Gujarat High Court
M/S Ongc Petro Additions Limited vs State Of Gujarat on 1 September, 2020
Author: Umesh A. Trivedi
Bench: Umesh A. Trivedi
C/SCA/7858/2020 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 7858 of 2020
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE UMESH A. TRIVEDI Sd/-
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1 Whether Reporters of Local Papers may be allowed to YES
see the judgment ?
2 To be referred to the Reporter or not ? YES
3 Whether their Lordships wish to see the fair copy of the NO
judgment ?
4 Whether this case involves a substantial question of law NO
as to the interpretation of the Constitution of India or
any order made thereunder ?
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M/S ONGC PETRO ADDITIONS LIMITED
Versus
STATE OF GUJARAT
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Appearance:
MOSON LE EXPARTS(11071) for the Petitioner(s) No. 1
MR. SUDHIR NANAVATY, SR. ADVOCATE with MR AKSHAT KHARE(5912) for
the Petitioner(s) No. 1
for the Respondent(s) No. 1,4
MR. UTKARSH SHARMA, AGP for the Respondent(s) No. 2
MR. R.S. SANJANWALA, SR. ADVOCATE with RUSHABH H SHAH(7594) for the
Respondent(s) No. 3
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CORAM: HONOURABLE MR. JUSTICE UMESH A. TRIVEDI
Date : 01/09/2020
CAV JUDGMENT
[1.0.] Challenge in this petition is to the order dated 19.02.2020 passed by the Micro and Small Enterprises Facilitation Council, Gandhinagar, Gujarat (hereinafter referred to as "MSEFC") whereby, it terminated the conciliation proceedings conducted Page 1 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT under Section 18(2) of the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as "MSME Act") and directed the parties to start the arbitration proceedings under Section 18(3) of the MSME Act before the MSEFC.
[2.0.] The respondent No.3 - M/s Rachna Infrastructure Ltd. filed reference under Section 18(1) of the MSME Act before the MSEFC claiming that there exists dispute with regard to delayed payment and interest thereon, against respondent No.4 - M/s. Fernas Construction India Pvt Limited and petitioner - M/s. ONGC Petro additions Limited. After putting in tireless efforts by the MSEFC since it did not yield any outcome, MSEFC terminated conciliation proceedings and directed the parties to start the arbitration before it.
[3.0.] The petitioner - M/s ONGC Petro additions Limited (hereinafter referred to as "OPaL") is a Company incorporated under the provisions of Companies Act, 1956 and is a joint venture company promoted by M/s Oil and Natural Gas Corporation Limited and co-promoted by M/s GAIL (India) Limited and M/s Gujarat State Petroleum Corporation Limited. It is engaged in the business of manufacturing of Petrochemicals and other allied products.
[4.0.] The brief facts of the case as pleaded in the petition are as under:
[4.1.] The petitioner has set up a grass root mega Petrochemicals project of national importance for manufacturing petrochemical products and other allied products at Dahej, Gujarat Page 2 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT in PCPIR/SEZ with an investment of USD 4.5 billion, one of its kind in Indian Subcontinent to provide wide spectrum of petrochemicals, wherein several interdependent units were designed viz. Dual Feed Cracker Unit (DFCU), LLDPE/HDPE Swing Unit (PE Unit), dedicated HDPE Unit, Polypropylene Unit (PP Unit), Pyrolysis Gas Hydrogenation Unit, Benzene Extraction Unit, Butadiene Extraction Unit and others for manufacturing variety of petrochemical and allied products. The primary infrastructure set up by OPaL at its aforesaid Petrochemical Complex is as follows:
(a) DFCU Unit cracks its feedstock and produces several chemicals namely (i) Ethylene, (ii) Propylene, (iii) Butadiene,
(iv) Benzene, (v) Pyrolysis Gasoline an (vi) Carbon Black Feed Stock (CBFS), etc., which are feedstocks for other downstream units i.e. Ethylene is the feed stock for PE & dedicated HDPE Units, Propylene is the feed stock for PP Unit and other chemicals for other associated units.
