Allahabad High Court
State Of U.P. And Another vs M/S Jindal Concrete Udhyog on 20 December, 2024
Author: Rohit Ranjan Agarwal
Bench: Rohit Ranjan Agarwal
HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Neutral Citation No. - 2024:AHC:199378 Reserved on 04.12.2024 Delivered on 20.12.2024 Court No. - 9 Case :- MATTERS UNDER ARTICLE 227 No. - 4053 of 2017 Petitioner :- State of U.P. And Another Respondent :- M/S Jindal Concrete Udhyog Counsel for Petitioner :- C.S.C. Counsel for Respondent :- Rama Goel Bansal,S.C. Hon'ble Rohit Ranjan Agarwal,J.
1. The claimant-respondent M/s Jindal Concrete Udhyog had supplied pipe etc. to the provincial division of Public Works Department, Mathura. A reference under Section 18 of Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter called as "Act of 2006") was moved by the claimant-respondent claiming a sum of Rs.2,78,480/- as principal amount and Rs.3,58,096 as interest till date of filing of claim petition, totalling Rs.6,36,576.63, and further claimed interest at the rate of 18% on the amount from the date of filing of claim petition before U.P. State Micro and Small Enterprises Facilitation Council, Kanpur, which was registered as Claim Petition No.28 of 2008, till date of actual recovery.
2. After contest from the State side, final award was made on 03.08.2011 making a final award of Rs.2,78,480/- as principal and Rs.7,47,795.86 as interest upto 14.12.2010 totalling Rs.10,26,275.86 in favour of the claimant.
3. The State filed application under Section 34(1)(3) of Arbitration and Conciliation Act, 1996 (hereinafter called as "Act of 1996") challenging the award before the District Judge, Mathura. An application under Section 9 read with Section 34(4) of Act of 1996 was also filed by the State on 15.09.2011. The claimant filed objection on 18.10.2011 objecting that 75% of the awarded amount was not deposited, hence, proceedings were not maintainable in view of Section 19 of the Act of 2006. On 08.11.2012, an application was moved by the State seeking further time for making deposit. The said application was rejected on 8.11.2012 on the ground that earlier, on 3.10.2012, time had already been granted to the State to comply the mandatory provisions of Section 19 of the Act of 2006 but it failed to do so and thus, the application seeking extension of time as well as objections under Section 34 were rejected.
4. On 30.9.2014, funds were sanctioned by the State Government which led to filing of a recall application by the State on 16.12.2014 for recalling its order dated 08.11.2012 and permitting to deposit 75% of the awarded amount. An application under Section 5 of Limitation Act was also filed for condoning the delay in making recall application. The claimant-respondent contested the recall application as well as delay condonation application and filed its objection. By the order impugned dated 23.02.2017, the application for condonation of delay has been rejected, hence, this writ petition.
5. Learned State counsel submitted that dispute relates to supply made by the claimant-respondent for the period between 2002 to 2004. Act of 2006 came into force on 02.10.2006 and thus the goods supplied prior to enforcement of Act of 2006 cannot be claimed in proceedings under Section 18 of Act of 2006. He then contended that the word 'entertained' as implied under Section 19 of Act of 2006 means, 'when effective adjudication is done'. According to him, only the application under Section 34 of Act of 1996 was filed for setting aside the award, which has to be read in consonance with Section 19, and, pre-deposit of 75% of the awarded amount would be prior to entertainment of the application filed under Section 34. In the instant case, the Court below was not justified in refusing to grant extension of time for making pre-deposit. It was only on 30.10.2012 that the time was granted and as the pre-deposit could not be made, the Court, on the very next date i.e. 08.11.2012, proceeded to reject the application seeking extension of time along with application under Section 34 of the Act of 1996. He has relied upon decisions rendered in Goodyear India Limited vs. Norton Intech Rubbers Private Limited and Anr. (2012) 6 SCC 345; Snehadeep Structures Private Limited vs. Maharashtra Small Scale Industries Development Corporation Limited (2010) 3 SCC 34; Gujarat State Disaster Management Authority vs. Aska Equipments Limited (2022) 1 SCC 61; Appeal under Section 37 of Arbitration and Conciliation Act 1996 No.161 of 2024 (Ganga Prasad Memorial Trust and another vs. DHK Eduserve Limited) decided on 29.04.2024; judgment of Delhi High Court in O.M.P. (COMM) No.144 of 2019 (Indian Oil Corporation Limited vs. FEPL Engineering (P) Limited & Anr.) decided on 21.10.2019; Arcelor Mittal Nippon Steel India Limited vs. Essar Bulk Terminal Limited (2022) 1 SCC 712; judgment of Division Bench of this Court in Appeal under Section 37 of Arbitration and Conciliation Act 1996 No.29 of 2024 (M/s Docket Care Systems vs. M/s Hariwill Electronics India Pvt. Ltd.) decided on 19.04.2024 and judgment of Apex Court in Civil Appeal No.6555 of 2022 (Bajaj Auto Limited vs. Ajanta Press and Mechanical Works & Ors.) decided on 13.09.2022.
