Orissa High Court
M/S. Adarsh Noble Corporation Limited ... vs M/S. Bridge & Roof Company (India) ... on 18 June, 2024
Author: Murahari Sri Raman
Bench: Murahari Sri Raman
IN THE HIGH COURT OF ORISSA AT CUTTACK
W.A No.1124 of 2022
M/s. Adarsh Noble Corporation Limited (earlier known as M/s.
Adarsh Corporation Private Limited), Plot No. A/61, Pallaspalli, Kargil
Road, Near Air Port, Bhubaneswar, Dist- Khurda, PIN - 751020
Represented through its Managing Director Sri Manmath Kumar
Acharya, Son of Antaryami Acharya.
...Appellant.
-Versus-
1. M/s. Bridge & Roof Company (India) Limited, a Government
of India Enterprise, having its office at 5th Floor, Kankaria Center, 2/1,
Russel Street, Kolkata-700071, West Bengal represented through
authorized Officer.
2. State of Odisha represented through its Principal Secretary,
Micro, Small & Medium Enterprises Department, Odisha Secretariat,
Sachivalaya Marg, Bhubaneswar -751001.
3. Director of Industries cum Managing Director, OSFC,
M.S.E.F.C. Industries Directorate, Killa Maidan, Buxi Bazar, Cuttack,
Odisha -753 001.
4. Directorate of Industries, Killa Maidan, Buxi Bazar, Cuttack,
Odisha -753 001.
...Respondents
W.A No.1124 of 2022 Page 1 of 30
Advocates appeared in the cases:
For the Appellant: Mr. Gouri Mohan Rath &
Mr. S.S. Padhy, Advocates
For Respondent No.1: Mr. Shiv Shankar Banerjee, Advocate
For Respondents No.2 to 4: Mr. Debakanta Mohanty, AGA
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE MURAHARI SRI RAMAN
JUDGMENT
18.06.2024 Chakradhari Sharan Singh, CJ.
1. In the present intra-Court appeal, the appellant has put to challenge an order dated 22.04.2022 passed by a learned Single Judge of this Court in W.P.(C) No.5935 of 2022.
2. Learned Single judge, by the impugned order, has quashed the entire proceeding of MSEFC Case No.68 of 2021, pending before the Micro and Small Enterprises Facilitation Council, Odisha („MSEFC, Odisha‟ in short) instituted under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 („MSMED Act‟, in short) mainly on the ground that the appellant (opposite party No.4 in the writ W.A No.1124 of 2022 Page 2 of 30 application) was registered under the MSMED Act after the award of contract by the writ petitioner (respondent No.1 herein). The learned Single Judge, by the impugned order, has allowed the writ application filed by respondent No.1 also on the ground that the MSEFC consisting of four members had commenced the arbitration proceeding, which was not permissible under the Arbitration and Conciliation Act, 1996 („1996 Act‟, in short), which stipulates an Arbitral Tribunal consisting of uneven number of members.
3. We have heard Mr. Gouri Mohan Rath along with Mr. S. S. Padhy, learned counsel appearing for the appellant, Mr. Shiv Shankar Banerjee, learned counsel for respondent No.1 and Mr. Debakanta Mohanty, learned Additional Government Advocate for respondents No.2 to 4.
4. The facts, which are not in dispute, are that respondent No.1 had awarded the appellant a work order for "Fabrication, Erection and Painting etc. of Structural Steel Work in connection with the Power Plant Area of M/s. Bhusan Energy Ltd., at Dhunkanal, Orissa". Various amendments to the original work order dated 11.06.2010 were made, the last amendment being dated 25.06.2015. It is the case of the appellant that in accordance with the said work order and its amendments, the appellant continued to supply materials and rendered services to respondent No.1 and raised periodic account bills during the years-2016, 2017 and 2018, which were paid in part. It is also the appellant‟s case that it continued to work till 10.05.2018 on which date W.A No.1124 of 2022 Page 3 of 30 the assigned work was admittedly completed, whereupon the respondent No.1 had issued completion certificate. After the completion of work, the appellant pursued respondent No.1 for release of its contractual dues including final bills arising out of the work, and issued various letters and e-mails dated 30.09.2019, 21.05.2020, 21.06.2020 and 07.08.2020, in that regard.
It is the further case of the appellant that it being a registered Small Scale Industrial Enterprise („MSME‟, in short), approached MSEFC, Odisha by making a reference under Section 18 of the MSMED Act, alleging nonpayment of the amount that was due to it (the supplier) by the respondent No.1 (the buyer), which came to be registered as MSEFC Case No.68 of 2021.
