Karnataka High Court
Bank Of India vs The Director on 16 February, 2023
Author: M. Nagaprasanna
Bench: M. Nagaprasanna
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 16TH DAY OF FEBRUARY, 2023
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.18879 OF 2021 (GM - RES)
BETWEEN:
BANK OF INDIA
A BODY CORPORATE CONSTITUTED
UNDER THE BANKING COMPANIES
(ACQUISITION AND TRANSFER OF
UNDERTAKINGS) ACT, 1970
HAVING ITS REGISTERED OFFICE AT
NO.C-5, STAR HOUSE, G BLOCK
BANDRA KURLA, COMPLEX BANDRA EAST
MUMBAI - 400 051
REPRESENTED BY ITS
AUTHORIZED SIGNATORY
MR. ARUNKESH S.,
HAVING OFFICE AT
BANK OF INDIA
BANGALORE ZONAL OFFICE
BANK OF INDIA BUILDING
NO.11, 1ST FLOOR, K.G.ROAD
BENGALURU - 560 009.
... PETITIONER
(BY SMT.APOORVA GURUPRASAD, ADVOCATE FOR
SRI SHREYAS JAYASIMHA, ADVOCATE)
AND:
1. THE DIRECTOR
ARBITRATION AND CONCILIATION
2
CENTRE, BENGALURU,
HAVING ITS OFFICE AT
'KHANIJA BHAVANA', NO.49,
3RD FLOOR, EAST WING
RACE COURSE ROAD,
BENGALURU - 560 001.
PHONE NO.:080-22954571
E-MAIL:[email protected]
2. THE DIRECTORATE
MICRO AND SMALL ENTERPRISES
FACILITATOR, THE MINISTRY OF
MICRO SMALL AND MEDIUM ENTERPRISE
HAVING ITS OFFICE AT
49, KHANIJA BHAVAN,
SOUTH BLOCK GROUND FLOOR,
RACE COURSE ROAD
BENGALURU - 560 001.
PHONE NO.:080 22386797
E-MAIL: [email protected]
3. KRISFOINFOTECH SOLUTIONS PRIVATE LIMITED
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956
HAVING ITS OFFICE AT
NO.619, 6TH B MAIN,
3RD PHASE, J.P.NAGAR
BENGALURU - 560 078
REPRESENTED BY ITS
AUTHORIZED SIGNATORY.
... RESPONDENTS
(BY SRI RAKESH B.BHAT, ADVOCATE FOR R-3)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
IMPUGNED ORDER DATED 18.09.2021 PASSED BY R1 AND ANY
CONSEQUENT ACTION THEREOF ANNEXURE-A.
3
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 06.02.2023, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-
ORDER
The petitioner/Bank of India ('the Bank' for short) is knocking at the doors of this Court challenging order dated 18.09.2021 passed by the 1st respondent/Director, Arbitration and Conciliation Centre, Bangalore in I & C No.27 of 2021 directing the seat of arbitration to be Bangalore.
2. The facts adumbrated are as follows:-
The petitioner, a nationalized Bank issues a notice inviting tender on 14-09-2013 for supplying, installing, commissioning and maintaining barcode based passbook printing. The 3rd respondent emerges to be the successful bidder in the tender and a purchase order was issued in favour of the 3rd respondent on 04-02-2014.
Thereafter, the Bank and the 3rd respondent enter into two 'Passbook Kiosks Installation and Maintenance' agreements dated 15-01-2014 and 14-11-2014 (hereinafter referred as 'the agreements' for short). In terms of above agreements, execution 4 of work happened from the hands of the 3rd respondent and later, both the petitioner and the 3rd respondent generate certain disputes. The merit of the dispute is not the issue in the lis. The agreements entered into supra depicted a dispute resolution mechanism between the parties in the event of any dispute that would arise on interpretation of agreements or their aftermath by referring the matter to the sole Arbitrator in terms of the Arbitration and Conciliation Act, 1996. Prior to appointment of an Arbitrator, on consensus the settlement of dispute could be resolved by mediation between the parties. Therefore, the process of dispute resolution was between the parties to mediate and try to resolve the dispute by way of such settlement through mediation or later when the mediation fails refer the matter to an Arbitrator.
