Calcutta High Court
National Projects Construction ... vs West Bengal State Micro Small ... on 16 February, 2017
Equivalent citations: AIR 2017 (NOC) 638 (CAL.)
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Original Side
G.A. No. 304 of 2017
W.P. No. 294 of 2016
National Projects Construction Corporation Limited & Anr.
Vs.
West Bengal State Micro Small Enterprises
Facilitation Council & Ors.
For the Petitioners : Mr. Reetobroto Mitra, Advocate
Mr. A.K. Acharyya, Advocate
Mr. J. Sengupta, Advocate
For the Respondent No. 1 : Mr. Samrat Sen, Sr. Advocate
For the Respondent No. 3 : Mr. Debdut Mukherjee, Advocate Ms. Saswati Chatterjee, Advocate Hearing concluded on : February 03, 2017 Judgment on : February 16, 2017 DEBANGSU BASAK, J.:-
The petitioner questions the jurisdiction of the West Bengal State Micro Small Enterprises Facilitation Council in purporting to arbitrate in the disputes between the first petitioner and the third respondent.
Learned Advocate for the petitioners submits that, the claim of the third respondent arises out of a transaction of August 1995. The third respondent was paid off by the first petitioner. The third respondent had persisted in making claims against the first petitioner. The claims made by the third respondent are barred by the laws of limitation. In any event, the contract between the first petitioner and the third respondent on the basis of which the third respondent has made its claims, contains an arbitration clause. The first petitioner had appointed an arbitrator in terms of such arbitration clause. In view of the arbitrator being appointed in terms of the arbitration agreement to arbitrate on the disputes between the first petitioner and the third respondent, the West Bengal State Micro Small Enterprises Facilitation Council has no jurisdiction over such disputes. He relies upon All India Reporter 2012 Bombay 178 (M/s. Steel Authority of India Limited & Anr. v. Micro, Small Enterprise Facilitation Council, through Joint Director of Industries, Nagpur Region, Nagpur) and an unreported decision of the Bombay High Court rendered in Arbitration Petition No. 56 of 2013 (M/s. Hindustan Wires Limited v. Mr. R. Suresh & Anr.) and submits that, the Micro, Small and Medium Enterprises Development Act, 2006 does not negate an existing arbitration agreement between the parties. The Council was wrong in issuing the writing dated March 17, 2016 by which the Council had fixed a date for arbitration. Learned Advocate for the petitioners submits that, the claim of the third respondent had arisen much prior to the coming into effect of the Micro, Small and Medium Enterprises Development Act, 2006.
Moreover, the third respondent was not registered under the Act of 2006 within the time stipulated therein. He further submits that, it is doubtful whether the third respondent comes into the purview of the Act of 2006 at all. He submits that, the Act of 2006 does not have retrospective effect.
Learned Advocate appearing for the third respondent submits that, the third respondent was registered as a Small Scale Industrial Unit with the Council on July 15, 2011. He submits that, the Council is entitled to proceed to arbitrate the disputes between the parties.
Learned Additional Government Pleader appearing for the first and the second respondents submits that, the petitioner can raise the contentions made herein before the Council for adjudication.
Having heard the rival contentions of the parties and the materials made available on record, the following issues arise for consideration in the present writ petition:-
(i) Is the claim of the third respondent live?
(ii) When there exists an arbitration agreement between two parties, and one of such parties to the arbitration agreement is an entity within the meaning of Micro, Small and Medium Enterprises Development Act, 2006, does the Council established under the provisions of the Act of 2006 have jurisdiction to arbitrate the disputes between such parties on a request being made for such purpose?
(iii) To what relief, if any, are the petitioners entitled to?
The first issue is taken up for consideration. On the averments made in the writ petition, it appears that the first petitioner had granted a tender for design, manufacturing and installation of Radial Gate of Bakreswar Dam in August 1995 to the third respondent. According to the first petitioner, all running account bills raised by the third respondent were paid by it. The first petitioner claims that, nothing remains due and payable by it to the third respondent.
