Madras High Court
Director General Of Police vs M/S.A.R. Polymers Pvt. Ltd on 16 October, 2019
Author: Senthilkumar Ramamoorthy
Bench: Senthilkumar Ramamoorthy
O.P.No.505 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Judgment reserved on 26.09.2019
Judgment pronounced on 16.10.2019
CORAM
THE HONOURABLE Mr.JUSTICE SENTHILKUMAR RAMAMOORTHY
O.P.No.505 of 2019
and
Application No.8641 of 2018
Director General of Police
Police Headquarters,
Tamil Nadu Police, Mylapore,
Chennai-600 004. ... Petitioner
vs.
M/s.A.R. Polymers Pvt. Ltd.,
105, Chandralok Complex,
26/72-D, Birhana Road,
Kanpur - 208 001. ... Respondent
Prayer:- Original Petition is filed under Section 34 of the Arbitration and
Conciliation Act, 1996 to set aside the Ex-Parte Award dated 31.05.2018
passed by the UP State Micro and Small Enterprises Facilitation Council,
Kanpur, Directorate of Industries, UP, Kanpur in Claim No.35/2015.
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For Petitioner : Mr.P.H.Aravind Pandian
Additional Advocate General
Assisted by Mr. S.Jaganathan
Government Advocate(CS)
For Respondents : M/s.Geeta Sharma
for Mr.Aditya Reddy
ORDER
The respondent in the Arbitration Proceeding is the Petitioner before this Court. The Petitioner issued a letter of procurement dated 4 th January 2013 in respect of the procurement of boots and shoes by the Petitioner. Pursuant thereto, an agreement for the supply of boots and shoes was entered into on 1 March 2013 between the Petitioner and the Respondent herein(the Agreement). The Agreement specified the quantity of goods and the time within which such goods should be supplied. According to the Petitioner, the Agreement specified that the Petitioner would be the sole judge of the quality of goods and as to whether such goods were supplied in accordance with the time limits set out in the procurement letters. The Petitioner further states that it is entitled to terminate the Agreement if the Respondent commits breach of the Agreement. According to the Respondent, goods were supplied by the Respondent herein on the basis of a purchase order dated 08.03.2013 and part payment of Rs.15,27,816/- was made by the Petitioner leaving a balance of Rs.19,01,779/-. On the contrary, the case of the Petitioner is that the said http://www.judis.nic.in 2 of 17 O.P.No.505 of 2019 goods were rejected on account of poor quality by letter dated 3rd October 2013 on the basis of an inspection conducted on 17 September 2013. After issuing letters threatening cancellation/termination of the Agreement, by letter dated 31 July 2014, the Petitioner cancelled the Agreement and the purchase order on account of failure to adhere to the terms of the Agreement and the purchase orders. Thereafter, a dispute arose between the parties with regard to payment for supplies made by the Respondent. The said dispute was referred by the Respondent to the UP State Micro and Small Enterprises Facilitation Council, Kanpur (the Facilitation Council) for dispute resolution.
2.In the said proceeding, the Respondent claimed a sum of Rs.19,01,779/- from the Petitioner. After recording that the conciliation proceedings between the parties failed, the Facilitation Council acted as the Arbitral Tribunal and pronounced the Arbitral Award dated 14.06.2018 (the Award) whereby the Petitioner was directed to pay the Respondent an aggregate sum of Rs.37,80,225.95, which comprises the principal sum of Rs. 17,30,300/- and Rs.20,49,925.95 as interest. The said Award is challenged herein.
3.Mr.P.H.Arvind Pandian, the learned Additional Advocate General(AAG) appeared for the Petitioner. He contended that the Award is http://www.judis.nic.in 3 of 17 O.P.No.505 of 2019 liable to be set aside for several reasons. The first contention was that the Petitioner did not receive notice from the Facilitation Council prior to the notice by email on 12.09.2016. Upon receipt of the notice by email on 12.09.2016, the Petitioner, by letter dated 15.09.2016, informed the Facilitation Council that it is not possible to attend the hearing scheduled on 15.09.2016 and, therefore, requested that the hearing be adjourned by one month and also to inform the Petitioner as regards the next date of hearing. In spite of the receipt of the said reply, the learned AAG submitted that the Facilitation Council proceeded to decide the matter at the scheduled hearing by pronouncing the impugned Award.