3. The 3rd respondent who had a dispute with the Bank approaches the 2nd respondent/Micro and Small Enterprise Facilitator Council ('the Council' for short), for conciliation of the dispute between the parties. Conciliation was conducted between the petitioner and the 3rd respondent by the 2nd respondent in accordance with Section 18 of the Micro, Small and Medium 5 Enterprises Development Act, 2006 ('the Act' for short). No consensus was arrived at between the parties to the lis before the Council. Later the Council on failure of talks of conciliation referred the matter for arbitration to the 1st respondent/Director, Arbitration and Conciliation Centre, Bengaluru ('the Centre' for short). The Director issues a notice to suggest the name of a sole Arbitrator to be appointed by the President/Governor of the Arbitration Centre under Rule 15 of the Arbitration and Conciliation Centre Rules, 2012. It is at that juncture the petitioner has knocked at the doors of this Court in the present petition.
4. Heard Smt. Apoorva Guruprasad, learned counsel appearing for the petitioner and Sri Rakesh B.Bhatt, learned counsel appearing for respondent No.3.
5. The learned counsel for the petitioner would vehemently contend that the Centre has erred in referring the matter for arbitration to the seat at Bangalore as agreements entered into between the parties for a dispute resolution clearly directed that the seat of arbitration should be Mumbai. Once the parties have agreed for seat of arbitration/mediation, the seat of arbitration could not 6 have been changed by the Council, as the Council did not have jurisdiction to do so and agreements entered into between the parties would override the power of the Council in directing arbitration at Bengaluru. The learned counsel would further submit that she is clear in the submission that the issue in the lis is only with regard to seat of arbitration being Mumbai instead of Bengaluru. No other issue arises in the present case.
6. On the other hand, the learned counsel for the 3rd respondent would vehemently refute the submissions to contend that once the parties approach the Council, the entire issue is before the Council under Section 18 of the Act and therefore, it is the power of the Council to arbitrate itself or refer the matter to arbitration of its choice. It is here the Council refers the matter for arbitration to the Arbitration Centre at Bengaluru. It is his submission that the issue is no longer res integra and stands covered by the judgment of the Apex Court in the case of GUJARAT STATE CIVIL SUPPIES CORPORATION LIMITED v.
MAHAKALI FOODS PRIVATE LIMITED AND OTHERS1.
12022 SCC OnLine SC 1492 7
7. In reply, the learned counsel for the petitioner would contend that what is affirmed by the Apex Court is one of the judgments of Bombay High Court rendered in M/s. STEEL AUTHORITY OF INDIA LIMITED v. MICRO, SMALL ENTERPRISE FACILITATION COUNCIL2. The said judgment is unequivocal that the agreement cannot be overridden by an act of the Council in referring the dispute to arbitration at the seat of its choice and would seek that the seat of arbitration be transferred to Mumbai as is agreed between the parties.
8. I have given my anxious consideration to the submissions made by the respective learned counsel and have perused the material on record. In furtherance whereof, the only issue that falls for consideration is:
"Whether the Council was right in law in referring the matter to arbitration and the seat of arbitration to be at Bangalore contrary to the agreements entered into between the parties which depict the seat of arbitration to be Mumbai?"2
AIR 2012 Bombay 178 8
9. The afore-narrated facts are not in dispute. It would be suffice to begin with the dispute arisen between the parties. To consider the issue, it is germane to notice the dispute resolution that the petitioner and the 3rd respondent agreed in the agreements entered into on 15-01-2014 and 14-11-2014. The agreement entered into on 15-01-2014 depicts at clauses 16.2 and 16.3 the dispute resolution as follows:
"16.2 DISPUTE RESOLUTION In case of a dispute between the parties herein, the same shall be resolved by the following process:
(a) Prior to the initiation of formal proceedings, the parties shall first attempt to resolve their dispute informally by referring it to the Project Directors.
(b) Either party may submit any dispute for consideration of the Bank Project Director and Vendor Project Director by giving both the Bank Project Director and Vendor Project Director written notice of the dispute and describing the dispute in reasonable detail.
(c) Within seven (7) days after such notice, the Bank Project Director and the Vendor Project Director shall meet in person or by telephone to discuss and attempt to resolve the dispute.
(d) If the Bank Project Director and Vendor Project Director are unable to resolve the dispute at such meeting, they shall decide at such meeting whether they intend to hold further meetings or immediately escalate the dispute to the CEO, Krisfo Infotech and the General Manager- IT of Bank.9
(e) Within seven (7) days after the escalation of a dispute to the CEO, Krisfo Infotech and the General Manager - IT of Bank, they will meet in person or by telephone to discuss and attempt to resolve the dispute.
