AO/99/2023
2023 Latest Caselaw 917 UK

      IN THE HIGH COURT OF UTTARAKHAND
                  AT NAINITAL
        THE HON'BLE THE CHIEF JUSTICE SRI VIPIN SANGHI
                               AND
            THE HON'BLE SRI JUSTICE ALOK KUMAR VERMA

               APPEAL FROM ORDER NO. 99 OF 2023

                            5TH APRIL, 2023

Between:

M/s B.S. Polypack
through its proprietor                    ......         Appellant

and

M/s Uttaranchal Agro Food Ruler
Mills and another                         ......       Respondents

Counsel for the appellant : Mr. Shobhit Saharia, learned counsel

Counsel for the respondents : --

The Court made the following:

JUDGMENT: (per Hon'ble The Chief Justice Sri Vipin Sanghi)

The present appeal, under Section 37 of the

Arbitration and Conciliation Act, is directed against the

judgment dated 27.09.2022, passed by the court of

Additional District Judge, Commercial, Dehradun, in

Arbitration Case No. 35 of 2020, C.G. No. 69 of 2020,

whereby the objections preferred by the respondent

under Section 34 of the Arbitration and Conciliation Act

against the Award passed by the Facilitation Council

dated 25.01.2020 have been allowed, and the said

Award was set aside.

2) The appellant and the respondent entered into

a commercial transaction, where under the appellant -

being a micro enterprise, has undertaken the supply of

certain goods to the respondent. A dispute arose with

regard to the amount payable to the appellant. Since

the appellant is a micro enterprise, the appellant invoked

the remedy available to it under Section 18 of the Micro,

Small and Medium Enterprises Development Act, 2006

(MSMED Act). The Micro, Small and Medium Enterprises

Facilitation Council initiated conciliation proceedings.

The claim of the appellant was registered as Case No.

271. On 04.11.2019, the said Facilitation Council

recorded its minutes. The same reads as follows:-

"okn la0 271 & eS0 ch0,l0ikWyhisd 28 vkn'kZ dkykuh] jkeuxj :M+dh ftyk& gfj}kj mRrjk[k.M ds izfroknh eS0 mRrjkpy ,xzks QwM :yj feYl xzke& lqugjk] ek/kkSijq jksM+ :M+dh ftyk& gfj}kj okn la0 271 ds lacU/k esaA oknh bdkbZ }kjk izfroknh bdkbZ dks vkiwfrZ fd;s x;s eky ds foyfEcr Hkqxrku ewy/ku :0 4]84]270& rFkk bl ij fnukad 30&09&18 rd vkxf.kr C;kt 10]67]051 dqy :0 15]51][email protected]& dk okn fnukad 15&10&18 dks izLrqr fd;k x;k ftls 15 fnukad ds Hkhrj viuk i{k j[kus gsrq izfroknh dks ifj"kn ds iathd`r i=kad 8030 fnukad 22&11&2018 }kjk izsf"kr fd;k x;kA izfroknh }kjk izR;qRrj miyC/k u djk;s tkus ij iqu% ifj"kn ds iathd`r i=kad 8543 fnukad 18&12&2018 }kjk 15 fnu ds vUrxZr izR;qRrj miyC/k djk;s tkus gsrq uksfVl fuxZr fd;k x;kA

