Gujarat High Court
Saryu Plastics Pvt Ltd & vs Gujarat Water Supply And Sewerage Board on 11 September, 2017
Equivalent citations: AIR 2018 GUJARAT 57
Author: Akil Kureshi
Bench: Akil Kureshi, Biren Vaishnav
C/SCA/12769/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 12769 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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SARYU PLASTICS PVT LTD & 1....Petitioner(s)
Versus
GUJARAT WATER SUPPLY AND SEWERAGE BOARD....Respondent(s)
==========================================================
Appearance:
MR ANSHIN DESAI, SENIOR COUNSEL WITH MR NL RAMNANI,
ADVOCATE for the Petitioner(s) No. 1 - 2
MR KH BAXI, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
Date : 8 & 11/09/2017
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ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Looking to the controversy involved we have heard learned counsels for the parties for final disposal of the petition at the admission stage itself.
2. Petitioner no. 1 is a company registered under the Companies Act and is engaged in the business of manufacture and supply of UPVC pipes. The petitioner is a Small Scale Industrial Unit ('SSI' for short) registered with the competent authority of the State. The petitioner has challenged a judgement dated 22.05.2017 passed by the learned Judge, Commercial Court, Ahmedabad allowing application Ex. 28 of the present respondent - Gujarat Water Supply and Sewerage Board ('the Board' for short) seeking waiver of the requirement of depositing 75% of the amount awarded by the Arbitrator which award has been challenged by the Board before the learned Judge.
3. The challenge arises in the following factual background:
3.1 The petitioner had supplied UPVC pipes to the respondent Board as per its requirement under a contract awarded by the Board. Multiple disputes between the petitioner company and the Board arose. To resolve such disputes, the parties entered into an arbitration agreement under which the Board appointed one Mr. K.J. Wadher, retired Chief Engineer of the Board as the Sole Arbitrator. The Arbitrator passed his award on 27.10.2015 directing the Page 2 of 30 HC-NIC Page 2 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT Board to pay the following amounts to the petitioner :
"(c) The Respondent is directed to pay following amounts to the Claimant :
Amount As Claimed Amount as Amount As Total Claimed Claimed Claim i.e. Claim Amount as Interest awarded accrued on Principal + Principal claimed amount Interest up to 27-10- 2015
Rs. Rs. Rs.
Release all our 84,46,103/- Simple interest Please
outstanding at the rate of workout
payments 1.5 times the
79,98,361/- prime lending
rates of SBI up
to date of award
Escalation 21,99,157/- Simple interest Please
payments due to at the rate of workout
extension of 1.5 times the
Supply period by 21,99,157/- prime lending
the respondent rates of SBI up
in Kheralu dvn. to date of award
Compensation of 24,04,21,990 NOT CONSIDERED losses due to blacklisting Nil Cost of legal and 5,00,000 NOT CONSIDERED. BOTH administrative THE PARTIES TO BEAR proceedings Nil THEIR OWN COST carried out by claimant during pre Arbitration period Cost of present 2,00,000/- BOTH THE PARTIES TO Arbitration BEAR THEIR OWN COST Nil After declaration of award, If payment is delayed for the amount of awarded sum and interest payable, the same shall be paid at the rate of one and half times the prime lending Page 3 of 30 HC-NIC Page 3 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT rate of SBI per annum to be compounded monthly becomes payable to the claimant up to the date of actual payment."
3.2 Since there was some anomaly in the last column in the box below clause (c) noted above, the Arbitrator passed an order correcting the award on 08.11.2015 as per which the table at sub para (c) at page 54 of the award would be substituted by the following :
Amount as Interest Amount Total
Claimed As Awarded Award
Claim Amount
Amount as accrued on i.e.
awarded awarded
Principal amount up to Principal +
27-10-2015 Interest
(Please workout
Rs. the Amount)
Rs. Rs.
Release all our 84,46,103/- Simple interest Please
outstanding at the rate of workout
payments 1.5 times the
79,98,361/- prime lending
rates of SBI up
to date of award
Escalation 21,99,157/- Simple interest Please
payments due to at the rate of workout
extension of 1.5 times the
Supply period by 21,99,157/- prime lending
the respondent rates of SBI up
in Kheralu dvn. to date of award
Compensation of 24,04,21,990 NOT CONSIDERED losses due to blacklisting Nil Cost of legal and 5,00,000 NOT CONSIDERED. BOTH administrative THE PARTIES TO BEAR proceedings Nil THEIR OWN COST carried out by claimant during pre Arbitration Page 4 of 30 HC-NIC Page 4 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT period Cost of present 2,00,000/- BOTH THE PARTIES TO Arbitration BEAR THEIR OWN COST Nil 3.3 The Board challenged the said award by filing application before the District Court, Gandhinagar which upon the establishment of Commercial Court at Ahmedabad was transferred before the said court. In such proceedings, the Board filed application Ex. 28 and prayed that the Board be spared the requirement of depositing 75% of the awarded amount for the following reasons:
"1) The applicant is required to deposit 75% of the award amount as per law. Howeer on close observation of the award the operative part of which is produced herewith and mark annexure - 1 shows that final column of the table were the items are total claim i.e. principal + interest. In item no.