5. A notice was issued by the MSEFC to respondent No.1 in the said MSEFC Case No.68 of 2021. After receipt of the notice, and more than three years after completion of work, respondent No.1, vide letter dated 26.09.2021 invoked arbitration clause under the terms of the agreement for adjudication of its „so-called‟ claims, which were never raised earlier. Further, at no point of time, till such invocation of the arbitration clause, respondent No.1 had ever raised any demand against the appellant or had ever levied any liquidated damages or had issued any correspondence in connection with any demand whatsoever. Only after initiation of action by the appellant invoking provisions of the MSMED Act, as a counter-blast and with an oblique motive to frustrate the appellant‟s claim, invoked the arbitration. Further, after knowing about the institution of the MSEFC Case No.68 of 2021 W.A No.1124 of 2022 Page 4 of 30 before MSEFC, Odisha, respondent No.1 filed an application vide AP No.538 of 2021 before the Calcutta High Court without disclosing about the pendency of the MSEFC Case No.68 of 2021. Six months after being aware of the pendency of MSEFC proceedings instituted at the instance of the appellant, respondent No.1 filed a writ application giving rise to W.P.(C) No.5935 of 2022 seeking quashing of the said MSEFC case.
6. It is noted that respondent No.1 challenged MSEFC proceedings on the following main grounds: -
i. The appellant got registered under the MSMED Act after award of the contract by respondent No.1 and, therefore, the reference made to MSEFC, Odisha under the said Act was impermissible, contrary to law laid down by the Supreme Court in case of Silpi Industries Etc. v. Kerala State Road Transport Corporation and another reported in 2021 SCC Online SC 439;
ii. Further, the MSEFC, Odisha having acted as a Conciliator between the parties, they could not act as an Arbitrator in view of Section 80(a) of the Arbitration and Conciliation Act,1996 Act;
iii. Further, the MSEFC, Odisha proceeded ex parte in the matter on 20.02.2022 without considering the request of W.A No.1124 of 2022 Page 5 of 30 respondent No.1 to conduct the case through virtual mode instead of physical hearing;
iv. Furthermore, the MSEFC, Odisha proceeded with the matter on 20.12.2021 without considering the application of respondent No.1 under Sections 5 and 8 of the Arbitration and Conciliation (Amendment) Act, 1996:
7. Respondent No.1 also took a plea in the writ proceedings that once it had approached the Calcutta High Court for appointment of an Arbitrator under the provisions of the 1996 Act, the MSEFC, Odisha ought not to have proceeded with the matter as the pendency of the case before the Calcutta High Court was brought to the notice of the MSEFC, Odisha. The respondent No.1 also took a plea in the writ proceedings that the MSEFC, Odisha proceeded with the matter without giving proper opportunity to respondent No.1, which had acted in a biased manner favouring the appellant and thus financially adversely affecting a Government of India Enterprise.
8. The appellant was noticed in the writ proceedings, who filed its counter affidavit asserting that it had made supplies and rendered services to respondent No.1, much after filing of memorandum as a Small-Scale Enterprise („SSE‟, in short) on 13.12.2015. The respondent No.1 had issued 3rd amendment on 25.06.2015 to the original work order dated 11.06.2010 and admittedly the assigned work got completed on 10.05.2018. The appellant pleaded that since liability to make payment under the MSMED Act arose only upon supply of W.A No.1124 of 2022 Page 6 of 30 materials and rendering of services, which in the present case was continued after submitting the memorandum as an SSE on 13.12.2015, the MSEFC, Odisha had the jurisdiction conferred under Section 18 of the MSMED Act. The judgment of the Supreme Court in case of Silpi Industries (supra) was distinguishable on the facts and it supported the case of the appellant as the Supreme Court in the said case too has laid emphasis on "date of supply of materials and rendering of service"
instead of „date of entering into the contract with the buyer‟, the appellant contended before the learned Single Judge. In the case of Silpi Industries (supra), the Supreme Court followed a three-Judge Bench decision of the Supreme Court in case of Shanti Conductors (P) Limited and another v. ASSAM State Electricity Board and others, reported in (2019) 19 SCC 529 and approved a Delhi High Court decision in case of GE T &D India Limited v. Reliable Engineering Projects and Marketing reported in 2017 SCC OnLine Del 6978, wherein it had been held that supply of goods/services can be taken as the relevant date, as opposed to the date on which contract for supply was entered into, for the applicability of the Act. On the question of legality of MSEFC, Odisha acting both as Conciliator and Arbitrator, the appellant placed reliance on the Supreme Court‟s decisions in cases of Jharkhand Urja Vikas Nigam Limited v. State of Rajasthan and others reported in 2021 SCC OnLine SC 1257 and Vijeta Construction v. Indus Smelters Ltd. and another reported in 2021 SCC OnLine SC 3436.W.A No.1124 of 2022 Page 7 of 30
9. The learned Single Judge, following the decision in case of Vaishno Enterprises v. Hamilton Medical AG and another reported in 2022 SCC OnLine SC 355, quashed the MSEFC proceeding mainly on the ground that the appellant/supplier had obtained registration five years after the award of original order and, therefore, the dispute could not be referred to MSEFC, Odisha invoking Section 18 thereof. The learned Single Judge also noticed that the MSEFC consisted of four members, which had commenced the arbitration proceeding, was impermissible under the 1996 Act. On these two grounds, learned Single Judge quashed MSEFC Case No.68 of 2021 by the impugned order, which is under challenge in the present appeal.
