Calcutta High Court (Appellete Side)
Mackintosh Burn Limited vs Micro And Small Enterprises ... on 19 September, 2019
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IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Appellate Side
W. P. No.17659 (W) of 2019
Mackintosh Burn Limited
Vs.
Micro and Small Enterprises Facilitation Council & Ors.
For the Petitioner : Mr. Soumya Chakraborty, Sr. Advocate
Ms. Atasi Ghosh, Advocate
Mr. Somak Basu, Advocate.
For the Respondent No.3 : Mr. Vikram Nandrajog, Advocate
Mr. Rajib Mullick, Advocate Mr. Rounak Bose, Advocate.
Heard on : September 19, 2019 Judgment on : September 19, 2019
DEBANGSU BASAK, J.:‐ A notice dated June 25, 2019 issued by the Micro and Small Enterprises Facilitation Council, New Delhi is under challenge in the present writ petition. Essentially, the petitioner is questioning the assumption of jurisdiction by the Council under the Act of 2006 in respect of the claims lodged by the respondent No. 3 with the Council.
Learned Senior Advocate appearing for the petitioner submits that, the Council assumed jurisdiction where it did not have any. The Council acted mechanically, and without application of mind in issuing the impugned notice. He submits that, the respondent no.3 who lodged a claim against the petitioner with the Council, cannot be treated as an 'Enterprise' within the meaning of the Micro, Small and Medium Enterprises Development Act, 2006. He draws the attention of the Court to the fact that, the respondent no.3 was registered as a 'Small Scale Industrial Undertaking'. He refers to the provisions of the Section 8 of the Act of 2006 and submits that, the respondent no.3 was not registered within 180 days 2 from coming into effect of the Act of 2006 in terms of Section 8(1) and the first proviso to Sub‐Section (a) thereof. Therefore, the respondent no.3 cannot be treated as an enterprise within the meaning of the Act of 2006.
Learned Senior Advocate appearing for the petitioner submits that, the petitioner and the respondent no.3 entered into a jural relationship by way of a written agreement. The relationship between the petitioner and the respondent no.3 are governed by such agreement. Such agreement contains an arbitration clause. He submits that, the respondent no.3, despite such agreement containing an arbitration clause, is seeking to proceed under the Act of 2006 which, it is not entitled to. He refers to Chapter ‐ V of the Act of 2006 and submits that, under Section 18 of the Act of 2006, the Council is called upon to undertake a conciliation and if the conciliation fails, make a reference to arbitration. The Council did not consider the objections raised by the petitioner at the conciliation. It mechanically issued the impugned notice dated June 25, 2019 referring the disputes to arbitration.
Referring to the contents of the agreement between the petitioner and the respondent no.3, learned senior advocate appearing for the petitioner submits that, since, the agreement contains an element of supply, the Council could not assume jurisdiction over such subject matter and could not have referred the same for arbitration, particularly when the respondent No. 3 was registered as a services enterprise, assuming that the registration of the respondent No. 3.
Learned advocate appearing for the respondent no.3 submits that, the respondent no.3 is duly registered under the Act of 2006. He refers to the registration certificate of the respondent no.3 in this regard. He relies upon a decision of the Delhi High Court reported at (2017) 238 DLT 79 (GE T & D India 3 Limited Versus Reliable Engineering Projects and Marketing) and submits that, the period of 180 days prescribed in Section 8 of the Act of 2006 cannot be held to be mandatory. He relies upon (2017) Volume 3 Calcutta Law Journal 253 (National Projects Construction Corporation Limited & Anr. Versus West Bengal State Micro Small Enterprises Facilitation Council & Ors.) and submits that, notwithstanding the existence of an arbitration clause in the agreement between the parties a reference under the Act of 2006 is maintainable. In support of the same contention he relies upon (2014) Volume 4 Allahabad Law Journal 52 (M/s. Bharat Heavy Electricals Limited Versus State of Uttar Pradesh & Others) and (2013) Volume 1 ILR Punjab & Haryana 709 (Welspun Corporation Limited Versus Micro and Small, Medium Enterprises Facilitation Council, Punjab & Others).
