Bangalore District Court
M/S Struct Geo Tech Research ... vs Bruhat Bengaluru Mahanagara Palike ... on 25 March, 2024
1
Com.AP.No.139/2023
KABC170021492023
IN THE COURT OF LXXXII ADDL. CITY CIVIL & SESSIONS
JUDGE, AT BENGALURU (CCH.83)
THIS THE 25th DAY OF MARCH 2024
PRESENT:
SUMANGALA S. BASAVANNOUR., B.COM, LL.M.,
LXXXII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.P.No.139/2023
BETWEEN:
M/s Struct Geotech
Research Laboratories (P)
Ltd. (Struct), NO. 588, 2nd
Main, 6th Block,
Hosakerehalli Cross,
Banashankari 3rd Stage,
2nd Phase, Bengaluru - 560
085, duly represented by its
Authorized Signatory, Mrs.
Vinutha Prakash, aged
about 34 years, W/o Sri.
Prakash.
2
Com.AP.No.139/2023
: PETITIONER
(Represented by M/s
R.C. Associates -
Advocate)
AND
1. Bruhat Bengaluru
Mahanagara Palike, having
its office at N R Square,
Bangalore - 560 001, duly
represented by its
Commissioner.
2. Executive Engineer,
Quality Control Division - 2,
Bruhat Bengaluru
Mahanagara Palike, having
its office at N R Suqare,
Bangalore - 560 001.
3. Retd. Justice N.K. PAtil,
Sole Arbitrator, Arbitration
and Conciliation Centre,
Kanija Bhavan, Bengaluru.
: RESPONDENTS
3
Com.AP.No.139/2023
(Represented by Sri.
Prashanth Chandra S.N-
Advocate)
Date of Institution of the 12.09.2023
suit
Nature of the suit (suit
on pronote, suit for Petition for setting aside
declaration & Possession, Arbitral Award
Suit for injunction etc.)
Date on which judgment 25.03.2024
was pronounced
Total Duration Year/s Month/s Day/s
00 06 13
(SUMANGALA S. BASAVANNOR),
LXXXII Addl. City Civil & Sessions Judge,
Bengaluru.
JUDGMENT
This petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996. The petitioner prays that set-aside the part of the award dated 20.04.2023 in so far as the award disallows claim No.2 made of the Petitioner.
4Com.AP.No.139/2023
2. Brief facts of the petition:
The Respondent No.1 had called a tender for selection of Lab Consultants/Firms for Quality Control for the works taken up by it. The Claimant participated in the tender and was awarded the work order bearing No. EE/QC/Div-2/PR/324/11-12 Dated 18.03.2013 for allocation of Zones and Departments for Quality Control test. Further, the Claimant also entered into a Contract dated 18-03-2013 which was executed by BBMP for providing Quality Control as Lab Consultants for the work taken up the BBMP. The job of the Claimant was to provide Civil Engineering consultancy service and laboratory for testing construction materials, of the contractors and to certify the same, for the further action in the matter of the respondents. The Claimant has complied with all the conditions envisaged under the Contract and started to perform his duties. As per the specifications of the work order the claimant has completed his part of work with the satisfaction of the Respondents No. 1 & 2 and provided all the relevant documents including test reports to the Respondents No. 1 & 2 for various projects assigned under the Zones. After completion and submission of the reports, the Claimant submitted the respective invoice's on various dates which total Rs. 19,36,240/-. The Respondent No. 1 failed to pay the 5 Com.AP.No.139/2023 amounts for the Bills submitted the Petitioner. The Arbitration Centre appointed Retd. Justice N.K. Patil as the Sole Arbitrator, the Respondent No. 3 to decide on the disputes between the parties. The Petitioner claimed amounts that were due to him under the following heads.