1 claim regarding claim no. 1 saryu plastic claim from the board the claim is Rs.79,98,361/- and the observation is "please workout". Similarly, in item no. 2 escalation payment due to extension of supply period by the respondent in Kheralu Division, the amount is Rs.21,99,157/-. The observation is "worked out". Under this cirucmstances, the final amount of claim is incalculable and also requires scrutiny of very huge bundles of vouchers etc. In absence of the exact amount therefore it difficult to deposit the amount due to uncertainty of 75% of the total amount, even the said amount does not give clear picture as to what is the final amount of the award.
2) It is also important to bring to the notice of the Hon'ble court the payments made to claimant which is produce herewith and mark as annexure
-2. However the said amount has been granted in the award though nothing remains to be paid on the ground which is acknowledge by the claimant hence the said amount is required to be deducted Page 5 of 30 HC-NIC Page 5 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT from the total claim. This is only one illustration and detail verification and scrutiny is required.
3) Further the claimant himself by letters dtd.28/05/1999 copy of which is produced herewith and mark as annexure-3. Clearly shows that the claimant will not claim on the ground of prize escalation. Under this circumstances it is not possible to make the payment there of."
3.4 The petitioner filed reply to the said application Ex. 28 on 22.03.2017 and pointed out that the Arbitrator has modified the award on 08.11.2015 providing necessary corrections. There is therefore no ambiguity in the award. The statute mandates that 75% of the awarded amount must be deposited when such award is challenged. In short, the petitioner requested that the application Ex. 28 of the Board be rejected.
3.5 The Board filed a rejoinder affidavit dated 13.04.2017 and took up the contention that the award in question was not passed by the Micro and Small Enterprise Facilitation Council ('the Council' for short) and that therefore the requirement of pre-deposit of 75% contained in section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 ('the Act of 2006' for short) would not apply. It was also contended that as per the recent decision of the High Court in case of Principal Chief Engineer vs. M/s. Manibhai And Brothers (Sleeper) & Another reported in 2016(4) GLR 3349, any such dispute would necessarily have to be resolved as provided in section 18 of the Act which was not done in the present case.
3.6 Before the learned Commercial Court Judge, the
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petitioner relied on a judgement of the Single Judge in case of JMC Projects (India) Limited vs. Mech Tech Engineers dated 10.01.2011 taking a view that in case of award involving Micro, Small or Medium Enterprise, challenged under section 34 of the Arbitration and Conciliation Act, 1996 ('the Act of 1996' for short) before the Civil Court, 75% of the awarded amount shall have to be deposited before the court. It was pointed out that the judgement of the learned Single Judge was confirmed by the Division Bench in the Letters Patent Appeal. The further developments of the Supreme Court in the said litigation were also brought to the notice of the learned Judge on behalf of the Board, however, it was contended that the award was passed by a private Arbitrator appointed by the parties and not as referred to in section 18 of the Act of 2006. The requirement of pre-deposit therefore would not apply. It was also argued that section 19 of the Act would not be applicable to an application under section 34 of the Arbitration Act.
3.7 The learned trial Judge accepted the stand of the Board. He came to the conclusion that the award in the present case being by a private Arbitrator, section 19 of the Act of 2006 would not apply. There would, therefore, be no requirement of pre-deposit. Learned Judge was of the opinion of the Supreme Court had set aside the view of the High Court in case of JMC (supra). The petitioner had also relied on the judgement of Supreme Court in case of Snehadeep Structures Private Limited vs. Maharashtra Small-Scale Industries Development Corporation Limited reported in (2010) 3 SCC 34. The learned Judge was of the opinion that the said judgement would not apply.
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4. It is against this judgement that the petitioner has filed this petition. Relevant facts are not in dispute. The petitioner and the Board having run into disputes in the course of the petitioner supplying UPVC pipes to the Board, the parties agreed to resort to arbitration. A retired engineer of the Board was appointed as the Sole Arbitrator. This was thus clearly not an arbitration proceedings after following the procedure laid down under section 18 of the Act of 2006 to which we shall make a detailed reference later. Though the Board had initially based its application Ex. 28 on the ground that the award of the Arbitrator was not possible of implementation, seems to have given up such a contention in view of the correction provided by the Arbitrator in his order dated 08.11.2015. To close this controversy, we may recall that in the original award declared by the Arbitrator on 27.10.2015 in the last column being payments to be made by the Board, the title was Total Claim i.e. Principal + Interest, whereas, while correcting this award this title was substituted by "Total Award Amount i.e. Principal + Interest". Whatever ambiguity may have been therefore in the original award, the same was cured by way of this amendment.