6. Smt. Rama Goel Bansal, learned counsel appearing for claimant-respondent submitted that provisions of Section 19 are mandatory and deposit of 75% of the awarded amount was to be made before the objections under Section 34 were heard. According to her, opportunity was provided by the Court on 03.10.2012 for making pre-deposit of 75% of the awarded amount, but, the State failed to comply the order. As the Court below was not convinced with the prayer made by the State, its objections were rejected on 08.11.2012. According to her, the petitioner has an alternative remedy of filing an appeal under Section 37 of the Act of 1996 and the writ petition under Article 227 of Constitution of India is not maintainable. Reliance has been placed upon a decision of Apex Court rendered in Bhavan Construction vs. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. & Anr. AIR Online 2021 SC 6 and decision rendered by Apex Court in Pathapati Subba Reddy (Died) by Lrs & Ors. vs. The Special Deputy Collector 2024 INSC 286. She lastly contended that the Act of 2006 has been enacted with an object for speedy resolution of disputes. On every stage, there is a time limitation which has to be adhered to by the parties and non compliance would only lead to dismissal of the claim.
7. In the instant case, there had been delay due to procedural approval by the State which led to dismissal of the application. She lastly contended that the Apex Court had made strict observation for speedy disposal of case in case of Rahul S. Shah vs. Jinendra Kumar Ghandhi (2021) 6 SCC 418.
8. I have heard the respective counsel for the parties and perused the material on record.
9. The short controversy engaging attention of this Court is, "whether the Court below could have closed opportunity of the State of making mandatory pre-deposit of 75% of the awarded amount once there was failure on the part of State to deposit the amount in view of order dated 03.10.2012 and no extension of time could have been given leading to dismissal of the application under Section 34 of the Act of 1996 ?"
10. The issue in regard to mandatory deposit of 75% of the awarded amount under Section 19 of the Act of 2006 had been under consideration of Apex Court right since the year 2010. In Snehadeep Structures Private Limited (supra) the Apex Court, in depth, dealt with Section 19 of the Act of 2006 and in paras 59 to 65 of the judgment held as under :
"59. Section 19 of the 2006 Act reads as follows:
"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."
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.
60. While the learned counsel for the appellant Company urged that the legislature had used the terms "appeal" and "application" interchangeably, we are of the view that we cannot conclusively infer the same. Use of the term "application" appears to be in the context of the dispute resolution mechanism provided for under Section 17 (sic Section 18) 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 2006 Act. Indeed, it might have contemplated a change in the legal position while enacting the 2006 Act, 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.
61. The learned counsel for the appellant Company further contended that when there is doubt about the meaning of a word appearing in legislation, the interpretation that harmonises the object and purpose of the object of the statute should be adopted, rather than the one which renders the legislation a futility. (See Nokes v. Doncaster Amalgamated Collieries Ltd. [1940 AC 1014 : (1940) 3 All ER 549 (HL)], Supdt. and Remembrancer of Legal Affairs v. Abani Maity (1979) 4 SCC 85 .
62. The Interest Act is a beneficial piece of legislation intended to expedite timely payment of money owed to small-scale industries. Most of the contracts of supply or sale that small-scale industries enter into contain arbitration clauses. These arbitration proceedings result in an "award". If the term "appeal" is interpreted in the limited context of a "decree or order" and as excluding an application to set aside or remit such awards, the very purpose behind the enactment of the Interest Act will be defeated. We are in agreement with the learned counsel for the appellant Company in this respect.
