Andhra Pradesh High Court - Amravati
M/S Gulf Oil Corporation New Gocl, vs The Andhra Pradesh Micro And Small ... on 20 January, 2020
Author: M. Satyanarayana Murthy
Bench: M. Satyanarayana Murthy
IN THE HIGH COURT OF ANDHRA PRADESH: AMARAVATI
WRIT PETITION No16331 OF 2019
% Dated 20.01.2020
#
M/s. Gulf Oil Corporation (New GOCL)
Kukatpally, Post bag No.1, Sanath Nagar
Hyderabad, rep. by its Managing Director
M/s. Gulf Oil Corporation Limited,
Hyderabad
..... Petitioner
Vs.
$
The Andhra Pradesh Micro and Small Enterprises
Facilitation Council, Vijayawada
Rep.l by its Chairman/Commissioner of Industries
Andhra Pradesh, Vijayawada and another ..Respondents
JUDGMENT PRONOUNCED ON: 20.01.2020
THE HON'BLE SRI JUSTICE M. SATYANARAYANA MURTHY
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments?
2. Whether the copies of judgment may be marked
to Law Reporters/Journals
3. Whether Their Ladyship/Lordship wish to see
the fair copy of the Judgment?
MSM,J
WP No.16331 of 2019
2
* THE HON'BLE SRI JUSTICE M. SATYANARAYANA MURTHY
+ WRIT PETITION No16331 OF 2019
% Dated 20.01.2020
#
M/s. Gulf Oil Corporation (New GOCL)
Kukatpally, Post bag No.1, Sanath Nagar
Hyderabad, rep. by its Managing Director
M/s. Gulf Oil Corporation Limited,
Hyderabad
..... Petitioner
Vs.
$
The Andhra Pradesh Micro and Small Enterprises
Facilitation Council, Vijayawada
Rep.l by its Chairman/Commissioner of Industries
Andhra Pradesh, Vijayawada and another ..Respondents
! Counsel for the petitioner : Sri Korrapati Subba Rao
^ Counsel for the respondent :
1. Learned Government Pleader for Industries & Commerce
2. Sri N. Subba Rao
<GIST:
> HEAD NOTE:
? Cases referred
1. 2018 AIR (Bom) 265
2. 2016 (3) ALD 588
3. (2014) Supreme (HP) 607
4. (1998) 8 SCC 1
5. AIR 2019 SC 3558
6. (2019) 108 Taxman 340 (Delhi)
7. AIR 2010 SC 1497
8. AIR 2009 SC 2629
9. 2015 (2) ARBLR 203 (AP)
10. 2012 (2) CTC 829
11. W.P.No.13639 of 2014 dated 25.06.2015
12. 2017 (3) ADJ 117
13. AIR 2003 SC 4519
14. (1989) 1 SCR 665
15. (2003) 7 SCC 396
16. AIR 2006 SC 450
17. 2005 (6) ALD 110 (SC)
18. (2004) 10 SCC 656
19. AIR 1999 SC 463
MSM,J
WP No.16331 of 2019
3
THE HON'BLE SRI JUSTICE M.SATYANARAYANA MURTHY
WRIT PETITION No. 16331 OF 2019
ORDER:
This writ petition is filed under Article 226 of the Constitution of India, to issue Writ of Certiorari, calling for the records relating to and connected with the award dated 17-09-2019 in Case No.21C/IFC/2015/11891 on the file of the Andhra Pradesh Micro and Small Enterprises Facilitation Council, Vijayawada, and set aside the same by declaring it as illegal, irregular, Extraneous Considerations, in violation of Principles of Natural Justice, in violation of the Provisions of the Mircro, Small and Medium Enterprises Development Act, 2006 (Act 27 of 2006) (for short 'MSMED Act'), and in violation of Article 14 of the Constitution of India, and contrary to Section 80 of the Arbitration and Conciliation Act, 1996.
The petitioner herein is a Company incorporated under the provisions of the Companies Act, 1956, having its registered office, at Hyderabad. M/s Utkal Alumina International Limited is a company incorporated under the Companies Act, in the State of Odisha, is a Manufacturer of Alumina Chemical, Bauxite Chemical, Corundam Chemical, Fassertonerde Chemical and Minierals and Ores in Raniguda Farm Rayagada Odisha. Utkal Alumina International Limited awarded certain works to the petitioner, at Alumina Refinery and Power plant area at Utkal Alumina Project Work site at Doraguda, Rayagada, Orissa. It is submitted that the 2nd Respondent is a company incorporated under the Companies Act on 08-10-2009, originally in the name and style of Konark Foundations Private Limited, and later the name was changed as Jupiter Contech Private MSM,J WP No.16331 of 2019 4 Limited on 22-10-2011. The 2nd Respondent also registered with the District Industries Center Visakhapatnam on 31-12-2011 under the Provisions of the MSMED Act and that later the amendment was carried out with the District Industries Center on 09-01-2014. The 2nd Respondent got registered with the District Industries Center by mentioning that the initial date of installation is w.e.f., 8-10-2009.
In pursuance of the work got by the petitioner, the petitioner has awarded to the 2nd Respondent some portion of the work awarded by the Utkal Alumina Project Work, on sub-contract basis, vide Work Order No.GOCL/IDLC/001-2008-09 dated 5-03-2008 for a total value of Rs.3,43,72,900/- and later the value of the work order was amended vide Amendment-1 dated 01-4-09 for a revised value of Rs.4,33,38,400/- and the same was accepted by the 2nd respondent.
