Calcutta High Court
Bharat Heavy Electricals Limited ... vs Optimal Power Synergy India Pvt. Ltd on 1 September, 2021
Equivalent citations: AIR 2021 CALCUTTA 274, AIRONLINE 2021 CAL 516
Author: Moushumi Bhattacharya
Bench: Moushumi Bhattacharya
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
Present :-
THE HON'BLE JUSTICE MOUSHUMI BHATTACHARYA
I.A No: G.A. 1 of 2020
in
A.P. 175 of 2020
Bharat Heavy Electricals Limited Electric Division
Vs.
Optimal Power Synergy India Pvt. Ltd.
For the Petitioner : Mr. Jishnu Saha, Sr. Adv.
Mr. Touseef Khan, Adv.
Mr. Arindam Paul, Adv.
For the Respondent : Mr. Tilak Kumar Bose, Sr. Adv.
Mr. Ganesh Prasad Shaw, Adv.
Reserved on : 24.08.2021.
Delivered on : 01.09.2021.
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MOUSHUMI BHATTACHARYA, J.
1. The present application filed under section 36 of The Arbitration and Conciliation Act, 1996, is for stay of the operation of an award passed by the West Bengal State Micro Small Enterprises Facilitation Council under cover of a letter dated 7th November, 2019 and served on the petitioner on 21st November, 2019. The petitioner prays for securing a percentage of the principal sum of Rs.61,08,654/- awarded to the respondent under the provisions of The Micro, Small and Medium Enterprises Development Act, 2006 (the Act).
2. The issue which falls for adjudication is whether the petitioner/award- debtor should be directed to secure 75% of the principal sum and the interest under section 19 of the Act. The petitioner insists that depositing 75% of the award under Section 19 should be confined only to the principal sum awarded to the respondent while the respondent award-holder contends that the said percentage should also include the interest component. The submissions raised in support of and against securing a percentage of the award shall be referred to in more detail later on in this judgment.
3. The discussion is divided under separate sections for convenience.
The Award impugned in the present proceeding:
4. The Award was passed by the West Bengal State Micro Small Enterprises Facilitation Council on 24th September, 2019 on a claim made 3 by the respondent-supplier on an assessment of the dispute between the petitioner (described as the "Buyer" in the Award) and the respondent (the "Supplier Unit"). The said Award noted that the respondent supplier unit is a small manufacturing enterprise which issued eight Purchase Orders on the respondent for supply of Solar Power Conditioning Unit and items for a diesel power plant at various places, including Bangalore, Bhilai, Kanchipuram, Bareilly, Rawra, Raichur and Lakshadweep Island on substantially similar payment terms being 80% - 90% payment on supply + 100% taxes to be made with 30 - 45 days of credit from receipt of the material at site + 10% on completion of commissioning and balance 10% on execution of basic supply of the materials. The Award also noted that conciliation pursued under Section 18 of the Act failed since the petitioner buyer unit did not appear and did not file any written response. The Council assessed the total dues payable for the notified sites after considering the submissions of the parties before it.
5. The claim for each of the units were separately dealt with and the Council came to the conclusion that the records established that the respondent (petitioner before the Council) supplied the materials and completed the work as per the order of the petitioner buyer unit. The Council concluded that the claim of the respondent supplier is correct and that the petitioner buyer unit is liable to pay a total principal amount of Rs.61,08,654/- as the outstanding amount + interest thereon at three times of the Bank rate of RBI, compounded with monthly rests to the supplier unit (respondent herein) under Section 16 of the Act. The respondent was 4 directed to submit its claim of interest on the principal amount to the petitioner duly certified by a Chartered Accountant along with the claim of the principal amount outstanding. The petitioner was directed to pay the amount within thirty days from the date of submission of the claim by the petitioner.
