Bangalore District Court
M/S Blue Ocean Softech Solutions Pvt Ltd vs M/S Aspl Info Service Pvt Ltd on 18 December, 2024
Digitally signed
by SUDINDRA
KABC170027532023 SUDINDRA NATH S
NATH S Date: 2024.12.21
17:01:54 +0530
IN THE COURT OF LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE,
COMMERCIAL COURT, BENGALURU (CCH-84)
Present: Sri S. Sudindranath, LL.M., M.B.L.,
LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE
BENGALURU.
COM.AP.No.182/2023
Dated on this 18th day of December 2024
Petitioner/s : M/s.Blue Ocean Softech Solutions
Private Limited,
No.52, SAM Enclave,
NTI Layout 1st Stage,
Bhoopasandra,
Sanjaynagar,
Bengaluru - 560094.
Represented by one of the Director
and authorised Signatory
Mr.Sumith Gulati
(By Sri.Santosh Raj Urs,
Sri.Kiran B.Y., Advocates)
// versus //
Respondent/s : M/s. ASPL Info Services Private
Limited,
Office at No.572,
20th Main 1st Cross,
8th Block, Koramangala,
Bengaluru - 560 095.
Represented by its
Authorised Signatory
(By Sri.Kashyap N.Naik, Advocate)
2
CT 1390_Com.AP.182-2023_Judgment.doc
KABC170027532023
Date of Institution of suit : 17.11.2023
Nature of the suit : Transactions of
merchants, financiers,
traders relating
mercantile documents
(enforce, interpret)
Date of commencement of :
recording of the evidence --
Date on which the Judgment : 18/12/2024
was pronounced.
: Year/s Month/s Day/s
Total duration
01 01 01
JUDGMENT
This is a petition under Section 34 of the Arbitration Conciliation Act filed by the respondent before the Arbitral Tribunal challenging the Arbitral Award dated 13-04-2023 passed by the Micro and Small Enterprises Facilitation Council, Bangalore in Case No. 92 of 2021, whereby the arbitral tribunal has allowed the claim filed by the respondent herein and ordered the petitioner herein to pay a sum of Rs. 7,39,496 to the claimant / respondent herein with interest at three times the bank rate as per Section 16 of the MSMED Act. 3
CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023
2. On issuance of notice of the present petition, the respondent / claimant before Arbitral Tribunal, has entered appearance through counsel and filed detailed objections to the present petition.
3. Thereafter, I have heard the arguments of both sides and perused the records of the case.
4. The only point that arises for my consideration is :-
Whether the impugned arbitral award dated 13-04-2023 passed by the Micro and Small Enterprises Facilitation Council, Bangalore in Case No. 92 of 2021 calls for interference under Section 34 of the Arbitration and Conciliation Act?
5. My answer to the above point is in the affirmative for the following :-
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CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 REASONS.
6. In the course of this judgment, for the sake of convenience, the respondent herein is referred to as the claimant.
7. The facts in brief are that the claimant claims to be engaged in the business of rendering IT infrastructure services. It is the case of the claimant that the claimant and the petitioner herein entered into a Master Service Agreement dated 1-3-2020 under which the claimant agreed to render IT infrastructure services to the petitioner herein. In pursuance of the said contract, the claimant claims to have rendered IT infrastructure services to the petitioner herein from 1-3-2020 to 28-2- 2021.
8. Towards the said services rendered, the claimant claims a sum of Rs. 7,39,496. Alleging that the petitioner herein has not cleared the balance amount within 45 5 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 days as stipulated under the MSMED Act, the claimant approached the MSMED Facilitation Council, Bangalore, under Section 18 of the Act. It appears the initial efforts at conciliation initiated by the Facilitation Council failed, and therefore, the Facilitation Council took up the matter in arbitration.