10. Mr. Rath, learned counsel appearing on behalf of the appellant, assailing the impugned order of the learned Single Judge, has submitted that the impugned order passed by the learned Single Judge is contrary to the law laid down in case of Shanti Conductors (P) Limited (supra) and Silpi Industries (supra). He has argued that though the contract between the appellant/supplier and respondent No.1/buyer was executed in the year 2010 and the appellant came to be registered as SSE in the year 2015, as the supplies were made by the appellant after 2015 to respondent No.1/writ petitioner, the dispute relating to payments against supplies made by the appellant after the date of registration was rightly entertained by the MSEFC, Odisha. He has argued that though Shanti Conductors (P) Limited (supra) was decided dealing with the provisions of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, W.A No.1124 of 2022 Page 8 of 30 1993 („Act of 1993‟, in short), the relevant provisions of the said Act and that of the successor--MSMED Act are in pari materia. He has argued thus that date of supply by a supplier under the MSMED Act is the determining factor for the application or otherwise of the Act and not the date when the contract was entered into. He has put emphasis on the law laid down by the Supreme Court in case of Shanti Conductors (P) Limited (supra) with special reference to paragraphs 34, 61 and 62 thereof. He has submitted that Silpi Industries (supra) followed the ratio of Shanti Conductors (P) Limited (supra) while holding that MSME petitioner in that case could not invoke the provisions of MSMED Act on the undisputed factual position that the supplies were concluded prior to registration of the supplier. He has accordingly submitted that the date of supply by a registered MSME under the Act is the crucial factor for determination of the applicability of Section 18 of the MSMED Act.
11. Resisting the submissions advanced on behalf of the appellant, Mr. Banerjee, learned counsel appearing on behalf of respondent No.1, has argued that on the date when the agreement was entered into between the appellant and respondent No.1, the appellant was not registered under the MSMED Act. Relying on the Supreme Court‟s decision in case of Silpi Industries (supra), learned Single Judge has rightly quashed the entire MSEFC Case No.68 of 2021, he contends. He has further argued that the MSEFC, consisting of four members W.A No.1124 of 2022 Page 9 of 30 could not have undertaken arbitration proceeding, it being in violation of the provisions under Section 10(1) of the 1996 Act.
12. Based on the rival contentions made on behalf of the parties as noted above, a question that arises for this court to adjudicate upon is; what would be the crucial date for determination of applicability or otherwise of the provisions under Section 18 of MSMED Act in case of a supplier within the meaning of Section 2(n) of the said Act, i.e. whether the date of contract for supply of goods/services by the supplier to the buyer or the date of actual supply of goods/services by the supplier to the buyer?
12.1. There is yet another question, which requires consideration; whether based on the number of members of the MSEFC, Odisha entertaining arbitration, learned Single Judge could have quashed the MSEFC case itself with reference to Section 10(1) of the 1996 Act, exercising power of judicial review under Article 226 of the Constitution of India?
13. In order to address the first question, we need to examine the applicability of the law as laid down by the Supreme Court in case of Shanti Conductors (P) Limited (supra), which dealt with the provisions under the Act of 1993. The said Act was enacted to ensure prompt payment of money by the buyers to the small-scale industrial undertakings. The supplier in the said Act stood defined as under:-
W.A No.1124 of 2022 Page 10 of 30"2. Definitions.--
xxx xxx xxx
(f) "supplier" means an ancillary industrial undertaking or a small scale industrial undertaking holding a permanent registration certificate issued by the Directorate of Industries of a State or Union territory and includes,-
(i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956 (1 of 1956)."
13.1 Buyer was defined under the Act of 1993 as under:
"2.(c) "buyer" means whoever buys any goods or receives any services from a supplier for consideration"
13.2 Section-3 of the Act of 1993 provided that where any supplier supplied any goods or rendered any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day.
A proviso was added to Section-3 by amendment with effect from 10.08.1998 prescribing therein that in no case the period agreed upon between the supplier and the buyer in writing would exceed one hundred and twenty days from the day of acceptance or the day of deemed acceptance.