(b) Each unit requires utilities (viz. Electricity, water, gas, steam, etc.,) and feedstocks as most essential inputs to become operational. Further there is a primary requirement of creation of appropriate storage (i.e. tanks, vessels, spheres, etc.) for keeping stock of feedstocks and utilities (i.e. off-sites) for non-stop operation. Therefore, both utilities and off-sites play a vital role for running of each unit.
(c) Integration of entire utilities & off-sites plays most significant role for commissioning smooth and un-interrupted operations since all aforesaid units are interdependent.Page 3 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT
Therefore, package for Integrated Utilities & Off-sites (IU & O) plays a most critical role in the operation of the opponent No.2's petrochemical complex.
[4.2.] It is the case of the petitioner that for the purpose of accomplishing this mega project at Dahej Petrochemical Complex, OPaL had awarded several Lump-sum Turn-Key (LSTK) Contracts to several national and international recognized contractors to construct and set up different units/packages as per their specialized technical experience and capabilities. In the year 2011, OPaL awarded Integrated Utilities & Off-sites (IU&O) package for its Dahej Petrochemical Complex in favour of respondent No.4 - M/s FERNAS Construction India Private Limited (hereinafter referred to as "respondent No.4- FCIPL") as an independent contractor on Turnkey basis with a definite Scheduled completion period of 28 months from the date of NOA (i.e. on or before 14.07.2013) on a firm Contract price and a formal agreement was executed between OPaL and FCIPL on the terms and conditions agreed between the parties to the contract (hereinafter referred to as "OPaL Agreement").
[4.3.] Respondent No.3 - M/s Rachna Infrastructure Limited (hereinafter referred to as "respondent No.3- Rachna") is one of the sub-contractor of respondent No.4 - FCIPL, who was undisputedly awarded the separate and exclusive contract by respondent No.4- FCIPL for some portion of scope of work out of work mentioned in the OPaL Agreement (i.e. agreement in between the OPaL and FCIPL). The said factum is admitted position even by respondent No.3 - Rachna in its claim / complaint filed before respondent No.2. Despite such admission on the part of R3 - Rachna it had filed a Page 4 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT complaint before MSEFC under Section 18(1) of MSME Act for recovery of alleged delayed payment with interest against respondent No.4- FCIPL and included the petitioner also.
[5.0.] Respondent No.3 - Rachna approached MSEFC complaining about delayed payment for the goods or services supplied to the petitioner as also respondent No.4 - FCIPL under Section 18(1) of the MSME Act bearing No.D.P.No.728. Pursuant to the said reference made to MSEFC, it issued notices to the petitioner as also respondent No.4 - FCIPL for the purpose of hearing on 123rd meeting of the council held on 21.12.2019 and thereafter in the 129th meeting of the council held on 30.01.2020. The petitioner on receipt of the notice appeared before the MSEFC and filed written reply, affirmed on 14.11.2018, objecting to the proceedings mainly on the ground that respondent No.3- Rachna does not have any privity of contract with the petitioner, and therefore, claimed that it is not liable to make any payment to respondent No.3- Rachna, and therefore, it could not have approached MSEFC against the petitioner.
[6.0.] Mr. Sudhir Nanavaty, learned Senior advocate with Mr. Akshat Khare, learned advocate for the petitioner, assailing the order impugned passed by respondent No.2 - MSEFC, submitted that order recording failure of conciliation proceedings between the parties is a non-speaking unreasoned order, and therefore, it is required to be quashed. He has vehemently submitted that since there is no privity of contract with respondent No.3 - Rachna, it could not have approached for any grievance including the grievance of delayed payment conferring jurisdiction to MSEFC to adjudicate the issue raised before it. Several other contentions Page 5 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT raised referring to the various provisions under the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "Arbitration Act ") as also of the MSME Act to submit that since there is no privity of contract with respondent No.3- Rachna, petitioner cannot be subjected to the proceedings under the MSME Act. He has further raised several contentions touching entitlement of respondent No.3- Rachna of any payment, much less, delayed payment beyond the scope of comfort letter; payment beyond the comfort letter to respondent No.3- Rachna; jurisdiction of MSEFC to entertain the reference at the instance of respondent No.3 - Rachna; legality of an order on the ground of ability to arbitrate itself by MSEFC on failure of conciliation in view of Section 80 of the Arbitration Act and contented that in absence of privity of contract with respondent No.3- Rachna, dispute is not arbitrable at all, that too, by the MSEFC.