The 2nd respondent has executed the above project works and completed the project works on 22-08-2010 in all respects and thereafter, a joint reconciliation statement for the work done, store reconciliation was done on 01-07-2011 and the final payable amount has been arrived at and agreed/accepted/approved by both parties, by letter dated 07-7-2011 confirmed the amount receivable against the work order from the petitioner is Rs.24,56,572/-. Out of the said amount, Rs.10,00,000/- was paid to the 2nd Respondent on 18-07- 2011 (after deduction of 2% TDS). Later, the petitioner made balance payment for the works as per the terms of the work order and after detailed reconciliation, full and final settlement has also been made on 12-08-2011 vide Cheque. No. 989536 dated 12-08-2011 to a tune of Rs.14,43,507/- for which the 2nd Respondent acknowledged vide his letter dated 12-08-2011.
MSM,J WP No.16331 of 2019 5 After completion of the works and on receipt of the full and final settlement, the 2nd Respondent raised some issues and addressed a letter dated 2-09-2011 to the petitioner for resolution of outstanding issues and release of outstanding claims. It is averred in the letter that the acceptance of full and final settlement has been given under duress due to mounting financial pressure caused by non payment and he claimed further amount of Rs.1,86,08,350/- under various heads. Later, the 2nd Respondent once again wrote a letter dated 31-10-2011 renewing the similar request, petitioner gave a reply to the 2nd Respondent on 01-12-2011 alleging that the full and final settlement has been already done on 12-08-2011 after joint determination and with full concurrence and approval of both the parties and hence making reference for Arbitration with regard to dispute after receiving payment towards full and final settlement, does not arise.
Thereafter, the 2nd Respondent sent three reminders for initiation of Arbitration proceedings vide letters dated 8-12-2011, 02-02-2012 and 24-03-2012 and thereafter, on 16-05-2012 notice though Advocate was issued with the similar request, to which a reply dated 10-07-2012 was issued to the 2nd Respondent stating that there is no arbitrable issue for invoking the arbitration clause and advised to close the issue. The 2nd Respondent once again sent a notice to the petitioner on 26-06-2013 under Section 11 of Arbitration Act proposing Sri P.V. Vidyasagar, retired District Judge as Arbitrator and for that a reply notice dated 26-07-2013 was issued to the 2nd Respondent stating that the petitioner is not agreeing to the claimants proposal and proposing the names of three retired Judges of the High Court and called upon the Respondent to choose MSM,J WP No.16331 of 2019 6 any one of the three judges as the arbitrator to adjudicate the dispute between the parties. Later, the 2nd Respondent vide his letter dated 20-08-2013 intimated to the petitioner, choosing Hon'ble Justice C.V. Ramulu out of the three names suggested by Petitioner as sole arbitrator to adjudicate the dispute. But, thereafter no steps have been taken by the 2nd Respondent for appointment of the Hon'ble retired High Court Judge and having kept quiet for considerable time, filed a claim petition on 23-07-2014 before the Andhra Pradesh Micro and Small Enterprises Facilitation Council, Vijayawada, (hereinafter called as 'Council') which was constituted under the provisions of MSMED Act, claiming an amount of Rs.1,86,08,350/- as due along with interest of Rs.2,96,93,133/- totaling Rs.4,83,01,483/-, under different heads, which are as follows:
a) Mobilization Charges Rs.17,40,000/-
b) Earth Work done PR 04 Rs.3,00,000/-
c) Idle Charges Rs.86,35,818/-
d) Theft Materials Rs.31,59,900/-
e) Steel Reconciliation Rs.3,72,568/-
f) Cable Retained with GOCL Rs.5,07,500/-
g) Hammering charges of piles Rs.38,92,644/-
After registering the above claim as reference
No.21C/IFC/2015/11891, a notice dated 24-11-2015 was received by the petitioner on 01-12-2015, with a request to appear before the Council. After entering appearance by the counsel for petitioner, a preliminary objection was filed before the 1st Respondent on 22-08-2016 and that after the matter is being adjourned from time to time a statement of defense was filed by the Petitioner in the above case on 30-05-2017 after duly serving the same to the 2nd MSM,J WP No.16331 of 2019 7 Respondent herein, categorically denying the liability under each head. After filing the Statement of defense, the Council meeting was held on 30-05-2017 and Council was pleased to advise the parties to initiate conciliation process and the same was intimated to the petitioner vide proceedings dated 13-06-2017. Thereafter the 2nd Respondent/Claimant filed his reply dated 25-07-2017 before the council. Later, the matter was being adjourned from time to time for continuation of conciliation proceedings and the minutes was communicated to the petitioner on 12-08-2017 informing about mutual conciliation.
When the matter is being adjourned from time to time on 08-02-2018, a written submissions were filed on behalf of the petitioner along with relevant material papers bringing the facts and circumstances of the case, to the notice of the council. Thereafter the 2nd Respondent/claimant submitted his brief written submissions in the above case before the council on 12-02-2018. Thereafter, through a notice dated 16-02-2018, the Council intimated to the petitioner, on 6th hearing, that it was discussed in the Council that the respondent accepted the value of work done on non scheduled items and hence ten days time was given to settle the issue duly reconciling the claims and other items to be reconciled. Immediately a memo dated 23-02-2018 was filed in the council bringing the variance in what was deliberated in the hearing on 27-01-2018 and what was recorded in the minutes circulated, which needs to be corrected. The Council vide reference dated 13-03-2018 intimated the decision taken in the meeting held on 23-02-2018 as under:
"The Respondent during the course of meeting has informed that the scheduled items were paid, but represents that their representative during the MSM,J WP No.16331 of 2019 8 meeting held on 27-012018 could not put forth the facts regarding the cost on scheduled items and other costs. The case is posted for final hearing for reconciliation"
While the matter stood thus, a notice dated 24-04-2018 under Rule 9 was received by the Petitioner, informing that a meeting is proposed to be held on 10-05-2018 for arbitration as per Section 18(3) of the MSMED conciliation process initiated under Section (2) was not successful. Since the Council meeting could not take place on 10-05-2018, a similar notice was issued on 15-06-2018 stating that a meeting is proposed to be held on 26-06-2018 for arbitration as per Section 18(3) of the MSMED Act, 2006 as conciliation process initiated under Section (2) was not successful. Later, a meeting was held on 26-06-2018, and the Council communicated the minutes vide proceedings dated 11-07-2018, which reads as under:
"Both the Claimant and Respondent were present. After detailed deliberations the committee had decided to consider the following
i) Earth work
ii) Cable works
iii) Idle Charges partial.