Learned advocate appearing for the respondent no.3 submits that, the objections raised by the petitioner before the Council were considered and rejected by a writing dated June 17, 2019. He submits that, the petitioner did not annex such rejection letter dated June 17, 2019 in the writ petition.
Learned Senior Advocate appearing for the petitioner in response submits that, the rejection letter dated June 17, 2019 does not contain any reason for the rejection.
The petitioner is a Government Company. The petitioner and the respondent No. 3 entered into a Memorandum of Understanding dated March 27, 2008 for submitting a bid with Damodar Valley Corporation for constructing 2 x 500 MW Raghunathpur Thermal Power Project (Phase 1). The Memorandum of Understanding contemplated that the petitioners would submit the bid, and that, in the event of award of work by Damodar Valley Corporation, the respondent No. 3 shall carry out the work stated in Paragraph 2 of the Memorandum of 4 Understanding. Petitioner lodged a bid with Damodar Valley Corporation and was awarded the contract. Pursuant to such Memorandum of Understanding, the petitioner and the respondent entered into an agreement dated August 14, 2008 whereby and whereunder, the petitioner engaged the respondent No. 3 for execution of a part of the total scope of supply and services. Such agreement contains an arbitration clause which is as follows:‐ "8. Should any dispute and difference arise out of or in connection with or pertaining to this agreement during its continuation or thereafter, parties hereto agree to promptly negotiate a reasonable solution amicably. If the parties are unable to settle the matter then such dispute(s) or difference(s) shall be settled through arbitration as per the Arbitration and Conciliation Act, 1996 as amended from time to time. Each party shall nominate one Arbitrator and the Third Arbitrator shall be nominated either mutually by the two arbitrators or by the President, Indian Chamber of Commerce, Kolkata. The decision of the Arbitration shall be final and binding on the parties."
There are disputes between the petitioner and the respondent No. 3 which are covered by the arbitration agreement. The Act of 2006 contemplates and prescribes statutory arbitration in a case involving an enterprise within the meaning of the Act of 2006. The issue as to when there exists an arbitration agreement between two parties, and one of such parties to the arbitration agreement is an entity within the meaning of the Act of 2006, would the Council have jurisdiction to arbitrate on such disputes, fell for consideration in National Projects Construction Corporation Limited & Anr. (supra). It considers the interplay of the provisions of the Act of 2006 with that, of the Arbitration and Conciliation Act, 1996. It is of the following view :‐ 5 "10. The statement of objects and reasons of the Act of 2006 professes, inter alia, that the act ends (sic) at facilitating the promotion, development and enhancement of the competitiveness of small and medium enterprises. It seeks to make further improvements in the interest on delayed payments to Small Scale and Ancillary Industrial Undertaking Act, 1993. Chapter V of the Act of 2006 deals with delayed payments to micro and small enterprises. Section 15 makes it a liability of a buyer to make payment to the supplier. Section 16 specifies the date from which interest is payable as also the rate at which such interest is payable. Section 17 deals with recovery of amounts due. Section 18 deals with reference to the Micro and Small Enterprises Facilitation Council for the purpose of recovery of amounts due to the supplier. Section 19 provides for setting aside of decree, award or order passed by the Council or in the arbitration. Section 24 provides that Sections 15 to 23 of the Act of 2006 would have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
11. Section 17, 18 and 24 of the Act of 2006 are as follows:‐ ʺ17. Recovery of amount due.‐ For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16.ʺ ʺ18. 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 provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as of 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 6 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.ʺ ʺ24. Overriding effect.‐ The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.ʺ
12. Section 18 (1) of the Act of 2006 opens with a non‐obstante clause. It requires a reference to a dispute to the Micro and Small Enterprises Facilitation Council notwithstanding anything contained in any law for the time being in force. Section 20 of the Act of 2006 contemplates the establishment of such Council. The composition of such Council is laid down in Section 21 of the Act of 2006. Section 18(2) of the Act of 2006 mandates that, the Council upon receipt of a reference under sub‐section (1) would undertake conciliation by itself 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. The provisions of Sections 65 to 81 of the Act of 1996 get attracted in such an eventuality. Section 18(3) contemplates that, in the event the conciliation is not successful, the Council would take up the dispute for arbitration or refer it to any institution or centre for arbitration. In such an eventuality the provisions of sections of the Act of 2006 is mandated to apply. Section 18(4) of the Act of 2006 mandates that, notwithstanding anything contained in any other law for the time being in force, the institution or the Centre identified by the Council shall have jurisdiction to act as arbitrator or conciliator.