9. The petitioner herein, who is the respondent before the learned arbitral tribunal, filed a reply dated 10-1- 2023. In the said reply, the contention was taken that the claimant is claiming an outstanding due of Rs. 7.39 lakhs, whereas in the demand notice issued, the claimant is claiming Rs. 9.58 lakhs, and therefore there is a discrepancy in the claim. It was contended that the authenticity of the agreement between the parties would need validation since the signatures on all the pages except the last page are yet to be established. Contention was taken that the said agreement was signed a few days before the outbreak of COVID-19, as a result of which, 6 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 inability to pay the claim amount was pleaded. It was pleaded that in April and May 2020, the services were not utilized and there was assurance from the claimant that the claimant would provide free services and would not charge for the IT infrastructure services until the customers were back in business.
10. In the said reply filed by the petitioner herein, there was no serious denial of the claim, and it was only contended that due to the COVID pandemic, there were zero revenues for two years and the petitioner herein is still recovering from the said financial losses.
11. Based on the material on record, the arbitral tribunal held that there is no reason to disbelieve the claim of the petitioner, which is supported by documents, and accordingly proceeded to pass the arbitral award directing the petitioner herein to pay to the claimant the principal sum of Rs. 7,39,496 along with interest at three 7 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 times the bank rate as prescribed by Section 16 of the MSMED Act.
12. Aggrieved by the said arbitral award, the respondent before the arbitral tribunal is before this court in the present petition under Section 34 of the Arbitration and Conciliation Act.
13. Learned counsel for petitioner has principally argued three points before me. Firstly, he argued that as on the date of the contract between the parties dated 1-3- 2020, the claimant was not registered under the MSME Act since the registration of the claimant was only in December 2020. Thereby, he argued that the MSME Facilitation Council did not have the jurisdiction to entertain the dispute. Secondly, he argued that under Section 18 of the MSMED Act, it is mandatory that there should first be an attempt at conciliation, and only if the conciliation fails, the matter can be taken up in 8 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 arbitration. But in the present case, no conciliation was made, and nor is it recorded anywhere in the records of the MSME Facilitation Council that conciliation has failed. Thirdly, he argued that, except on the last page, the signature of the authorized representative of petitioner herein on all other pages of the Master Service Agreement dated 1-3-2020 are disputed, and therefore on the basis of such disputed agreement, the claim could not have been awarded.
14. Per contra, the learned counsel for respondent herein / claimant before the arbitral tribunal, submitted that, in the reply filed by the petitioner herein, the liability to pay the principal amount of Rs. 7.39 lakhs is not seriously disputed. It was further argued that no contention regarding jurisdiction was ever taken before the arbitral tribunal and therefore petitioner is barred from taking up the said contention in the present petition for the first time.
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15. Even otherwise, it was argued that there is no inherent lack of jurisdiction in the MSME Facilitation Council because the services were rendered after the registration of claimant under the MSME Act. Finally, it was argued that the learned counsel for petitioner is relying upon additional documents produced for the first time in the present petition to contend that MSME Facilitation Council did not have the jurisdiction to entertain the dispute, and no such additional documents can be produced and looked into in a Section 34 petition.
16. Having considered the rival contentions of both sides, I am of the view that the second and third contentions raised by the learned counsel for petitioner have to fail for the following reasons.
17. Insofar as the contention that no conciliation took place under Section 18 and straightaway the MSME 10 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 Facilitation Council took up the matter in arbitration is concerned, it is to be noted that no dispute appears to have been raised by the petitioner herein before the MSME Facilitation Council to the effect that without conciliation, the matter was taken up in arbitration. On the other hand, as already noted supra, the petitioner herein has filed a reply to the claim statement of the claimant wherein no such plea is taken. Even otherwise, even if it is conceded that, the matter was taken up in arbitration without first going through the process of conciliation, this is not a ground on which the arbitral award can be set aside under Section 34 of the Arbitration and Conciliation Act.
18. Insofar as the other contention that, except on the last page, the signature of the representative of petitioner on all other pages of the Master Service Agreement dated 1-3-2020 is disputed, is concerned, as rightly argued by the Learned Counsel for Respondent herein, in the reply 11 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 filed before the Arbitral Tribunal by the petitioner herein, it was only stated in Paragraph 2 as follows:
"The authenticity of the agreement between the petitioner and our company submitted by petitioner to MSEFC will need validation, as we are yet to establish the signature on all pages, except the last page where our then director has signed only on the last page. We will need more time to check this and confirm."