(f) If the CEO, Krisfo Infotech and the General manager -IT of Bank are unable to resolve the dispute within fifteen (15) days or three such meetings whichever is earlier, the dispute may be resolved as envisaged under Article 17.3.
16.3 ARBITRATION The parties agree that in the event of a continuing dispute between the parties in connection with this Agreement which could not be resolved through the process detailed in 16.2 above, the parties shall refer such dispute to arbitration by a single arbitrator. The arbitrator shall be chosen from such institutes like the Indian Institute of Technology/Indian Institute of Sciences/IISc/IIT-B (and shall be either Professors, Directors of such institutes) and be mutually acceptable to the parties. In case the parties fail to reach a consensus in nominating the arbitrator, then the arbitrator shall be appointed as per the provisions of the Arbitration and Conciliation Act, 1996. The arbitration proceedings shall be conducted in English. The venue of the arbitration shall be at Mumbai. The arbitration shall be held in accordance with the Arbitration and Conciliation Act, 1996. The decision of the arbitrator shall be final and binding upon the parties. The expenses of arbitration proceedings, excluding the respective counsel fees for preparation and presentation of a party's case, will be equally shared and paid by the parties unless otherwise ordered by the Arbitrator."
(Emphasis added) 10 Likewise, in the agreement entered into on 14-11-2014 the dispute resolution depicts as follows:
"16.2 DISPUTE RESOLUTION In case of a dispute between the parties herein, the same shall be resolved by the following process:
(g) Prior to the initiation of formal proceedings, the parties shall first attempt to resolve their dispute informally by referring it to the Project Directors.
(h) Either party may submit any dispute for consideration of the Bank Project Director and Vendor Project Director by giving both the Bank Project Director and Vendor Project Director written notice of the dispute and describing the dispute in reasonable detail.
(i) Within seven (7) days after such notice, the Bank Project Director and the Vendor Project Director shall meet in person or by telephone to discuss and attempt to resolve the dispute.
(j) If the Bank Project Director and Vendor Project Director are unable to resolve the dispute at such meeting, they shall decide at such meeting whether they intend to hold further meetings or immediately escalate the dispute to the CEO, Krisfo Infotech and the General Manager- IT of Bank.
(k) Within seven (7) days after the escalation of a dispute to the CEO, Krisfo Infotech and the General Manager - IT of Bank, they will meet in person or by telephone to discuss and attempt to resolve the dispute.
(l) If the CEO, Krisfo Infotech and the General manager -IT of Bank are unable to resolve the dispute within fifteen (15) days or three such meetings whichever is earlier, the dispute may be resolved as envisaged under Article 16.3.
16.3 ARBITRATION 11 The parties agree that in the event of a continuing dispute between the parties in connection with this Agreement which could not be resolved through the process detailed in 16.2 above, the parties shall refer such dispute to arbitration by a single arbitrator. The arbitrator shall be chosen from such institutes like the Indian Institute of Technology/Indian Institute of Sciences/IISc/IIT-B (and shall be either Professors, Directors of such institutes) and be mutually acceptable to the parties. In case the parties fail to reach a consensus in nominating the arbitrator, then the arbitrator shall be appointed as per the provisions of the Arbitration and Conciliation Act, 1996. The arbitration proceedings shall be conducted in English. The venue of the arbitration shall be at Mumbai. The arbitration shall be held in accordance with the Arbitration and Conciliation Act, 1996. The decision of the arbitrator shall be final and binding upon the parties. The expenses of arbitration proceedings, excluding the respective counsel fees for preparation and presentation of a party's case, will be equally shared and paid by the parties unless otherwise ordered by the Arbitrator."
(Emphasis added) One stream that runs through both these agreements qua the dispute resolution in terms of clause 16.3 is the seat of arbitration to be in Mumbai. They depict that the venue of arbitration shall be at Mumbai and shall be conducted in accordance with the Arbitration and Conciliation Act. The parties generate the dispute among themselves and in terms of the afore-extracted dispute resolution clauses, it was agreed upon to resolve the dispute by making a first attempt for mediation. Therefore, at the outset, the 12 dispute resolution mechanism was by way of mediation and on failure of mediation, arbitration.
10. Government of India promulgated the Micro, Small and Medium Enterprises Development Act, 2006 for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises on 16-06-2006. Sections 18, 20 and 21 of the Act read 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 it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the disputes as if the arbitration was in pursuance of an arbitration agreement referred to in sub-
section (1) of Section 7 of that Act.