The case is reserved for award by 20-07-2018.
The Respondent objected on Micro and Small status of the claimants unit. Respondent informed that no separate remarks are offered in arbitration and the defense /reply earlier given holds good nothing new to offer to council.
The above objection of the respondent to be submitted in two weeks. The pronouncement of Award will be on 20-07-2018.
The respondent at this stage preferred to file written arguments to the council and the respondent was instructed to file within two weeks"
The Council passed the impugned award dated 17-09-2019, under Section 31 of the Arbitration and Conciliation Act, 1996 MSM,J WP No.16331 of 2019 9 awarding an amount of Rs.7,47,84,104/- as on 31-08-2019 as total due to the 2nd respondent/claimant. The Council allowed the claim as under:
Sl.No Item Appointed Claims Interest in Rs. Total in Rs.
day allowed From
amount in appointed day
to 20.07.2018
Rs.
1 Earth work 1-3-2010 3,00,000 16,53,529.58 19,53,529.58
2 Cable 29-9-2010 5,07,500 24,71,511.14 29,79,011.14
works
3 Idle 1-3-2010 86,35,818 47,230,856.79 5,58,66,674.79
charges
(restricting
idle
charges fro
1200 dia
rigs)
4 Total 94,43,318.00 5,13,55,897.52 6,07,99,215.52
The Council has computed further interest of Rs.1,39,84,889/- on the above mentioned amount of RS.6,07,99,215.52 as on 31-08-2019 and arrived at as sum of Rs.7,47,84,104/- as due to the 2nd Respondent/Claimant. Aggrieved by the above award, petitioner filed this petition, raising several contentions, the contentions in brief are as follows:
(a) The first and foremost ground is that the Council having acted as Conciliator in the reference made to it, cannot act as arbitral tribunal by virtue of Section 80 of the Arbitration and Conciliation Act, 1996, which reads as under:
Section 80: Unless otherwise, agreed by the parties,
a). The conciliator shall not act as an arbitrator or as representative or counsel of a party in any arbitral or judicial proceeding in respect of a dispute that is the subject of the conciliation proceedings;
b). The Conciliator shall not be presented by the parties as a witness in any arbitral or judicial proceedings. The above provision would clearly prohibits the conciliator to act as arbitrator. It is pertinent to submit that in the instant case, the same Conciliators acted as arbitrators and passed the award. It is also pertinent to submit that this writ petitioner never agreed to or gave consent to the conciliators MSM,J WP No.16331 of 2019 10 to act as Arbitrators, and hence the award is liable to be set aside, by declaring it as without jurisdiction.
(b) The second ground urged before this Court is that, the award is liable to be set-aside on the ground that the Council failed to follow the mandatory provisions under The Arbitration and Conciliation Act, 1996 while passing the award, after it came to a conclusion that the conciliation proceedings were failed, even if the petitioner agrees for arbitration by the same arbitrators, the proceedings are illegal and contrary to Section 80 of Arbitration Act.
(Petitioner never agreed for arbitration by the same conciliators those who conducted conciliation proceedings)
(c) The third ground urged before this Court is that, the award passed by the Council is liable to be set aside on the ground that no reasonable opportunity was given to the petitioner to file claim petitions and to produce evidence in accordance with the provisions of the Arbitration and Conciliation Act, 1996, and the award passed by the Council is in utter violation of principles of natural justice, even if the petitioner agrees for Arbitration by the same conciliators. (Petitioner never agreed for arbitration by those who conducted conciliation same conciliators proceedings).
(d) The fourth ground urged before this Court is that, the award is liable to be set-aside on the ground of non application of mind, while passing the award, having rejected the claim of the complainant for idle charges for 1200MM dia pile, as the work order was issued only for 750MM dia piles, granting Idle charges (Restricting Idle Charges for 1200 dia rigs) as Rs.5,58,66,674.79 is illegal. Granting of idle charges is contrary to Clause 23 of the Work Order which is binding on both parties.
(e) The fifth ground urged before this Court is that the award is liable to be set-aside, since the Micro, Small and Medium Enterprises Development Act, 2006 has no application to the works done by the claimant since the work order pertains to a works contract and the claimant is not an enterprises as defined under the Act as on the date of work order i.e., 05-03- 2008 and that the Council went on granting interest on interest and committed a serious error.
(f) The last ground urged before this Court is that, the 2nd Respondent was not registered/recognized under MSMED Act, and though the claim is settled mutually and barred by limitation, but approached the council, for extraneous considerations, having accepted for arbitral proceedings. It is also pertinent that the council also without sending the matter to the arbitration, in spite of specific bar under Section 80 of the Arbitration Act, passed the MSM,J WP No.16331 of 2019 11 impugned award generously beyond the claim made by the claimant, which is a non-est in the eye of law and hence the same is liable to be set aside.
The second respondent - M/s. Jupiter Contech (P) Ltd., formerly Konark Foundations (P) Ltd., filed counter affidavit along with vacate stay petitions, denying material allegations, inter alia contending that the writ petition under Article 226 of the Constitution of India is not maintainable and that the writ petition cannot be entertained without complying conditions under Section 19 of MSMED Act and that, the petitioners having accepted the jurisdiction of this Court and participated in the proceedings without any objection, it is not entitled to question the jurisdiction of Arbitrator. The petition is in the form of an appeal against the award passed by the Council, the forum is constituted under special enactment i.e. MSMED Act and this Court cannot act as an Appellate Court in the writ petition in the matter of statutory arbitration. Attempt of this petitioner to misguide this Court under the provisions of Arbitration and Conciliation Act, 1996, which provides for private arbitrator over the agreement between the parties is to be dealt with iron hand. This petition is filed with an intention to over reach Section 19 of MSMED Act, as this section contains a provision, the party who intended to question the award by way of appeal required to deposit 75% of the awarded amount.