(Emphasis Supplied)
19. Therefore, before the arbitral tribunal, the signature on the agreement was not denied, but on the other hand, time was sought to verify whether the said signatures are that of the then director of petitioner herein.
20. From the contentions taken in the said reply, it is clear that the petitioner herein did not deny having availed IT infrastructure services from the claimant. On the other hand, a specific stand was taken that the claimant had agreed to provide these services and not charge for the services till the customers got back after 12 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 the COVID-19 pandemic. However, to show such a representation or assurance on the part of the claimant, no document was produced. Therefore, when in the reply the petitioner herein admitted having availed services from the claimant, and when the petitioner did not specifically dispute or deny the signatures on the agreement, in a Section 34 petition, the court cannot enter into the realm of appreciation of evidence and reject the claim on the ground that the signatures of the petitioner's representative on the Master Service Agreement are disputed.
21. Having disposed off the above two contentions taken by the petitioner in the present petition, let me now turn my attention to the most important point which has been canvassed by Learned Counsel for Petitioner. This ground is found in Paragraph F of the grounds of the present petition.
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22. The ground taken is that, the date of contract between the parties is 1-3-2020, whereas the claimant was registered as an MSME under the MSMED Act only on 9-12-2020. Therefore, when the claimant was not registered as an MSME as on the date of the contract, the claimant could not have approached the MSMED Facilitation Council under Section 18 of the MSMED Act, and consequently, the MSMED Facilitation Council had no jurisdiction to enter into arbitration under Section 18(3) of the Act and pass the impugned arbitral award.
23. At this stage, it is relevant to refer to the law laid down by the Hon'ble Apex Court in Silpi Industries v. Kerala SRTC, (2021) 18 SCC 790 : 2021 SCC OnLine SC 439 at page 811
42. Though the appellant claims the benefit of provisions under the MSMED Act, on the ground that the appellant was also supplying as on the date of making the claim, as provided under Section 8 of the MSMED Act, but same is not based on any acceptable material. The appellant, in support of its case 14 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 placed reliance on a judgment of the Delhi High Court in GE T&D India Ltd. v. Reliable Engg. Projects & Mktg. [GE T&D India Ltd. v. Reliable Engg. Projects & Mktg., 2017 SCC OnLine Del 6978] , but the said case is clearly distinguishable on facts as much as in the said case, the supplies continued even after registration of entity under Section 8 of the Act. In the present case, undisputed position is that the supplies were concluded prior to registration of supplier. The said judgment of the Delhi High Court relied on by the appellant also would not render any assistance in support of the case of the appellant. In our view, to seek the benefit of provisions under the MSMED Act, the seller should have registered under the provisions of the Act, as on the date of entering into the contract. In any event, for the supplies pursuant to the contract made before the registration of the unit under provisions of the MSMED Act, no benefit can be sought by such entity, as contemplated under the MSMED Act.
44. The appellant cannot become micro or small enterprise or supplier, to claim the benefits within the meaning of the MSMED Act, 2006, by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods and services. If any registration is obtained, same will be prospective and applies for supply of goods and services subsequent to registration but cannot operate retrospectively. Any other interpretation of the provision would lead to absurdity and 15 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 confer unwarranted benefit in favour of a party not intended by legislation.
(Emphasis Supplied)
24. The above position of law has been followed and reiterated by the Hon'ble Apex Court in the case of Gujarat State Civil Supplies Corpn. Ltd. v. Mahakali Foods (P) Ltd., (2023) 6 SCC 401 : 2022 SCC OnLine SC 1492 at page 433 :
52. The upshot of the above is that:
52.1. Chapter V of the MSMED Act, 2006 would override the provisions of the Arbitration Act, 1996.
52.2. No party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council, though an independent arbitration agreement exists between the parties.