The contract appears to be of November 1998. In terms of such contract it appears that, the third respondent had kept a security deposit of a sum of Rs.16,42,460/- with the third respondent. Such claims appear from a writing dated February 25, 2005 made by the third respondent to the first petitioner. By such writing the third respondent had raised claims other than the refund of the security deposit lying with the first petitioner. This claim letter is annexed by the first petitioner in the writ petition itself. The first petitioner, however, has not averred that it had refunded the security deposit to the third respondent. There is no averment in the writ petition that, the account between the first petitioner and the third respondent stood settled. The petitioners, however, claim that the running account bills of the third respondent have been paid. The petitioners have consciously not stated that, the accounts between the parties stand settled. In view of the fact that, the security deposit made by the third respondent is still lying with the first petitioner, it cannot be said that the claim of the third respondent is barred by the laws of limitation. The petitioners are not claiming forfeiture of the security deposit. In absence of such particulars, it is safe to infer that, the jural relationship between the first petitioner and the third respondent still exists. The final bill has not been settled. The security deposit is yet to be refunded. The first petitioner is, therefore, holding on to the security deposit of the third respondent as a trustee of the third respondent. Limitation is a mixed question of fact and law. On the conspectus of the facts narrated above it cannot be said that the claim made by the third respondent is barred even as on date. The claim of the third respondent is, therefore, live. The first issue is answered accordingly.
The second issue is taken up for consideration.
The statement of objects and reasons of the Act of 2006 professes, inter alia, that the act ends at facilitating the promotion, development and enhancement of the competitiveness of small and medium enterprises. It seeks to make further improvements in the interest on delayed payments to Small Scale and Ancillary Industrial Undertaking Act, 1993. Chapter V of the Act of 2006 deals with delayed payments to micro and small enterprises. Section 15 makes it a liability of a buyer to make payment to the supplier. Section 16 specifies the date from which interest is payable as also the rate at which such interest is payable. Section 17 deals with recovery of amounts due. Section 18 deals with reference to the Micro and Small Enterprises Facilitation Council for the purpose of recovery of amounts due to the supplier. Section 19 provides for setting aside of decree, award or order passed by the Council or in the arbitration. Section 24 provides that Sections 15 to 23 of the Act of 2006 would have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
Section 17, 18 and 24 of the Act of 2006 are as follows:-
"17. Recovery of amount due.- For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16."
"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 provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as of 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 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."
"24. Overriding effect.- The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force."
Section 18 (1) of the Act of 2006 opens with a non-obstante clause. It requires a reference to a dispute to the Micro and Small Enterprises Facilitation Council notwithstanding anything contained in any law for the time being in force. Section 20 of the Act of 2006 contemplates the establishment of such Council. The composition of such Council is laid down in Section 21 of the Act of 2006. Section 18(2) of the Act of 2006 mandates that, the Council upon receipt of a reference under sub-section (1) would undertake conciliation by itself 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. The provisions of Sections 65 to 81 of the Act of 1996 get attracted in such an eventuality. Section 18(3) contemplates that, in the event the conciliation is not successful, the Council would take up the dispute for arbitration or refer it to any institution or centre for arbitration. In such an eventuality the provisions of sections of the Act of 2006 is mandated to apply. Section 18(4) of the Act of 2006 mandates that, notwithstanding anything contained in any other law for the time being in force, the institution or the Centre identified by the Council shall have jurisdiction to act as arbitrator or conciliator.
The Act of 2006 contemplates statutory arbitration. The Act of 2006 allows a party that is governed by it to apply to the Council constituted under the Act of 2006 to first conciliate and then arbitrate on the disputes between it and the other parties.
Section 2(4) of the Act of 1996 is as follows:-
"2(4). This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder."
Section 2(4) of the Act of 1996 stipulates that, the provisions of the first part of the Act of 1996 will apply to a statutory arbitration as if there was an arbitration agreement between the parties. However, the first part of the Act of 1996 will not apply in the event there is a conflict between the provisions of the Act which enforces statutory arbitration and the provisions of the Act of 1996.
There are fundamental differences between the settlement of dispute mechanism provided by the Act of 2006 and the Act of 1996. One of such differences is that, the Council has to undertake a mandatory conciliation before an arbitration which is not so under the Act of 1996. The second is that, the Council or the centre or institution identified by it will undertake the arbitration in the event of an unsuccessful conciliation, notwithstanding anything contained otherwise. The Act of 1996 allows resolution of the disputes by the agreed forum. The Act of 2006, therefore, overrides the chosen forum for settlement of the disputes to that extent. The third difference is that, the Act of 2006 mandates that, an application for setting aside of decree or award or order made by the Council or the institution or centre identified by the Council will not be entertained by any Court unless the appellant not being the supplier has deposited with it 75% of the amount in terms of the decree, award or the order appealed against. Such is not the case under the provisions of the Act of 1996. The Act of 1996 does not mandate a Court not to entertain a challenge to an award or an order or decree without a specified pre- deposit.