13(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.
... ... ...
20. Establishment of Micro and Small Enterprises Facilitation Council.--The State Government shall, by notification, establish one or more Micro and Small Enterprises Facilitation Councils, at such places, exercising such jurisdiction and for such areas, as may be specified in the notification.
21. Composition of Micro and Small Enterprises Facilitation Council.--(1) The Micro and Small Enterprise Facilitation Council shall consist of not less than three but not more than five members to be appointed from amongst the following categories, namely:--
(i) Director of Industries, by whatever name called, or any other officer not below the rank of such Director, in the Department of the State Government having administrative control of the small scale industries or, as the case may be, micro, small and medium enterprises; and
(ii) one or more office-bearers or representatives of associations of micro or small industry or enterprises in the State; and
(iii) one or more representatives of banks and financial institutions lending to micro or small enterprises; or
(iv) one or more persons having special knowledge in the field of industry, finance, law, trade or commerce.
(2) The person appointed under clause (i) of sub-section (1) shall be the Chairperson of the Micro and Small Enterprises Facilitation Council.14
(3) The composition of the Micro and Small Enterprises Facilitation Council, the manner of filling vacancies of its members and the procedure to be followed in the discharge of their functions by the members shall be such as may be prescribed by the State Government."
(Emphasis supplied) Section 20 deals with establishment of Micro and Small Enterprises Facilitation Council. The provision directs that the State Government shall by notification establish one or more Facilitation Councils at such place as may be specified in the Notification.
Section 21 deals with composition of the Council. Section 18 deals with reference to Facilitation Council. The fulcrum of the issue in the lis concerns Section 18 of the Act. Section 18 of the Act mandates that notwithstanding anything contained in any other law for the time being in force, any party to a dispute, with regard to any amount due, may make a reference to the Council. On receipt of the reference, the Council shall either itself conduct conciliation or seek assistance of any institution or centre providing alternate dispute resolution services. Sub-section (3) of Section 18 mandates that when the conciliation under sub-section (2) is not successful and stands terminated without any settlement of dispute between 15 the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution for such arbitration for which provisions of the Arbitration and Conciliation Act shall apply. Sub-
section (4) mandates that notwithstanding anything contained in any other law for the time being in force, the Council will have jurisdiction to act as an Arbitrator. The entire issue now is concerning interpretation of sub-sections (2) and (3) of Section 18 of the Act.
11. The parties to the present lis in terms of the dispute they generated approached the Council. The Facilitation Council seeks to mediate between the parties for resolution of the dispute as provided under the Agreements. The talks before the Council end in a failure and then the Council refers the matter to Arbitration Centre at Bengaluru to arbitrate the dispute between the parties.
Notice is issued by the Arbitration Centre seeking consensus on appointment of a sole Arbitrator. The petitioner files its objections before the Centre on the question of maintainability of arbitration before the seat at Bengaluru. Notwithstanding the objections on maintainability, the Centre passes an order in I & C No.27 of 2021 16 leaving open the question of jurisdiction to the Arbitrator and all other contentions concerning jurisdiction were also be decided by the Arbitrator. The relevant portion of the order reads as follows:
"13. The Hon'ble Apex Court in Indian Farmers Fertilizer Co-operative Limited v. Bhadra Products in 2018 (2) SCC 534, popularly called as "IFFCO" has laid down the three tests or 3 determinables that should be considered are; (i) Whether there exists a valid Arbitration Agreement; (ii) Whether Arbitral Tribunal is properly constituted and (iii) Whether the maters are arbitrable. If the answer is in the affirmative, the question of jurisdiction will have to be decided only by the Tribunal. In view of the said decision and the well settled decision on this aspect, the question of jurisdiction is in the domain of the Arbitrator and not the authority, which appoints the Arbitrator. The question is limitation and the question of jurisdiction and such other things should be decided only by the Tribunal. In view of the same, the contention raised by the respondent with regard to jurisdiction will have to be decided by the Sole Arbitrator only. Hence, the said dispute/objection raised by the respondent is left open to be decided by the Arbitrator and hence, proceed to pass the following:
ORDER
(i) The objection about the jurisdiction is left open to be decided by the Arbitrator, who may be appointed by the Hon'ble President/Board of Governors, as the case may be.