Claim No.1 Amount Due under the Rs. 19,36,240/-
invoices raised by the Petitioner Claim No.2 Interest under the Rs. 3,64,19,591/-
MSMED Act 2006 Claim No.3 Costs of this arbitration Rs. 15,00,000/-
The respondent appeared before the Hon'ble arbitrator and filed its objections. Both the parties have cooperated in the proceedings before the tribunal. the Award dated 20.04.2023 came to be passed and served on the petitioner on 15.06.2023.
3. The impugned award has challenged on following grounds;
(a) The Learned Arbitrator erred in rejecting the claim of the petitioner in so far as it relates to interest on the money due under the invoices submitted under the work order dt. 18.03.2013. Very significantly, the Learned Arbitrator has 6 Com.AP.No.139/2023 awarded the claim No. 1 to the petitioner being the amount due under the Invoices. If that be so, he ought to have awarded interest thereon especially as the Invoice amount was the money which was to be paid to the petitioner and which had been illegally retained by the Respondent No. 1. Therefore, the interest as calculated by the Petitioner under Section 16 of MSMED Act and submitted as Claim No. 2, should have been awarded to the Petitioner. The Petitioner is entitled to Interest as per Section 16 of the MSMED Act 2006. In these circumstances, the Learned Arbitrator ought to have awarded Claim NO.2
(b) The Learned Arbitrator wholly erred in not noticing that under Section 16 of the MSMED Act 2006, the Petitioner is entitled to interest at compounding interest with monthly rests to the Petitioner on the amount at 3 times of the bank rate notified by the Reserve Bank of India. The Arbitrator has allowed Claim No.1 which is the amount due under the Invoices to the Petitioner herein, but has not allowed Claim No. 2 which is the interest calculated as per Section 16 of the MSMED Act, 7 Com.AP.No.139/2023 2006. In this regard, the said claim has to be allowed.
(c) The Learned Arbitrator has held that the Contract defines that Petitioner is not entitled for any advance payment but 95% will be released according to the progress of the work and balance 5% will be released only after completion of DLP of the work. As, there is no reference of the DLP Clause or about the works, only the rate 1.00% is only fixed as estimate cost of work and further, it is not in dispute that the contract is for the period of 24 months being the contract period and another 12 months being the DLP therefore, the time seeking payment will be from 20.03.2016 being the contract period inclusive of DLP. Further, the time limit for filing any claim petition for recovery of dues is 03 years from actual date of due is not in dispute. The Learned Arbitrator has also held that the Petitioner has issued notice calling upon the Respondent No. 1 & 2 to release the payment and later has initiated the proceeding before MSME on 25.06.2018, which shows that it is well within limitation, as the limitation period is 3 years from the date of due as 8 Com.AP.No.139/2023 per the relevant terms and conditions of the contract. Such being the case, the Learned Arbitrator has not granted Claim No. 2, which the Petitioner had claimed under Section 16 of MSMED Act, 2006. Hence, this petition.
(d) The Learned Arbitrator erred in rejecting claim No. 2 of the petitioner being the interest. The Learned Arbitrator has appreciated the fact that "if the Respondents has paid the principal amount due to the Claimant within the stipulated period as per the terms and conditions of the Contract. If the Claimant deposited the said principal amount in any Nationalized Bank in fixed deposit, he may get interest at the rate of 6% to 8% for the financial year 2014 to 2022 as per RBI rate of interest". The Learned Arbitrator has considered that the Petitioner is entitled to interest at the rate of 8% from the date of invoice till the payment made by the Respondent, but has failed to consider the interest calculated as per MSMED Act, 2006. Hence, this petition.
9Com.AP.No.139/2023
(e) the Learned Arbitrator has failed to take consideration of the Special Act i e MSMED Act 2006, which clearly defines in Chapter V under Section 15 to 25 which pertains to "delayed payments to Micro and Small Enterprises". A bare perusal of the said provisions in Chapter - V shows that a strict liability has been fastened on the buyer to make the payment to the supplier who supplies any goods or renders any service to the buyer, prescribing the time limit in Section 15. Section 16 further fastens the liability on the buyer to pay compound interest if any buyer fails to make payment to the supplied as required under Section
15. Such compound interest is required to be paid at three times of the bank rate notified by the RBI. Hence, he prayed to allow the petition.