5. In that view of the matter, we would have to deal with the Board's contentions against the applicability of the requirement of pre-deposit. This objection of the Board seems to be based on two contentions. One is that the award under challenge before the trial court is one passed by an Arbitrator privately appointed by the parties and not as per section 18 of the Act of 2006. The second contention is that the requirement of pre-deposit would not apply when the Page 8 of 30 HC-NIC Page 8 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT challenge to the award is made under section 34 of the Arbitration and Conciliation Act, 1996. An incidental contention of the Board also is that the only procedure for dissolving the dispute in the present case would be as provided under section 18 of the Act of 2006 as held by this court in case of Manibhai and Brothers (supra).
6. From the statement of objects and reasons for enacting the Act of 2006, it can be seen that the legislature felt that there existed no legal framework for the dynamic and vibrant sector of the company's economy. There was a need for a complete central enactment to provide for an appropriate legal frame work for this sector to facilitate its growth and development. There was a growing need to extend policy support to the small enterprises so that they are enabled to grow into medium ones and adopt better and higher technology and to remain competitive in a fast globalisation era. Like in most developed countries it is necessary that in India also the concerns of the entire small and medium enterprise sector are addressed by providing a single legal frame work. With these objectives in mind, the Act was enacted interalia to provide for:
"(k) make further improvements in the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 and making that enactment a part of the proposed legislation and to repeal that enactment."
7. With the enactment of the Act of 2006, The Interest On Delayed Payments To Small Scale And Ancillary Industrial Undertakings Act, 1993 (hereinafter referred to as 'the Act of Page 9 of 30 HC-NIC Page 9 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT 1993') was repealed. The Act of 1993 was framed "to provide for and regulate the payment of interest on delayed payments to small scale and ancillary industrial undertaking and for matters connected therewith or incidental thereto". Statement of objects and reasons for enactment of the Act of 1993 records that it was felt that prompt payments of money by buyers should be statutorily ensured and mandatory provisions for payment of interest on the outstanding money, in case of default, should be made. It was felt that the buyers, if required under law to pay interest, would refrain from withholding payments to small scale and ancillary industrial undertakings. With these objects in mind, the Act of 1993 was enacted. The Act of 1993 was further amended by the Amendment Act 23 of 1998 with the object of making the Act more effective for ensuring timely payments to small scale and ancillary industrial undertakings. Section 3 of the Act of 1993 provides for liability of buyer to make payment to the supplier (that is an ancillary industrial undertaking or a small scale industrial undertaking holding a permanent registration certificate under the Act) of any goods or services within certain time period. Section 4 provided that if no such payment is made within the time specified under section 3, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, the buyer shall be liable to pay interest to the supplier at one and a half time of Prime Lending Rate charged by the State Bank of India. Section 5 of the Act of 1993 provided that such interest shall be compound interest (with monthly interests). Sub-section (1) of section 6 of the Act 1993, permitted the supplier to recover such interest amount by way of a suit or other proceedings under law. Sub-section Page 10 of 30 HC-NIC Page 10 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT (2) of section 6 permitted any party to dispute to make a reference to Industrial Facilitation Council as constituted under section of the Act seeking arbitration or conciliation. Section 7 of the Act of 1993 pertained to requirement of pre- deposit in case of any appeal against decree, award or other order. Section 7 of the repealed Act of 1993 reads as under:
"7. Appeal - No appeal against any decree, award or other order shall be entertained by any court or other authority 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, other order in the manner directed by such court or, as the case may be, such authority."
8. Section 15 of the Act of 2006 pertains to the liability of a buyer to make payment. Section 16 of the Act imposes the liability on a buyer to pay interest to a supplier at the prescribed rates if such amount is not paid as required under section 15. Section 18 of the Act of 2006 was enacted for reference to Micro and Small Enterprises Facilitation Council and reads as under:
"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 Page 11 of 30 HC-NIC Page 11 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT 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."
8.1 Section 19 pertains to application for setting aside decree, award and order and reads as under:
"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 Page 12 of 30 HC-NIC Page 12 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT 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."
8.2 Section 23 of the Act provides that notwithstanding anything contained in the Income Tax Act, 1961, the amount of interest paid by any buyer under or in accordance with the provisions of the Act shall not be allowed as a deduction for the purpose of computation of the income under the Income Tax Act. Section 24 of the Act provides that provisions of sections 15 to 23 shall have effect notwithstanding anything in consistent therewith contained in any other law for the time being in force.
9. A situation very similar to the present one came up for consideration by the learned Single Judge of this court in case of JMC Projects (supra). It was also a case where the award of the Arbitrator was challenged under section 34 of the Arbitration Act. It was a private arbitration and not one envisaged under section 18 of the Arbitration Act of 2006. The contention was therefore raised that the requirement of pre-deposit as provided under section 19 of the Act would not apply in such a case. In this background, the learned Single Judge held and observed as under:
"8. This brings me to the central question, namely, whether in the facts of the present case, requirement of pre-deposit contained in section 19 of the Act of 2006 would apply. Precise contention of the petitioners is that such a requirement would arise only in case where any decree, award or order has been made either by the Council or by Page 13 of 30 HC-NIC Page 13 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT any institution or center to which a reference has been made by the Council. In the present case, the award was passed neither by the Council nor on a reference made by the Council.