52.3. The Facilitation Council, which had initiated the conciliation proceedings under Section 18(2) of the MSMED Act, 2006 would be entitled to act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act.
52.4. The proceedings before the Facilitation Council/institute/centre acting as an arbitrator/Arbitral Tribunal under Section 16 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 18(3) of the MSMED Act, 2006 would be governed by the Arbitration Act, 1996. 52.5. The Facilitation Council/institute/centre acting as an Arbitral Tribunal by virtue of Section 18(3) of the MSMED Act, 2006 would be competent to rule on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration Act, 1996.
52.6. A party who was not the "supplier"
as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract cannot seek any benefit as the "supplier" under the MSMED Act, 2006. If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration.
(Emphasis Supplied)
25. Therefore, the law is crystallized that, a party who is not registered under the MSMED Act cannot take the benefit under the Act for any transactions or supply of goods or services prior to the registration. This is because such registration would apply only prospectively. However, insofar as the goods and services supplied after 17 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 the registration under the MSMED Act, such a party can approach the MSMED Facilitation Council for relief.
26. In the case on hand, if the arbitration records received from the MSME Facilitation Council are looked into, it is noted that, along with the claim statement, the claimant had itself produced before the MSMED Facilitation Council the copy of the Master Service Agreement, which is dated 1-3-2020. The said agreement is available at page 81 of the arbitration records. At page 8 of the arbitration records, the Udyam Registration Certificate of the claimant is available, which shows that the claimant was registered under the MSMED Act on 9- 12-2020.
27. Therefore, it is clear that in the case on hand, subsequent to the date of contract between the parties, the claimant registered itself under the MSMED Act. However, what is important is the date of providing 18 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 services for which claim is made and whether such services were provided before registration or after registration under MSMED Act.
28. It is for this reason that Learned Counsel for Respondent argued that there is no inherent lack of jurisdiction of the MSMED Council because the services for which payment is being claimed were made subsequent to the registration under the MSMED Act.
29. In this regard, in the claim statement filed by the claimant before the MSMED Council, which is available at page 82 of the arbitral records, the specific contention raised by the claimant is that the services were rendered between 1-3-2020 to 28-2-2021. Therefore, the services for which payment is claimed are partly before the date of registration, which is 9-12-2020, and partly subsequent to the date of registration up to 28-2-2021. It is not possible to separate the claim, as the claimant has 19 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 nowhere given a breakup to distinguish the claim for services rendered before registration and the claim for services rendered after registration under the MSMED Act. Such being the case, it is not possible to separate that part of the award which has awarded the claims for services prior to registration and that part of the award that has awarded the claims for services subsequent to registration under the MSMED Act. Therefore, the award is liable to be set aside as a whole.
30. The Learned Counsel for Respondent is correct in submitting that in a Section 34 operation, the court cannot go beyond the arbitration records. However, the fact that the claimant was registered under the MSMED Act subsequent to the contract between the parties is forthcoming from the arbitration records itself, since the claimant itself has produced the copy of the contract as well as the Udyam Registration Certificate along with the claim statement. Therefore, there is no need to travel 20 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 beyond the arbitral records to record the finding that, the claim is made even for services allegedly provided before registration under MSMED Act and since it is not possible to separate the claims provided before registration and after registration, the award has to be set aside as a whole.
31. The next contention raised by Learned Counsel for Respondent was that this contention, that the MSMED Facilitation Council has no jurisdiction, was not taken before the arbitral tribunal and therefore cannot be taken up in a Section 34 petition for the first time. This contention cannot be accepted because the Learned Counsel for Petitioner has rightly relied upon the ruling of the Hon'ble Apex Court in Hindustan Zinc Ltd. v. Ajmer Vidyut Vitran Nigam Ltd., (2019) 17 SCC 82 :
(2020) 3 SCC (Civ) 363 : 2019 SCC OnLine SC 1683 at page 88 :21
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17. We are of the view that it is settled law that if there is an inherent lack of jurisdiction, the plea can be taken up at any stage and also in collateral proceedings. This was held by this Court in Kiran Singh v. Chaman Paswan [Kiran Singh v. Chaman Paswan, (1955) 1 SCR 117 :
AIR 1954 SC 340] as follows : (SCR p. 121 :
AIR p. 342, para 6) "6. ... It is a fundamental principle well-
established that a decree passed by a court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree, and such a defect cannot be cured even by consent of parties. If the question now under consideration fell to be determined only on the application of general principles governing the matter, there can be no doubt that the District Court of Monghyr was coram non judice, and that its judgment and decree would be nullities."