13. The Act of 2006 contemplates statutory arbitration. The Act of 2006 allows a party that is governed by it to apply to the Council constituted under the Act of 2006 to first conciliate and then arbitrate on the disputes between it and the other parties.
14. Section 2(4) of the Act of 1996 is as follows:‐ ʺ2(4). This Part except sub‐section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder.ʺ
15. Section 2(4) of the Act of 1996 stipulates that, the provisions of the first part of the Act of 1996 will apply to a statutory arbitration as if there was an arbitration agreement between the parties. However, the first part of the Act of 1996 will not apply in the event there is a conflict between the provisions of the Act which enforces statutory arbitration and the provisions of the Act of 1996.
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16. There are fundamental differences between the settlement of dispute mechanism provided by the Act of 2006 and the Act of 1996. One of such differences is that, the Council has to undertake a mandatory conciliation before an arbitration which is not so under the Act of 1996. The second is that, the Council or the centre or institution identified by it will undertake the arbitration in the event of an unsuccessful conciliation, notwithstanding anything contained otherwise. The Act of 1996 allows resolution of the disputes by the agreed forum. The Act of 2006, therefore, overrides the chosen forum for settlement of the disputes to that extent. The third difference is that, the Act of 2006 mandates that, an application for setting aside of decree or award or order made by the Council or the institution or centre identified by the Council will not be entertained by any Court unless the appellant not being the supplier has deposited with it 75% of the amount in terms of the decree, award or the order appealed against. Such is not the case under the provisions of the Act of 1996. The Act of 1996 does not mandate a Court not to entertain a challenge to an award or an order or decree without a specified pre‐ deposit.
17. Section 24 of the Act of 2006 mandates that, sections 15 to 23 of such Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Section 18 of the Act of 2006 vests a party with a statutory right to make a reference to the Council. Such right is higher than an arbitration agreement. In any event, an arbitration agreement will not dilute the statutory right of a party to make a reference under Section 18 of the Act of 2006 or prevent it from doing so. Once such a reference is made the conciliation and arbitration must be had in terms of the Act of 2006 and by the forum designated by it rather than the forum under the arbitration agreement. In view of Sections 18(4) and 24 of the Act of 2006 read with Section 2(4) of the Act of 1996, the arbitration clause contained in the agreement between the parties stands superseded by the statutory rights granted by the Act of 2006." It finds that, when there exists an arbitration agreement between the parties and one of such party to the arbitration agreement is a legal entity within the meaning of the Act of 2006, the Council established under the provisions of the Act of 2006 or any institution or centre identified by it has the jurisdiction to arbitrate such disputes on a request being received by such Council for such purpose.
In Bharat Heavy Electricals Limited (supra) the Division Bench of the Allahabad High Court considers Section 18 of the Act of 2006 in a writ petition seeking quashing of the proceedings before the Uttar Pradesh State Micro and 8 Small Enterprises Facilitation Council. It is of the view that, there may be an arbitration agreement between the parties, but, the provisions of the Section 18(4) of the Act of 2006 contain a non obstante clause empowering the Council to Act as an Arbitrator. It notices Section 24 of the Act of 2006 as also Sections 15 to 23 thereof and is of the view that, the proceedings before the Council should continue.
In Welspun Corporation Ltd. (supra) the Court considers the provisions of the Act of 2006 including Section 18 thereof as also the provisions of the Arbitration and Conciliation Act, 1996 and is of the view that, notwithstanding the arbitration agreement between the parties, the Council is entitled to proceed under the Act of 2006.
The next question that requires consideration in the facts and circumstances of this case is whether the respondent No. 3 is an entity coming within the meaning of the Act of 2006 or not.