[7.0.] Mr. Nanavaty, learned senior advocate, strenuously urged that the petitioner cannot be said to be buyer as defined under Section 2(d) of the MSME Act, and therefore, MSEFC is not competent to entertain the reference made at the instance of respondent No.3- Rachna under Section 18(1) of the MSME Act. Referring to the reply filed to the reference, statement of claim filed by respondent No.3- Rachna before the arbitral tribunal and the objections filed to the same, it is submitted that for the payment prior to the comfort letter issued by the petitioner in absence of any privity of contract between the petitioner and respondent No.3- Rachna, petitioner is not liable to make any payment. It is further submitted that it is only because respondent No.4- FCIPL requested to issue comfort letter in favour of respondent No.3 - Rachna assuring certain payments directly to it Page 6 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT even payment more than the sum assured came to be paid to respondent No.3- Rachna. The issuance of comfort letter, as submitted by the learned counsel, will not be construed as privity of contract with respondent No.3- Rachna. For the same, it is very clear from the said comfort letter itself which is at page No.201 of the compilation. The scope of that letter is very limited. Again, clearly mentioning that the petitioner does not have any sort of contractual relationship with respondent No.3 - Rachna with respect to subject contract or work order. Again, it is submitted that the said comfort letter is for a specific amount stated therein on being certified by FCIPL as also PMC (Project Management Consultant). It is further submitted that since the petitioner cannot be said to be liable to pay the amount to respondent No.3- Rachna in absence of any privity of contract with it, mere payment made pursuant to a comfort letter, that too, at the insistence of respondent No.4- FCIPL, the petitioner cannot be proceeded with under MSME Act.
[8.0.] Though there are several issue raised for the liability to pay the amount claimed, the date from which, even assuming that the petitioner is liable as also the entitlement of respondent No.3- Rachna for total claim made in absence of privity of contract with it, invoices raised and not certified etc. only because respondent No.4- FCIPL was in difficulty to make payment to his sub-contractor i.e. respondent No.3- Rachna with a view to facilitate him an arrangement was worked out to make payment directly to respondent No.3- Rachna for a particular amount. Though petitioner was not responsible for the same, comfort letter restricts liability, quantum as also the invoices certified only.
Page 7 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT[9.0.] He has further submitted that for conciliation to be conducted under Section 18(2) of the MSME Act, there has to be some agreement between the parties. Referring to Section 65 of the Arbitration Act, he submitted that conciliation could have been conducted between the parties to the arbitration agreement. For contending that respondent No.3- Rachna is not a party to an agreement entered into by the petitioner with respondent No.4- FCIPL, he referred to subsection (h) of Section 2 of the Arbitration Act where "party" means a party to an arbitration agreement. Therefore, according to his submission, even conciliation could not have been conducted by the MSEFC between the parties. In short, his submission is that there has to be some agreement entered into between the petitioner and respondent No.3- Rachna and then only it could have conferred jurisdiction to MSEFC to entertain the reference. He further submitted that the only mode which recognizes arbitration agreement is existence of an agreement between the parties containing arbitration clause in a contract or from a separate agreement or by any exchange of letters, telegrams, etc. or where one party asserts existence of agreement and which is not denied by the other party. Therefore, he has submitted that no arbitration could have been conducted by the MSEFC dehors the arbitration act. Furthermore, it is submitted that in view of Section 80 of the Arbitration Act, when MSEFC itself had conducted conciliation it could not have thereafter directed the parties to start the arbitration before it. He has submitted that the conciliator is precluded from acting as an arbitrator or as a representative or a council cannot act as an arbitrator. Therefore, also according to his submission, the order impugned passed by the MSEFC is required to be interfered with by quashing the same.