Contentions of the petitioner (Buyer) :
6. The petitioner seeks stay of operation of the Award upon securing such percentage of the principal sum of Rs.61,08,654/- as directed by the court. According to Mr. Jishnu Saha, Senior Counsel appearing for the petitioner, the portion of the Award providing for interest is vague and uncertain and is accordingly not executable. Counsel relies on Section 16 - 'Date from which and the rate at which the interest is payable' and Section 2(b) - 'Appointed day' of the Act to submit that the Award does not identify any appointed day or any date agreed upon by the parties from which interest would be calculated on the principal sum under Section 16 of the Act. Counsel further submits that the Chartered Accountant has proceeded to calculate interest from the dates on which invoices were raised by the respondent and that the Award does not permit calculation of interest on that basis.
Contentions of the respondent (Supplier) :
7. Mr. Tilak Kumar Bose, Senior Counsel appearing for the respondent submits that the Purchase Orders are of 2011-2014 and that initial invoices were raised by the respondent from 2013 onwards. Counsel submits that 5 the claim was essentially for the balance 10% payment which was held back by the petitioner as retention money, for which supplementary invoices were raised by the respondent. Counsel refers to the Award to contend that the entirety of the principal amount claimed by the respondent in the invoices was not awarded and further that the Chartered Accountant was asked to quantify the exact amount of interest which was done and intimated to the petitioner. Counsel places the relevant provisions of the Act to urge on the object of the said Act.
Analysis of the arguments made on behalf of the parties :
8. The Statement of Objects and Reasons of The Micro, Small and Medium Enterprises Development Act, 2006, particularly Clauses 2(f) and 2(h) thereunder - highlights the object with which the statute was enacted. The intention of the legislature was to provide a fillip to small and medium enterprises and to facilitate the promotion and development and enhance the competitiveness of such enterprises by ensuring timely and smooth flow of credit. The Objects find specific articulation in sections 15, 16 and 17 of the Act which cast an obligation on the buyer to make payment within an outer limit of 45 days from the date of acceptance and for payment of compound interest with monthly rests to the supplier at three times the bank rate notified by the Reserve Bank of India. The obligation on the buyer with regard to payment of interest is reinforced under Section 17 of the Act where the supplier has supplied goods or rendered services to the buyer. The procedural provisions relating to conciliation and arbitration are found 6 under section 18 while Section 24 mandates that sections 15 to 23 of the Act shall have overriding effect.
9. Section 19 is of particular relevance to the present case and is set out :
"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".
The above provision makes it clear that no application for setting aside of an Award passed by the Facilitation Council shall be entertained by any court unless 75% of the amount in terms of the Award is deposited.
The issue :-
10. Since counsel appearing for the petitioner is agreeable to secure 75% of the principal amount of Rs.61,08,654/-, the issue which falls for decision is whether 75% of the amount to be secured under Section 19 of the Act would include the interest component or be confined only to the principal sum.
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11. As a first step for determining the above issue, the relevant part of the Award is required to be seen in respect of the direction given on the petitioner (buyer unit). The petitioner was made liable to pay the principal amount of Rs.61,08,654/- + interest thereon at three times of the bank rate of RBI, compounded with monthly rests to the respondent / supplier unit upon the latter submitting its claim of interest on the principal amount certified by a Chartered Accountant. It has been submitted by the parties that the computation by the Chartered Accountant amounting to Rs.2,78,88,228/- (Rs.61,08,654/- + Rs.2,17,79,574/-) was furnished to the petitioner and the petitioner did not dispute the computation.
12. Two considerations arise from this computation. First, whether the basis of the computation is factually correct and second, if the liability imposed on the petitioner is in consonance with the MSMED Act of 2006.
13. With regard to the statement of claim of the principal outstanding and interest which was prepared and certified by the Chartered Accountant, the calculation of the total amount of Rs.2,78,88,228/- payable by the petitioner to the respondent was made from the date of invoices as opposed to the date of delivery of the goods by the respondent to the petitioner. This would be clear from the heads under which the calculation has been made. Needless to state, the total outstanding amount, inclusive of interest, would have been substantially higher had the interest been calculated from the date of delivery of goods which were made pursuant to Purchase Orders of 2011- 2014. In other words, the computation of the Chartered Accountant is based on the principal outstanding from the invoices raised by the respondent 8 together with interest and itemised project-wise. The petitioner has admittedly not taken any objection to the calculation.