Section 20 of MSMED Act contemplates the special statutory arbitration forum named as "Micro and Small Enterprise Facilitation Council" to adjudicate rights and liabilities of the parties to dispute. Accordingly notification has been issued and the Council has been established, as per the provisions of the Act and therefore, when a remedy is provided under the statute by way of appeal against the MSM,J WP No.16331 of 2019 12 award passed by the Council, the writ petition under Article 226 of the Constitution of India is not maintainable. It is also contended that the Supreme Court has defined the court in Section 2(e) of Arbitration and Conciliation Act, 2006, which is principal District Court and not the High Court under writ jurisdiction and that too under Article 226 of the Constitution of India. As per Section 2(4) of Arbitration Act, the petitioner is required to avail the remedy under the Arbitration Act, but not by way of Writ. Therefore, the writ is not maintainable. The Bench of three Judges of Supreme Court laid down specific law in this regard in Sterling Industries v. Jayprakash Associates Limited and others (referred supra). Therefore, writ petition is not maintainable under Article 226 of the Constitution of India against the award passed by the Council constituted under MSMED Act.
The second respondent also raised several contentions on factual issues and those specific issues have to be resolved by the Council only under the provisions of MSMED Act and not by this Court while exercising power under Article 226 of the Constitution of India. It is specifically contended that there was no conciliation process under Section 18(3) at all, as the duly authorized anyone Director/Company Secretary/Managing Director or Principal Officer of the Company had not appeared before the Council to take financial decision on spot to settle the matter with claimant. The second respondent being the Managing Director or Principal Officer of the petitioner is only authorized over special resolution of Board of Directors to hold the conciliation on financial matter either to go one step ahead or one step back in the financial negotiations. But, no one of such authority with proper resolution was there on the part of the MSM,J WP No.16331 of 2019 13 petitioner. Hence, the Council had no opportunity to hold conciliation process under Section 18(2) of MSMED Act, 2006 and that there is no basis that the conciliator cannot act as an arbitrator is not applicable to the facts of the present case.
There was advice by Council to the advocate and his companion officer to initiate the "reconciliation". But, it was not done by the petitioner company. They took the Statutory Council as non- entity. Therefore, the ground raised by the petitioner that the conciliator cannot be arbitrator is not available and applicable in the matter. Besides the above contentions, the following are specific grounds:
1. The most common and faceless objection is raised by the petitioner that the Micro and Small Enterprise Facilitation Council's cannot hold the Arbitration when it has taken up the process of conciliation under the provision of Section 18(2) of Micro, Small and Medium Enterprise Development Act, 2006. Section 80 of Arbitration and Conciliation Act, 1996; is invoked in this respect that the conciliator cannot act as arbitrator. However, this argument is to be tested on the anvil of special enactment and provisions made thereunder. It would be seen that the provision in Special enactment are completely different that the provisions of Arbitration and Conciliation Act, 1996 in the mater of private arbitration.
2. The Micro and Small Enterprise Facilitation Council is creature of statute under Micro, Small and Medium Enterprise Development Act, 2006. It is public forum and MSM,J WP No.16331 of 2019 14 functions as court within the scope of the aim and objects of Micro, Small and Medium Enterprise Development Act, 2006.
The perusal of the provision of MSMED Act, 2006 would reveal that the terms of references are already decided in statute itself. The buyer, who has accepted the material and services from the MSE, is under the legal obligation to pay the amount of the bill within 45 days or earlier if terms of payment are so decided. This, legal obligation is not subject to any dispute about contractual performance when there is undisputed acceptance of material or services finally by the buyer from Micro Small Enterprise as per purchase order of material or services contract. It is only the matter of compliance of obligation which begins at the end of the buyer after fulfillment of the contractual terms or provisions of Purchase Order. The Act has no occasion to enter in any dispute of contractual obligation between the buyer and supplier. The functioning of the MSMED Act, 2006 begins from the stage where all the contractual obligation have been put to rest between the parties while supplying and accepting the material and services. All the contractual obligations related to supplies or services are sought complied by the buyer at the stage of due acceptance material or services. Without compliance of the terms regarding quality, quantity and specifications, goods or services are not accepted at all by the buyer. Here the performance part at the end of supplier is completed.
MSM,J WP No.16331 of 2019 15
3. The only one issue remains for Micro and Small Enterprise Facilitation Council whether the buyer has made the delay in the payment of the bills amount to MSE which the buyer would have paid as per the terms of payments or within the statutory period of 45 days. When there is no agreement and work is got done by the dominant buyer from the supplier, the liabilities upon the buyer are more stringent. Otherwise, such buyer should have not asked the supplier to do the work. Thus, there is no scope for the Council to enter into other contractual dispute as the same does not exists on the completion of supplies of material and services and their due acceptance by the buyer.
4. In view of above situation, the discloser of confidential events or documents are not opened and placed before the Council since there is no such requirement in this transaction. Neither, this field is part of the provisions of MSMED Act, 2006. The disputed area between the supplier and buyer, if any, it merge in the finally accepted material or services by the buyer. In given circumstances, the conciliation is not of the nature which is contemplated in the section 80 of Arbitration and Conciliation Act, 1996.