W.A No.1124 of 2022 Page 11 of 3013.3 Section 4 and Section 5 of the Act of 1993 made provisions for payment of interest and compound interest respectively by a buyer to a supplier on the amount payable under Section 3 of the Act of 1993. Section 6(1) of the Act of 1993 stipulated that the amount due from a buyer, together with the amount of interest calculated in accordance with the provisions under sections 4 and 5 of the Act of 1993, shall be recoverable by the supplier from the buyer by way of a suit or other proceeding under any law for the time being in force. Section 6(2) of the said Act of 1993 stipulated that notwithstanding anything contained in sub-section (1) of Section 6, any party to a dispute may make a reference to the Industry Facilitation Council for acting as an arbitrator or conciliator in respect of the matters referred to in that sub-section and the provisions of the Arbitration and Conciliation Act, 1996 shall apply to such dispute as if the arbitration or conciliation were pursuant to an arbitration agreement referred to in sub-section (1) of section 7 of the Act. Whereas Section 7-A of the Act of 1993 made provision for establishment of a Industry Facilitation Council, Section 7-B provided for composition of the Industry Facilitation Council.
14. In case of Shanti Conductors (P) Limited (supra), the supplier, which was registered as a Small-Scale Industrial Unit, had supplied goods to the buyers between June and December, 1992, pursuant to an order placed on 31.03.1992. Another order was placed by the buyer on 13.05.1992, pursuant to which, the supplies were made between January and February, 1993. After the dates of supply orders placed by the buyer in that case, the Interest on Delayed Payment to W.A No.1124 of 2022 Page 12 of 30 Small Scale Ancillary Industrial Undertakings Ordinance, 1992 was promulgated on 23.09.1992, which subsequently became an Act with effect from 02.04.1993, viz., Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, which was deemed to have come into force with effect from 23.09.1992. The supplies under the purchase orders placed by the buyer in that case was completed by the Shanti Conductors on 04.10.1993. The entire payments in that case were made by the buyer on 05.03.1994 against the aforesaid supplies. Shanti Conductors, in the said case, had filed a suit for recovery of delayed payments, which was decreed. The matter thereafter had travelled to the Gauhati High Court and subsequently to the Supreme Court. The Supreme Court in case of Shanti Conductors (P) Limited (supra) framed seven questions which had arisen for consideration including the following two, which are relevant for the present consideration:
"34.1. (1) Whether the 1993 Act is not applicable when the contract for supply was entered into between the parties prior to the enforcement of the Act i.e. 23-9- 1992?
34.2. (2) Whether in the event it is found that the Act is applicable also with regard to contract entered prior to the 1993 Act in pursuance of which contract, supplies were made after the enforcement of the 1993 Act, the 1993 Act can be said to have retrospective operation?"
15. It is pertinent to note at this stage that in cases of Purbanchal Cables & Conductors (P) Ltd. v. Assam SEB, reported in (2012) 7 W.A No.1124 of 2022 Page 13 of 30 SCC 462; Shakti Tubes Ltd. v. State of Bihar reported in (2009) 7 SCC 673; and Assam Small Scale Industries Development Corporation Ltd. v. J. D. Pharmaceuticals reported in (2005) 13 SCC 19 the Supreme Court had laid down that the Act of 1993 could not be made applicable with regard to the sale agreements which were entered into prior to the enforcement of the Act of 1993 and the said Act could be invoked only for the sale agreements which were entered after the enforcement of the Act. A three-Judge Bench in case of Shanti Conductors (P) Limited (supra) had the occasion to consider the correctness of the law laid down in cases of Purbanchal Cables & Conductors (P) Ltd. (supra), Shakti Tubes Ltd. (supra) and Assam Small Scale Industries Development Corporation Ltd. (supra). The Supreme Court in case of Shanti Conductors (P) Limited (supra) has held in paragraph-62 that the decisions in cases of Purbanchal Cables & Conductors (P) Ltd. (supra), Shakti Tubes Ltd. (supra) and Assam Small Scale Industries Development Corporation Ltd. (supra) do not lay down the correct law. The Supreme Court in no uncertain terms held in case of Shanti Conductors (P) Limited (supra) that even if the agreement of sale was entered into prior to enforcement of the Act of 1993, liability to make payment under Section 3 and liability to make payment of interest under Section 4 of the Act of 1993 would arise if the supplies were made subsequent to enforcement of the Act. Paragraphs-61 and 62 of the decision in case of Shanti Conductors (P) Limited (supra) are being reproduced hereinbelow:
"61. We have noticed above that the incidence of applicability of the liability under the Act is supply W.A No.1124 of 2022 Page 14 of 30 of goods or rendering of service. In event the supply of goods and rendering of services is subsequent to the Act, can liability to pay interest on delayed payment be denied on the ground that agreement in pursuance of which supplies were made were entered prior to enforcement of the Act? Entering into an agreement being not expressly or impliedly referred to in the statutory scheme as an incident for fastening of the liability, making the date of agreement as date for imposition of liability does not conform to the statutory scheme. This can be illustrated by taking an example. There are two small scale industries which received orders for supply of materials. „A‟ received such orders prior to the enforcement of the Act and „B‟ received the order after the enforcement of the Act. Both supplied the goods subsequent to enforcement of the Act and became entitled to receive payment after the supply, on or before the day agreed upon between the supplier and buyer or before the appointed day. Payments were not made both to „A‟ and „B‟ as required by Section 3. Can the buyer who has received supplies from supplier „A‟ escape from his statutory liability to make payment of interest under Section 3 read with Section 4? The answer has to be No. Two suppliers who supply goods after the enforcement of the Act, become entitled to receive payment after the enforcement of the Act one supplier cannot be denied the benefit of the statutory protection on the pretext that the agreement in his case was entered prior to enforcement of the Act. When the date of agreement is not referred as material or incidence W.A No.1124 of 2022 Page 15 of 30 for fastening the liability, by no judicial interpretation the said date can be treated as a date for fastening of the liability. The 1993 Act being beneficial legislation enacted to protect small scale industries and statutorily ensure by mandatory provision for payment of interest on the outstanding money, accepting the interpretation as put by the learned counsel for the Board that the day of agreement has to be subsequent to the enforcement of the Act, the entire beneficial protection of the Act shall be defeated. The existence of statutory liability depends on the statutory factors as enumerated in Section 3 and Section 4 of the 1993 Act. Factor for liability to make payment under Section 3 being the supplier supplies any goods or renders services to the buyer, the liability of buyer cannot be denied on the ground that the agreement entered into between the parties for supply was prior to the 1993 Act. To hold that liability of buyer for payment shall arise only when agreement for supply was entered into subsequent to enforcement of the Act, it shall be adding words to Section 3 which is not permissible under the principles of statutory construction.
62. We, thus, are of the view that the judgments in Purbanchal Cables & Conductors [Purbanchal Cables & Conductors (P) Ltd. v. Assam SEB, (2012) 7 SCC 462 : (2012) 4 SCC (Civ) 245], Assam Small Scale Industries [Assam Small Scale Industries Development Corpn. Ltd. v. J.D. Pharmaceuticals, (2005) 13 SCC 19] and Shakti Tubes [Shakti Tubes Ltd. v. State of Bihar, (2009) 7 SCC 673 : (2009) 3 SCC (Civ) 258] which held that the 1993 Act shall be applicable only when the W.A No.1124 of 2022 Page 16 of 30 agreement to sale/contract was entered into prior/subsequent to the enforcement of the Act, does not lay down the correct law. We accept the submission of the learned counsel for the appellants that even if agreement of sale is entered into prior to enforcement of the Act, liability to make payment under Section 3 and liability to make payment of interest under Section 4 shall arise if supplies are made subsequent to the enforcement of the Act."
16. The said Act of 1993 came to be repealed by the MSMED Act with one of the objects to "make further improvements in the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993". The purpose of enacting MSMED Act was to strengthen the legal provisions to ensure facilitating the promotion and development, and enhancing the competitiveness of micro, small and medium enterprises. Buyer, under the MSMED Act has identical definition as was there under the Act of 1993. Supplier has been defined under the MSMED Act under Section 2(n) as under:
2.(n) "supplier" means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8, and includes,--
(i) the National Small Industries Development Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name W.A No.1124 of 2022 Page 17 of 30 called, being a company registered under the Companies Act, 1956 (1 of 1956);
(iii) any company, co-operative society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises."
16.1 Similar provisions relating to delayed payment to a supplier have been incorporated under Chapter V of the MSMED Act as were there under the Act of 1993 except for certain changes.
17. Upon comparative analysis of the relevant provisions under the Act of 1993 and corresponding provisions under the MSMED Act, as noted above, we are of the definite opinion that the reasoning assigned by the Supreme Court in case of Shanti Conductors (P) Limited (supra) fully applies in the cases covered by the MSMED Act.
18. We accordingly hold that the liability of the buyer to make payment under Section 15 of the MSMED Act shall depend upon the date of supply of the goods and not on the date when the order was placed. Similarly, Section 16 of the MSMED Act shall be applicable for payment of interest if on the date of supply of goods/services, the supplier satisfies the requirement of the definition of "supplier" under Section 2(n) of the MSMED Act. Section 17 of the MSMED Act obligates a buyer to pay the amount with interest thereon as provided under Section 16.
