Gujarat High Court
Edutest Solutions Pvt. Ltd vs Ahom Technologies Pvt. Ltd on 4 October, 2022
Author: Aravind Kumar
Bench: Aravind Kumar
C/ARBI.P/204/2021 ORDER DATED: 04/10/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/PETN. UNDER ARBITRATION ACT NO. 204 of 2021
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EDUTEST SOLUTIONS PVT. LTD.
Versus
AHOM TECHNOLOGIES PVT. LTD.
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Appearance:
SHASHVATA U SHUKLA(8069) for the Petitioner(s) No. 1
DHRUVIK K PATEL(7769) for the Respondent(s) No. 1
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CORAM:HONOURABLE THE CHIEF JUSTICE MR. JUSTICE
ARAVIND KUMAR
Date : 04/10/2022
ORAL ORDER
1. Petitioner is seeking for appointment of a sole arbitrator by invoking section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act' for short).
2. Petitioner and respondent entered into a Master Services Agreement on 25.08.2018 for developing "Computer Based Testing Software" ('CBT' for short). Petitioner paid a sum of Rs. 22,17,500/- to respondent on 26.03.2019. As agreed to under the agreement, respondent was supposed to have completed the Page 1 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 development of software by April, 2019 and the one which was provided subsequently was said to be with defects and errors. Petitioner claims to have demanded the respondent to remove the defects and it was not attended to by the respondent. Hence, petitioner is said to have made attempts to arrive at a settlement with the respondent which was not successful after having made all reasonable attempts, petitioner got issued a legal notice invoking arbitration clause 11.3 of the agreement and suggesting the name of the Arbitrator for resolving the disputes that has arisen between parties.
3. Petitioner claims that negotiations were held during December, 2019 and in one such negotiation held on 11.12.2019, respondent agreed for a new timeline to complete the contract which was not met with and immediately thereafter petitioner paid a sum of Rs. 33,40,000/- to the respondent on 19.12.2019. In order to settle the issue with the respondent, petitioner is said to have engaged a third party expert at its costs for code Page 2 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 review and technical walk-through and despite having several meetings between the respondent and the technical expert, there was no satisfactory reply received from the respondent.
4. Respondent is said to have got issued a legal notice on 07.09.2020 making certain demands resulting in a meeting being arranged on 16.09.2020, whereunder parties agreed for a fresh payment schedule on the condition that respondent would remove all the technical glitches and errors to the satisfaction of the petitioner in finalizing the CBT. Notwithstanding the same, petitioner got issued a reply notice on 17.10.2020 to the respondent to the legal notice dated 07.09.2020 by denying the contentions raised therein. Petitioner is said to have received an intimation / communication from Micro and Small Enterprises Facilitation Council, Haryana, whereunder petitioner was called upon to make payment of Rs. 1,25,69,950/- said to be the amount due from petitioner to the respondent. Petitioner is said to have Page 3 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 responded to the said notice on 22.01.2021 and placed all the relevant facts before Facilitation Council and denied the claim of the respondent. Petitioner is also said to have highlighted the payment schedule agreed to at the meeting held on 16.09.2020 which was conditional upon respondent removing the errors to the satisfaction of the petitioner and denying its liability, petitioner contended before the Council that it was not obliged to release any amount as per schedule on account of respondent having not met the terms agreed to under the meeting held on 16.09.2020.
5. Petitioner is said to have addressed a communication namely mail to Micro and Small Enterprises Facilitation Council, Haryana stating thereunder that invoice dated 21.01.2020 was never forwarded to the petitioner and it was not in receipt of the said invoice. It was further contended that respondent had suppressed vital and material facts before the Facilitation Council, Haryana that respondent had accepted that it was unable to abide Page 4 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 by the agreed timeline under the agreement. Hence, petitioner is said to have sought for rejection of the application moved by the respondent.
