Gujarat High Court
M/S. Yamuna Cable Accessories Pvt Ltd ... vs Gujarat Chamber Of Commerce And ... on 11 December, 2018
Author: Vipul M. Pancholi
Bench: Vipul M. Pancholi
C/SCA/17927/2018 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 17927 of 2018
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M/S. YAMUNA CABLE ACCESSORIES PVT LTD THROUGH
Versus
GUJARAT CHAMBER OF COMMERCE AND INDUSTRIES
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Appearance:
MR C J GOGDA(7488) for the PETITIONER(s) No. 1
MR RAJABHAI J GOGDA(3628) for the PETITIONER(s) No. 1
MR VIKAS V NAIR(7444) for the PETITIONER(s) No. 1
for the RESPONDENT(s) No. 4
MR BS PATEL FOR MR CHIRAG B PATEL(3679) for the RESPONDENT(s)
No. 3
MR GM AMIN(124) for the RESPONDENT(s) No. 1
NOTICE SERVED BY DS(5) for the RESPONDENT(s) No. 2
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CORAM: HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
Date : 11/12/2018
ORAL ORDER
1. Heard learned advocate Mr. Vikas Nair appearing for the petitioner, learned advocate Mr. G.M.Amin for respondent No.1 and learned advocate Mr. B.S.Patel for respondent No.3.
2. This petition is filed under Articles 226 and 227 of the Constitution of India in which the petitioner has prayed that the order dated 24th August, 2018 passed by respondent No.2 and all consequential proceedings arising out of the said order be quashed and set aside and thereby restrain the respondents in proceeding further in connection with Arbitration Case No.A-047/2018 pending before the Arbitral Tribunal.
Page 1 of 20 C/SCA/17927/2018 ORDER3. The factual matrix of the present case is as under:
3.1. It is the case of the petitioner that it is a Company which is engaged in the business of production, designing, supply of electric cable accessories since many years. The respondent No.3
- private respondent at the time of procuring the work order from the petitioner, stated that they are Civil Engineers and Contractors experts in carrying out engineering and construction activities for setting-up of factories and other constructions. Petitioner gave work order for total value of Rs.2,21,48,994/- to the private respondent. It is alleged that the private respondent has failed to supply the required quality of materials as promised and there were various lapses and shortcomings in the work performed by the private respondent. The petitioner referred various lapses on the part of the private respondent in the memo of the petition. Petitioner, therefore, sent emails to the private respondent and pointed out the deficiencies in providing the services on the part of the private respondent. In spite of that the private respondent has raised bills. The dispute between the parties arose as the petitioner did not make the payment as per the demand raised by the private respondent. The Page 2 of 20 C/SCA/17927/2018 ORDER private respondent, therefore, raised the grievance before the Council constituted under the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as the 'MSME Act'). It is further stated that the respondent Council issued notice to the petitioner. Petitioner submitted reply dated 11.06.2018, wherein it was pointed out that the petitioner has suffered a loss because of the deficiencies in service provided by the private respondent. Petitioner also pointed out to the respondent Council that the private respondent is liable to pay the amount to the petitioner and therefore matter be referred to the Arbitral Tribunal.
3.2. It is stated that by the impugned order dated 24.08.2018 when the conciliation failed, the respondent Council referred the matter to respondent No.1 for arbitration proceedings under Section 18(3) of the MSME Act. Petitioner has, therefore, challenged the said order by filing the present petition.
4. Learned advocate Mr. Nair appearing for the petitioner has, at the outset, referred the provisions contained in Sections 2(b), 2(n), 15 and 19 of the MSME Act. After referring to the relevant provisions, it is contended that where Page 3 of 20 C/SCA/17927/2018 ORDER any supplier supplies any goods or renders any service to any buyer, the buyer has to make the payment on or before the agreed date and if there is no agreement then before the appointed day. It is submitted that under the Scheme of the MSME Act only supplier can raise the dispute against the buyer. However, there is no remedy for the buyer under the Act to seek a reference. It is submitted that in the present case, petitioner is not liable to make any payment to the private respondent and on the contrary petitioner is claiming certain amount from the private respondent and therefore reference made to the Arbitral Tribunal by the respondent Council is invalid and therefore the impugned order be set aside. It is submitted that in the present case, there is no agreement between the parties and therefore the respondent Council ought not to have referred the matter to the Arbitral Tribunal. In fact, in the facts of the present case, Arbitrator is not having jurisdiction to decide the dispute between the parties and even if the petitioner raises the grievance/counter claim, the Arbitral Tribunal will not be in a position to decide the same.