W.A No.1124 of 2022 Page 18 of 3019. For the foregoing reasons, we have no hesitation thus in reaching a definite conclusion that the crucial date for determination as to whether Chapter V of the MSMED Act will apply or not, will depend upon the date when the supply of goods/services are made by a supplier within the meaning of Section 2(n) of the MSMED Act to a buyer within the meaning of Section 2(d) of the said Act. The provisions of Chapter V of the said Act cannot be held to be inapplicable on the ground that when the orders were placed or the contract was entered into for supply, the supplier was not a registered supplier.
20. The analysis of various provisions of the MSMED Act, 2006 vis-à-vis the Arbitration and Conciliation Act, 1996, as put forth in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (Unit 2), reported in (2023) 6 SCC 401, clarifies the position as follows:-
"51. Following the above-stated ratio, it is held that a party who was not the "supplier" as per Section 2
(n) of the MSMED Act, 2006 on the date of entering into the contract, could not seek any benefit as a supplier under the MSMED Act, 2006. A party cannot become a micro or small enterprise or a supplier to claim the benefit under the MSMED Act, 2006 by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods or rendering services. If any registration, is obtained subsequently, the same would have the effect prospectively and would apply for the supply of goods and rendering services subsequent to the registration. The same cannot operate retrospectively.W.A No.1124 of 2022 Page 19 of 30
However, such issue being jurisdictional issue, if raised could also be decided by the Facilitation Council/Institute/Centre acting as an arbitral tribunal under the MSMED Act, 2006.
52. The upshot of the above is that:
52.1 Chapter-V of the MSMED Act, 2006 would override the provisions of the Arbitration Act, 1996. 52.2 No party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council, though an independent arbitration agreement exists between the parties.
52.3 The Facilitation Council, which had initiated the Conciliation proceedings under Section 18(2) of the MSMED Act, 2006 would be entitled to act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act.
52.4 The proceedings before the Facilitation Council/institute/ centre acting as an arbitrator/arbitration tribunal under Section 18(3) of MSMED Act, 2006 would be governed by the Arbitration Act, 1996.
52.5 The Facilitation Council/institute/centre acting as an arbitral tribunal by virtue of Section 18(3) of the MSMED Act, 2006 would be competent to rule on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration Act, 1996. 52.6 A party who was not the 'supplier' as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract cannot seek any benefit as the 'supplier' under the MSMED Act, 2006. If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration."W.A No.1124 of 2022 Page 20 of 30
21. Adverting now to the facts in the present case, it is not in dispute that the appellant had filed a memorandum on 13.12.2015 under Section 8(1) of the MSMED Act with the authority and thus was a supplier within the meaning of Section 2(n) of the said Act upon filing of the memorandum on 13.12.2015. Non-payments/delayed payments of amount by a buyer in respect of the supplies made by the appellant/supplier subsequent to 13.12.2015 in the present case falls under Chapter V of the MSMED Act. Reference made by the appellant in relation to such transactions to the MSEFC, Odisha was in conformity with the provisions of MSMED Act.
22. In case of Silpi Industries (supra), the supplier had submitted memorandum to obtain registration subsequent to entering into the contract and supply of goods and services. Denying the claim of supplier in such case, the Supreme Court held that if any registration was obtained, the same would be prospective and would apply for supply of goods and services subsequent to registration but cannot operate retrospectively. The decision in Silpi Industries (supra) does not support the case of respondent No.1 rather it bolsters the contentions made on behalf of the appellant.
22.1. In our view, it has been rightly submitted by learned counsel for the appellant relying on the said decision that the transactions subsequent to filing of memorandum on 13.12.2015 are covered by the provisions of the MSMED Act.W.A No.1124 of 2022 Page 21 of 30
23. We now need to notice Section 18 of the MSMED Act, as it then existed read as under so as to address the question no.2 as formulated above:-
18. Reference to Micro and Small Enterprises Facilitation Council.--
(1) Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council.
(2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act. (3) Where the conciliation initiated under sub- section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer 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 disputes 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 W.A No.1124 of 2022 Page 22 of 30 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."
It may be noted that Section 18 of the MSMED Act has been amended by substitution in 2023 and the process of mediation under the Mediation Act, 2023 has been introduced in place of conciliation under the Arbitration and Conciliation Act, 1996. This amendment, however is, irrelevant for the present controversy which pertains to a period prior to the said amendment.