6. On 05.03.2021, one Shri Amit Kumar Pandey is said to have visited petitioner's office and had also called the technical team engaged by the petitioner for a joint meeting and in the course of said meeting, it was confirmed that respondent had not used the technology (such as angular, react) in developing the CBT application as agreed to under the agreement. The respondent is also said to have acknowledged in the said meeting that it had used redundant and outdated technology of PHP for development of CBT application and as such said application did not give desired results. In the said meeting Mr. Amit Kumar Pandey is said to have assured the petitioner that the latter would recreate the CBT application using the technology as agreed to under the agreement and furnish a new source code.
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7. In this background on 01.04.2021, petitioner has forwarded a legal notice to the respondent narrating the sequential events leading to alleged breach of contract by the respondent and as such demanded the respondent to refund the amount of Rs. 57,57,500/- paid by the petitioner to the respondent along with interest @ 12% per annum. Petitioner also claimed a sum of Rs. 30 crores towards business loss due to alleged negligence, breach and delay on the part of respondent. This was followed by another notice dated 28.06.2021 invoking arbitration clause 11.3 seeking appointment of an arbitrator and calling upon the respondent to concur with the name suggested in the said notice. Though by reply dated 15.07.2021, respondent replied and admitted existence of arbitration clause under the contract yet did not concur with the appointment of sole arbitrator proposed by the petitioner. Respondent also relied upon its application dated 05.01.2021 filed before the Micro Small and Medium Enterprises Development Act, Haryana (for short 'MSMED') and attempted to take umbrage under section 8 read with Page 6 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 section 18 of the said Act to stave off the claim of the petitioner for appointment of an Arbitrator.
8. On service of notice, respondent has appeared and filed its reply reiterating the contentions raised in the reply notices and admitting to the facts based on the meetings held, communications exchanged and has denied all other averments made in the petition. Specific plea of the respondent being an applicant before the MSMED to ward off the claim of the petitioner for appointment of a sole arbitrator and contended that resolution process as prescribed under the MSMED Act will have to be resorted to. On these amongst other grounds as canvased or contended in the reply-affidavit, respondent has sought for dismissal of the petition.
9. I have heard the arguments of Mr. Shasvata U. Shukla, learned counsel appearing for petitioner and Mr. Dhruvik K Patel, learned counsel appearing for respondent, who have reiterated the contentions raised, Page 7 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 pleas advanced and contentions put forth in their respective pleadings.
10. The short issue which arises for consideration in this petition is as to whether sole arbitrator requires to be appointed or not ? Agreement entered into between petitioner and respondent on 25.08.2018 (Annexure A) would disclose that there is privity of contract between the parties. Under the said agreement, the resolution of disputes between them have been agreed to be resolved as per clause 11.3 which reads under : -
"11. EXECUTION METHODLOGY 11.1 AHOM will use appropriate Agile Framework to facilitate that organizational, process and people changes necessary to support this framework.
Recommended CBT app architecture as
described below
FIGURE
11.2 Development Platform :
11.2.1 Development : We will develop the application WebApp using React, Node, Micro Services, J2EE. The App will include the features mentioned in the RFP document. Any additional feature would be charged additionally under Change Request process. We can also go for a Fix Monthly charges.
Page 8 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 11.2.2. Customization : We will offer high level of customization for the requirement of this application. Application will be multi lingual. Design of the Website will be developed by the AHOM Technologies Team on the basis of the input discussed and close by the Client. AHOM Technologies will take the approval of the design after which the technical team will implement the website.