5. Learned advocate for the petitioner would further submit that after the matter is referred to the Arbitral Tribunal, the learned Arbitrator Page 4 of 20 C/SCA/17927/2018 ORDER cannot ask for the cost from the present petitioner who is the original respondent in the said proceedings as the dispute is raised by the private respondent herein.
6. Learned advocate for the petitioner thereafter referred the provisions contained in Section 19 of the MSME Act and submitted that even after the award is passed by the Arbitral Tribunal, if it is against the petitioner, such award can be challenged before the concerned Court. The petitioner will have to deposit 75% of the amount in terms of the award, whereas if the claim of the present respondent No.3 - private respondent is not entertained, the private respondent can challenge the award without deposit of any amount before the concerned court. Thus, the provisions contained in Section 19 of the MSME Act is harsh.
7. It is submitted that the private respondent can file a suit before the competent Civil Court for recovery of the alleged amount from the petitioner. However, the Arbitral Tribunal has no jurisdiction to decide the dispute between the present petitioner and the private respondent. It is, therefore, urged that the impugned order be quashed and set aside.
Page 5 of 20 C/SCA/17927/2018 ORDER8. Learned advocate for the petitioner has placed reliance upon the following decisions:
(1) In Super Cassettes Industries Ltd. v.
Music Broadcast Pvt. Ltd., reported in AIR 2012 SC 2144;
(2) In Afcons Infrastructure Limited and Another v. Cherian Varkey Construction Company Private Limited and Ors., reported in (2010) 8 SCC 24; and (3) In Shailesh Dhairyawan v. Mohan Balkrishna Lulla, reported in (2016) 3 SCC
619.
9. On the other hand, learned advocate Mr. B.S.Patel appearing for the private respondent submitted that private respondent is 'supplier' within the meaning of the provisions contained in Section 2(n) of the MSME Act. It is submitted that when the private respondent has rendered the services to the petitioner and when the amount due is not paid by the petitioner within stipulated time limit, as the private respondent is registered under the MSME Act, it has lodged the claim before the respondent Council. It is submitted that as per the provisions of the MSME Act, the Council initially conducted conciliation proceedings. However, the petitioner did not remain present and therefore the impugned order came to be passed by the respondent Council referring the matter to the respondent No.1. It Page 6 of 20 C/SCA/17927/2018 ORDER is submitted that it is not necessary that the matter can be referred to the Arbitral Tribunal only when there is an Arbitration Agreement between the parties. In support of the said contention, learned advocate for the private respondent has referred the provisions contained in Section 18 of the MSME Act.
10. Learned advocate Mr. Patel would thereafter submit that validity of provisions contained in Section 19 of the MSME Act is not under challenge in the present petition and therefore it would not be proper on the part of the petitioner to contend that the provision of Section 19 of MSME Act is harsh. It is submitted that validity of Section 19 of the Act is upheld. Thus, it is not open for the petitioner to contend that such provision is harsh.
11. Learned advocate Mr. Patel has referred the provisions contained in Sections 31(8), 31A, 38 and 39of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act of 1996') and submitted that it is for the Arbitral Tribunal to decide the cost of arbitration and therefore merely because the private respondent has referred the dispute to the respondent Council and when the conciliation proceeding is failed, the matter is referred by the Council to Page 7 of 20 C/SCA/17927/2018 ORDER the Arbitral Tribunal, it cannot be said that the petitioner is not liable to make any payment towards the cost of arbitration.
12. Learned advocate Mr. Patel has thereafter submitted that in fact the petitioner has requested the respondent Council by communication dated 11.06.2018 to refer the matter to the Arbitral Tribunal at the earliest and therefore now it is not open for the petitioner to contend that Arbitral Tribunal has no jurisdiction to decide the dispute between the petitioner and the private respondent. At this stage, learned advocate Mr. Patel would submit that if the petitioner is challenging the jurisdiction of the Arbitral Tribunal, such issue can be raised before the Arbitral Tribunal itself and if the application of the petitioner is rejected, such order can be challenged before appropriate forum. It is, therefore, urged that this petition be dismissed.