24. In Mahakali Foods Pvt. Ltd. (Unit 2) (supra) having regard to Section 24 of the MSMED Act, observed that, "34. One of principles of statutory interpretation relevant for our purpose is contained in the Latin maxim "leges posteriors priorescontrariasabrogant"
(the later laws shall abrogate earlier contrary laws). Another relevant rule of construction is contained in the maxim "generaliaspecialibus non derogant"
(General laws do not prevail over Special laws). When there is apparent conflict between two statutes, the provisions of a general statute must yield to those of a special one.
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36. Keeping in view the aforestated principles of statutory interpretations as also the proposition of law laid down by this Court with regard to the general rules of construction, let us proceed to W.A No.1124 of 2022 Page 23 of 30 examine whether the MSMED Act, 2006 is a special enactment having an effect overriding the Arbitration Act, 1996 which is perceived to be a general enactment? As stated earlier, the very object of enacting MSMED Act, was to facilitate the promotion and development, and enhance the competitiveness of micro, small and medium enterprises. The Act also aimed to ensure timely and smooth flow of credit to the micro, small and medium enterprises, and to minimize the incidence of sickness.One of the main objects of the Act was to delete the Interest on Delayed Payments to Small Scale and Ancillary Industry Undertakings Act, 1993, and to include stringent provisions as also to provide dispute resolution mechanism for resolving the disputes of non-payment of dues to the micro and small enterprises. Thus, the seed of MSMED Act, 2006 had sprouted from the need for a comprehensive legislation to provide an appropriate legal framework and extend statutory support to the micro and small enterprises to enable them to develop and grow into medium ones.
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42. Thus, the Arbitration Act, 1996 in general governs the law of Arbitration and Conciliation, whereas the MSMED Act, 2006 governs specific nature of disputes arising between specific categories of persons, to be resolved by following a specific process through a specific forum. Ergo, the MSMED Act, 2006 being a special law and Arbitration Act, 1996 being a general law, the provisions of MSMED Act would have precedence over or prevail over the Arbitration Act, 1996. In SilpiInustries case (supra) also, this Court had observed while considering the issue with regard to the maintainability and counter claim in arbitration proceedings initiated as per Section 18(3) of the MSMED Act, 2006 that the MSMED Act, 2006 being a special legislation to W.A No.1124 of 2022 Page 24 of 30 protect MSME‟s by setting out a statutory mechanism for the payment of interest on delayed payments, the said Act would override the provisions of the Arbitration Act, 1996 which is a general legislation. Even if the Arbitration Act, 1996 is treated as a special law, then also the MSMED Act, 2006 having been enacted subsequently in point of time i.e., in 2006, it would have an overriding effect, more particularly in view of Section 24 of the MSMED Act, 2006 which specifically gives an effect to the provisions of Section 15 to 23 of the Act over any other law for the time being in force, which would also include Arbitration Act, 1996.
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47. *** As held earlier, the provisions contained in Chapter-V of the MSMED Act, 2006 have an effect overriding the provisions of the Arbitration Act, 1996. The provisions of Arbitration Act, 1996 would apply to the proceedings conducted by the Facilitation Council only after the process of conciliation initiated by the council under Section 18(2) fails and the council either itself takes up the dispute for arbitration or refers to it to any institute or centre for such arbitration as contemplated under Section 18(3) of the MSMED Act, 2006.
48. When the Facilitation Council or the institution or the centre acts as an Arbitrator, it shall have all powers to decide the disputes referred to it as if such arbitration was in pursuance of the arbitration agreement referred to in sub-section (1) of Section 7 of the Arbitration Act, 1996 and then all the trappings of the Arbitration Act, 1996 would apply to such arbitration. It is needless to say that such Facilitation Council/institution/centre acting as an arbitral tribunal would also be competent to rule on its own jurisdiction like any other arbitral tribunal appointed W.A No.1124 of 2022 Page 25 of 30 under the Arbitration Act, 1996 would have, as contemplated in Section 16 thereof."
25. There are two aspects which require consideration with reference to the provisions under Section 18 of the MSMED Act vis-à- vis applicability of the provisions of the Act of 1996. Firstly, sub- Section (3) of Section 18 of the MSMED Act in no uncertain terms prescribes that in case of failure of conciliation initiated under sub- Section (2) of the said Section leading to its termination without any settlement, the MSEFC shall either itself take up the dispute for arbitration or refer it to any institution or center and the provisions of Arbitration and Conciliation Act, 1996 shall then apply to the disputes as if arbitration was in pursuance of an arbitration agreement referred to in sub-Section (1) of Section 7 of that Act.
26. It is manifest on plain reading of Section 18(3) of the MSMED Act that if the MSEFC itself takes up the dispute for arbitration, all the provisions of the Act of 1996 shall apply as if the arbitration was in pursuance of an arbitration agreement referred to in sub-Section (1) of Section 7 of the Act. Stated differently, by a deeming fiction under Section 18(3) of the Act of 1996 an arbitration agreement stands introduced between „supplier‟ within the meaning of Section 2(n) of MSMED Act and the „buyer‟ within the meaning of Section 2(d) of the said Act, in relation to non-payment of amount to the supplier by the buyer.