(Emphasis Supplied)
32. In the light of the above law laid down by the Hon'ble Apex Court, since the MSMED Facilitation 22 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 Council lacked the inherent jurisdiction to entertain the dispute between the parties, this contention can be raised at any stage, even in the present petition, although the same was not taken before the arbitral tribunal.
33. Learned Counsel for respondent has relied upon the ruling of Hon'ble Madras High Court in the case of Colorhome Developers Pvt. Ltd. v. Color Castle Owners Society in OSA [CAD] No. 113 of 2022 dated 25- 03-2024 In the said ruling reliance is placed upon Paragraph 5 and 6 which is as follows :
"5. Mr. ARL Sundareshan Learned Senior Counsel appearing for the Appellant would contend that the very invocation of the Arbitration by the Respondent Association is invalid, since there was no agreement between the Association and the Appellant Builder and therefore the entire proceedings before the Arbitrator are vitiated.
6. It should be noted that this objection was not raised at any stage of the proceedings before the Arbitrator or before the Learned Single Judge who heard the petition under Section 34. Section 16 (2) of the Arbitration and Conciliation Act requires a 23 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 plea regarding jurisdiction of the arbitrator to be raised, not later than the submission of the Statement of Defense. It also provides that a party shall not be precluded from raising such a plea because he has appointed or participated in the appointment of an arbitrator."
(Emphasis Supplied)
34. Relying upon the above observations, it was argued that the plea regarding lack of jurisdiction of the MSMED Facilitation Council ought to have been raised in the arbitral proceedings itself and cannot be raised at this stage for the first time. This contention cannot be accepted in view of the law laid down by Hon'ble Apex Court in Hindustan Zinc Ltd. v. Ajmer Vidyut Vitran Nigam Ltd., (2019) 17 SCC 82 (supra), wherein it is clearly held that where there is inherent lack of jurisdiction, the same can be raised at any stage, even in collateral proceedings and in execution. Therefore, in the face of said specific law laid down by Hon'ble Apex Court, 24 CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 reliance upon the ruling of Hon'ble Madras High Court will not help the respondent in any manner.
35. Therefore, I conclude by holding that, the MSMED Facilitation Council did not have the jurisdiction to entertain the claim of the claimant / respondent herein because the contract between the parties was earlier to registration of claimant under the MSMED Act and in the claim statement, the claimant was seeking recovery of payment for services provided even before registration of claimant under the MSMED Act and it is not possible to separate the claim for payment for services before registration and for services after registration and therefore, it is necessary to set aside the award as a whole, on the ground that the arbitral tribunal lacked the jurisdiction to entertain the claim.
36. Accordingly, answering the point for consideration in the affirmative, I proceed to pass the following :- 25
CT 1390_Com.AP.182-2023_Judgment.doc KABC170027532023 ORDER.
The Petition under Section 34 of The Arbitration and Conciliation Act, is allowed, with cost.
Consequently, the Arbitral Award passed by The Micro and Small Enterprises Facilitation Council, Bengaluru, dated 13- 04-2023 in Case No. 92/2021, is hereby set aside.
Office to issue soft copy of this
Judgment to both sides by email, if
furnished.
[Dictated using Dragon Professional Speech Recognition Software Version 15.3, transcript revised, corrected, signed and then pronounced by me in open court on this the 18th day of December, 2024] (Sri. S. Sudindranath) LXXXIII ADDL.CITY CIVIL AND SESSIONS JUDGE, COMMERCIAL COURT; BANGALORE.