4.His next submission was that the Facilitation Council acted contrary to the mandate of the Arbitration and Conciliation Act, 1996 (the Arbitration Act) and the Micro, Small and Medium Enterprises(Development) Act,2006(the MSMED Act). In specific, he submitted that, upon receipt of a reference, the Facilitation Council is required, as per Section 18 of the MSMED Act, to undertake conciliation, in accordance with Sections 65 to 81 of the Arbitration Act, either by itself or by taking the assistance of an institution or centre providing alternative dispute resolution for this purpose. In the event of failure of such conciliation proceedings, he submitted that it is necessary to terminate the conciliation proceedings and communicate it to both parties. In case http://www.judis.nic.in 4 of 17 O.P.No.505 of 2019 such conciliation was conducted by the Facilitation Council, he further submitted that the Facilitation Council is prohibited from conducting the arbitration as per Section 80 of the Arbitration Act. In this case, he pointed out that the Facilitation Council conducted the conciliation as reflected in the Award. However, the failure and consequent termination of such conciliation was not communicated to the Petitioner. Moreover, the Facilitation Council, thereafter, proceeded to also conduct the arbitration in breach of mandatory requirements that the arbitration should have been conducted by an institution or centre for alternative dispute resolution in the prevailing situation. In order to substantiate the above submissions, the learned AAG referred to the judgments, which are set out below along with context and principle:
(i)Ramesh Conductors P. Ltd. vs. M & SE Facilitation Council (Micro and Small Enterprises) MANU/TN/3642/2015, where, in a writ petition, this Court held that Section 18 of the MSMED Act makes it mandatory that the council shall first conduct conciliation when a reference is received and that such conciliation shall be conducted either by itself or by taking the assistance of any institution or centre providing alternative dispute resolution services. On the facts of the said case, the Court found that no conciliation proceedings were conducted and, therefore, the matter was remitted to the council for fresh consideration.
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(b)Kansai Nerolac Paints Limited vs. Prateesh Engineering Enterprises MANU/TN/0540/2017, wherein, at paragraphs 9 to 11, this Court set aside the award of the Council on the basis that the said award is non-speaking.
(c)Gujarat State Petronet Ltd. v. Micro and Small Enterprises Facilitation Council MANU/MH/2339/2018, wherein, at paragraphs 18 and 19, a Division Bench of the Bombay High Court held that it is obligatory for the Council to conduct conciliation proceedings. More importantly, at paragraph 22, it was held that once the Council acts as conciliator, it is prohibited from acting as the arbitrator upon failure of conciliation.
(d)Goodyear India Ltd. v. Norton Intec Rubber (P) Ltd. MANU/SC/1215/2012(the Goodyear India case) wherein, the Hon'ble Supreme Court dismissed the special leave petitions in respect of the pre-deposit under Section 19 of the MSMED Act but extended the time for making the pre-deposit.
By relying upon the above judgments, the learned AAG concluded his submissions by pointing out that the Award is contrary to public policy in as much as it contravenes mandatory provisions of the MSMED Act and the Arbitration Act and is also patently illegal on that account. In particular, he emphasised that the Facilitation Council should not have conducted the arbitration after having conducted conciliation proceedings. http://www.judis.nic.in 6 of 17 O.P.No.505 of 2019 Consequently, he concluded by stating that the Award is liable to be set aside for the foregoing reasons.
5.In response and to the contrary, the learned counsel for the Respondent submitted that it is false to state that the first notice that was received by the Petitioner is the notice dated 12.09.2016. On the contrary, the learned counsel pointed out that several notices were sent by the Facilitation Council to the Petitioner. In this connection, the learned counsel referred to the original and translated versions of notices dated 27.08.2015, 15.09.2015 and other notices from the typed set papers filed on 30 August 2019. On this basis, the learned counsel submitted that the Petitioner was provided sufficient opportunity to attend the proceedings before the Facilitation Council and it cannot be said that the Petitioner was unable to present its case.
6.The learned counsel further submitted that the Petitioner had not applied for a stay of the Award by filing an application under Section 36 (2) of the Arbitration Act. Therefore, it was contended that the order dated 03.07.2019 of this Court whereby a blanket stay was granted for a period of three months is beyond the scope of the pleadings and in contravention of the mandatory provisions of the MSMED Act and the Arbitration Act. In particular, the learned counsel submitted that the http://www.judis.nic.in 7 of 17 O.P.No.505 of 2019 Petitioner had not made the mandatory pre-deposit, as per Section 19 of the MSMED Act, and therefore, the Petition is not maintainable.
7.In addition, the learned counsel submitted that the submissions made before this court to the effect that conciliation proceedings were not duly terminated and communicated to the Petitioner or that the mandatory procedure prescribed under Section 80 of the Arbitration Act was not followed by the Facilitation Council are new submissions that were not made before the Facilitation Council either in writing or otherwise and were not raised in the grounds of challenge. Therefore, it was submitted that these contentions cannot be countenanced at this juncture.
8.The last submission of the learned counsel for the Respondent was that the Award is not a non-speaking award. In this regard, the learned counsel pointed out that the Facilitation Council adverted to the invoices and payment advice and, thereafter, recorded that it is apparent from the oral and documentary evidence on record that the payment for the goods supplied had not been made by the opposite party/buyer to the applicant/ supplier company under Section 15 of the MSMED Act.