27. In Mahakali Foods Pvt. Ltd. (Unit 2) (supra), it has been stated as under:
W.A No.1124 of 2022 Page 26 of 30"38. *** Sub-section (4) of Section 18 again starts with a non obstante clause i.e., „notwithstanding anything contained in any other law for the time being in force‟, and confers jurisdiction upon the Facilitation Council to act as an arbitrator or a conciliator in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India. Sub-section (5) of Section 18 fixes the time limit of ninety days to decide such reference.
39. Section 19 prescribes the procedure to be followed when any application is made in the court for setting aside any decree, award or other order made either by the Council itself or by any institution or centre to which reference is made by the Council. Section 24 of the MSMED Act, 2006 states that the provisions of Section 15 to 23 shall have an effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force."
28. Section 10 of the Act of 1996 provides that the parties are free to determine the number of arbitrators provided, however, such number shall not be an even number. In an arbitration proceeding, taken up by MSEFC under Section 18 of the MSMED Act, freedom to determine the number of arbitrators does not exist with the parties to the dispute, there being clear stipulation that the MSEFC may itself take up the dispute for arbitration.
29. Section 21 of the MSMED Act lays down the composition of MSEFC, sub-section (1) of which provides that the MSEFC shall consist of not less than three but not more than five members to be appointed from the following categories:
W.A No.1124 of 2022 Page 27 of 30"(i) Director of Industries, by whatever name called, or any other officer not below the rank of such Director, in the Department of the State Government having administrative control of the small scale industries or, as the case may be, micro, small and medium enterprises; and
(ii) One or more office-bearers or representatives of associations of micro or small industry or enterprises in the State; and
(iii) One or more representatives of banks and financial institutions lending to micro or small enterprises; or
(iv) One or more persons having special knowledge in the field of industry, finance, law, trade or commerce."
30. The learned Single Judge has noticed in the impugned judgment that the MSEFC consisting of four members had commenced the arbitration proceeding, thus, contravening the requirement under the proviso to sub-Section (1) of Section 10 of the Act of 1996.
31. It is true that if composition of MSEFC does not satisfy the requirement of the proviso to Section 10(1) of the Act of 1996, the MSEFC cannot itself take up the arbitration. However, we are in respectful disagreement with the opinion of the learned Single Judge that the same can be a ground for quashing the MSEFC case itself.
32. We are of the view that the MSEFC can take up the arbitration proceeding under Section 18(3) of the Act if its composition satisfies the requirement of Section 10(1) of the Act of 1996. In case it does not W.A No.1124 of 2022 Page 28 of 30 satisfy the said requirement, it is incumbent upon the MSEFC to refer the dispute to any institution or center providing alternative dispute resolution services as stipulated under sub-Section (3) of Section 18 of the Act of 1996.
33. The impugned order passed by the learned Single Judge quashing MSEFC Case No.68 of 2021 itself cannot be upheld, which is, accordingly, set aside.
34. The dispute is remanded back to the MSEFC, Odisha. If the composition of MSEFC satisfies the requirement of the proviso to Section 10(1) of the Act of 1996, it will be open for the MSEFC to either take up the dispute for arbitration or refer it to any institution or center providing alternative dispute resolution services as stipulated under sub-Section (3) of Section 18 of the Act of 1996. If composition of the Council does not satisfy the said requirement, it will be obligatory for MSEFC to refer the dispute to any institution or center providing alternative dispute resolution services as contemplated in the said provision.
35. In no case, the Court can permit the object of the MSMED Act, 2006 which is a welfare piece of legislation, being frustrated because of composition of the Council or because of its failure to refer the dispute to an institution or center providing alternative dispute resolution services for such arbitration. We further observe that the MSEFC, Odisha shall proceed in the matter with due expedition, as the dispute has remained pending since long for one reason or the other.
W.A No.1124 of 2022 Page 29 of 3036. This appeal is, accordingly, allowed with the aforesaid observations and directions. There shall be no orders as to costs.
(Chakradhari Sharan Singh)
Chief Justice
M.S. Raman, J. I agree.
(M.S. Raman)
Judge
M. Panda, Secy.
Signature Not Verified
Digitally Signed
Signed by: MRUTYUNJAYA PANDA
Designation: Secretary
Reason: Authentication
Location: High Court of Orissa, Cuttack
W.A No.1124 of 2022
Date: 18-Jun-2024 18:13:42 Page 30 of 30