13. Learned advocate Mr. G.M.Amin appearing for the respondent No.1 also opposed the petition and submitted that as per the Scheme of the MSME Act, the claim is made by the private respondent before the respondent Council. When the conciliation failed, Council has referred the matter to the Arbitral Tribunal and thereby the Page 8 of 20 C/SCA/17927/2018 ORDER Council has not committed any illegality. Learned advocate Mr. Amin has placed reliance upon the following decisions:
(1) In the case of Food Corporation of India v. Indian Council of Arbitration and Ors., reported in (2003) 6 SCC 564; and (2) In the case of Nimet Resources Inc. And Anr. v. Essar Steels Ltd., reported in (2000) 7 SCC 497.
14. After referring the said decisions, it is submitted that the legislative intent underlying the Act of 1996 is to minimize the supervisory role of Courts in the arbitral process and nominate/appoint the arbitrator without wasting time, leaving all contentious issues to be urged and agitated before the Arbitral Tribunal itself. Thus, this Court may not entertain the present petition.
15. Having heard the learned advocates appearing for the parties and having gone through the material produced on record, it would emerge that the private respondent has rendered services to the petitioner as per the work order issued by the petitioner. However, the petitioner has raised the dispute with regard to the quality of services provided by the private respondent and raised certain issues and also claimed some amount from the private respondent. The petitioner has not made payment to the private Page 9 of 20 C/SCA/17927/2018 ORDER respondent and therefore an application was submitted by the private respondent to the respondent Council under the provisions of the MSME Act. The Council initially issued notice to the petitioner to which the petitioner submitted reply and it was requested by the petitioner itself that the matter be referred to the Arbitral Tribunal. Thus, the conciliation failed and therefore respondent Council referred the matter to the Arbitral Tribunal.
16. The petitioner has mainly contended that Arbitral Tribunal has no jurisdiction to decide the dispute raised by the private respondent in absence of any Arbitration Agreement and when the petitioner itself is claiming the amount from the private respondent, the Arbitral Tribunal has no jurisdiction to conduct the arbitration proceedings. With a view to consider the said submission, relevant provisions of the MSME Act are required to be referred to. Section 2(b) of the MSME Act provides as under:
"(b) "appointed day" means the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.
Explanation.-For the purposes of this clause,-
(i) "the day of acceptance" means,-
(a) the day of the actual delivery of goods or the rendering of services; or
(b) where any objection is made in writing Page 10 of 20 C/SCA/17927/2018 ORDER by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;
(ii) "the day of deemed acceptance" means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;"
16.1. Section 2(n) of the MSME Act provides as under:
"(n) "supplier" means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-
section (1) of section 8, and includes,-
(i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956 (1 of 1956);
(iii) any company, co-operative society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises;"
16.2. Section 15 of the MSME Act provides as under:Page 11 of 20 C/SCA/17927/2018 ORDER
"15. Liability of buyer to make payment.- 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:
Provided 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.
16.3. Section 18 of the MSME Act provides as under:
"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.
Page 12 of 20 C/SCA/17927/2018 ORDER(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 the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as if 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.
17. It is not in dispute that private respondent is registered under MSME Act and is a 'supplier' within the meaning of the MSME Act. When the private respondent has rendered services and the petitioner 'buyer' has not made any payment within the stipulated time limit, an application was submitted by the private respondent before the respondent Council. If the provisions contained in Section 18 of the MSME Act is Page 13 of 20 C/SCA/17927/2018 ORDER carefully examined, it can be said that any party to a dispute may, with regard to any amount due under section 17, make a reference to the Council. If the conciliation conducted by the respondent Council is not successful and terminated without any settlement between the parties, the respondent Council is empowered to take up the dispute for arbitration itself or refer the same to any institution or centre providing alternate dispute resolution services for such arbitration. In such case, the provisions of the Act of 1996 shall apply to the dispute as if the arbitration was in pursuance of an 'arbitration agreement' referred to in section 7(1) of that Act of 1996.
18. Thus, from the aforesaid provisions, it is clear that even in absence of an arbitration agreement between the parties, once the matter is referred to the Arbitral Tribunal under the provisions of Section 18(3) of the MSME Act, there is a deeming provision that provisions of the Act of 1996 would be applicable. Thus, the contention raised by the learned advocate for the petitioner that in absence of arbitration agreement between the petitioner and the private respondent matter cannot be referred to the Arbitral Tribunal cannot be accepted.
19. At this stage, provisions contained in Section 16 of the Act of 1996 is required to be Page 14 of 20 C/SCA/17927/2018 ORDER referred to, which provides as under:
16. Competence of arbitral tribunal to rule on its jurisdiction.-(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose.