9.In support of the above submissions, the learned counsel for the Respondent referred to and relied upon the judgments that set out below along with context and principle:
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(a) I.C.S.A. (India) Ltd. vs. M/s Swastik Wires, W.P. No.699 of 2015, Order dated 25.11.2016, wherein, at paragraph 27, the High Court of Chattisgarh upheld an order of the trial court rejecting a petition under Section 34 of the Arbitration Act for not complying with pre-deposit requirements under Section 19 of the MSMED Act.
(b)SGI Power Limited vs. Himachal Wire Ind. Pvt. Ltd. MANU/HP/2137/2018, wherein, at paragraph 7, the Himachal Pradesh High Court rejected a Section 34 petition for non-compliance with the pre- deposit requirements in Section 19 of the MSMED Act.
(c)State of Maharashtra vs. Hindustan Construction Company Ltd. MANU/SC/0215/2010, wherein, the Hon'ble Supreme Court held that the limitation period prescribed in Section 34(3) of the Arbitration Act cannot be extended by relying on Section 5 of the Limitation Act and also that an amendment of the grounds cannot be made at the stage of appeal under Section 37 of the Arbitration Act.
(d)Vastu Invest and Holdings Pvt. Ltd. v. Gujarat Lease Financing Ltd. MANU/MH/0105/2001, wherein, a Division Bench of the Bombay High Court upheld an order rejecting a chamber summons for amendment of the grounds of a Section 34 petition on account of the expiry of the prescribed period of limitation. In addition, the learned counsel for the Respondent also relied on the Goodyear India case, which was also relied upon by the learned AAG.
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10.The records were examined and the oral and written submissions of both sides were considered carefully. The questions that arise for consideration are whether the Award is contrary to public policy or patently illegal and also whether the Petition is liable to be rejected on account of violation of Section 19 of the MSMED Act. The first contention of the learned AAG is that the first notice that was received by the Petitioner is the notice by email on 12.09.2016 and that the request made by the Petitioner in response thereto, by reply dated 15.09.2016, to adjourn the hearing, which was scheduled on 15.09.2016, was disregarded by the Facilitation Council. Per contra, the learned counsel for the Respondent submitted that previous notices dated 27.08.2015, 16.09.2015 and 13.08.2016 were sent by the Facilitation Council. On perusal of these documents, it is clear that all these documents are in Hindi. Besides, from the English translation thereof, the first document dated 27.08.2015 appears to be a document whereby the case filed by the Respondent was taken on file but this document does not communicate the next date of hearing. The second document dated 16.09.2015 appears to be a record of the proceeding on 15.09.2015. Once again, this document does not record or convey the next date of hearing. The third document is dated 31.08.2016 and appears to be a notice for the hearing on 15.09.2016. From the submissions of the learned AAG and the documents filed by the Petitioner, it is clear that a http://www.judis.nic.in 10 of 17 O.P.No.505 of 2019 notice, in English, for the said hearing on 15.09.2016 was sent to the Petitioner by email on 12.09.2016 and this was received and responded to by the Petitioner.
11.When the above documents are examined and analysed, it is evident that all documents prior to the email dated 12.09.2016 are in Hindi, and judicial notice may be taken of the fact that it is a language that a majority of people in Tamil Nadu do not have the ability to read, write or speak. Besides, except for the notice dated 13.08.2016, these documents do not specify and communicate the next date of hearing. Even as regards the email of 12.09.2016, it does not constitute reasonable notice for a hearing at Kanpur on 15.09.2016 and, in that context, the request for an adjournment of the hearing was reasonable but the request appears to have been made on the date of hearing. Moreover, these notices are not adverted to in the Award and particulars of service of such notices/documents is not contained in the Award. Therefore, I conclude that the Petitioner was not given proper notice of the conciliation or arbitration proceedings and was, consequently, unable to present its case.
