Telangana High Court
Security Printing Press vs M/S Shree Enterprises on 3 July, 2023
THE HON'BLE SRI JUSTICE SAMBASIVA RAO NAIDU
CIVIL MISCELLANEOUS APPEAL No.386 OF 2022
JUDGMENT :
Being aggrieved by the order of learned II Additional Chief Judge, City Civil Court, Hyderabad in Arbitration O.P.No.80 of 2021, dated 28.04.2022 by which the petition filed by the present appellant was dismissed, the appellant has filed this Civil Miscellaneous Appeal under Section 37 of Arbitration and Conciliation Act, 1996 (which hereinafter will be referred as Act, 1996). The appellant herein filed Arbitration O.P.No.80 of 2021 before the Court below with a prayer to set aside the award passed by 2nd respondent, dated 24.05.2021. The petition filed by the appellant herein was opposed by the respondent No.1 who filed a counter and after hearing both the parties, learned II Additional Chief Judge, City Civil Court, Hyderabad, dismissed the petition under the impugned order.
2. As per the brief case as set out in the appeal, it shows that the appellant is a Unit of Security Printing and Minting Corporation of India Ltd., in short "SPMCIL" under 2 CMA No.386 of 2022 the administrative control of Department of Economic Affairs, Ministry of Finance, Government of India and it is performing the sovereign functions like production and supply of different security and non-security items for the use of various Central and State Government Departments/Offices. The appellant is engaged in printing in non-judicial stamps, election material for Election Commission of India, Court fee stamps, material for Armed Forces, Postal stationary, CE stamps, Indira Vikas Patras etc. The 1st respondent is a private company registered under MSMED Act, 2006 (Micro Small and Medium Enterprises Development Act, 2006) with a registered office at Hyderabad and it is engaged in the business of manufacturing and supply of various types of inks. When the appellant herein floated tenders for the supply of fragrance of the micro encapsulate inks (Rose Ink, Tuberose Ink) 50 kgs each, the 1st respondent submitted its bid and was qualified. The appellant placed a purchase order, dated 18.10.2019 on 1st respondent for supply of inks and total costs of the purchase order placed on respondent No.1 for two varieties of inks of Rs.11,59,928/- 3 CMA No.386 of 2022 and date for delivery was stipulated as 13.11.2019. The 1st respondent supplied the inks on 14.11.2019.
3. The appellant has contended that when the inks supplied by the 1st respondent was sent for printing, the printing Department rejected the inks for the reason that the inks supplied by respondent No.1 were not up to the mark and do not match the technical specifications as laid down in the tender condition, thereby a letter was addressed on 08.01.2020 and rejection of inks was intimated to respondent No.1. The 1st respondent in response to the letter sent by appellant herein requested for joint inspection of supplied inks. Accordingly, some thin layers were drawn on coated paper and felt that the fragrance of inks by gently rubbing over the application. The appellant has claimed that the said fragrance of the sample was not up to the mark and ink was not engulfing the fragrance. The 1st respondent was requested to replace rejected inks with good quality fragrance inks.
4. The appellant has further contended that in view of covid-19 pandemic, the office of the appellant was partially 4 CMA No.386 of 2022 closed from the last week of March, 2020 without any production activity and resumed production from 15.05.2020. The 1st respondent instead of replacing the rejected quantity, preferred to lodge a complaint and again on 2nd time a joint inspection was conducted at the office of the appellant on 14.05.2020 and trials were conducted on the printing machine in the presence of representatives of both parties. It is the case of appellant that the fragrance of all the inks was found not up to the mark. Therefore, the same was intimated to 1st respondent by letter dated 23.07.2020 and was asked to take back the rejected material and replace the same with good material as per the specifications of the purchase order.
5. It is the further case of appellant that respondent No.1 was bound to supply the material complying the terms and conditions of tender and purchase order. The Unit of the appellant is one of the national importance with very high reputation of maintaining high quality in security features with standards in the printing. The appellant has claimed that in view of breach of contract by respondent 5 CMA No.386 of 2022 No.1 it is a sensitive and important contract where not only the pride of the organization, but the pride of the nation was at stake. The breach of contract committed by respondent No.1 lead the completion of printing of postage stamps delayed.