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the submission clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral Page 15 of 20 C/SCA/17927/2018 ORDER tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.
20. Thus, from the aforesaid provisions, it is clear that the objection with regard to the jurisdiction of the Arbitral Tribunal can be raised before such Tribunal and the said Tribunal can decide such objection.
21. It is submitted by the learned advocate for the petitioner that learned Arbitrator cannot ask for the cost from the petitioner as the dispute is raised by the private respondent. The said contention is misconceived. It is already observed hereinabove that provisions of Act of 1996 would be applicable as if the arbitration proceedings were in pursuance of the arbitration agreement in view of Section 18(3) of the MSME Act. Thus, the Arbitral Tribunal is empowered to fix the cost of arbitration in view of Sections 31, 31A read with Section 38 of the Act of 1996.
22. Learned advocate for the petitioner has placed reliance upon the decision rendered by the Hon'ble Supreme Court in the case of Super Cassettes Industries Ltd. (supra) and more particularly paragraphs 42 and 43 of the said Page 16 of 20 C/SCA/17927/2018 ORDER decision. However, the said decision would not render any assistance to the petitioner.
23. Learned advocate for the petitioner has thereafter placed reliance upon the decision rendered by the Hon'ble Supreme Court in the case of Afcons Infrastructure Limited and Another (supra), wherein the Hon'ble Supreme Court has held in paragraphs 32 and 34 that arbitration is an adjudicatory dispute resolution process by private forum governed by the provisions of Arbitration and Conciliation Act. There can be reference to arbitration only if there is an arbitration agreement between the parties. If there is no agreement between the parties for reference to arbitration, the Court cannot refer the matter to arbitration under Section 89 of the Code.
23.1. There cannot be any dispute with regard to the proposition of law laid down by the Hon'ble Supreme Court in the aforesaid decision. However, Section 18(1) of MSME Act provides that 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. It is further worded in Section 18 that after the conciliation is failed, dispute can be referred for arbitration and thereafter the Act of 1996 Page 17 of 20 C/SCA/17927/2018 ORDER shall apply to the dispute. Thus, the aforesaid decision would not render any assistance to the petitioner.
24. Learned advocate for the petitioner thereafter has relied upon the decision rendered by the Hon'ble Supreme Court in the case of Shailesh Dhairyawan (supra) and more particularly para 14 of the said decision. However, the said decision would not render any assistance to the petitioner in the facts of the present case.
25. On the other hand, learned advocate appearing for the respondent has placed reliance upon the decision rendered by the Hon'ble Supreme Court in the case of Food Corporation of India (Supra), wherein the Hon'ble Supreme Court has held that the legislative intent underlying the Act of 1996 is to minimize the supervisory role of Courts in the arbitral process and nominate/appoint the arbitrator without wasting time, leaving all contentious issues to be urged and agitated before the Arbitral Tribunal itself. The question relating to the improper constitution of Arbitral Tribunal or its want of jurisdiction or objections with respect to the existence or validity of the arbitration agreement are matters to be pleaded before the Arbitral Tribunal itself which has been specifically empowered to rule on such issues and its own jurisdiction as well.
Page 18 of 20 C/SCA/17927/2018 ORDER25.1. This Court is of the view that the aforesaid decision would be applicable to the facts of the present case and therefore the petitioner has to raise its objections before the Arbitral Tribunal and the Arbitral Tribunal is empowered to decide such objection including the objection with regard to the jurisdiction of the Arbitral Tribunal.
26. Learned advocate for the respondent has also placed reliance upon the decision rendered by the Hon'ble Supreme Court in the case of Nimet Resources Inc. And Anr. (supra). In the said case, the concerned respondents denied that they had entered into the sales contract with the concerned petitioner. Contract was not signed by the respondents and there were correspondences between the parties in respect of sale and supply not establishing clearly whether the contract was finalized or not. The Hon'ble Supreme Court held that such matters ought to be referred to arbitration keeping all questions open.
27. Keeping in view the aforesaid decisions, if the facts as discussed hereinabove are examined, this Court is of the view that the present petition is misconceived and the petitioner can raise its objections before the learned Arbitrator who is empowered to decide such objections including the objection with regard to jurisdiction.
Page 19 of 20 C/SCA/17927/2018 ORDER28. In view of the aforesaid discussion, this petition being devoid of any merits is dismissed.
(VIPUL M. PANCHOLI, J) Jani Page 20 of 20