*** ***
10. The Act of 2006 was 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". In the statement of objects and reasons, it is recorded that -
"The world over, the emphasis has now been shifted from "industries" to "enterprises". Added to this, a growing need is being felt to extend policy support for the small enterprises so that they are enabled to grow into medium ones, adopt better and higher levels of technology and achieve higher productivity to remain competitive in a fast globalisation area. Thus, as in most developed and many developing countries, it is necessary that in India too, the concerns of the entire small and medium enterprises sector are addressed and the sector is provided with a single legal framework. As of now, the medium industry or enterprise is ot even defined in any law."
*** *** ***
11. Above statutory provisions are required to be interpreted in the background of the facts on hand. While I attempt to do so, I find it necessary to refer to the decision of the Apex Court in the case of Snehadeep Structures Pvt. Ltd. (supra). The said case arose under the Act of 1993. The appellant Company before the Supreme Court was a small scale industrial undertaking. Disputes between the appellant and the respondent were referred to an Arbitrator. Retired Judge of the Bombay High Court acted as the Sole Arbitrator and rendered his award directing the respondent Corporation to pay a sum of Rs.78,19,540.73 to the appellant Page 14 of 30 HC-NIC Page 14 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT Company. Such award was challenged by the respondent Corporation before the Bombay High Court by filing an application under section 34 of the Arbitration and Conciliation Act. In such proceedings, the appellant company resorted to section 7 of the Act of 1993 and insisted that the Corporation must deposit 75% of the amount awarded in the award. Single Judge of the Bombay High Court dismissed the application under section 34 of the Arbitration and Conciliation Act holding that section 7 of the Act of 1993 would apply. Division Bench of the Bombay High Court relying upon the word 'appeal' used in section 7 of the Act of 1993 upheld the contention of the Corporation that application under section 34 of the Arbitration and Conciliation Act would not come within the purview of such expression. As a passing reference, it appears that the Bench also opined that the provisions of section 19 of the Act of 2006 would not apply since the said Act was promulgated in the year 2006 i.e. after the Single Judge heard the challenge in terms of section 7 of the Act of 1993. It was in this background that the Apex Court considered the following question :
"Whether the expression 'appeal' used in Section 7 of the Interest Act includes an application to set aside the arbitral award filed under Section 34 of the Arbitration Act, 1996 ?"
The Apex Court in this connection held and observed as under :
"42. Further, if the word 'appeal' is not construed as including an application under Section 34 of the Arbitration Act, we are afraid that it would render the term 'award' redundant and the requirement of pre-deposit a total nullity with respect to all cases where a small scale industry undertaking preferred arbitral proceedings, prior to the incorporation of the reference procedure in 1998. Arbitration necessarily has to result in an award. The only way of challenging an award in a court, in accordance with Section 5 read with the opening clause of Section 34, is by filing an application under the latter section. If such challenge is not construed as Page 15 of 30 HC-NIC Page 15 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT an 'appeal', the requirement of pre-deposit of interest before the buyer challenging an award passed against him, becomes a total nullity. The fact that an order passed on such application/challenge under Section 34 is appealable under Section 37 is of no consequence. As the learned counsel for the appellant company rightly argued, such appeal is filed against an order passed by the court under Section 34, not against an award passed against the buyer and in favour of the small scale industry undertaking. In all cases where the small scale industry undertaking enters into arbitration proceedings to obtain payment of interest, if we limit the requirement of pre-deposit to appeal under Section 37, therefore, we will be rendering the term 'award' a nullity, which we are not empowered to do. The requirement of pre- deposit of interest is introduced as a disincentive to prevent dilatory tactics employed by the buyers against whom the small scale industry might have procured an award, just as in cases of a decree or order. Presumably, the legislative intent behind Section 7 was to target buyers, who, only with the end of pushing off the ultimate event of payment to the small scale industry undertaking, institute challenges against the award/decree/order passed against them. Such buyers cannot be allowed to challenge arbitral awards indiscriminately, especially when the section requires pre-deposit of 75% interest even when appeal is preferred against an award, as distinguished from an order or decree." (emphasize supplied).