4. The Respondent filed objection by stating that the petition filed under Section 34 of the Act is not maintainable. Petitioner has not made out any case for setting-aside the award insofar as claim no.2. The grounds urged by the petitioner do not constitute valid grounds under the Act to set aside the award which is otherwise in accordance with law. On the other hand, 10 Com.AP.No.139/2023 the claim petition was liable to be dismissed and instead the Hon'ble Arbitral Tribunal allowed the claims. The Hon'ble Tribunal has generously awarded interest at the rate of 8% p.a whilst holding that the petitioner is not eligible to receive the same as per the MSME Act. In the case of M/s Silpi Industries v. Kerela State Road Corporation and Another (2018 SCC OnLine SC 3694), where the factual matrix and issues are akin to the Imminent case, the Supreme Court held that the provisions of the Limitation Act, 1963 are applicable to arbitration as per Section 43 of the Arbitration and Conciliation Act, 1996 and further observed that the provisions of the Limitation Act would apply to disputes between a MSME service provider and an employer. The petitioner's admission of approaching the authorities under Section 18 of the MSME Act in 2020 for a claim dating back to the period between 2013 and 2015 would offer no relief since the principal claim itself would be barred by limitation. impugned award dated 20.04.2023, the Hon'ble Tribunal has failed to take note of the fact that the interest claimed by the petitioner is from the year 2014, thereby, the Hon'ble Tribunal has grossly erred in holding that the petitioner had initiated the proceedings within a period of 3 years. Hence, he prayed to dismiss the petition.
11Com.AP.No.139/2023
5. Based on the above contentions of both parties, and the arguments of both Advocates, following Points arise for my consideration:-
1. Whether there are grounds to set aside the Impugned Award under Section 34 of the Arbitration & Conciliation Act?
2. What Order?
6. My findings on the above points are as follows:-
Point No.1:- In the Affirmative.
Point No.2:- As per the final Order for the following reasons.
REASONS
7. Point No.1: - The settled position in law that in proceedings under Section 34 of the Act, the Court does not sit in appeal over the Award. Thus, an Arbitral Award passed by an Arbitrator shall not be interfered with lightly. The Court can neither sit in appeal nor reassess or re-appreciate the evidence and the Arbitral Award can only be interfered with grounds stipulated in Section 34(2) of the Act.
12Com.AP.No.139/2023
8. It is settled position in law that an Award could be set aside if it is contrary to :-
(a) fundamental policy of Indian law; or
(b) the interest of India ; or
(c) justice or morality ; or
(d) in addition, if it is patently illegal.
9. The illegality must go to the root of the matter and if the illegality is of trivial nature, it cannot be held that the award is against the public policy. Award could also be set aside, if it is so unfair and unreasonable that it shocks the conscience of the Court. Such an award is opposed to public policy and is required to be adjudged void.
10. The Hon'ble Supreme Court in the landmark judgment reported in 2015(3) - S.C.C. - 49 (Associate Builders vs. Delhi Development Authority), (which is relied on by the Advocate for the Defendent) while setting aside the judgment passed by the Division Bench of Hon'ble High Court of Delhi culled out the legal principles after traversing the judicial pronouncements passed by the various High Courts and the Hon'ble Apex Court. In the said case, it is held that it is 13 Com.AP.No.139/2023 important to note that the 1996 Act was enacted to replace the Arbitration Act, 1940 in order to provide for an Arbitral procedure which is fair, efficient and capable of meeting the needs of Arbitration and also to provide that the tribunal gives reasons for an Arbitral Award; to ensure that the Arbitral Tribunal remains within the limits of its jurisdiction and to minimize the supervisory role of Courts in the Arbitral process.