11.3 Development Planning CET/IBT application will be delivered with below planning.
11.4 Infrastructure Setup Will take Cloud Hosting from AWS & Setup Servers & Network which will be done in 2 week."
11. Infact in the reply affidavit filed, respondent though has made an attempt to deny the right of the petitioner to press into service the arbitration clause by contending that petitioner is required to join the proceedings before the MSME Council, it does not dispute the existence of the aforesaid arbitration clause. Infact the prime defence, on which the respondent has attempted to stave off the claim of the petitioner for appointment of the Arbitrator is, that respondent is registered under the MSMED Act and as such any proceedings for resolution of the disputes requires to be undertaken as prescribed under the MSMED Act. In the instant case, undisputedly, Page 9 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 the contract was entered into on 25.08.2018 and respondent had got itself registered as an MSME Unit on 25.08.2020 i.e. much later it into entering agreement. As to whether an unit or a firm or a company registered under the MSMED Act subsequent to the contract would still be entitled to take umbrage under section 8 and 17 of the Act to ward off proceedings under the Arbitration and Conciliation Act, 1996 is an issue which is no more res integra in view of the law laid down by the Hon'ble Apex Court in the case of M/s. Silpi Industries Etc. versus Kerala State Road Transport Corporation and Anr. Etc. reported in AIR 2021 SC 5487, whereunder it came to be held as under : -
"26. Though the appellant claims the benefit of provisions under 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 the case of GE T and D India Ltd. v. Reliable Engineering Projects and Marketing, 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 Delhi High Court relied on by the appellant also would not render any Page 10 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 assistance in support of the case of the appellant. In our view, to seek the benefit of provisions under 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 MSMED Act. While interpreting the provisions of Interest on Delayed Payments to 2017 SCC OnLine Del 6978 Small Scale and Ancillary Industrial Undertakings Act, 1993, this Court, in the judgment in the case of Shanti Conductors Pvt. Ltd. & Anr. etc. v. Assam State Electricity Board & Ors. etc. 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 appellant as the unit under 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 MSMED Act, 2006, as an enterprise, to claim the benefit retrospectively from the date on which appellant entered into contract with the respondent. The appellant cannot become micro or small enterprise or supplier, to claim the benefits within the meaning of MSMED Act 2006, by submitting a memorandum (2019) 19 SCC 529 to obtain registration subsequent to entering into the contract and supply of goods and services. If any registration is obtained, same will be prospective and applies for supply of goods and services subsequent to registration but cannot operate retrospectively. Any other interpretation of the provision would lead to absurdity and confer unwarranted benefit in favour of a party not intended by legislation."
12. The principles laid down by the Hon'ble Apex Court Page 11 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 in the aforesaid judgment would squarely be applicable to the facts on hand, inasmuch as, respondent though has moved MSMED Facilitation Council for resolution of the dispute, in order to seek the benefit flowing from MSMED Act, it should have registered under the provisions of the said Act as on the date of entering into the contract. Even if it is established that subsequent to the registration, the transaction between the contracting party had continued still it may be open to the said such person to take shelter under the MSMED Act. However, if the facts obtained do disclose that there is no such transactions which had taken place after the registration under the MSMED Act, such contracting party would not be entitled to seek protection for resolution of disputes under the MSMED Act, but on the other hand, will have to necessarily to take recourse as provided under the Arbitration Act, 1996 in the light of contract entered into between them for resolution of disputes through arbitration.
13. As noticed hereinabove and at the cost of repetition, Page 12 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 the contract between petitioner and respondent having been entered into on 25.08.2018 and respondent having got itself registered under the MSMED Act on 25.08.2020, principles ennunciated by Hon'ble Apex Court in the case of M/s. Silpi Industries Etc. (supra) would squarely be applicable and as such defence set up by the respondent cannot be accepted and it stands rejected.
14. For reasons aforestated, petitioner is entitled to succeed and for the aforestated reasons, I proceed to pass following :
ORDER
(i) Petition is allowed.
(ii) Shri C.K. Thakkar, Former Judge,
Supreme Court of India, residing at :
Bungalow No. 20, Neetibaug Judges'
Cooperative Housing Society Ltd., Behind Cinemax Theatre, Opp. High Court of Gujarat, S.G. Highway, Ghatlodia, Page 13 of 14 Downloaded on : Sun Dec 25 03:20:02 IST 2022 C/ARBI.P/204/2021 ORDER DATED: 04/10/2022 Ahmedabad - 380061 is hereby appointed as sole Arbitrator to resolve the dispute between the parties in accordance with the Arbitration Centre (Domestic and International), High Court of Gujarat Rules, 2021. Both parties would also be governed by said Rules.
(iii) Registry is directed to communicate this order to the sole arbitrator forthwith by speed post.
(iv) No order as to costs.
(ARAVIND KUMAR,CJ)
AMAR SINGH
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