14. The second issue relates to the Award. The contention of the petitioner that the Award suffers from a lack of clarity in failing to mention an "appointed day" under Section 2(b) of the Act would, in effect, defeat the argument of the petitioner in relation to the interest component which it has been held liable for. Under Section 2(b) of the Act, "appointed day" means the day immediately following the expiry of 15 days from the day of acceptance or the day of deemed acceptance of any goods or services by a buyer from the supplier. The day of acceptance has been explained under section 2(b)(i)(a) and (b) to mean the day of actual delivery of the goods or the day on which the objection taken by the buyer in writing is removed by the supplier (provided the objection is taken within 15 days from the day of delivery of the goods). Since no issue has been raised of any objection of the petitioner / buyer in these facts, the day of acceptance would mean the actual delivery of the goods by the respondent to the petitioner. However, the quantum of the outstanding amount - and consequently the interest - would increase manifold if the appointed day is taken from the day of actual delivery of the goods which was in 2011-2014.
15. Hence, the argument of the petitioner / buyer that the Award fails to mention the appointed day would be against the very argument made on behalf of the petitioner, namely, that the computation of the Chartered Accountant is made from a date which results in an inflated amount and is therefore against the petitioner's interest.
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16. The third relevant issue would be the direction of the Council with regard to payment of interest. Imposition of interest at three times the bank rate of RBI has been prescribed under Section 16 of the Act which takes into account a buyer's failure to make payment of the amount due to the supplier under Section 15 of the Act where the buyer shall notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, is liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or from the date immediately following the date agreed upon at three times of the bank rate notified by the RBI (underlined for emphasis). Doubtless Section 16 is a draconian provision but articulates what the framers of the Act deemed necessary for dealing with errant buyers. Section 16 read with Section 15 reinforces the object of the MSMED Act which is to ensure that micro, small and medium enterprises flourish through timely payments received from buyers where the supply of goods or rendering of services by the industry has been successfully carried out. Having specifically found that the petitioner / buyer failed to make payment of the outstanding amount to the respondent / supplier in respect of at least six of the eight Purchase Orders, the Council invoked section 16 to impose interest on the petitioner and this court hence sees no error in such imposition. It is worth noting that the weight of section 16 kicks in as soon as a buyer fails to make payment to the supplier, as required under Section 15, regardless of any agreement between the buyer and the supplier or any existing law which may be in force. Having concluded that the petitioner failed to make 10 payment of the outstanding amounts to the respondent, the Council thought it fit put the petitioner within the strict mandate of section 16 of the Act.
Case Law:-
17. In Goodyear India Ltd. vs. Norton Intech Rubbers (P) Ltd.; 2012(6) SCC 845, the Supreme Court affirmed the decision of a Division Bench of the Madras High Court on the construction of section 19 of the MSMED Act. The Madras High Court in Goodyear India Ltd. vs. Nortan Intech Rubbers (P) Ltd.; 2012(2) CTC 819 had rejected the objection of the appellant before the court pertaining to the requirement of depositing 75% of the accrued interest as a condition precedent for entertaining the petition for setting aside the Award . The Madras High Court relied on Snehadeep Structures Pvt. Ltd. vs. Maharashtra Small Scale Industries Development Corporation Ltd.; (2010) 3 SCC 34 to hold that 75% of the interest should be deposited under Section 19 of the MSMED Act and further that the Award amount as mentioned in Section 19 comprises both principal as well as interest and not the principal alone. In Uttarakhand Power Corporation Ltd (UPCL) vs. Mahaveer Transmission Udyog Pvt. Ltd.; AIR 2018 UTR 181, a Division bench of the Uttarakhand High Court disagreed with the view of the Single Bench that the High Court has discretion in the matter of the deposit to be made under Section 19 and directed that pre-deposit of 75% of the amount must be made by depositing the amount in cash as opposed to other modes of securing the amount including by way of a bank guarantee. A division bench of the Himachal Pradesh High Court in Haryana Pradesh Congress Committee vs. First Newsmedia Pvt. Ltd.; AIR 2020 HP 60 reiterated the aim 11 of the MSMED Act for facilitating the promotion and development of the micro, small and medium enterprises and further reiterated the special nature of Section 19 in the matter of depositing 75% of the amount awarded in the impugned Award. The court also referred to the principle of giving precedence to a special provision whenever there is a conflict between a general and a special provision.