6. The appellant has alleged that the respondent No.1 failed to comply the quality control requirement, but respondent No.1 approached Micro and Small Enterprises Facilitation Council, Rangareddy region i.e., 2nd respondent herein under MSMED Act, 2006. Therefore, it appears that respondent No.1 invoked the arbitration clause, as such respondent No.2 framed (5) specific issues and published an award on 24.05.2021 deciding all the issues in favour of respondent No.1.
7. Therefore, being aggrieved by the said award, the appellant herein challenged the same before II Additional Chief Judge, City Civil Court, Hyderabad under Section 34 of Act, 1996 and the learned II Additional Chief Judge, City Civil Court, Hyderabad after hearing both counsel, dismissed the petition filed by the appellant herein. 6 CMA No.386 of 2022 Therefore, the appellant has filed this Civil Miscellaneous Appeal on the following grounds:
8. The Court below failed to appreciate the judgment of Hon'ble Supreme Court in Jharkhand Urja Vikas Nigam Limited vs The State of Rajasthan & Ors and other vide Civil Appeal No.2899 of 2021, the view taken by the Court below that the parties were given opportunity of the conciliation under Section 18 (2) of MSMED Act, 2006 and there was a conciliation before the council and the opinion of the Court below that the above referred judgment is not applicable to the facts of the present case is incorrect view. The appellant has claimed that 2nd respondent has violated the provisions of MSMED Act, 2006 and Act, 1996. Therefore, the above referred judgment squarely applicable to the facts on hand. The Court below failed to take into account that the proceedings before 2nd respondent were conducted in contravention of Section 18 of MSMED Act, 2006. The appellant further contended that Rule 6 of Telangana State Micro and Small Enterprises Facilitation 7 CMA No.386 of 2022 Council Rules, 2017 provides for the procedure to be followed in the discharge of the functions of the council.
9. The appellant while extracting the said Rule, further contended that a perusal of the above Rule gives an irresistible conclusion that the council cannot adjudicate the matter and pass an award under Arbitration Conciliation Act. It is relevant to point out that in a judgment between Gujarat State Petronet Ltd vs Micro and Small Enterprises of Bombay High Court, it was observed that by virtue of Sub Section 2 and 3 of Section 18 and Section 80 of Arbitration Act, it bars a conciliator from acting as an Arbitrator in the same dispute. On the basis of a harmonious reading of both these provisions, the Court held that the council cannot act as conciliator and arbitrator. But, the Court below failed to note the mandate of the council. There was no order by the 2nd respondent that the conciliation has failed as required under Section 76 (B) of Act, 1996 and then the matter was referred for arbitration.
8CMA No.386 of 2022
10. The appellant further contended that the award of the 2nd respondent is silent with regard to provisions under Section 65 to 81 of Arbitration Act which deals with submission of statements to conciliator, role of conciliator, administrative assistance etc. When Sub Section 2 of Section 18 clearly specified the application of the provision of Section 65 to 81 of Arbitration Act for conducing the conciliation proceedings, in the absence of any whisper about the application of the said provision, it shall be concluded that there was no conciliation proceedings conducted by the counsel and the award was passed by the 2nd respondent in violation of Section 18 (2) of MSMED Act.
11. The appellant further contended that the impugned order suffers from non-application of mind as the II Additional Chief Judge, City Civil Court, Hyderabad failed to take into account the submission and grounds raised by the appellant under Section 10 of Act, 1996. The award passed by the members is a clear contravention of the provisions of Act, 1996. The Court below did not take into consideration that facts put forth by the appellant 9 CMA No.386 of 2022 regarding joint inspection held on 14.05.2020 wherein the fragrances of all inks were not found up to the mark. The Court below committed an error by finding that the appellant/institution has used the inks without returning the same to respondent No.1. The appellant claims that they have intimated the 1st respondent that they have rejected the inks as they did not meet the requisite technical specification. According to the appellant, those inks were still lying in the premises of the appellant. Therefore, the finding recorded by the Court below that the inks were used by the appellant herein, is without any basis.