iqu% ifj"kn ds iathd`r i=kad 9407 fnukad 29&01&2019 }kjk 15 fnu ds vUrxZr izR;qRrj miyC/k djk;s tkus gsrq uksfVl fuxZr fd;k x;kA izfroknh }kjk vius izR;qRrj fnukad 2&2&2019 }kjk voxr djk;k x;k fd okn xyr rF;ksa ij izLrqr fd;k x;k gSA bl lEcU/k esa iwoZ esa :0 484271 ds lEcU/k esa Li"V fd;k x;k Fkk fd :0 243830 dk Hkqxrku oknh dks djuk gS uk fd izfroknh dksA bl lEcU/k esa nksuksa i{kksa esa ,d gLr fyf[kr ipkZ cuk;k x;k gS tks muds }kjk izR;qRrj ds lkFk layXu fd;k x;k gSA oknh ds i{k dk tkuus ds fy;s ifj"kn ds i=kad 9538 fnukad 05&02&19 dks izsf"kr fd;k x;kA oknh }kjk vius izR;qRrj fnukad 22&2&19 esa voxr djk;k x;k fd izfroknh dk dFku vlR; gSA izfroknh dks dkuwuh uksfVl Hksts x;s ek= ;gh rF; Lohdk;Z gSA izfroknh }kjk dHkh Hkh uxn ysu nsu ugh fd;k x;kA oknh dh ,e0,l0,e0bZ0 bdkbZ gksus ds dkj.k okn ifj"kn ds {ks=kf/kdkj esa vkrk gSA oknh ds bl mRrj ij izfroknh dk i{k j[kus gsrq ifj"kn ds iathd`r i=kad 9970 fnukad 27&02&19 }kjk uksfVl fuxZr fd;k izR;qRrj vkfrfFk rd vkisf{kr gSA ifj"kn dh cSBd fnukad 29&05&19 esa oknh ds izfrfuf/k Jh th0,l0 pkSgku mifLFkr ugha FksA tcfd izfroknh ds izfrfuf/k Jh Mh-,l-usxh mifLFkr jgsA ifj"kn }kjk vxyh cSBd dh frfFk esa lquokbZ dk fu.kZ; fy;k x;kA ifj"kn dh cSBd fnukad 03&07&19 esa izfrfuf/k Jh th-,l- pkSgku rFkk izfroknh ds izfrfuf/k Mh-,l-usxh mifLFkr jgsA izfroknh }kjk voxr djk;k x;k fd muds }kjk oknh ds lkFk ,dkmUV dk feyku fd;k x;k vkSj mudh dh /kujkf'k oknh ij vo'ks"k gSA ifj"kn }kjk mHk; i{kksa dks lquus ds ckn vkxkeh cSBd ls iwoZ viuh vkfMVsM osysUl lhV ifj"kn ds dk;kZy; esa izLrqr djus ds funsZ'k fn;s x;sA ifj"kn dh cSBd fnukad 20&08&19 esa oknh ds izfrfuf/k Jh th-,l-

pkSgku mifLFkr jgsa] tcfd izfroknh vuqifLFkr jgsA ifj"kn }kjk izfroknh dks funsZ'k fn;s fd muds }kjk oknh dk fd;s x;s Hkqxrku ds dksbZ lk{; gks rks mUgsa 15 fnu ds vUnj izLrqr djsaA oknh ds ,MoksdsV izfrfuf/k }kjk pkVZMZ,dkmUVsUV ls rS;kj dh x;h cSysal lhV fnukad 21&08&19 dks izLrqr dh x;hA oknh ds ,MoksdsV izfrfuf/k }kjk vkjfoZVªs'ku ,.M dkWflfy;s'ku ,DV dh /kkjk 70 ds vuqlkj lwpuk dh xksiuh;rk cuk;s j[kus dk vuqjks/k fd;k x;kA

ifj"kn dh cSBd fnukad 04&11&19 esa oknh ds izfrfu/k Jh th0,l0pkSgku mifLFkr jgs rFkk izfroknh ds izfrfuf/k vuqifLFkr jgsA oknh ds izfrfuf/k }kjk fuosnu fd;k x;k fd okn esa lqyg dh xqatkbl ugha gS] vr% ;FksLV fu.kZ; ysus dk d"V djsa ftl ij ifj"kn }kjk vkjfoZVªs'ku uksfVl Hkstrs gq;s nksuksa i{kksa dks vfUre lquokbZ gsrq mifLFkr gksus ds funsZ'k fn;s x;sA"

3) From the above, it would be seen that during

conciliation proceedings, the respondent put in

appearance and disputed the claim of the appellant. In

fact, the respondent claimed that there was over

payment to the appellant to the tune of Rs.2,43,830/-.

The respondent placed reliance upon a document

purportedly executed by the appellant in that regard.