Referring to section 19 of the Act of 2006, the Apex Court observed as under :
"55. The provision, no doubt, requires the deposit to be made before an application under Section 34 of the Arbitration Act is filed. However, we are not inclined to read this provision of a subsequent legislation into the provision in question. While the learned counsel for the appellant company urged that the legislature had used the terms 'appeal' and Page 16 of 30 HC-NIC Page 16 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT 'application' interchangeably, we are of the view that we cannot conclusively infer the same. Use of the terms 'application' appears to be in the context of the dispute resolution mechanism provided for under Section 17(sic.SEction18) which essentially comprises of conciliation and arbitration, to be governed by the Arbitration Act, 1996. The legislature has intended to bring about improvements to the Interest Act as stated in the statement of Objects and Reasons of the Act of 2006. Indeed, it might have contemplated a change in the legal position while enacting the Act of 2006, but we cannot make that change apply retrospectively. In this respect, we agree with the reasoning of the High Court and with the contentions of learned counsel for the respondents as we cannot read the provision of a subsequent enactment into an Act which was repealed by the former."
12. From the above discussion, it can be seen that in the case of Snehadeep Structures Pvt. Ltd. (supra), the Apex Court was not directly dealing with the applicability of section 19 of the Act of 2006 and the case was arising only under section 7 of the Act of 1993. However, certain observations made by the Apex Court in the said judgment would be useful for addressing the present controversy also.
13. As already noted, the Act of 2006 aims at providing further improvements in the Act of 1993. With that aim in mind, the entire Chapter V containing provisions of section 15 to 25 have been made in the Act of 2006 and resultantly, the Act of 1993 has been repealed. Such provisions when perused would manifest the legislative intent of ensuring prompt payments to micro and small industries from the buyers who have been supplied the goods or rendered services. Provisions contained include setting out time limit for making such payments, payment of compound interest at a specified rate if such time limit is not adhered to. To discourage withholding of such payments and to make it less attractive, interest on such delayed Page 17 of 30 HC-NIC Page 17 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT payment is not made deductible from the computation of income under the Income Tax Act, 1961.
14. Section 18 of the Act of 2006, as can be seen from the perusal of the same, provides for resolution of dispute regarding such payments by Micro and Small Enterprises Facilitation Council. The Council is authorized to conduct conciliation itself or refer the same to any center providing for alternate dispute resolution services. Council also is authorized to arbitrate and render its award. It is true, as pointed by the counsel for the petitioners, that section 19 of the Act providing for pre-deposit immediately succeeds section 18 of the Act of 2006 which principally provides for conciliation or arbitration by the Micro and Small Industries Facilitation Council or any institution or center providing alternate dispute resolution to which reference may be made by the Council. However, plain language of section 19 would not permit restriction of its applicability only in case of award envisaged under section 18 of the Act. Section 19 in clear terms provides that no application for setting aside any decree, award or other order made either by Council or by any institution or center providing alternate dispute resolution services to which reference has been made by the Council shall be entertained without deposit of 75% of the amount in terms of decree, award or order.
15. I am unable to uphold the contention of the Counsel for the petitioners that section 19 would apply only in case of award passed by the Council or any institute or center to which reference is made by the Council. If such an interpretation is accepted, the term decree in section 19 would be rendered redundant since neither the Council nor any institution or center to which reference would be made by the Council would be passing a decree. As already noted, section 18 pertains to procedure for conciliation or arbitration to be undertaken either by the Council or by any center or institution to which reference may be made by the Council.
16. In the case of Snehadeep Structures Pvt. Ltd.
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(supra), the Apex Court interpreted the term 'appeal' used in section 7 of the Act of 1993 to include even an application for setting aside an arbitral award under section 34 of the Arbitration and Conciliation Act observing that legislative intent behind section 7 was to target buyers, who, not only with the end of pushing off the ultimate event of payment to the small scale industry undertaking, institute challenges against the award/decree/order/ passed against them and such buyers cannot be allowed to challenge arbitral awards indiscriminately, especially when the section requires pre-deposit of 75% interest even when the appeal is preferred against an award, as distinguished from an order or decree.
17. It may be recalled that besides other objects, the Act of 2006 was enacted to make further improvements in the Act of 1993. Keeping this view in mind, as noted earlier, provisions contained in section Chapter V have been made in the Act of 2006 to provide for detailed machinery to ensure speedy recovery of dues of suppliers of goods or services which are micro or small enterprises. Such legislative intent cannot be thwarted by reading section 19 of the Act of 2006 as to apply only in case of challenge to award or order passed either by the Council itself or by the institution or center to which reference was made by the Council. In my opinion, section 19 would apply in all cases where buyer is facing order for payment made in favour of supplier of goods or provider of services which is a micro or small enterprise when an application is made challenging such decree, award or order."
10. The judgement of the Single Judge was challenged before the Division Bench in Letters Patent Appeal No. 194 of 2011. The Letters Patent Appeal was dismissed with costs upon which the losing party approached the Supreme Court. The Supreme Court initially passed an order on 01.11.2013 which was later on by order dated 02.12.2013 modified and provided as under :
Page 19 of 30HC-NIC Page 19 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT "The appellant shall deposit Rs.25/- lakhs before the learned Additional District Judge, Ahmedabad (Rural) by 20th December, 2013. The same shall be kept in a Fixed Deposit till the proceedings are over. Quite apart from that, Two lakhs shall be paid to the Respondents towards costs, within the said period. Thereafter, the learned Additional District Judge shall be well advised to deal with all the contentions including the applicability of the Enterprises Development Act and dispose of the mater by end of February, 2014."