12. The appellant while preparing a table with the details of serial number, description of the document with corresponding date further contended that as per the contents of the said table, 2nd respondent initiated arbitration proceedings even before the conclusion of conciliation proceedings which must be held under Arbitration Act, 1996. This clearly indicates that 2nd respondent is prejudiced or biased and came to a logical 10 CMA No.386 of 2022 conclusion to pass a favorable order in favour of respondent No.1 and the same has created reasonable apprehension in the minds of appellant. The 2nd respondent failed to appreciate the scope and extent of hour given to it under MSMED Act, 2006, Telangana State Micro and Small Enterprises Facilitation Council Rule, 2017 and Act 1996, as the Court below failed to give reasonable consideration of the contentions adduced by the appellant.
13. The appellant has claimed that the Court bellow failed to appreciate the ground raised by the appellant regarding the process followed by respondent No.2 and the manner in which the entire process was handled as it is in complete violation of the provisions of MSMED Act. Thereby, the impugned order is invalid and nonest. According to the appellant, the Act makes it clear that, if it was an order in conciliation, the council can record their settlement between the parties or may record that the settlement has been reached. If it is an arbitration award, it has to be signed by all the arbitrators. A perusal of the 11 CMA No.386 of 2022 order of 2nd respondent reveals that the council had not conducted any conciliation proceedings either by itself or as stated in Sub Section 2 of Section 18 by applying the provisions of Section 65 to 81 of Act, 1996. Therefore, according to the appellant the impugned order suffers from non application of mind. The Court below misdirected itself by not considering the contents of the appellant and recorded in para No.18 of the order that the scope of civil code under Section 34 does not include power to modify the award in view of various decisions of the Hon'ble Supreme Court and rejected the petition by taking into account that simply showing himself being in agreement with the learned Arbitrator.
14. According to the appellant, they never sought the Court below to modify the award, but the learned II Additional Chief Judge, City Civil Court, Hyderabad failed to conduct independent scrutiny of the grievances raised by the appellant. The Court below failed to take into account the averments of the appellant that the award under challenge was not a reasoned one. Time and again 12 CMA No.386 of 2022 the Hon'ble Apex in catena of judgment held that an award passed by Arbitral Tribunal, should be a speaking order. But, the order impugned in the present appeal, is not such a speaking order. Thereby, it is liable to be set aside.
15. They have also claimed that the order passed by the Court below as well as the award passed by 2nd respondent are a nullity as they failed to notice that the material/goods have not been supplied as per the terms of contract. But, 2nd respondent has overlooked such facts and have not taken such material facts into cognizance while delivering the impugned order. While placing reliance on the judgment between Associate Builders vs Delhi Development Authority1 and Ssangyong Engineering and Construction Company Limited vs National Highways Authority of India (NHAI)2, the appellant has claimed that the order wherein the Court relying upon the judgment held that a finding based on no evidence at all or an award which ignore vital evidence in arriving at its decision is perverse and liable to be set aside. According to 1 2015 3 SCC 49 2 AIR 2019 SC 5041 13 CMA No.386 of 2022 the appellant the impugned order suffers from non application of mind. The learned II Additional Chief Judge, City Civil Court, Hyderabad failed to give an independent finding on the issues highlighted by the appellant. Therefore, such a determination cannot be termed as judicial determination; as such the impugned order is liable to be set aside. The Court below simply accepted the wrongful finding and conclusion recorded by 2nd respondent without considering valid contentions of the appellant. There is no finding as to how the arbitrator came to such conclusion. Therefore, on all the above grounds, the appellant sought for setting aside the impugned order.
16. The main ground on which the present appeal is filed is about the alleged violation of the provisions of M.S.M.E.D Act, 2006. The appellant has claimed that respondent No.2 conducted arbitration proceedings in contravention of Section 18 of M.S.M.E.D.Act and contended that Micro and Small Enterprises Facilitation Council on receipt of a reference with regard to any amount due under Section 17 shall either itself conduct 14 CMA No.386 of 2022 conciliation or seek the assistance of any institution and only on the failure of such conciliation the counsel shall either itself take the dispute for arbitration or refer to any institution. The appellant has claimed that in view of Section 18 of M.S.M.E.D.Act and Rule 6 of Telanagana State Micro and Small Enterprises Facilitation Council Rules, 2017 the counsel cannot adjudicate the matter and pass an award under Arbitration and Conciliation Act. The appellant has claimed that a Conciliator cannot act as an Arbitrator.
