make fresh appointment, the Chief Justice or his designate in
the given circumstances, after assigning cogent reasons in
appropriate cases, may resort to an alternative arrangement to
give effect to the appointment of independent arbitrator under
Section 11(6) of the Act. In the case on hand, none of this
procedure has been followed, but the conciliator as himself
assumed the role of arbitrator and without declaring the
conciliation proceedings as failed, as taken the material
furnished during the conciliation proceedings as defence
statement of the respondent and has passed arbitral award.
This is in clear violation of the provisions of Arbitration and
Conciliation Act and also in violation of principles of natural
justice. As the Hon'ble Supreme Court, in a number of cases,
has held that where there is violation of principles of natural
justice or where the fundamental rights have been violated or
when the statutory provisions have not been followed, then the
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writ petition under Section 226 of the Constitution of India is
maintainable irrespective of whether there is no alternative
remedy against the order passed.
19. The judgments on which the petitioner has placed
reliance upon, supports the case of the petitioner. The
judgments relied upon by the learned counsel for the
respondents are distinguishable on facts. In the said cases,
there was no challenge to the procedure adopted by the
arbitrator and the parties therein had appeared before the
arbitrator and had participated therein and therefore, it was
observed that there was no violation of principles of natural
justice. The facts before this case are therefore distinguishable
and the said judgments are not applicable.
20. In view of the same, this Court is of the opinion that
the arbitral award dated 27.10.2022 is not sustainable and the
same is accordingly set aside and the respondent is directed to
re-initiate the proceedings under the Arbitration Act after
passing the order under Section 76 of the Arbitration and
Conciliation Act.
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21. Accordingly, this writ petition is allowed. There
shall be no order as to costs.
22. Miscellaneous petitions, if any, pending in this writ
petition, shall stand closed.
____________________________
JUSTICE T.MADHAVI DEVI
Date: 12.02.2024
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