11. It can thus be seen that in the SLP also, the Supreme Court insisted that the amount of pre-deposit be made good. Effectively, so far as the parties to the said litigation are concerned, the judgement of the learned Single Judge as upheld by the Division Bench worked itself out. The said order of the Supreme Court cannot be seen to be confirming the ratio of the judgement in case of JCM Projects (supra) nor can it be seen to be reversing the said judgement of the High Court.
12. As noted, the entire issue in a case where the relevant facts were identical to the present case, this court had already undertaken a detailed exercise and come to the conclusion that the requirement of pre-deposit provided under section 19 of the Act of 2006 would apply even when the award of the Arbitrator is not one passed in view of section 18 of the Act but by an Arbitrator jointly appointed by the parties. Three factors principally weighed with the court. One was that the Act of 2006 was enacted interalia with the object of making further improvements in the Act of 1993 and to repeal the old. Section 7 of the Act of 1993 had a similar provision for pre-
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deposit providing that no appeal against any decree, award or other order shall be entertained by any court or other authority unless the appellant not being a supplier, has deposited 75% of the amount in terms of the decree, award or the order in the manner as directed by the court or the authority. The court relied upon the judgement of the Supreme Court in case of Snehadeep Structures Private Limited (supra) in which in the context of a challenge to the arbitral award under section 34 of the Arbitration Act, Section 7 of the Act of 1993 came up for consideration. In this context the Supreme Court opined as under:
"46. Further, if the word 'appeal' is not construed as including an application under Section 34 of Arbitration Act, we are afraid that it would render the term 'award' redundant and the requirement of pre-deposit a total nullity with respect to all cases where a Small Scale Industry undertaking preferred arbitral proceedings, prior to the incorporation of the reference procedure in 1998. Arbitration necessarily has to result in an award. The only way of challenging an award in a Court, in accordance with Section 5 read with the opening clause of Section 34 is filing an application under the latter section. If such challenge is not construed as an 'appeal', the requirement of pre- deposit of interest before the buyer challenging an award passed against him, becomes a total nullity. The fact that an order passed on such application/challenge under Section 34 is appealable under Section 37 is of no consequence. As the learned Counsel for the appellant company rightly argued, such appeal is filed against an order passed by the Court under Section 34, not against an award passed against the buyer and in favour of the Small Scale Industry undertaking. In all cases where the Small Scale Industry undertaking enters into arbitration proceedings to obtain payment of interest, if we limit the requirement of pre-deposit to appeal under Section 37, therefore, we will be Page 21 of 30 HC-NIC Page 21 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT rendering the term 'award' a nullity, which we are not empowered to do.
47. The requirement of pre-deposit of interest is introduced as a disincentive to prevent dilatory tactics employed by the buyers against whom the Small Scale Industry might have procured an award, just as in cases of a decree or order. Presumably, the legislative intent behind Section 7 was to target buyers, who, only with the end of pushing off the ultimate event of payment to the small scale industry undertaking, institute challenges against the award /decree/order passed against them. Such buyers cannot be allowed to challenge arbitral awards indiscriminately, especially when the section requires pre-deposit of 75% interest even when appeal is preferred against an award, as distinguished from an order or decree.
49. We have already stated that the term 'appeal' does not always indicate a process where all questions of fact and law can be re-agitated. We have already seen that various Courts have held even a revision petition to be an 'appeal', keeping in mind the object of the legislation."
13. The second aspect which weighed with this court in case of JMC Projects (Supra) was that under section 19 of the Act of 2006, the legislature has used the expression "no application for setting aside any decree, award or other order". If, therefore, the applicability of section 19 of the Act is confined to the award passed by the council or a body referred to by the council in terms of section 18 of the Act, the word decree used in section 19 would be rendered otiose.
14. The third reason which weighed with the court was that looking to the objects and reasons for which the Act of 2006 was enacted, particularly, to make further improvements in Page 22 of 30 HC-NIC Page 22 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT the Act of 1993, the legislative intent had to be given its effect which perhaps would fail if section 19 of the Act of 2006 were to be applied only in case of challenge to an award or order passed either by the Council itself or by the institution or center to which the reference may have been made by the Council under section 18.
15. The judgement of the Supreme Court in case of Snehadeep Structures Private Limited (supra) should conclude the controversy insofar as the applicability of Section 19 to an application for challenge of section 34 of the Arbitration Act is concerned. Quite apart from the fact that in the context of Section 7 of the Act of 1993 the Supreme Court conclusively so held, referring to section 19 of the Act of 2006, the Court observed as under:
"This provision, no doubt, requires the deposit to be made before an application under Section 34 of the Arbitration Act is filed. However, we are not inclined to read this provision of a subsequent legislation into the provision in question."