(ii) Office is directed to communicate this order by e-mail to the Advocates for the parties and call upon them to suggest three names of Arbitrators, which is available in the Arbitration & Conciliation Centre website on or before 28-
09-2021, so that the same would be placed before the Hon'ble President/Board of Governors for appointment of Sole Arbitrator."
(Emphasis supplied) 17 It is this order that drives the petitioner to this Court. Therefore, the only issue that falls for consideration is, whether the Council could have directed the seat of arbitration to be at Bengaluru and the tenability of the order impugned passed by the Centre at Bengaluru. The law earlier was on interpreting the agreement on both ways - few of the judgments holding that the agreement could not be overridden under Section 18 of the Act and the other way.
The issue is now laid at rest by elaborate interpretation by the Apex Court in GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED (supra). In the light of the issue being dealt with in extenso, the same requires to be noticed. The Apex Court has held as follows:
"6. The MSMED Bill having been passed by both the Houses of Parliament, received the assent of the President on 16th June, 2006 and came into the Statute Book as the MSMED Act, 2006, (27 of 2006). The long title of the Act states that the said Act has been enacted to provide for facilitating the promotion and development, and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. The Act has been divided into Six Chapters, and Chapter-V pertains to the 'Delayed payments to micro and small enterprises.'
7. Some of the definitions and provisions contained in the MSMED Act, 2006 being relevant for the purpose of deciding these appeals are reproduced hereunder:--
"2. Definitions. --In this Act, unless the context otherwise requires, --18
(a) .... (b) "appointed day" means the day following immediately
after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.
Explanation. --For the purposes of this clause, --
(i) "the day of acceptance" means, --
(a) the day of the actual delivery of goods or the
rendering of services; or
(b) where any objection is made in writing by the
buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;
(ii) "the day of deemed acceptance" means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;
(c) .....
(d) "buyer" means whoever buys any goods or
receives any services from a supplier for
consideration;
(e) .....
(f) .....
(g) .....
(h) "micro enterprise" means an enterprise
classified as such under sub-clause (i) of clause
(a) or sub-clause (i) of clause (b) of sub-section (1) of section 7;
(i) .....19
(j) .....
(k) ....
(l) .....
(m) "small enterprise" means an enterprise classified as such under sub-clause (ii) of clause
(a) or sub-clause (ii) of clause (b) of sub- section (1) of section 7;
(n) "supplier" means a micro or small enterprise, which has filed a memorandum with the authority referred to in subsection (1) of section 8, and includes, --
(i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956 (1 of 1956);
(iii) any company, co-operative society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises;"
Section 8(1) pertaining to the filing of Memorandum of micro, small and medium enterprises reads as under:--
"(1) Any person who intends to establish, -
(a) a micro or small enterprise, may, at his
discretion; or
(b) a medium enterprise engaged in providing or
rendering of services may, at his discretion; or
(c) a medium enterprise engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to 20 the Industries (Development and Regulation) Act, 1951 (65 of 1951), shall file the memorandum of micro, small or, as the case may be, of medium enterprise with such authority as may be specified by the State Government under sub-section (4) or the Central Government under sub-section (3):
Provided that any person who, before the commencement of this Act, established-
(a) a small-scale industry and obtained a registration certificate, may, at his discretion; and
(b) an industry engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), having investment in plant and machinery of more than one crore rupees but not exceeding ten crore rupees and, in pursuance of the notification of the Government of India in the erstwhile Ministry of Industry (Department of Industrial Development) number S.O. 477(E), dated the 25th July, 1991 filed an Industrial Entrepreneur's Memorandum, shall within one hundred and eighty days from the commencement of this Act, file the memorandum, in accordance with the provisions of this Act."
8. Chapter-V of the MSMED Act, 2006 pertaining to the "delayed payments to micro and small enterprises" contains Sections 15 to 25, out of which Sections 15 to 20 and 24 being relevant are reproduced herein below:
"15. Liability of buyer to make payment.--Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before 21 the appointed day : Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.
16. Date from which and rate at which interest is payable.--Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from 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.
17. Recovery of amount due.--For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16.
18. Reference to Micro and Small Enterprises Facilitation Council.--
(1) Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council.
(2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act.
(3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any 22 settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the 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.
19. Application for setting aside decree, award or order--No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent. of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court :
Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose.
20. Establishment of Micro and Small Enterprises Facilitation Council.--The State Government shall, by notification, establish one or more Micro and Small Enterprises Facilitation Councils, at such places, exercising 23 such jurisdiction and for such areas, as may be specified in the notification.