63. According to the learned counsel for the appellant Company, if the term "appeal" is restricted to challenges launched against a decree or an order, it will effectively lead to discrimination between small-scale industries who have an award in their favour, and the ones which have procured either a decree or an order in their favour, submitted that if there is a construction that leads to the constitutionality of the provision in question, that should be adopted even if straining of language is necessary, relying on State of Kerala v. M.K. Krishnan Nair (1978) 1 SCC 552.
64. In the light of our views expressed hereinabove, we do not need to delve into the question whether Section 7 will lead to an unreasonable classification if predeposit of interest is not required before an award is challenged under Section 34 of the Arbitration Act.
65. Keeping in mind the language of Section 7, object of the legislation and the contextual meaning of the term appeal, we are, therefore, of the view that the term "appeal" appearing in Section 7 of the Interest Act should include an application under Section 34 as well. The judgment and order of the High Court shall, therefore, stand set aside and the appeal is allowed to the extent indicated above. The respondent Corporation shall make a deposit of 75% of the amount awarded by the learned arbitrator by his award dated 30-6-2003 in court where the application for setting aside the award is now pending decision. Such deposit shall be made within three months from this date. In the event, such deposit is made the court shall decide the application for setting aside the award filed under Section 34 of the Arbitration Act as expeditiously as possible preferably within six months from the date of deposit by the Corporation."
11. In Goodyear India Limited (supra) the Apex Court extended the time for making pre-deposit in regard to Section 19 of the Act of 2006. Relevant paras 11 and 12 of the judgment are extracted hereasunder :
"11. Having considered the submissions made, both on behalf of the petitioner and on behalf of the respondents, we do not see any reason to interfere with the views expressed, both by the learned Single Judge, as also the Division Bench with regard to Section 19 of the 2006 Act. It may not be out of place to mention that the provisions of Section 19 of the 2006 Act, had been challenged before the Kerala High Court in Kerala SRTC v. Union of India (2010) 1 KLT 65 , where the same submissions were negated and, subsequently, the matter also came up to this Court, when the special leave petitions were dismissed, with leave to make the predeposit in the cases involved, within an extended period of ten weeks. We may also indicate that the expression "in the manner directed by such court" would, in our view, indicate the discretion given to the court to allow the predeposit to be made, if felt necessary, in instalments.
12. Having regard to the above, we are not inclined to entertain the special leave petitions filed by M/s Goodyear India Ltd. and the same are, accordingly, dismissed. However, in keeping with the other decisions rendered in these cases, we extend the time for predeposit by the petitioner, by a further period of twelve weeks. If such deposit is made, the appeal shall be treated to be in order and, thereafter, the same may be proceeded with."
12. In Gujarat State Disaster Management Authority (supra), the Apex Court considering both the above judgments granted time for making pre-deposit. Relevant paras 13 to 15 of the judgments are extracted hereasunder :
"13. On a plain/fair reading of Section 19 of the MSME Act, 2006, reproduced hereinabove, at the time/before entertaining the application for setting aside the award made under Section 34 of the Arbitration and Conciliation Act, the appellant-applicant has to deposit 75% of the amount in terms of the award as a pre-deposit. The requirement of deposit of 75% of the amount in terms of the award as a pre-deposit is mandatory. However, at the same time, considering the hardship which may be projected before the appellate court and if the appellate court is satisfied that there shall be undue hardship caused to the appellant-applicant to deposit 75% of the awarded amount as a pre-deposit at a time, the court may allow the pre-deposit to be made in instalments.
14. An identical question came to be considered by this Court in Goodyear (India) Ltd. v. Norton Intech Rubbers (P) Ltd., (2012) 6 SCC 345. In paras 10 and 11, this Court observed and held as under : (SCC pp. 347-48) "10. In his submissions, Mr Ramachandran has referred to the various decisions, all of which, however, are in the context of enactments in which discretion has been left to the appellate body to either waive or reduce the amount of pre-deposit, which factor is absent in the present case. In support of his contention, however, he referred to and relied upon the decision of this Court in Snehadeep Structures (P) Ltd. v. Maharashtra Small-Scale Industries Development Corpn. Ltd. (2010) 3 SCC 34 wherein while considering the question as to whether an application under Section 34 of the Arbitration and Conciliation Act, 1996, could be treated to be an appeal, a question incidentally arose as to whether if the same was to be treated as an appeal, would it be necessary to comply with the provisions of Section 19 of the 2006 Act. Their Lordships observed that the provision, no doubt, requires pre-deposit to be made before an application under Section 34 of the Arbitration Act is filed, but that they were not inclined to read that provision into the provision in question. The facts of the said case are different from the facts of this case and it would be difficult to import the ratio of the decision in the above case into the facts of this case.