17. According to the appellant there was no order by 2nd respondent regarding the failure of conciliation, as such there is no question of referring the dispute to arbitration. The other ground for filing the appeal is about the failure of the Court below in application of mind and failure to consider the grounds raised by the appellant. The appellant has claimed that they never sought for modification of award and the OP was filed for setting aside the award as such the finding of the Court below based on the judgment of Supreme Court are incorrect. 15 CMA No.386 of 2022
18. Before adverting to various contentions of the appellant it is just and necessary to look into the settled legal position about the disposal of appeal filed under Section 37 of Arbitration Conciliation Act against the order in a petition filed under Section 34 of Arbitration Conciliation Act.
19. Heard both parties.
20. Now the point for consideration in the present appeal is:
Whether the learned Chief Judge failed to appreciate the contentions raided in the petition filed by the appellant herein and committed any error in dismissing the ARB.OP.No.80 of 2021, thereby the order is liable to be set aside?
21. POINT:
In a judgment between State of Rajasthan vs Puti Construction Company Limited and State Of Orissa vs Niranjan Swain, it was observed that while deciding an application under Section 34 of Arbitration and Conciliation Act, the said Court cannot sit as an appellate 16 CMA No.386 of 2022 Court to find out any defects and the Court must act within the scope of Section 34.
22. In a judgment in M/s. Ragya Bee vs M/s.P.S.R. Constructions, Division Bench of this High Court observed that when Civil Court/Commercial Court is satisfied that right of the petitioner was effected, within the parameters set out in Section 34 (2), it can only set aside the award but in no circumstances it can amend or alter the award.
23. In a judgment between MMTC Ltd. vs M/S.Vedanta Ltd it was observed as follows:
As far as interference with an order made under Section 34 as per Section 37 is concerned it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the Court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of the power by the Court under Section 34 has not exceeded the scope of this provision. Thus it is evident that in a case an arbitral award has been confirmed by the Court under Section 34 17 CMA No.386 of 2022 and by the Court in an appeal under Section 37 Court must be extremely cautious and slow to disturb such concurrent findings.
24. This appeal is filed against the order in a petition filed under Section 34 of Arbitration Act, which reads as follows:
Section 34 - Application for setting aside Arbitral Award: (i) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
25. The Court below while considering the objection of the appellant about the referring the matter to conciliation has observed that in view of the findings in the award opportunity was given to the parties for conciliation. As could be seen from the award it is quite clear that such an opportunity was provided to the parties for conciliation and only after the failure of such conciliation the award was passed. Therefore, the appellant now cannot claim that 18 CMA No.386 of 2022 there was no conciliation as required under the provision referred above.
26. It may be true that conciliator cannot act as an arbitrator. In the present case there was no such arbitration by the conciliator, but the award was passed by the counsel. In fact, the award came to be passed only after the failure of the parties to settle the dispute by way of conciliation. Therefore, the contention of the appellant that the same conciliator conducted arbitration falls to the ground. As per the award the parties did not choose to avail the conciliation and the award was passed after considering all the claims of both parties. Therefore, the appellant cannot claim that the Court below did not consider the grounds raised in the O.P. filed before the Court below.
27. As could be seen from the impugned order, it is very clear that the lower Court having examined all the contentions dismissed the claim of the present appellant. As such while exercising that jurisdiction under Section 37 19 CMA No.386 of 2022 of Arbitration and Conciliation, this Court cannot set aside the order, thereby this Civil Miscellaneous Appeal is liable to be dismissed. Accordingly, this Civil Miscellaneous Appeal is dismissed.
28. In the result, this Civil Miscellaneous Appeal is dismissed. No costs.
As a sequel, pending Miscellaneous Applications, if any, shall stand closed.
___________________________________ JUSTICE SAMBASIVA RAO NAIDU Date: 03/07/2023 PSSK