On the other hand, the appellant disputed the document

produced by the respondent, by claiming that it had not

received any amount in cash. The aforesaid minutes

also show that, eventually, on 04.11.2019, the

Facilitation Council closed the conciliation proceedings,

and it decided to issue notice to the respondent for the

"final hearing". In terms of the aforesaid minutes

recorded by the Facilitation Council on 04.11.2019, a

notice was issued by the Facilitation Council to the

parties on 07.11.2019. In the said notice the Facilitation

Council recorded that on 04.11.2019, the conciliation

proceedings had been closed, and arbitration had been

commenced under Section 18(3) of the MSMED Act.

4) The last paragraph of the said notice reads as

follows :-

"vr% vuqjks/k gS fd oknh izfroknh nksuksa i{k ifj"kn dh vkxkeh cSBd esa vius vf/kd`r izfrfuf/k ds lkFk vfUre lquokbZ gsrq mifLFkr gksxsaA fdlh ,d i{k ds cSBd esa mifLFkr u gksus dh n'kk esa lqdjrk ifj"kn ,d i{kh; fu.kZ; ysus gsrq LorU= gksxhA"

(emphasis supplied)

5) From the above it would be seen that a notice

for "final hearing" in the arbitration matter was given to

the parties. Pertinently, no date was fixed by the notice

dated 07.11.2019, and neither of the parties were

required to file their statement of claim / defence.

Thereafter, the Facilitation Council passed the impugned

Award dated 25.01.2020. As aforesaid, the said Award

was challenged by the respondent under Section 34 of

the Arbitration and Conciliation Act read with Section 19

of the MSMED Act. The Commercial Court has allowed

these objections on the basis that no statement of claim

or defence was called by the Arbitral Tribunal, and

consequently, there is a breach of Section 23 of the

Arbitration and Conciliation Act.

6) The submission of Mr. Saharia, learned

counsel for the appellant is that, ample opportunity had

been granted to the respondent to place its defence. In

this regard he has drawn the attention of this Court to

the minutes drawn by the Facilitation Council on

04.11.2019, which noticed the defence set up by the

respondent. He submits that the provisions of the

MSMED Act override the provisions of the Arbitration and

Conciliation Act, and in this regard he has placed

reliance on the judgment of the Supreme Court in

Gujarat State Civil Supplies Corporation Ltd. Vs Mahakali

Foods Pvt. Ltd. (Unit 2) and another, Civil Appeal No. ....

of 2022 (Arising out of SLP (C) No. 12884 of 2020),

decided on 31.10.2022, reported in 2022 LiveLaw (SC)

893.

7) Mr. Saharia has argued that the respondent

had challenged the Award primarily on the ground that,

since the Facilitation Council had acted as a Conciliator,

it could not act as the Arbitrator - by placing reliance on

Section 80 of the Arbitration and Conciliation Act. Mr.

Saharia submits that this aspect is covered by the

judgment of the Supreme Court in Gujarat State Civil

Supplies Corporation Ltd. (supra) in favour of the

appellant. He submits that the Commercial Court has,

however, set aside the Award on other grounds, namely,

violation of Section 23 and 34 of the Arbitration and

Conciliation Act.

8) We have considered the submissions of Mr.

Saharia and perused the record.

9) The aforesaid judgment was rendered by the

Supreme Court in the context that: where the contract

between the parties - one of whom is covered by the

MSMED Act, contains an arbitration agreement, whether

the micro, small and medium enterprises supplier, could

invoke the remedy available under Section 18 of the

MSMED Act, or not? The Supreme Court observed that

the MSMED Act is a special statute, and the Arbitration

and Conciliation Act is the general law of Arbitration, and

that the provisions contained in Section 18 would have

overriding effect as it begins with a non obstante clause,

which reads - "notwithstanding anything contained in

any other law for the time being in force..." . Thus, there

can be no quarrel with the appellant invoking Section 18

of the MSMED Act, and the Facilitation Council acting as

the Arbitral Tribunal after failure of the conciliation

proceedings.

10) A perusal of the proceedings recorded by the

Facilitation Council on 04.11.2019 show that the

respondent had appeared before the Council during the

stage of conciliation, and put forth its stand, to the

effect, that the appellant had been over paid, and

Rs.2,43,830/- was recoverable from the appellant. In

that regard the respondent had also produced a written

document. The appellant had, however, denied having

received any amount in cash, or executing the said

document.