5. On contrary the private arbitrator after perusing the terms of reference decided by the parties in all the areas of contract and contractual obligation, has to deal with various aspects of contractual obligations of the parties to the dispute. Whereas this area is not in existence in the adjudication to Micro and Small Enterprise Facilitation MSM,J WP No.16331 of 2019 16 Council under Micro, Small and Medium Enterprise Development Act, 2006. In given circumstances the conciliation provided in MSMED Act, 2006; has totally different meaning i.e. to save parties from further litigations and enforcement proceedings of execution of award. Except that, there is no other meaning has been attached to the conciliation process assigned to Micro and Small Enterprise Facilitation Council. The conciliation process in MSMED Act, 2006 and conciliation provided under Section 80 of Arbitration and Conciliation Act, 1996 for private arbitration has to deal totally different fields and situation.
6. There is difference in Section 80 of Arbitration and Conciliation Act, 1996 and Section 18(2) of MSMED Act, 2006. The provision of section 18(2) of Micro, Small and Medium Enterprise Development Act, 2006 cannot be interpreted in terms of section 80 of Arbitration and Conciliation Act, 1996. This conciliation process under Micro, Small and Medium Enterprise Development Act, 2006 is to make aware the parties to dispute of the further legal consequences, if the obligations of the buyer and right of the supplier are not brought to an end with mutual understanding and settlement. In this matter, mutual settlement was suggested by Council as no authorized Director, Company Secretary or Key Officer appeared before the Council.
7. There is no other consideration or securing any confidential information from either of the parties by the Council. The MSM,J WP No.16331 of 2019 17 task is not left to Council to find out the material which would not be placed on record otherwise as it is done in Arbitration and Conciliation Act, 1996. In the proceeding before Micro and Small Enterprise Facilitation Council the whole initial basic record of the supplies of material and services by the supplier to buyer remains same throughout.
8. The aim of Section 18(2) of Micro, Small and Medium Enterprise Development Act, 2006, is to avoid the bitterness and consequential destruction of cordial relationship in future commercial transactions between the MSE supplier specially and buyer. Whereas, this is not the aim and object under the Section 80 of Arbitration and Conciliation Act, 1996 but to find out hidden truth and peruse the parties to settlement. Considering this fact, the challenge to the award passed by Micro and small Enterprise Facilitation Council on the basis of Section 80 of Arbitration and Conciliation Act, 1996 that conciliator cannot be arbitrator; is completely out of place and totally wrong. This aspect is discussed by the Supreme Court in various judgments.
Based on the above grounds, it is contended that the writ petition is not maintainable against the award passed under the MSMED Act and requested to dismiss the writ petition.
During hearing, Sri Subbarao Korrapati, learned counsel for the petitioner submitted that, when the award is passed totally contrary to the principle, the writ petition is maintainable and he placed reliance on the judgment of High Court of Judicature at Bombay in Gujarat State Petronet Limited v. Micro and Small MSM,J WP No.16331 of 2019 18 Enterprises Facilitation Council, Konkan Division1 and judgment of High Court of Judicature at Hyderabad for the State of Telangana and State of Andhra Pradesh in The Indur District Co-operative Marketing Society Limited v. M/s. Microplex (India) & another2, M/s Process Equipments India and another v. H.P. Micro & Small Enterprises Facilitation Council and another3. Learned counsel for the petitioner also contended that conciliator cannot act as an arbitrator and this objection was raised from the beginning, but the Council did not consider the objection and went on deciding the dispute between the parties and therefore, the Council proceeded to decide the dispute having acted as a conciliator and passed the award against this petitioner, contrary to Section 80 of Arbitration and Conciliation Act. Learned counsel for the petitioner also relied on the judgment of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and others4 to contend that, when the Council acted in derogation to the power conferred on the Council by Section 80, this Court can entertain the writ petition and pass appropriate order, but availability of an alternative remedy by way of appeal under MSMED Act is not a bar.
The main endeavour of the learned counsel for the petitioner Sri Korrapati Subba Rao is that, when arbitration proceedings are initiated against this petitioner by the 8th respondent before the Council under the MSMED Act and having referred the matter to conciliation, when conciliation failed, the same Council cannot uphold the arbitration proceedings, in view of the bar under Section 80 of the Arbitration and Conciliation Act. When the same 1 2018 AIR (Bom) 265 2 2016 (3) ALD 588 3 (2014) Supreme (HP) 607 4 (1998) 8 SCC 1 MSM,J WP No.16331 of 2019 19 conciliators acted as arbitrators in the arbitration proceedings, the arbitration award is illegal in view of the principles laid down in various judgments referred supra, as such the award is illegal and contrary to law and prayed to set-aside the same.
Per contra, learned counsel for the second respondent - Sri Nallamotu Subba Rao contended that, this Court cannot exercise jurisdiction under Article 226 of the Constitution of India, in view of the Full Bench Judgment of the Apex Court in Sterling Industries v. Jayprakash Associates Limited and others5 against the award passed under the Arbitration and Conciliation Act. On this ground alone, the writ petition is not maintainable and liable to be set-aside. Learned counsel further contended that, when a statutory remedy is available, the petitioner cannot approach this Court by invoking the jurisdiction of this Court under Article 226 of the Constitution of India, challenging the award passed by the Council i.e. arbitrator and placed reliance on the judgment of the Apex Court in Genpact India Private Limited v. Deputy Commissioner of Income Tax and another6 in support of his contention.
Similarly, the learned counsel for the second respondent placed reliance on the judgment of the Apex Court in Snehadeep Structures Private Limited v. Maharashtra Small Scale Industries Development Corporation Limited7, G. Ramachandra Reddy and Co. v. Union of India8, Ballapur Industries Limited v. Andhra Pradesh Micro and Small Enterprises Facilitation Control and others9, Goodyear India Limited v. Norton Intech Rubbers (P) Ltd 5 AIR 2019 SC 3558 6 (2019) 108 Taxman 340 (Delhi) 7 AIR 2010 SC 1497 8 AIR 2009 SC 2629 9 2015 (2) ARBLR 203 (AP) MSM,J WP No.16331 of 2019 20 and others10 to contend that, when a statutory remedy is available, the petitioner cannot invoke the jurisdiction of this Court under Article 226 of the Constitution of India in an award passed by an arbitrator and requested to dismiss the writ petition at the threshold.