12.The second contention of the learned AAG was that the Facilitation Council should not have conducted the arbitration after http://www.judis.nic.in 11 of 17 O.P.No.505 of 2019 conducting the conciliation because of the prohibition, in this regard, in Section 80 of the Arbitration Act. Section 18 of the MSMED Act provides expressly that the provisions of Sections 65 to 81 of the Arbitration Act apply to conciliations under the MSMED Act. Therefore, there is no doubt that Section 80 of the Arbitration Act applies to the facts of this case. Section 80 (a) of the Arbitration Act reads as under:
“80.The role of conciliator in other proceedings-unless otherwise agreed by the parties,
(a) the conciliator shall not act as an arbitrator or as a representative council of the party in any arbitral or judicial proceeding in respect of a dispute that is the subject of the conciliation proceedings;”
13.In this regard, the learned counsel for the Respondent submitted that this ground was not raised in the Section 34 Petition and, therefore, should not be permitted to be raised and also relied upon the judgments in the Hindustan Construction Company case and the Vastu Invest case(both cited supra) to contend that this additional ground cannot be entertained after expiry of the prescribed limitation period. This submission is untenable because the prohibition under Section 80 is imposed on the conciliator, i.e. the Facilitation Council on the facts of this case, this ground does not turn on disputed facts and impacts the exercise of jurisdiction. As pointed out by the learned AAG, this provision was interpreted by the Division Bench of the Gujarat High http://www.judis.nic.in 12 of 17 O.P.No.505 of 2019 Court in the Gujarat State Petronet case(cited supra), in the specific context of the MSMED Act, and it was held in the last sentence of paragraph 22 that “... Once the MSEFC acts as conciliator, in view of provisions of Section 80, it is prohibited from acting as arbitrator”. I respectfully concur with this view. On perusal of the Award, there is no indication therein that the conciliation proceedings were conducted by an institution or centre providing alternative dispute resolution services. The learned counsel for the Respondent also did not raise such a contention. Therefore, it may be concluded that the Facilitation Council acted both as conciliator and arbitrator in contravention of Section 80 of the Arbitration Act.
14.The next question that arises is whether the Petition is, nevertheless, liable to be dismissed for non-compliance with Section 19 of the MSMED Act. Section 19 reads, in relevant part, 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 of centre providing alternate dispute resolution services to which reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it 75% of the amount in terms of the decree, award or, as the http://www.judis.nic.in 13 of 17 O.P.No.505 of 2019 case may be, the other order in the manner directed by such court....” In light of Section 19, as interpreted in the Goodyear India case and other cases, can it be said that this Petition is liable to be dismissed? In order to answer this question, it is necessary to examine the order of this Court dated 03.07.2019. After recording that the Facilitation Council did not follow the procedures under the Arbitration Act and the MSMED Act, this Court issued the following direction:
“if the O.P. itself is not disposed of within a period of 90 days from today (3.7.2019), the entire award amount shall be deposited in two instalments thereafter.”
15.The above order was not varied or discharged upon application by the Respondent or otherwise. Therefore, it is in force as on date. Moreover, in accordance with the above order, both parties conducted and concluded final arguments in the O.P. on 26.9.2019, i.e. within the aforesaid two-month period. In the above circumstances, the question arises as to whether Section 19 of the MSMED Act was violated by the Petitioner. From the language of Section 19, it is clear that the court is empowered to decide on the manner of deposit of 75% of the award amount. This position was affirmed by the Hon'ble Supreme Court in the Goodyear India Ltd case. As stated earlier, the Respondent did not http://www.judis.nic.in 14 of 17 O.P.No.505 of 2019 apply to vary or discharge the order dated 03.07.2019 and both parties concluded final arguments on 26.09.2019. Moreover, the Petitioner was not provided proper notice of the Arbitral Proceedings and, therefore, was unable to present its case. Further, the jurisdictional challenge to the Award on account of the bar in Section 80 of the Arbitration Act is also sustainable as held supra. Hence, notwithstanding the fact that the Petition was prosecuted without making a pre-deposit, for the above reasons and in view of the conclusions infra with regard to de novo dispute resolution, I hold that the Petition is not liable to be dismissed on this ground. To put it differently, directing a pre-deposit, at this juncture, would be an empty formality because a pre-deposit would, in any case, be subject to the outcome of the Petition and is intended to constitute security for the amount awarded until disposal of the Petition.
16.In view of the foregoing discussion and analysis, I am of the view that the Award of the Facilitation Council is liable to be set aside on two grounds. First, that the Petitioner was not given proper notice of the Arbitral Proceedings and, consequently, was unable to present its case. In effect, the Petitioner has made out a case to set aside the Award under Section 34(2)(a)(iii) of the Arbitration Act. Secondly, on the ground that the Facilitation Council contravened Section 80 of the Arbitration Act by acting as Conciliator and Arbitrator and this renders the Award patently http://www.judis.nic.in 15 of 17 O.P.No.505 of 2019 illegal because it is an error apparent on the face of the Award and goes to the root of the matter.
17.Therefore, the Award dated 31.05.2018 of the UP State Micro and Small Enterprises Facilitation Council, Kanpur, Directorate of Industries, UP, Kanpur in Claim No.35/2015 is liable to be and is hereby set aside. Nevertheless, in view of the fact that it is just and necessary to decide the dispute on merits, leave is granted to the Respondent to initiate appropriate de novo legal proceedings before the Facilitation Council or otherwise for the purpose of recovery of dues and, in such event, the Respondent shall be entitled to the benefit of Section 14 of the Limitation Act, 1963. Consequently, connected Application is closed.
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Speaking order
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Internet : Yes
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Pre Delivery order
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