11. Having considered the submissions made, both on behalf of the petitioner and on behalf of the respondents, we do not see any reason to interfere with the views expressed, both by the learned Single Judge, as also the Division Bench with regard to Section 19 of the 2006 Act. It may not be out of place to mention that the provisions of Section 19 of the 2006 Act, had been challenged before the Kerala High Court in Kerala SRTC v. Union of India (2010) 1 KLT 65, where the same submissions were negated and, subsequently, the matter also came up to this Court, when the special leave petitions were dismissed, with leave to make the pre-deposit in the cases involved, within an extended period of ten weeks. We may also indicate that the expression "in the manner directed by such court" would, in our view, indicate the discretion given to the court to allow the pre-deposit to be made, if felt necessary, in instalments."
15. In view of the above and considering the language used in Section 19 of the MSME Act, 2006 and the object and purpose of providing deposit of 75% of the awarded amount as a pre-deposit while preferring the application/appeal for setting aside the award, it has to be held that the requirement of deposit of 75% of the awarded amount as a pre-deposit is mandatory. Therefore, as such, both the High Court as well as the learned Additional District Judge (Commercial), Dehradun were justified in directing the appellant to deposit 75% of the awarded amount as a pre-deposit."
13. In M/s Docket Care Systems (supra) the Division Bench of this Court had also extended time for making pre-deposit of 75% of the awarded amount so that the application under Section 34 is heard.
14. The Delhi High Court in O.M.P. (Comm) 11 of 2023 (Central University of Jharkhand vs. M/s King Furnishing & Safe Co.) decided on 22.02.2024 held that there is no bar in filing a petition under Section 34 of Act of 1996. It can be filed without pre-deposit of 75% of the awarded amount. However, the said petition will not be entertained without deposit of 75% of the awarded amount. Thus, the Court had distinguished the two situation i.e. one, filing of a petition under Section 34, and, another is of its entertainment. According the Court, the petition could only be entertained when pre-deposit of 75% of the awarded amount was made.
15. Here, in the instant case, the Court below on 08.11.2012 has rejected not only the application seeking extension of time for making pre-deposit but also on the same date has rejected the application under Section 34 on the ground that once the time was granted on 03.10.2012 for making pre-deposit, which the petitioners have failed, thus both the applications filed for seeking extension of time as well as application under Section 34 was rejected.
16. It is an admitted case that in 2014 the State had deposited 75% of the awarded amount through draft along with a recall application as well as delay condonation application for recalling the order dated 8.11.2012. The pre-deposit of 75% of the awarded amount has already been withdrawn by the claimant-respondent, but, the Court below has rejected the delay condonation application which, in consequence, led to dismissal of recall application.
17. In Silpi Industries and others vs. Kerala State Road Transport Corporation and another (2021) 18 SCC 790, the Apex Court held that in order to seek benefits of provision under Act of 2006, the seller should have registered under the provisions of the Act, as on the date of entering into the contract. In any event, for the supplies pursuant to the contract made before the registration of the unit under the provisions of Act of 2006, no benefit can be sought by such entity, as contemplated under the Act of 2006. Relevant paras 42 and 43 of the judgment are extracted hereas under :
"42. Though the appellant claims the benefit of provisions under the Msmed Act, on the ground that the appellant was also supplying as on the date of making the claim, as provided under Section 8 of the Msmed Act, but same is not based on any acceptable material. The appellant, in support of its case placed reliance on a judgment of the Delhi High Court in GE T&D India Ltd. v. Reliable Engg. Projects & Mktg. 2017 SCC OnLine Del 6978, but the said case is clearly distinguishable on facts as much as in the said case, the supplies continued even after registration of entity under Section 8 of the Act. In the present case, undisputed position is that the supplies were concluded prior to registration of supplier. The said judgment of the Delhi High Court relied on by the appellant also would not render any assistance in support of the case of the appellant. In our view, to seek the benefit of provisions under the Msmed Act, the seller should have registered under the provisions of the Act, as on the date of entering into the contract. In any event, for the supplies pursuant to the contract made before the registration of the unit under provisions of the Msmed Act, no benefit can be sought by such entity, as contemplated under the Msmed Act.