Considering rival contentions, perusing the material available on record, the points that arise for consideration are as follows:
1) Whether the arbitrators who acted as conciliators are entitled to act as arbitrators and pass award, in view of the bar under Section 80 of the Arbitration and Conciliation Act?
2) Whether the High Court can exercise power under Article 226 of the Constitution of India to set-aside the award passed by the Arbitrator under the provisions of MSMED Act r/w Arbitration and Conciliation Act. If not, whether the present writ petition is liable to be dismissed on the sole ground?
P O I N T Nos. 1 & 2:
As the discussion on both the points is interconnected, I find it appropriate to decide both the points by common discussion.
The main dispute with regard to maintainability of the writ petition against an award passed by the Council under Section 18 of MSMED Act. Section 18(1) of MSMED Act deals with Reference to Micro and Small Enterprises Facilitation Council in dispute with regard to any amount due under Section 17, make a reference to the Micro and Small Enterprises Facilitation Council.
According to Section 18(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 10 2012 (2) CTC 829 MSM,J WP No.16331 of 2019 21 Act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act.
Clauses (3), (4) & (5) of Section 18 of MSMED Act dealt with the procedure to be followed under Section 18 when such reference is made for settling the dispute.
Section 19 of MSMED Act deals with application for setting aside decree, award or order. According to it, 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.
Therefore, the mandatory requirement is to deposit the amount, as prescribed under Section 19 of MSMED Act. But, to avoid mandatory requirement under Section 19 of MSMED Act, the present petition appears to have been filed under Article 226 of the Constitution of India, which does not require any such deposit, as mandated under Section 19 of MSMED Act, inventing a story that, when a conciliation was made, the same conciliator cannot act as arbitrator by way of alternative dispute resolution process and in view of bar under Section 18 of Arbitration and Conciliation Act.
MSM,J WP No.16331 of 2019 22 The main endeavour of the learned counsel for the petitioner is that, though alternative remedy is available under the statute, still jurisdiction of the High Court under judicial review is not ousted under Article 226 of the Constitution of India. Learned counsel mainly relied on the judgment of Apex Court in Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and others (referred supra), where the Apex Court while deciding an identical issue was of the view that, when the jurisdiction of the High Court under Article 226 of the Constitution of India is not barred when there is a serious procedural fallacy under the Trademarks Act by the competent authority, though an appeal is provided or when the Tribunal acted without any authority and questioned the order passed by the Registrar or Trade and Merchandise Marks Act, 1958.
The Apex Court also further observed that the power to issue prerogative writs under Article 226 of the Constitution is plenary is nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part II of the Constitution but also for "any other purpose". Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in atleast three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has MSM,J WP No.16331 of 2019 23 been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. There is a plethora of case-law on this point but to cut down this circle of forensic whirlpool, relied on some old decisions of the evolutionary era of the constitutional law as they still hold the field and concluded that the High Court continued to hold the jurisdiction under Article 226 of the Constitution inspite of availability of alternative and statutory remedy, is not affected, specially in a case where the authority against whom the Writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation.
Taking note of this principle, learned Single Judge of High Court of Judicature at Hyderabad for the State of Telangana and State of Andhra Pradesh in The Indur District Co-operative Marketing Society Limited v. M/s. Microplex (India) & another, where the petitioners raised a contention that writ petitions are not maintainable to take recourse to the statutory remedy and pointed out that the jurisdictional issue had been raised before the Council in all the cases. But the Council passed the order under challenge when without dealing with the same, as this jurisdiction went to the very root of the matter and therefore, the writ petition would like before the Court and it would not be necessary for the petitioner - societies to take recourse of the statutory remedy when the authorities acted totally in violation of principles of natural justice or passed order without any authority. In the above judgment also, the same issue came up for consideration before the learned Single Judge with reference to Arbitration and Conciliation Act and MSMED Act. Thus, the learned Single Judge expressed his candid opinion that writ MSM,J WP No.16331 of 2019 24 petition is maintainable when the order was passed without any authority of law or against the principles of natural justice.
The same view was expressed by another Division Bench of High Court of Judicature at Hyderabad for the State of Telangana and State of Andhra Pradesh in W.A.No.138 of 2016 dated 06.06.2016 against the judgment of the learned Single Judge in the same judgment and the Division Bench upheld the judgment of learned Single Judge in W.A.No.138 of 2016 dated 06.06.2016.
Earlier to these two judgments, the learned Single Judge of this Court in State Water and Sanitation Mission, Erramanzil, Hyderabad v. The A.P. Micro and Small Enterprises Facilitation Council, Hyderabad11 held that jurisdiction of the High Court under Article 226 of the Constitution of India is not ousted. Similarly, in M/s Process Equipments India and another v. H.P. Micro & Small Enterprises Facilitation Council and another (referred supra) and M/s Rahul singh v. Union of India12 succinctly held that the writ petition is maintainable. Thus, the view expressed by the learned Single Judge and Division Bench with regard to maintainability of a writ petition against the award under Article 226 of the Constitution of India is not disputed in any judgment of High Court of Andhra Pradesh or High Court of Judicature at Hyderabad for the State of Telangana and State of Andhra Pradesh.
However, a divergent opinion was expressed by the Apex Court in Snehadeep Structures Private Limited v. Maharashtra Small Scale Industries Development Corporation Limited (referred supra) wherein the Division Bench of the Apex Court discussed about the requirement of compliance of mandatory requirement of deposit 11 W.P.No.13639 of 2014 dated 25.06.2015 12 2017 (3) ADJ 117 MSM,J WP No.16331 of 2019 25 under Section 34 of Arbitration and Conciliation Act, while deciding the petition under Section 34 of Arbitration and Conciliation Act were such provision should be given retrospective or prospective effect.