Page 8 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT[10.0.] Relying on a decision in the case of M/s Easun Reyrolle Limited V/s M/s Nik San Engineering Co. Ltd vide Special Civil Application No.6265 of 2018 decided on 18.01.2019 by this Court, it was submitted that the case pleaded herein squarely covered by the said decision. Referring to paragraphs 10, 14, 21 and 28, it was submitted that reference made before MSEFC was not tenable for want of jurisdiction and authority and therefore the petition under Article 226 of the Constitution of India is maintainable. Drawing attention at prayers made in the said petition and referring prayers made in this petition, it is submitted that it is exactly the same grievance and the same prayer, and therefore, petition being maintainable and as the said petition came to be allowed for want of jurisdiction of the MSEFC, this petition may also be allowed in similar terms.
[11.0.] Relying on the decision rendered in Letters Patent Appeal No.619 of 2019 challenging the aforesaid decision of the learned Single Judge of this Court, more particularly, referring to paragraph 46, it was submitted that since there is no amount due under Section 17 of the MSME Act payable by the petitioner, the reference made before MSEFC is without jurisdiction. A more stress laid on a word "payable" claiming that except and beyond amount stated in the comfort letter, which is already paid, nothing becomes payable to respondent No.3- Rachna, and therefore, it cannot be said that the reference made to MSEFC is competent, and therefore, it was required to be quashed.
[12.0.] Referring to a decision in the case of Essar Oil Ltd. Vs. Hindustan Shipyard Ltd. and Ors. reported in AIR 2015 SC 3116, it is submitted that in absence of privity of contract, simply Page 9 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT because some payments made by the petitioner to respondent No.3- Rachna, it cannot be said that there is a privity of contract between the petitioner and respondent No.3- Rachna, even if on several occasions direct payment is made to respondent No.3- Rachna, no privity of contract can be said to exists to confer jurisdiction to the arbitral tribunal.
[13.0.] He further relied on a decision in the case of Chloro Controls India Private Limited Versus Severn Trent Water Purification Inc. and Ors. reported in (2013) 1 SCC 641, referring paragraphs 73, 76, 86 and 100, submitted that a non signatory or a third party could be subjected to the arbitration without their prior consent, but it would only be in exceptional cases. He has submitted that the Court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction. He has submitted that the Court should examine such pleas with greater caution and by definite reference to the language of the contract and intention of the parties. Relying on paragraph No.100 of the above decision, he has submitted that arbitration could be possible between a non signatory to an agreement and a third party but, heavy onus lies on that party to show that in fact and in law, it is claiming under or through a signatory party, as contemplated under Section 45 of the Arbitration Act. He has submitted that there may be a contract between respondent No.4 - FCIPL and respondent No.3- Rachna where petitioner is a third party. Whereas, in between petitioner and respondent No.4 - FCIPL, respondent No.3- Rachna is a third Page 10 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT party with whom there is no written or signed agreement by the petitioner.