11. In the said decision, the Hon'ble Apex Court observed that it must be clearly understood that when a Court is applying the "Public Policy" test to an Arbitration Award, it does not act, as a Court of appeal and consequently errors of fact cannot be corrected. A possible view by the Arbitrator on facts has necessarily to pass muster, as the Arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his Arbitral Award. Thus, an Arbitral Award based on little evidence or no evidence which does not measure up in quality to a train legal mind would not be held to be invalid on this count.
12. In view of the above mentioned discussions, the position in law is well settled that while dealing with an award under Section 34 of the Act, the Courts are not supposed to sit in appeal and re-appreciate the evidences as an appellate 14 Com.AP.No.139/2023 Court. Hence, the findings of the facts by the Arbitral Tribunal, if based on evidence, even where a different opinion can be held on the basis of that evidences, the findings given by the Arbitrator has to be accepted and the Courts cannot substitute its opinion. The power to interpret the contracts also lies with the Arbitrator. Once the Court reach to the conclusion that the Arbitrator has acted within its jurisdiction, even if the Courts are of the view that the opinion of the Arbitrator is wrong, the same cannot be disturbed unless it is against the public policy.
13. The applicant challenged this award on the ground that the learned arbitrator has awarded the claim No.1 to the petitioner being the amount due under the invoices. If that be so, he ought to have awarded interest thereon especially as the invoice amount was money which was to be paid to the petitioner and which had been illegal retained by the Respondent No.1. Therefore, the interest as calculated the petitioner under Section 16 of MSMED Act and claim NO.2, should have been awarded to the Petitioner.
14. The learned arbitrator wholly erred in not noticing that under Section 16 of the MEMED Act 2006, the petitioner is entitled to interest at the compounding interest with monthly rests to the petitioner on the amount at 3 times of the bank rate 15 Com.AP.No.139/2023 notified by the Reserve Bank of India. The arbitrator has allowed claim No.1 which is the amount due under the invoices to the Petitioner herein, but has not allowed the claim No.2 which is interest calculated as per section 16 of the MSMED Act, 2006.
15. The learned arbitrator held that the emerged from the available material on record that the claimant had issued letters and legal notices to the Jurisdictional competent authority of the respondents. They have failed to reply the same. It establishes that there is a delay and latches on the part of the concerned officer who is in-charge of the subject matter. Therefore, the concerned officer of the respondents to be held responsible for delay and latches. Hence, i do not find any substance in the stand taken by the learned counsel for the respondents. Taking into consideration facts and circumstances of the case as stated supra, if the Respondents has paid the principal amount due to the claimant within the stipulated period as per the terms and conditions of the contract. IF the claimant deposited the said principal amount in any Nationalized Bank in fixed deposit he may get interest at the rate of 6 % to 8% for the financial year 2014 to 2022 as per the RBI rate of interest. Therefore i am of the considered view the claimant is entitled interest at the rate of 8% from the date of invoice till the payment made by the Respondent.
16Com.AP.No.139/2023
16. It is not in disputed fact that the petitioner is registered under the MSME Act in registration No. 030040278/M/00005. So, the MSME Act is applicable to the Petitioner.
17. Chapter-V : Delayed payments to micro and small enterprises Section 15 to 25 of the MSMED Act form part chapter-V. As per Section 15 of the MSME Act Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day. The proviso is that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.
18. Section 16 of the MSME Act deals with the where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, 17 Com.AP.No.139/2023 from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.
[
19. Section 17 of the MSMED Act deals with 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.
[
20. From thus a consignment reading of Section 15 to 25 of MSME Act, it is evident that the parliament has best owed a special attention on this significant sector of the Indian economy. It is clear that the focus of the registration is to safeguard the interest Micro Small and Medium enterprises. While a buyer is mandated to make a payment to Micro and Small enterprises within definite not exceeding forty-five days from the day of acceptance or deemed acceptance, the buyer to make such a payment would make the buyer liable to pay compound interest at 3 times of the bank rate notified by the Reserve Bank, the idea is encouraged the prompt payment by the buyer to the supplier by making default extremely expensive. To clarify the matter Section 17 makes it mandatory for the buyer to make payment with interest statutory 18 Com.AP.No.139/2023 prescribed for goods supplied or services rendered by the suppliers.