The records made available to Court demonstrates that, the petitioner was registered as a small scale enterprise dealing with services. There is a document dated December 9, 2011 issued by the Commissioner of Industries, Government of NCT, Delhi recognizing the respondent no.3 to be so. Such certificate, in my view, is a registration of the respondent no.3 as a small enterprise dealing with services under the Act of 2006.
No doubt, the petitioner was initially registered as a 'Small Scale Industry'. Section 8 of the Act of 2006 allows a 'Small Scale Industry' registered as such prior to the Act of 2006 coming into effect, to apply for and obtain registration under the Act of 2006 within 180 days from the date of the Act of 2006 coming into effect. Section 8 of the Act of 2006, however, allows a legal entity to apply for and obtain registration under the Act of 2006, independent of the time period of 180 days 9 prescribed for a small scale industry to obtain registration under the Act of 2006. In a given case a legal entity, who is registered as a small scale industrial undertaking and has missed the time period of 180 days under Section 8 of the Act of 2006 to apply for and obtain registration can still apply for and obtain registration under the Act of 2006, in the event, such a legal entity, satisfies the parameters laid down under the Act of 2006 for its registration. Petitioner did not place any provision of the Act of 2006 debarring such legal entity to apply for and obtain registration under the Act of 2006 notwithstanding the expiry of a period of 180 days from the date of the Act of 2006 coming into force. A small scale enterprise existing prior to the Act of 2006 coming into force is not debarred from applying and obtaining registration under the Act of 2006 after expiry of 180 days from the date of the Act of 2006 coming into force.
In the facts of the present case, there exists a registration in favour of the respondent no.3. As rightly pointed out on behalf of the respondent no.3, the registration of the respondent no.3 is not under challenge in the present writ petition. The Court, therefore, proceeds on the basis of that, the registration of the respondent no.3 under the Act of 2006 is valid.
GE T & D India Limited (supra) considers an award passed by the Council in a proceeding under Section 34 of the Arbitration and Conciliation Act, 1996. It considers Section 8 of the Act of 2006. It is of the view that, Section 8 envisages two possible situations; (i) unit which has not come into existence and (ii) the unit is in existence. It notes that, the Act of 2006 is not such that, unit established after the commencement of the Act, cannot seek registration as a supplier.
There being a registration of the respondent no.3 under the Act of 2006. The respondent no.3 is entitled to approach the Council established under the Act of 10 2006 for realization of its claim from the debtor. It is for the Council in conciliation and for the Arbitrator, if the claim reaches the stage of Arbitration under the Act of 2006, to pronounce on the validity, legality and quantum of the claim of the parties.
In the facts of the present case, the Council tried to conciliate between the parties in terms of the Act of 2006. The petitioner raised an objection thereto. Such objection was considered and rejected by the Council by the writing dated June 17, 2019. The writing dated June 17, 2019 records that, the Council heard the parties on March 19, 2019 and arrived at the conclusion that, the parties are not interested in conciliation. Therefore, it decided to terminate the conciliation and refer the case under Section 18(3) of the Act of 2006 to the Delhi International Arbitration Centre for initiating arbitration proceedings in terms of the Act of 1996. It is entitled to do so. There is no material irregularity in the Council acting in the manner as noted above warranting an interference by a Writ Court.
It is the contention of the petitioner that, the writing dated June 17, 2019 does not contain any reason. With respect, the Council after hearing the parties formed the opinion that, the parties before it are not interested in conciliation. Even today, the parties do not exhibit any intention of conciliation. Therefore, no infirmity can be attributed to the writing dated June 17, 2019 particularly on the ground that, the writing dated June 17, 2019 does not contain any reason.
In the impugned writing dated June 25, 2019 which is a step after the writing dated June 17, 2019, the Deputy Commissioner of Industries forwarded the relevant documents to the Delhi International Arbitration Centre for arbitration. Again the Council cannot be faulted on such score.
In view of the discussions above, I find no merit in the present writ petition. W. P. No.17659 (W) of 2019 is dismissed.
11There will be no order as to costs.
Urgent certified website copies of this judgment and order, if applied for, be made available to the parties upon compliance of the requisite formalities.
[DEBANGSU BASAK, J.]