[14.0.] Relying on a decision in the case of V.G. Santhosam V. Shanthi Gnanasekaran and Ors. reported in 2020 SCC online Mad 560, submitted that the doctrine of "Group of Companies" has developed in the international context, whereby an Arbitration Agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. He has submitted that in the present case respondent No.3- Rachna does not qualify to be termed as a group of companies or an affiliate or a sister or a parent concern of respondent No.4- FCIPL, and therefore, it being non-signatory to the contract executed by respondent No.4-FCIPL with the petitioner or being non-signatory to the agreement executed between the respondent No.4-FCIPL and respondent No.3- Rachna, the dispute between the parties cannot be resolved by way of arbitration in absence of an agreement between them and / or arbitration clause therein. Referring to the aforesaid decision, it is submitted that a third party cannot be impleaded as a party to the arbitral proceedings as held by the Supreme Court in the case of Chloro Controls India Private Limited (Supra). He further relied on a decision of Orissa High Court in the case of Shri Mahavir Ferro Alloys Pvt. Ltd. Vs. Passary Minerals Ltd. reported in MANU/OR/0144/2018, more particularly paragraph Nos.15 and 16, wherein the said High Court had relied on a decision in the case of M/s. Steel Authority of India Ltd. V. Micro Small Enterprise Facilitation Council reported in AIR 2012 Bombay Page 11 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT 178, to submit that there should exist an arbitration agreement to confer the jurisdiction to the MSEFC to arbitrate the dispute between the parties.
[15.0.] It is further contended that the petitioner cannot be said to be a buyer under Section 2(d) of the MSME Act as also respondent No.3- Rachna cannot be termed as supplier under Section 2(n) of the Act conferring jurisdiction to MSEFC on a reference made at the instance of respondent No.3 - Rachna. It is further submitted that considering the definition of buyer, the petitioner cannot be said to be a recipient of any goods or services from a supplier for a consideration. Therefore, it is submitted that the MSEFC lacks inherent jurisdiction to entertain the reference at the instance of respondent No.3- Rachna, and therefore, the order impugned passed by it is without jurisdiction and illegal, it requires to be quashed and set aside.
[16.0.] As against that, Mr. Sanjanwala, learned Senior advocate with Mr. Rushabh Shah, learned advocate appearing for respondent No.3- Rachna on a caveat, submitted that to satisfy the definition of buyer, direct relation with the buyer is not necessary. Referring to ground (D) at page No.16 of the petition and few paragraphs and two paragraphs of comfort letter dated 23.07.2014 as referred to in it, it is submitted that the petitioner has not produced on record of this petition that very comfort letter based on which it is submitted that there is no privity of contract with respondent No.3- Rachna. It is further submitted that the attempt of the petitioner is not bonafide or honest attempt. It is submitted that respondent No.3- Rachna had to produce not only the comfort letter dated 23.07.2014 in their reply but, had to produce abstracts Page 12 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT of the minutes of the resolution passed by the Board of Directors of the petitioner - company. Drawing attention to page No.129 - Annexure-H which is Record notes of the discussion held between the petitioner and the project management consultant (EIL) held with FCIPL, even subsequent to the comfort letter dated 23.07.2014. It is submitted that the Board of Directors of the petitioner had resolved to pay directly to all sub-contractors of respondent No.4- FCIPL based on works completed and certified by its project management consultant (EIL). Thus, it is submitted that they had promised to pay not only respondent No.3- Rachna but to all vendors / sub-contractors of respondent No.4- FCIPL - main contractor.