43. While interpreting the provisions of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, this Court, in the judgment in Shanti Conductors (P) Ltd. v. Assam SEB, (2019) 19 SCC 529 has held that date of supply of goods/services can be taken as the relevant date, as opposed to date on which contract for supply was entered, for applicability of the aforesaid Act. Even applying the said ratio also, the appellant is not entitled to seek the benefit of the Act. There is no acceptable material to show that, supply of goods has taken place or any services were rendered, subsequent to registration of the appellant as the unit under the Msmed Act, 2006. By taking recourse to filing memorandum under sub-section (1) of Section 8 of the Act, subsequent to entering into contract and supply of goods and services, one cannot assume the legal status of being classified under the Msmed Act, 2006, as an enterprise, to claim the benefit retrospectively from the date on which the appellant entered into contract with the respondent."
18. The entire thrust by the State was that supply of goods was made between 2002 and 2004. Act of 2006 came into effect from 02.10.2006. The question, which needs adjudication is as to whether reference made under Section 18 at the behest of the claimant-respondent is maintainable or not before the Facilitation Council as the entire supply was made prior to enforcement of Act of 2006.
19. Section 8(1) of Act of 2006 provides for filing of memorandum of micro, small and medium enterprises for those entrepreneurs who wants to establish them. Proviso to Section 8(1) states that any person who, before the commencement of the Act, had already established a small scale industry and obtained a registration certificate; and 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, shall within one hundred and eighty days from the commencement of this Act file the memorandum. Relevant Section 8(1) of Act of 2006 is extracted hereas under :
"8. Memorandum of micro, small and medium enterprises. (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 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."
20. Thus, the question as to the applicability of Act of 2006 and validity of the award made by Facilitation Council in the year 2011 is still matter to be considered in proceedings under Section 34 of Act of 1996.
21. By the orders impugned, the doors for effective adjudication on merits has been closed down by the Courts below. The time for making pre-deposit of 75% of the awarded amount was granted once on 03.10.2012 and the Court below should have taken a lenient view as the matter was not being adjudicated nor any interim order was operating and time should have been extended so as to enable the State to have made the pre-deposit before the application under Section 34 was entertained and heard.
22. This Court finds that the very basis of the award made in the year 2011 has been assailed on the ground of competence of the Facilitation Council for entertaining it as the Act does not postulate any situation for entertaining and resolving any dispute for supplies made prior to enforcement of Act of 2006. The only saving is the proviso to Section 8(1) of Act of 2006.
23. In Silpi Industries and others (supra) the Apex Court had in clear terms held that no benefit can be sought by such entity which was not registered before the contract was entered between the parties.
24. In such a situation, I find that the matter needs to be heard on merit and State be directed to comply the mandatory provisions of Section 19 making a pre-deposit of 75% to the awarded amount by extending the time, as has been done by Hon'ble Apex Court in case of Goodyear India Limited (supra), Snehadeep Structures Private Limited (supra) and Gujarat State Disaster Management Authority (supra).
25. Thus, looking to the facts of the case that award was made in the year 2011 for an amount of Rs.10,26,275.86, almost thirteen years have elapsed and the matter could not be heard on merit despite Rs.7,69,707/- has been deposited by the State and withdrawn by the claimant-respondent in the year 2014, to balance the equity, the State is hereby directed to deposit Rs.20,00,000/- within one month from today, which the claimant-respondent would be entitled to withdraw and the matter would be heard by the Court below on merits.
26. In view of the above, the order dated 08.11.2012 rejecting application seeking extension of time along with application under Section 34 of Act of 1996 as well as order dated 23.02.2017 rejecting delay condonation application as well as recall application are hereby set aside. The matter is remitted back to the District Judge, Mathura to hear the application filed by the petitioner-State under Section 34 of Act of 1996 subject to deposit of Rs.20,00,000/- (Rupees Twenty Lakhs only) within a period of one month from today. In case of default by the State in making deposit of the aforesaid amount within the stipulated time, the orders passed by the Court below would stand revived.
27. The entire exercise shall be carried out by the District Judge, post deposit by the State, within a period of three month.
28. In the result, the writ petition succeeds in part.
Order Date :- 20.12.2024 Kushal