Section 24 of the Act of 2006 mandates that, sections 15 to 23 of such Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Section 18 of the Act of 2006 vests a party with a statutory right to make a reference to the Council. Such right is higher than an arbitration agreement. In any event, an arbitration agreement will not dilute the statutory right of a party to make a reference under Section 18 of the Act of 2006 or prevent it from doing so. Once such a reference is made the conciliation and arbitration must be had in terms of the Act of 2006 and by the forum designated by it rather than the forum under the arbitration agreement. In view of Sections 18(4) and 24 of the Act of 2006 read with Section 2(4) of the Act of 1996, the arbitration clause contained in the agreement between the parties stands superseded by the statutory rights granted by the Act of 2006.
M/s. Steel Authority of India Limited & Anr. (supra) has considered Sections 17, 18, 19 and 24 of the Act of 2006. In paragraph 11 thereof it has held that, there is no provision in the Act of 2006 which negates and renders an arbitration agreement entered into between the parties ineffective. This view has been followed in M/s. Hindustan Wires Limited (supra).
Neither M/s. Steel Authority of India Limited & Anr. (supra) nor M/s. Hindustan Wires Limited (supra) have noticed Section 2(4) of the Arbitration and Conciliation Act, 1996. In the present case, the parties are governed by an arbitration agreement entered into between themselves as well as a statutory arbitration which allows the third respondent to invoke the jurisdiction of the Council under the Act of 2006.
Section 18(4) of the Act of 2006 allows the Council to arbitrate in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India. The territorial jurisdiction of the first respondent has not been questioned. The third respondent is a supplier within the meaning of the Act of 2006. Therefore, in terms of Section 18(4) of the Act of 2006, the first respondent is the authority designated to arbitrate the disputes between the first petitioner and the third respondent. The existence of a live dispute between the first petitioner and the third respondent is established. On the other side of the spectrum is the arbitration agreement between the first petitioner and the third respondent. The arbitration agreement, however, has not been placed on record by the petitioners. Be that as it may, the petitioners have appointed a sole arbitrator in terms of such arbitration agreement by a writing dated November 9, 2015. In such appointment letter the first petitioner claims that, clause 6.00 of the agreement dated November 10, 1998 and the amendment thereto dated Novembers 23, 1999 permits the Chairman and Manufacturing Director of the first petitioner to nominate the arbitrator to arbitrate the disputes between the first petitioner and the third respondent. The arbitrator has claimed to have entered into reference on November 16, 2015. The arbitration agreement contained in the writing dated November 10, 1998 and the amendment thereto dated November 23, 1999 is, therefore, at variance to those obtaining in Section 18(4) of the Act of 2006. The arbitrator designated by the agreement between the first petitioner and the third respondent is not the same as that designated by Section 18 of the Act of 2006. Therefore, there is an inconsistency between the forum for arbitration under the Act of 2006 and the one governed by the Act of 1996. In view of Section 2(4) of the Act of 1996 read with Sections 18(1), 18(4) and 24 of the Act of 2006, the provisions of the Act of 2006 will prevail. The Council established under the Act of 2006 or the institution or centre identified by it will arbitrate the disputes between the buyer and the supplier.
The petitioners had approached the Council for arbitration of the disputes. On such request being made the Council by a writing dated June 12, 2015 had called upon the first petitioner to attend the conciliation before the Council on June 30, 2015. The Council by a writing dated November 6, 2015 had made a further request for conciliation to the first petitioner. It is only thereafter that by a writing dated November 9, 2015 that the first petitioner claims to have appointed the sole arbitrator. Prior to the first petitioner appointing the arbitrator, the Council had assumed jurisdiction and had issued notices for conciliation.
In view of the discussions above, the second issue is answered by holding that when there exists an arbitration agreement between two parties and one of such parties to the arbitration agreement is an entity within the meaning of the Act of 2006, the Council established under the provisions of the Act of 2006 or any institution or centre identified by it has the jurisdiction to arbitrate such disputes on a request being received by such Council for such purpose.
The challenge of the petitioners to the writing dated March 17, 2016 issued by the Council fails in view of the discussions above. The petitioners are not entitled to any relief in the present writ petition. The third issue is answered accordingly.
W.P. No. 294 of 2016 is dismissed. No order as to costs. In view of the dismissal of the writ petition, no order can be passed in the interim application being G.A. No. 304 of 2017 as it seeks extension of the interim order dated April 6, 2016. G.A. No. 304 of 2017 is also dismissed. No order as to costs.
[DEBANGSU BASAK, J.]