[17.0.] Drawing attention to the comfort letter dated 23.07.2014 at page No.201 of the compilation, it is submitted that not only the payment running into crores of rupee was assured, it was again with a request to expedite the completion of road works at the earliest and, that too, to the respondent No.3- Rachna. Thus, it is submitted that the petitioner had, under the assurance / promise to pay the amount, acknowledged the services of respondent No.3- Rachna for consideration of road works which it has carried out and now petitioner turned around when it comes for payment on the ground of privity of contract with petitioner. He has further submitted that the petitioner was much concerned with the timely conclusion of overall project schedule which was getting delayed because of the poor progress of the work by respondent No.4- FCIPL which led them to maintain contractual status quo with respect to respondent No.4- FCIPL. He has further submitted that with a view to bring / accelerate the project on the progress and to meet the critical time lines, all sub-contractors were promised to Page 13 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT pay directly which is nothing but contract directly with sub- contractors getting works done or services obtained from them on a promise to pay. Not only that, drawing attention to page No.131 of the compilation which is minutes of 52nd Board meeting of the petitioner - company held on 12.11.2014 at New Delhi where Board of Directors acknowledged and accorded approval to make direct payment or opening of LCs on behalf of sub-contractors / sub vendors / FCIPL on the recommendation of the PMC/ EIL and FCIPL. It is further submitted that it was further resolved according approval for processing the invoices of FCIPL for the work executed from 01st September 2014 onwards for direct payment to sub- contractors / sub vendors. Therefore, it is submitted that for getting work timely done, they acknowledged and accepted the goods supplied and services rendered by respondent No.3- Rachna and when it comes for payment to be made, petitioner raises its hands citing absence of privity contract directly with respondent No.3- Rachna. As such, the correspondence as also the resolution of the Board of Director of the petitioner - company clearly suggest that though there was no contract in writing, it speaks of oral contract not only with respondent No.3- Rachna but to all sub- contractors and sub vendors on assurance of payment directly to be made for the remaining work completed by them pursuant to contract entered between them with respondent No.4 - FCIPL.
[18.0.] Drawing attention of such resolution of the Board of Directors as also the comfort letter and other correspondence, it is submitted that for maintaining time schedule of the project work, they assured the payment to be made directly to the sub contractors / sub vendors which is nothing but a conscious Page 14 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT acknowledgment of contract with sub vendors /sub contractors, and therefore, the petitioner satisfies the definition of buyer, and therefore, it confers the jurisdiction, when petitioner failed to make timely payment for the work done on their behalf by respondent No.3- Rachna, who fulfills the definition of supplier under Section 2(n) of the MSME act.
[19.0.] It is further submitted that the petitioner tries to disown the liability only on the ground that there is no privity of contract with respondent No.3- Rachna, and therefore, the petitioner is not a buyer of any services rendered or goods supplied to it. However, respondent No.3- Rachna is not a stranger to the dispute. It was only on assurance of commitment of direct payment for the work to be done, respondent No.3- Rachna rendered it services, and therefore, the petitioner is a buyer of it. It is further submitted that to fulfill the definition of supplier, a micro and small enterprises has to file a memorandum with the authority referred under sub-section (1) of Section 8 of the MSME Act and includes any company, co- operative society, trust or 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.
[20.0.] It is further submitted that in view of Section 16 of the Arbitration Act, the petitioner can take all possible objections before arbitral tribunal on its own jurisdiction including the objection with respect to the existence or validity of arbitration agreement, and therefore, the petitioner is not remedyless and Page 15 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT order impugned is not without jurisdiction, this petition under Article 226 of the Constitution of India may not be entertained.
[21.0.] Relying on a decision in the case of Food Corporation of India versus Indian Council of Arbitration and Ors. reported in (2003) 6 SCC 564, it is submitted that all those available objections to the jurisdiction of an arbitrator as decided by the Supreme Court are available to be raised before it, this petition may not be entertained. Relying on it, it is further submitted that all those objections with respect to existence or validity of arbitration agreement are matters which should be canvassed before the Arbitral Tribunal itself and the High Court should not adopt an adjudicatory role and returned a verdict recording reasons as to the very existence or otherwise of the agreement as well as the tenability and legality or otherwise of making a reference to an arbitrator. In short, it is submitted that the petitioner is requesting this Court to undertake an adjudicatory role which is otherwise the jurisdiction of the arbitral tribunal, and therefore, the writ petition under Article 226 of the Constitution of India is not maintainable. Therefore, he has requested this Court to desist from deciding all several issues raised which is required to be decided by the arbitral tribunal itself. Responding to the judgment relied by the petitioner in the case of M/s Easun Reyrolle Limited (Supra), it is submitted that there respondent claimed to be supplier where he did not file any memorandum as provided under sub-section (1) of Section 8 of the MSME Act with the authority, and therefore, it did not fulfill the definition of supplier and therefore the contention raised that the MSEFC completely lacks jurisdiction to entertain the reference filed at its instance.