21....
22.......
23......
24. Overriding effect.--The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force."
9. So far as the Arbitration Act, 1996 is concerned, its Bill, taking into account the United Nations Commission on International Trade Law (UNCITRAL) Model Law and Rules, sought to achieve following amongst other objects:--
- to comprehensively cover international and commercial arbitration and conciliation as also domestic arbitration and conciliation;
- to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes;
- to provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal.
... ... ... ...
22. Section 18 starts with a non obstante clause i.e., 'notwithstanding anything contained in any other law for the time being in force'. It means that the said provision has been enacted with the aim to supersede other laws for the time being in force.
Further a dedicated statutory forum i.e., the Micro and Small Enterprises Facilitation Council (As established under Section 20 of the MSMED Act, 2006), has been provided to which a reference could be made by any party to the dispute. Sub-section (2) of Section 18 empowers the Facilitation Council, on receipt of such reference made under sub-section (1), to conduct Conciliation in the matter or seek assistance of any institution or centre providing alternate dispute resolution services by making a reference to such 24 an institution or centre, for conducting Conciliation, as contemplated in Section 65 to 81 of the Arbitration Act, 1996. If the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council is further empowered under sub-section (3) to either itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration. The provisions of Arbitration Act, 1996 are then made applicable 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 Arbitration Act, 1996. Sub-section (4) of Section 18 again starts with a non obstante clause i.e., 'notwithstanding anything contained in any other law for the time being in force', and confers jurisdiction upon the Facilitation Council to act as an arbitrator or a conciliator in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India. Sub-section (5) of Section 18 fixes the time limit of ninety days to decide such reference. Section 19 prescribes the procedure to be followed when any application is made in the court for setting aside any decree, award or other order made either by the Council itself or by any institution or centre to which reference is made by the Council. Section 24 of the MSMED Act, 2006 states that the provisions of Section 15 to 23 shall 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 etc17. The Arbitration Act, 1996 focuses and covers the law relating to the Arbitration and Conciliation, providing for the requirements of the arbitration agreement, 25 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.
... ... ...
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 Legislative 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 the 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. Jayarajan18, 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. The submissions made on behalf of the counsel for the Buyers that a conscious omission of the word "agreement" in sub-section (1) of Section 18, which otherwise finds mention in Section 16 of the MSMED Act, 2006 implies that the arbitration agreement independently entered into between the parties as contemplated under Section 7 of the Arbitration Act, 1996 was not intended to be superseded by the provisions contained under Section 18 of 26 the MSMED Act, 2006 also cannot be accepted. A private agreement between the parties cannot obliterate the statutory provisions. Once the statutory mechanism under subsection (1) of Section 18 is triggered by any party, it would override any other agreement independently entered into between the parties, in view of the non obstante clauses contained in sub-section (1) and sub- section (4) of Section 18. The provisions of Sections 15 to 23 have also overriding effect as contemplated in Section 24 of the MSMED Act, 2006 when anything inconsistent is contained in any other law for the time being in force. It cannot be gainsaid that while interpretating a statute, if two interpretations are possible, the one which enhances the object of the Act should be preferred than the one which would frustrate the object of the Act. If submission made by the learned counsel for the buyers that the party to a dispute covered under the MSMED Act, 2006 cannot avail the remedy available under Section 18(1) of the MSMED Act, 2006 when an independent arbitration agreement between the parties exists is accepted, the very purpose of enacting the MSMED Act, 2006 would get frustrated.
28. There cannot be any disagreement to the proposition of law laid down in various decisions of this Court, relied upon by the learned counsel for the buyers that the Court has to read the agreement as it is and cannot rewrite or create a new one, and that the parties to an arbitration agreement have an autonomy to decide not only on the procedural law to be followed but also on the substantive law, however, it is equally settled legal position that no agreement entered into between the parties could be given primacy over the statutory provisions. When the Special Act i.e., MSMED Act, 2006 has been created for ensuring timely and smooth payment to the suppliers who are the micro and small enterprises, and to provide a legal framework for resolving the dispute with regard to the recovery of dues between the parties under the Act, also providing an overriding effect to the said law over any other law for the time being in force, any interpretation in derogation thereof would frustrate the very object of the Act. The submission therefore that an independent arbitration agreement entered into between the parties under the Arbitration Act, 1996 would prevail over the 27 statutory provisions of MSMED Act, 2006 cannot countenanced. As such, sub-section (1) of Section 18 of the MSMED Act, 2006 is an enabling provision which gives the party to a dispute covered under Section 17 thereof, a choice to approach the Facilitation Council, despite an arbitration agreement existing between the parties. Absence of the word 'agreement' in the said provision could neither be construed as casus omissus in the statute nor be construed as a preclusion against the party to a dispute covered under Section 17 to approach the Facilitation Council, on the ground that there is an arbitration agreement existing between the parties. In fact, it is a substantial right created in favour of the party under the said provision. It is therefore held that no party to a dispute covered under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Facilitation Council under Section 18(1) thereof, merely because there is an arbitration agreement existing between the parties.