16. In the context of the requirement of pre-deposit under section 19 of the Act when an award passed by an Arbitrator in a Micro, Small or Medium Enterprise without the aid of the mechanism provided under section 18 of the Act, we have given our independent thought and concurred with the view which was expressed by this court in case of JMC Projects (Supra). We may add, if the applicability of Section 19 of the Act of 2006 is confined to the arbitration award in terms of Section 18, the purchaser from a Micro, Small or Medium enterprise would insist on private arbitration and frustrate the provisions of Section 19. The legislature recognises that such Page 23 of 30 HC-NIC Page 23 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT enterprises require protection against exploitation. Entire legislative intent will frustrate if given narrow interpretation to Section 19 in addition to rendering reference to a "decree" in the said section otiose. The Act of 2006 was enacted to make further improvements in the Act of 1993. Section 7 of the Act of 1993 provided that no appeal against any decree, award or other order shall be entertained by any court or other authority without depositing 75% of the amount in terms of such decree, award or order. Thus, Section 7 of the Act of 1993 was worded very widely. If the Act of 2006 was enacted for making further improvements in the old Act, narrow interpretation of Section 19 will frustrate this purpose. When the legislative intent is clear, the court may travel beyond the literal language used in the section to give effect to the true purpose of the statute.
17. The contention that it was not open to the parties to resort to such arbitration and that the only mode to resolve the dispute is one provided in Section 18 of the Act of 2006 would not detain us from allowing the petition for the reasons and conclusions recorded above.
11.09.2017
18. In case of Manibhai and Brothers (supra), on which reliance was placed by the counsel for the Board, facts were that between the contractor who was a registered Small Scale Entrepreneur and the Railway Authorities, there were disputes in the process of the contractor executing the contract for supply of sleepers to the Railway Authorities. According to the Railways, the contractor failed to supply the Page 24 of 30 HC-NIC Page 24 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT requisite number of sleepers giving rise to the Railways' claim of cost of such sleepers. The contractor had raised claim of liquidated damages. The contractor submitted an application before the Council under section 18 of the Act claiming recovery of a sum of Rs.1.19 crores (rounded off) by way of liquidated damages with interest. After initial conciliation, the Council declared the award on 21.08.2010 which was challenged by the Railway Authority before the High Court by filing Special Civil Application. The learned Judge dismissed the writ petition upon which the Railways preferred Letters Patent Appeal. Before the Division Bench, the Railways pointed out that an application under section 8 of the Arbitration and Conciliation Act, 1996 was filed before the Council which was not decided. The Division Bench with the consent of learned advocates for the parties remanded the matter to the Council. The counsel for the parties agreed that the conciliation proceedings before the Council should be treated to have failed and the matter should proceed further for arbitration. The Council in such proceedings rejected the Railways' application under section 8 of the Act to refer the dispute for arbitration to the Arbitral Tribunal. This order of the Railway administration was challenged before the High Court by filing First Appeal. The High Court by the said judgement dismissed the appeal holding that the Act of 2006 is a special Act and the provisions of Sections 15 to 23 of the Act shall have effect notwithstanding anything inconsistent contained in any other law for the time being in force and therefore section 18 of the Act would have over-riding effect on any other law including the Arbitration and Conciliation Act, 1996. The court was of the opinion that if there is any dispute between the parties governed by the Act of 2006, such Page 25 of 30 HC-NIC Page 25 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT dispute would be resolved only through the procedure as provided in section 18 of the Act. It was further observed that considering section 18 of the Act, after conciliation has failed as per section 18(2), thereafter in terms of sub-section (3) of section 18, where 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 Alternative Dispute Resolution services for such arbitration. In the case on hand, after unsuccessful conciliation which was conducted as per sub-section (2) of section 18, the Council would have jurisdiction to take up dispute for arbitration and therefore once the Council had acted as an arbitrator in that case, the Council thereafter had no authority to entertain the application under section 8 of the Arbitration and Conciliation Act, 1996.
19. The ratio of the said decision must be understood in the background of the facts of the case. As noted, it was a case where the contractor had already initiated the proceedings before the Council by filing application for recovery of the liquidated damages from the Railways. The council had also undertaken conciliation proceedings which as per the agreement between the parties before the High Court were deemed to have failed. It was in this background, the court held that the only further step available would be as provided in sub-section 3 of section 18 of the Act of 2006, for either the council itself to hold arbitration or to refer it to any institution or centre providing Alternate Dispute Resolution service. The decision of this court cannot be seen as laying down the proposition that where the parties, one of whom may be a Page 26 of 30 HC-NIC Page 26 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT Small, Medium or Micro enterprise had agreed to resort to arbitration in case of disputes arising between the parties through private arbitration, such agreement would stand overruled by force of section 18 read with section 24 of the Act of 2006, more particularly, when acting under such arbitration agreement both sides had voluntarily submitted the disputes to a private arbitrator.