Page 16 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT[22.0.] He has further submitted that in the said case on admitted pleadings, since the person who preferred the reference before the MSEFC, did not qualify as a supplier under Section 2 (n) of the MSME Act, the High Court entertained the petition as MSEFC lacks jurisdiction to entertain such petition, which has come to be upheld by the Division Bench of this Court in Letters Patent Appeal No.619 of 2019 decided on 27.12.2019. He has emphatically submitted that here it is never the contention of the petitioner that the MSEFC completely lacks jurisdiction to entertain the reference. According to his submission, apart from relationship of the supplier and the buyer, there is a concluded contract between them and such disputed question cannot be gone into by this Court in a petition under Article 226 of the Constitution of India, it should be rejected. He has further submitted that considering the scheme of the MSME Act, there is no scope for adjudication of contentious issues. The underlying legislative intent is to leave it to the arbitrator. In support of such contention, he has relied on decision of this Court in the case of JITF Water Infrastructure Limited Versus MSME Commissionerate and Anr. rendered in SCA No.11169 of 2018 where considering the judgment in the case of Chloro Controls India Private Limited Vs. Severn Trent Power Water Purification Inc. & Ors., reported in (2013) 1 SCC 641 and the contention with regard to privity of contract, the learned Single Judge of this Court concluded that MSEFC has jurisdiction to entertain the dispute and dismissed the petition which came to be confirmed by the Division bench of this Court vide LPA No.1167 of 2019 even taking into account the decision of Chloro Controls India Private Limited (Supra.) and the decision of the Division Bench in the case of M/s Nik San Page 17 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT Engineering Co. Ltd. Vs. M/s. Easun Reyroller Limited i.e. LPA /619/2019, dismissed the LPA taking into consideration Section 16 of the Arbitration Act also.
[23.0.] Mr. Sanjanwala, learned Senior advocate, relying on decision in the case of Cummins Technologies India Private Limited Vs. Micro and Small Micro Enterprises Facilitation Council and Ors. Passed in Writ C No.7785 of 2020 decided on 03.03.2020 by the Allahabad High Court, submitted that the contention that MSEFC cannot arbitrate the dispute between the parties as it had acted as a conciliator, cannot be countenanced. He has further submitted in view of the fact that Section 24 of the MSME Act provides for an overriding effect to the provisions of Sections 15 to 23 of the MSME Act is recognized notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Thus, it is submitted that the MSME Act is later in point of time providing for the overriding effect to the provisions found inconsistent with the provisions made in the MSME Act enacted nearly after 10 years after the enacting of Arbitration Act consciously. Therefore, when a provision is made in Section 18(3) of the MSME Act empowering the MSEFC to arbitrate on failure of conciliation proceedings by itself or referring to any institution or centre providing for alternate dispute resolution, would override provisions made in Section 80 of the Arbitration Act which restrains the conciliator to act as an arbitrator in respect of the dispute, which is conciliated by it.
[24.0.] It is further contented that once the petitioner has promised to pay even by comfort letter, it becomes their obligation Page 18 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT to fulfill the said promise. It is further submitted that the person, who undertakes obligation to pay and does not discharge the said obligation receiving the goods or services and fails to pay, the petitioner becomes buyer as defined under the MSME Act. He has further submitted that the dispute with regard to accounts and admissibility of running bills produced for whatever reason, cannot be gone into by this Court, that too, under Article 226 of the Constitution of India. He has further submitted that under Section 18 of the MSME Act there is a deeming fiction provided in it, even in absence of arbitration agreement in writing with or without arbitration clause, the dispute can be resolved by the MSEFC as if there exists an arbitration agreement referred to in sub-section (1) of Section 7 of the Arbitration Act. Thus, he has submitted that the contention of the petitioner that there is absence of privity of contract with the petitioner pales into insignificance.