29. The aforesaid legal position also dispels the arguments advanced on behalf of the counsel for the buyers that the Facilitation Council having acted as a Conciliator under Section 18(2) of the MSMED Act, 2006 itself cannot take up the dispute for arbitration and act as an Arbitrator. Though it is true that Section 80 of the Arbitration Act, 1996 contains a bar that the Conciliator shall not act as an Arbitrator in any arbitral proceedings in respect of a dispute that is subject of conciliation proceedings, the said bar stands superseded by the provisions contained in Section 18 read with Section 24 of the MSMED Act, 2006. As held earlier, the provisions contained in Chapter-V of the MSMED Act, 2006 have an effect overriding the provisions of the Arbitration Act, 1996. The provisions of Arbitration Act, 1996 would apply to the proceedings conducted by the Facilitation Council only after the process of conciliation initiated by the council under Section 18(2) fails and the council either itself takes up the dispute for arbitration or refers to it to any institute or centre for such arbitration as contemplated under Section 18(3) of the MSMED Act, 2006.
30. When the Facilitation Council or the institution or the centre acts as an Arbitrator, it shall have all powers to decide the disputes referred to it as if such arbitration was in pursuance of the arbitration agreement referred to in subsection (1) of Section 7 of the Arbitration Act, 1996 and then all the trappings of the 28 Arbitration Act, 1996 would apply to such arbitration. It is needless to say that such Facilitation Council/institution/centre acting as an arbitral tribunal would also be competent to rule on its own jurisdiction like any other arbitral tribunal appointed under the Arbitration Act, 1996 would have, as contemplated in Section 16 thereof.
... ... ...
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 29 the supply of goods and rendering services subsequent to the registration."
(Emphasis supplied) After summary of the judgment being drawn at paragraph 34, the Apex Court answers every case before it. The judgment at clause (VII) which arose out of the Division Bench judgment of Gujarat High Court is akin to what the issue is in the case at hand. The Apex Court holds at paragraph 28 that there cannot be any disagreement with regard to the proposition of law laid down in various decisions of this Court; that the Court has to read the agreement as it is and cannot rewrite or create a new one and that the parties to an arbitration agreement have an autonomy to decide not only on the procedural law to be followed, but also on the substantive law. The Apex Court does not stop at that. The Apex Court holds that however, it is equally settled legal position that no agreement entered into between the parties could be given primacy over statutory provisions when the Special Act i.e., MSMED Act, 2006 has been created for ensuring timely and smooth payment to suppliers. The legal frame work for resolving the dispute with regard to recovery of dues between the parties will have overriding 30 effect over any other law. Therefore, the Apex Court holds that the Council was within its power to arbitrate itself or refer the matter to arbitration after which the provisions of Arbitration and Conciliation Act would become applicable. Therefore, it cannot be said that the act of the Council was without jurisdiction.
12. The impugned order is not on deciding whether the dispute is arbitrable or the Centre at Bengaluru does not have jurisdiction to arbitrate. The order is only leaving open the objection to be decided by the Arbitrator who would be appointed by the President/Board of Governors of the Centre at Bengaluru.
Therefore, it is open to the petitioner to urge these issues before the Arbitrator and the Arbitrator deciding the issue concerning the jurisdiction at the outset. It is always open to the Arbitrator to interpret the agreements qua clause 16.3 and pass appropriate orders qua jurisdiction/seat of the Arbitration as well.
13. In view of the preceding analysis, I do not find any warrant to interfere with the impugned order which leaves open the issue of jurisdiction to be decided by the Arbitrator. Hence the 31 petition would necessarily meet its rejection and is accordingly rejected.
Sd/-
JUDGE bkp CT:MJ