18. The case-law discussed above is in tandem to the arguments made on behalf of the respondent (supplier) which are in line with the object of the Act. Both the parties have subjected themselves to the jurisdiction of the Facilitation Council under the provisions of the Act which has passed the impugned Award. The Award indicates that the petitioner (buyer) owes substantial amount of money for supplies made by the respondent to the petitioner from 2011 onwards. The Council found that the petitioner is liable for unpaid amounts of a total principal amount of Rs.61,08,654/- + interest under Section 16 of the Act. The words used in Section 19 are that an application for setting aside of any Award can only be entertained by a court upon the appellant / petitioner depositing 75% of the amount in terms of the Award with the court. The Award in the present case is Rs.61,08,654/- + interest thereon at three times of the RBI bank rate compounded with monthly rests under Section 16 of the Act. It is absolutely clear that the Award is hence not confined to the principal amount of Rs.61,08,654/- but also includes interest at three times the RBI bank rate as provided under section 16 of the Act. The alleged lack of clarity in the computation of interest has been done away with by the computation submitted by the 12 Chartered Accountant to the petitioner which has been accepted by the petitioner. It may also be borne in mind that a court should approach an award with an intention to preserve, wherever it is possible, rather than to destroy the award.
19. The facts of the instant case seen against the backdrop of the relevant provisions of the MSMED Act read together with the case-law on the subject make it clear that the person seeking to set aside an award must deposit 75% of the Award under section 19. The meaning of the expression 'Award' must be gleaned from the plain language of the section read with the overall object of the MSMED Act which seeks to ensure the survival of micro, small and medium scale enterprises by formulating means for realising the dues of such enterprises from buyers. Section 19 should be construed in a manner which is in consonance with the surrounding provisions, including section 16, which prescribes a special rate of interest and is also aimed at ensuring the economic viability of micro, small and medium enterprises. In fact, the pro-supplier tilt in Section 19 would be evident from the exception - in parenthesis - carved out for suppliers pertaining to the requirement of depositing 75% of the awarded amount. Therefore, reading the expression "Award" in section 19 as confined only to the principal sum - and not the interest accrued thereon - would amount to a construction which would defeat the very purpose of the MSMED Act. After all, if the Noscitur a Sociis rule can be stretched; a provision must take colour from the company it keeps.
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20. G.A.1 of 2020 in A.P. 175 of 2020 is disposed of in view of the above reasons with a direction on the petitioner to deposit 75% of the total amount comprising the principal sum + interest as calculated by the Chartered Accountant (amounting to Rs.2,78,88,228/-). 50% of the amount shall be deposited by the petitioner in cash to the Registrar Original Side of this Court within three weeks from date. The balance 50% shall be given by way of a bank guarantee from a reputed Bank within the same time-frame. The prayer for stay of operation of the Award communicated to the petitioner under cover of a letter dated 7th November, 2019 shall be considered upon the petitioner depositing the amount as directed in this order. The petitioner shall be at liberty to make a separate application in that regard.
21. The respondent shall, in the meantime, be at liberty to file its affidavit- in-opposition to A.P. No.175 of 2020 within four weeks from date without prejudice to its contentions regarding maintainability of the said arbitration petition. The petitioner shall file its reply within two weeks thereafter.
22. A.P.175 of 2020 shall be listed after six weeks along with E.C. No.156 of 2020.
Urgent Photostat certified copy of this Judgment, if applied for, be supplied to the parties upon compliance of all requisite formalities (Moushumi Bhattcharya, J.)