20. In this context, we may refer to the decision of the Division Bench of the Bombay High Court in case of M/s. Steel Authority of India Ltd. and Another vs. Micro, Small Enterprise Facilitation Council, through Joint Director of Industries, Nagpur Region, Nagpur reported in AIR 2012 Bombay 178. It was a case where one M/s. Vidarbha Ceramics Pvt. Limited had supplied certain goods to Steel Authority of India (SAIL). Vidarbha Ceramics, the seller was a micro, small or medium enterprise. The agreement between the parties contained an arbitration clause. SAIL raised disputes about the quality of the materials supplied by Vidarbha Ceramics. The supplier thereupon invoked the arbitration clause and proposed to appoint a retired judge as an Arbitrator. SAIL, however, invoked clause 23 of the contract and appointed another person as an Arbitrator who issued a notice to the supplier to submit the claim. The supplier instead of filing the claim raised an objection that the arbitration be conducted only by the person suggested by the respondent or else the disputes should be referred to the Council under the Act of 2006. SAIL refused to accept such a request upon which the supplier filed a reference before the Council under section 18 of the Act to which SAIL raised an objection that the Council cannot entertain such a reference.
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The issue thereupon reached the Bombay High Court at the hands of SAIL who allowed the petition holding that by operation of sections 15 to 23 of the Act of 2006, the arbitration agreement between the parties would not be rendered ineffective. The overriding effect provided under section 24 of the Act would apply only when any law or agreement is inconsistent with any of the provisions contained in sections 15 to 23 of the Act. The court held as under:
"11. Having considered the matter, we find that Section 18 (1) of the Act, in terms allows any party to a dispute relating to the amount due under Section 17 i.e. an amount due and payable by buyer to seller; to approach the facilitation Council. It is rightly contended by Mrs. Dangre, the learned Addl. Government Pleader, that there can be variety of disputes between the parties such as about the date of acceptance of the goods or the deemed day of acceptance, about schedule of supplies etc. because of which a buyer may have a strong objection to the bills raised by the supplier in which case a buyer must be considered eligible to approach the Council. We find that Section 18(1) clearly allows any party to a dispute namely a buyer and a supplier to make reference to the Council. However, the question is; what would be the next step after such a reference is made, when an arbitration agreement exists between the parties or not. We find that there is no provision in the Act, which negates or renders an arbitration agreement entered into between the parties ineffective. Moreover, Section 24 of the Act, which is enacted to give an overriding effect to the provisions of Section 15 to 23 including section 18, which provides for forum for resolution of the dispute under the Act would not have the effect of negating an arbitration agreement since that section overrides only such things that are inconsistent with Section 15 to 23 including Section 18 notwithstanding anything contained in any other law for the time being in force. Section Page 28 of 30 HC-NIC Page 28 of 30 Created On Sun Oct 01 17:49:46 IST 2017 C/SCA/12769/2017 JUDGMENT 18(3) of the Act in terms provides that where conciliation before the Council is not successful, the Council may itself take the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution and that the provisions of the Arbitration and Conciliation Act, 1996 shall thus apply to the disputes as an arbitration in pursuance of arbitration agreement referred to in Section 7 (1) of the Arbitration and Conciliation Act, 1996. This procedure for arbitration and conciliation is precisely the procedure under which all arbitration agreements are dealt with. We, thus find that it cannot be said that because Section 18 provides for a forum of arbitration an independent arbitration agreement entered into between the parties will cease to have effect. There is no question of an independent arbitration agreement ceasing to have any effect because the overriding clause only overrides things inconsistent therewith and there is no inconsistency between an arbitration conducted by the Council under Section 18 and arbitration conducted under an individual clause since both are governed by the provision of the Arbitration Act, 1996."
21. Quite apart from this controversy, there is yet another sound reason why this contention of the respondent Board cannot be accepted. In the present case, both sides agreed to submit all the disputes for arbitration to the Sole Arbitrator jointly appointed by them. The Board thus was a willing participant in the abritral proceedings and had voluntarily submitted to the jurisdiction of the Arbitrator. At a much belated stage now, the Board cannot resile from such a situation and contend that the very proceedings before the Arbitrator were invalid since the sole mode of resolution of the disputes would be as provided under section 18 of the Act of 2006.
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22. In the result, the petition is allowed. The impugned
order of the learned Judge, Commercial Court, Ahmedabad is set aside. The respondent Board shall deposit 75% of the amount awarded by the Arbitrator under the award which is in challenge before the Commercial Court. This shall be done latest by 30.11.2017. The amount once deposited before the court shall be governed by the order that the learned Judge in-charge of the proceedings may pass. Petition is disposed of.
(AKIL KURESHI, J.) (BIREN VAISHNAV, J.) divya Page 30 of 30 HC-NIC Page 30 of 30 Created On Sun Oct 01 17:49:46 IST 2017