21. Section 15 to 23 of MSME Act for shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force including 1996 Act.
22. The High Court of Delhi has affirmed the order of the lower Court by which it had set aside an arbitral award for not awarding interest in terms of Sections 15 and 16 which are mandatory provisions of the MSMED Act.
23. As per Section 16 of MSME Act 2016 the payment is entitle for interest on non payment for delayed payment. The buyer is liable to pay compound interest with monthly rests to the supplier on amount from the appointed day or as case may be from the date immediately following dates agreed upon at 3 times of the bank rate notified by the Reserve Bank as per Section 16 and 17 of the MSME ACt. The claim amount is 19,36,240 along with interest on delayed payment as per Section 16 MSME Act, The claim has to be admitted, the interest accumulating is also admissible as per provision of MSME Act 2006.
19Com.AP.No.139/2023
24. As above discussed, on perusal of the arbitration records in the Impugned Award, it reveals that the Respondent No.2 has not followed the said mandatory provision under Section 16 of MSME Act 1996. In the absence of the reasons non awarding the interest as per Section 16 of the MSME Act. The Impugned award is perverse, illegal and it amounts to patent illegality.
25. The Hon'ble Supreme Court in the landmark judgment reported in 2015(3) - S.C.C. - 49 (Associate Builders vs. Delhi Development Authority), (which is relied on by the Advocate for the Defendant) while setting aside the judgment passed by the Division Bench of Hon'ble High Court of Delhi culled out the legal principles after traversing the judicial pronouncements passed by the various High Courts and the Hon'ble Apex Court. In the said case, it is held that it is important to note that the 1996 Act was enacted to replace the Arbitration Act, 1940 in order to provide for an Arbitral procedure which is fair, efficient and capable of meeting the needs of Arbitration and also to provide that the tribunal gives reasons for an Arbitral Award; to ensure that the Arbitral Tribunal remains within the limits of its jurisdiction and to minimize the supervisory role of Courts in the Arbitral process.
20Com.AP.No.139/2023
26. In the said decision, the Hon'ble Apex Court observed that it must be clearly understood that when a Court is applying the "Public Policy" test to an Arbitration Award, it does not act, as a Court of appeal and consequently errors of fact cannot be corrected. A possible view by the Arbitrator on facts has necessarily to pass muster, as the Arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his Arbitral Award. Thus, an Arbitral Award based on little evidence or no evidence which does not measure up in quality to a train legal mind would not be held to be invalid on this count.
27. In view of my above discussions, observations and findings, I am of the opinion that the Award of the Learned Arbitrator is liable to be set aside on the ground that the same is contrary to the Public Policy and also there is patent illegality in the findings of the learned Arbitrator. Further, I make it clear that I have discussed only about the findings given by the learned Arbitrator in the light of the contentions taken by the petitioner without re-appreciating the oral or documentary evidence placed before the Learned Arbitrator. All my findings are based on the legal aspects and the development of case law on the said subject. When such being the case, I have no other option except to set aside the entire Award passed by the 21 Com.AP.No.139/2023 learned Arbitrator. Therefore, I answer this Point in the "Affirmative".
28. Point No. 2 :- Therefore, I proceed to pass the following Order.
ORDER The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, is allowed.
The Arbitral Award dated 20.04.2023 is hereby set aside.
The Office is directed to send copy of this judgment to both parties to their email ID as required under Order XX Rule 1 of the Civil Procedure Code as amended under Section 16 of the Commercial Courts Act.
(Dictated to the Stenographer, typed by her directly on computer, verified and then pronounced by me in open Court on this the 25th day of March, 2024).
(SUMANGALA S. BASAVANNOR), LXXXII Addl. City Civil & Sessions Judge, Bengaluru.