Similarly, In G. Ramachandra Reddy and Co. v. Union of India (referred supra), the Division Bench while referring the judgment in Pure Helium India (P) Ltd v. Oil & Natural Gas Commission13, Sudarshan Trading Company v. Government of Kerala and another14 and others, held that an Award containing reasons also may not be interfered with unless they are found to be perverse or based on a wrong proposition of law. If two views are possible, it is trite, the Court will refrain itself from interfering. (vide State of U.P. v. Allied Constructions15).
In the recent Full Bench judgment of the Supreme Court in Sterling Industries v. Jayprakash Associates Limited and others (referred supra), the Apex Court while dealing with a similar issue under MSMED Act, referred the earlier judgment of Apex Court in S.B.P. and Co. v. Patel Engineering Ltd16, held that writ petition under Article 227 or Article 226 of the Constitution of India is not maintainable against the award passed by an arbitrator. Therefore, the Full Bench of the Apex Court reiterated the principle laid down in S.B.P. and Co. v. Patel Engineering Ltd (referred supra), where the Court succinctly held that, High Courts have proceeded on the basis that any order passed by an arbitral tribunal during arbitration, would be capable of being challenged under Article 226 or 227 of the Constitution of India. Section 37 makes certain orders of the arbitral tribunal are appealable. Under Section 34, the aggrieved party has an 13 AIR 2003 SC 4519 14 (1989) 1 SCR 665 15 (2003) 7 SCC 396 16 AIR 2006 SC 450 MSM,J WP No.16331 of 2019 26 avenue for ventilating his grievances against the award including any in-between orders that might have been passed by the arbitral tribunal acting under Section 16 of the Act. The party aggrieved by any order of the arbitral tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The arbitral tribunal is after all, the creature of a contract between the parties, the arbitration agreement, even though if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the arbitral tribunal. It will still be a forum chosen by the parties by agreement. Therefore, disapproved the stand adopted by the High Court that any order passed by the Arbitral Tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution of India and such intervention by the High Courts is not permissible.
In view of the clear language used in the judgment of the Apex Court, even if any error is committed by the Arbitral Tribunal, this Court while exercising entire judicial review under Article 226 of the Constitution of India cannot interfere with the orders passed by the Arbitral Tribunal. The same view was expressed by the learned Single Judge of this Court in Ballapur Industries Limited v. Andhra Pradesh Micro and Small Enterprises Facilitation Control and others (referred supra). In Goodyear India Limited v. Norton Intech Rubbers (P) Ltd and others (referred supra), the Apex Court held that, Section 19 provides that no Application for setting aside any decree, award or other order made either by the Council, appointed under the 2006 Act, shall be entertained by any Court unless the Appellant (not being a supplier) deposits with the Court seventy-five per cent of the amount in terms of the decree, award or MSM,J WP No.16331 of 2019 27 as the case may be, the other order, in the manner directed by such Court. The learned Single Judge having considered the submissions made on the said provision came to the conclusion that on a plain reading of the Section, the Court had no discretion to either waive or reduce the amount of seventy-five per cent of the award as a pre- deposit for filing of the Appeal and, accordingly, dismissed the original Petition, with leave to the Petitioner to deposit an amount, amounting to seventy-five per cent of the award, within an extended period of six weeks. In the two Special Leave Petitions, which have been filed by M/s. Goodyear India Limited, once again the main thrust of the submissions made by Mr. M.G. Ramachandran, learned Counsel appearing for the Petitioner, was with regard to interpretation of the provisions of Section 19 of the 2006 Act. According to him, one of the questions of law which arise for consideration in these proceedings is, whether the requirement under Section 19 of the 2006 Act, regarding deposit of seventy-five per cent of the amount in terms of the award made under the said Act, is absolute, perverse, capricious or arbitrary in nature. Coupled with the said question, another submission was made by Mr. Ramachandran as to the interpretation of the expression "in the manner directed by such Court", which appears at the end of Section 19, just before the proviso. Mr. Ramachandran sought to interpret Section 19 within the meaning of such expression by submitting that the said expression provided the Court with discretion to alter the provisions relating to deposit of seventy-five per cent as pre-deposit, for the Appeal to be taken up for consideration. According to Mr. Ramachandran, the said expression could also be understood to include securing of the amount by way of Bank Guarantee or otherwise, having regard to the onerous and stringent conditions MSM,J WP No.16331 of 2019 28 involved. Having regard to the above, this Court was not inclined to entertain the Special Leave Petitions filed by M/s. Goodyear India Limited and accordingly dismissed the petitions.
Thus, in view of the law declared by the Full Bench of the Apex Court in Sterling Industries v. Jayprakash Associates Limited and others (referred supra) and Division Bench of the Supreme Court in Goodyear India Limited v. Norton Intech Rubbers (P) Ltd and others (referred supra), which are binding precedents on the Courts, a writ petition against an Award passed by Arbitral Tribunal is not maintainable under Article 226 of the Constitution of India. But, the learned Single Judge of the High Court in the judgments referred above did not take note of the principle laid down by the S.B.P. and Co. v. Patel Engineering Ltd (referred supra). Even in the Full Bench judgment of the Apex Court, the issue is identical, but not based on the jurisdictional issue. When the judgment is under the same enactment, the Full Bench judgment will have precedence over the judgments of Division Bench of learned Single Judge of High Court of Judicature of Andhra Pradesh. Therefore, the law declared the Apex Court is a binding precedent on this Court.