11) The Facilitation Council having initiated the

arbitration vide its decision taken on 04.11.2019, was

bound to undertake the arbitral proceedings in

accordance with the Arbitration and Conciliation Act.

The judgment of the Supreme Court relied upon by Mr.

Saharia nowhere states that the arbitration proceedings

shall be conducted by the Facilitation Council, or by any

other institution or centre, to which the dispute is

referred by the Council, de hors the provisions of the

Arbitration and Conciliation Act, and contrary to it. On

the contrary, it is very clear from a reading of Section

13(3) of the MSMED Act that, the arbitration proceedings

have to be conducted by the Tribunal in accordance with

the provisions of the Arbitration and Conciliation Act.

12)        Section 18 of the MSMED Act reads as

follows:

"18. Reference to Micro and Small Enterprises Facilitation Council.-- (1) Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council.

(2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act.

(3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that Act.

(4) Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.

(5) Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference."

(emphasis supplied)

13) From a reading of sub-section (3) of Section

18, it is seen that, once the dispute is referred for

arbitration to be conducted by the Council itself, or by any

other institution or centre by the Council - "the provisions

of the Arbitration and Conciliation Act, 1996 (26 of 1996)

shall then apply to the dispute as if the arbitration was in

pursuance of an arbitration agreement referred to in sub-

section (1) of Section 7 of that Act." The Parliament has

consciously used the words "shall then apply to the

dispute", and the words "as if the arbitration was in

pursuance of an arbitration agreement referred to in sub-

section (1) of Section 7 of that Act" (meaning the

Arbitration and Conciliation Act), making it abundantly

clear that the arbitration which is conducted - whether by

the Council, or by any other institution or centre, has to be

in compliance with the provisions of the Arbitration and

Conciliation Act.

14) Aforesaid being the position, the decision taken

by the Council on 04.11.2019, fixing the matter for 'final

hearing' itself was illegal and flawed. The notice issued on

07.11.2019 was equally illegal and flawed. Pertinently, no

date was fixed while issuing the notice dated 07.11.2019

to the parties. The impugned Award records that the

parties appeared before it on 12.12.2019. However, a

perusal of the Award shows that, neither the statement of

claim was called for, nor right to file its defence was given

to the respondent. Even the issues framed by the

Facilitation Council, as reflected in para 11 of the

impugned Award, show that the primary issue - as to

whether any payment is due to the appellant, and if so, to

what amount the appellant is entitled, was not framed.

There is absolutely no discussion in the impugned Award

with regard to the stand taken by the respondent during

the course of conciliation, that it had over paid the

appellant, and amounts were recoverable from the

appellant to the tune of Rs. 2,43,830/-. The document

produced by the respondent during the course of

conciliation in support of its aforesaid plea has been

completely ignored while passing the impugned Award.

There is no reason disclosed in the Award - as to why the

document produced by the respondent has been rejected.

The impugned Award was, therefore, certainly passed in

breach of Section 18, which provides for grant of equal and

full opportunity to each party to present the case; in

breach of the principles of natural justice, and; in breach

of Section 23 of the Arbitration and Conciliation Act. The

impugned Award was liable to be set aside, since the

respondent was not given the opportunity to present its

case, and such an Award is also in conflict with the basic

notion of justice.

15) For the aforesaid reasons, we do not find any

merit in the present appeal. The same is, accordingly,

dismissed.

16) Since we have examined the appeal on its

merits, we do not consider it necessary to go into the

aspect of delay in filing the appeal.

17) It pains us to see that the MSME Council has

conducted the arbitral proceedings completely unmindful of

its obligations - cast under the Arbitration and Conciliation

Act. We direct the MSME Council to organize workshops

and seminars to educate its officers, who undertake

arbitration proceedings, to equip themselves with the law

of Arbitration, so that such flagrant violations of the

Arbitration and Conciliation Act do not reoccur.

18) A copy of this judgment shall be communicated

to the State MSME Council by the Registry for compliance.

________________ VIPIN SANGHI, C.J.

_________________ ALOK KUMAR VERMA, J.

Dt: 5th APRIL, 2023 Negi