Though the learned counsel for the petitioner contended that a conciliator cannot act as an arbitrator, in view of Section 80 of the Arbitration and Conciliation Act, 1996 and this view is fortified by several judgments referred supra, but still, the judgment of Full Bench of the Apex Court in Sterling Industries v. Jayprakash Associates Limited and others (referred supra) is binding and such lacking power or violation of any of the provisions of Arbitration Act can also be decided by a competent court in an application filed under Section 34 of the Arbitration and Conciliation Act or under MSM,J WP No.16331 of 2019 29 Section 19 of MSMED Act. If, the authorities under Section 19 of MSMED Act or under Section 34 of the Arbitration and Conciliation Act concludes that the order is illegal and without any authority or against the principles of natural justice, the authorities may exercise power as conferred on them and decide the issue and set-aside the award. Therefore, when an efficacious alternative remedy is available on the statute itself, exercise of judicial review by the High Court under Article 226 of the Constitution of India, though limitations are self imposed, it is difficult to accept the contention of this petitioner, in view of the recent judgment of the Supreme Court in Genpact India Private Limited v. Deputy Commissioner of Income Tax and another (referred supra), where the Apex Court candidly held that the writ petition is not maintainable when alternative efficacious remedy is available under the statute.
Though the contention of the learned counsel for the petitioner that the order passed by the Council is contrary to the provisions of procedure prescribed under Arbitration and Conciliation Act, such issue can be decided by the statutory authority provided under Section 19 of MSMED Act or under Section 34 of the Arbitration and Conciliation Act. Hence, the contention of the learned counsel for the petitioner is rejected, while upholding the contention of the learned counsel for the respondent, giving liberty to raise issue before the competent statutory authority under Section 19 of MSMED Act or under Section 34 of Arbitration and Conciliation Act.
The object behind enacting the Arbitration and Conciliation Act is to minimize the litigation and settle the disputes between the parties at low cost and in minimum time. Legislature adopted a new Act in 1996 only to make it more convenient to resort to settlement MSM,J WP No.16331 of 2019 30 before the Arbitral Tribunal and to avoid judicial intervention at every stage. Section 89 of C.P.C. suggested mode of settlement, conciliation and reference to Legal services authority to settle the pending disputes by alternative disputes resolution system, instead of making the parties to wait years together due to procedural fetters in the C.P.C. before the Civil Court.
The Arbitration and Conciliation Act, 1986 is a complete code, the Act itself providing remedies to the aggrieved parties at different stages either after or during pendency of the proceedings before the Arbitral Tribunal minimizing the judicial intervention. Limited jurisdiction calling for judicial interference is circumscribed by Section 5 of the Act, which reads thus:
"Section 5 - Extent of Judicial intervention.- Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this part. (Part 1) Part 1 deals with appointment of Arbitrator, powers of the Arbitrator and role of the Arbitrator and passing of award etc."
In the statement of objects and reasons of the Arbitration and Conciliation Bill, 1995 presented to Parliament one of the main objectives was proclaimed to be "to minimize the supervisory role of Courts in the arbitral process". This was an euphemism. What is prohibited is 'intervention' in arbitration proceedings. Assistance of Courts may be sought under Sections 8, 9 and 27 equivalent to Old Sections 31, 32 and 33 which permitted interventions have been omitted.
MSM,J WP No.16331 of 2019 31 Thus, in view of the object of the Act and observations made by Division Bench of Delhi High Court, though not binding precedent, the scope of judicial intervention is limited.
There are two different views. One view permits judicial intervention since Section 5 of the Act did not take away the jurisdiction of the High Court or any other Constitutional Court to interfere with the arbitral proceedings since the power under Article 226 of Constitution of India is extraordinary and such power can be exercised to prevent abuse of process of the Court or do complete justice to the parties. The power of judicial review vested in the superior Courts undoubtedly has wide amplitude but the same should not be exercised when there exists an arbitration clause. But the Court should not use discretion where it is pure disputed question of fact. The Court can exercise such power under Section 34 of the Act since these provisions permit judicial intervention at different stages.
In Sanjana M. Wig v. Hindustan Petroleum Corporation17 the Apex Court while answering the principal question which arises for consideration is as to whether discretionary jurisdiction would be refused to exercise solely on the ground of existence of an alternative remedy which is more efficacious. Ordinarily, when a dispute between the parties requires adjudication of disputed question of facts wherefore the parties are required to lead evidence both oral and documentary which can be determined by a domestic forum chosen by the parties, the Court may not entertain a writ application. 17
2005 (6) ALD 110 (SC) MSM,J WP No.16331 of 2019 32 In the case of Commercial and others v. Calicut Engineering Works Limited18 the petitioner, i.e., Commercial filed an application dated 2.7.2003 to the Arbitrator for setting aside the report of hand writing expert in respect of the question as to whether the petitioner has signed the document which purportedly contained arbitration clause and another hand writing expert be appointed. The said application was rejected by the Arbitrator. The Apex Court in Commercial and others v. Calicut Engineering Works Limited (referred supra), held that the said rejection by the Arbitrator would be ground of challenge under Section 34 of the Act. In Rajinder Krishna Khanna and others v. Union of India and others19, a copy of inspection report basing on which the impugned arbitration award was made, was not available to the second respondent, as such, the second respondent had been unable to present its case thereon and principles of natural justice had been violated. The Apex Court in Rajinder Krishna Khanna's case (supra), held that denial of opportunity to present its case in the arbitration proceedings, would be one of the ground mentioned in Section 34(2)(iii) of the Act for setting aside the award made by the Arbitral Tribunal in such proceedings.
As per the law declared in long line of perspective pronouncements, the jurisdiction of this Court under Article 226 of Constitution of India, after commencement of arbitration proceedings, is limited and more particularly against an award passed under the Act, as such the Court cannot exercise power under Article 226 of Constitution of India to issue any order in this writ petition.
18
(2004) 10 SCC 656 19 AIR 1999 SC 463 MSM,J WP No.16331 of 2019 33 In view of my foregoing discussion, I find no merit in the writ petition and the writ petition deserves to be dismissed, as not maintainable.
In the result, writ petition is dismissed. No costs. Consequently, miscellaneous applications pending if any, shall stand dismissed.
_________________________________________ JUSTICE M. SATYANARAYANA MURTHY Date:20.01.2020 sp