[25.0.] As against that, Mr. Utkarsh Sharma, learned AGP, who represents respondent No.2- Facilitation Council - MSEFC who was issued notice to ascertain the jurisdiction of it, submitted that keeping in mind the object of the MSME Act, the Council is empowered to conciliate and / or arbitrate the dispute between the supplier and the buyer. He has further submitted that the limited inquiry for taking up the dispute for conciliation and / or arbitration is to ascertain whether the person filing reference before it satisfies the ingredients of either Section 2(d) - buyer and Section 2(n) - supplier of the MSME Act or not. Once they satisfy the ingredients of Section 2(d) and Section 2(n) of the MSME Act, the MSEFC has jurisdiction to entertain the reference. He has further submitted that in absence of arbitration agreement, considering the Page 19 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT provisions of the MSME Act, the MSEFC is empowered to conciliate and / or arbitrate the dispute between the supplier and buyer. He has further submitted that the MSEFC is not a judicial authority, and therefore, it is not supposed to write judgments. At the same time, he has submitted that the MSEFC has, though very short, but passed the reasoned order recording failure of conciliation undertaken between the parties and directed them to arbitrate before it. Before passing such order, according to submission of Mr. Sharma, learned AGP, tireless efforts were made to bring about solution to the dispute and on failure thereof, it was decided to arbitrate the dispute by respondent No.2 itself. Therefore, he has submitted that petition lacks merits and it is required to be rejected.
[26.0.] To appreciate the contentions raised by the parties, it would be profitable to refer to various provisions of the MSME Act as also the Arbitration Act, which reads as under:
"Certain provisions of MSME Act:-
2.Definitions.- In this Act, unless the context otherwise requires,-
(d)"buyer" means whoever buys any goods or receives any services from a supplier for consideration;
(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;
Page 20 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT8. Memorandum of micro, small and medium enterprises.-- (1) Any person who intends to establish,--
(a) a micro or small enterprise, may, at his discretion, or
(b) a medium enterprise engaged in providing or rendering of services may, at his discretion; or
(c) a medium enterprise engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), shall file the memorandum of micro, small or, as the case may be, of medium enterprise with such authority as may be specified by the State Government under sub-section (4) or the Central Government under sub-section (3): Provided that any person who, before the commencement of this Act, established--
(a) a small scale industry and obtained a registration certificate, may, at his discretion; and
(b) an industry engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), having investment in plant and machinery of more than one crore rupees but not exceeding ten crore rupees and, in pursuance of the notification of the Government of India in the erstwhile Ministry of Industry (Department of Industrial Development) number S.O.477(E) dated the 25th July, 1991 filed an Industrial Entrepreneur's Memorandum, shall within one hundred and eighty days from the commencement of this Act, file the memorandum, in accordance with the provisions of this Act.
(2) The form of the memorandum, the procedure of its filing and other matters incidental thereto shall be such as may be notified by the Central Government after obtaining the recommendations of the Advisory Committee in this behalf.
(3) The authority with which the memorandum shall be filed by a medium enterprise shall be such as may be specified by notification, by the Central Government.
(4) The State Government shall, by notification, specify the authority with which a micro or small enterprise may file the memorandum. (5) The authorities specified under sub-sections (3) and (4) shall follow, for the purposes of this section, the procedure notified by the Central Government under sub-section (2).
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 Page 21 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.
16. Date from which and rate at which interest is payable.-- 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, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.
17. Recovery of amount due.--For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16.
18. Reference to Micro and Small Enterprises Facilitation Council.--(1) Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council.
(2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act.
(3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration and 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 Page 22 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.
(5) Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference.
24. Overriding effect.--The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force."
"Certain provisions of the Arbitration Act:-
Section 2. Definition
(b) "arbitration agreement" means an agreement referred to in section 7;
(h)"Party" means a party to an arbitration agreement.
Section - 7 Arbitration agreement. -- (1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in--
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the Page 23 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT contract is in writing and the reference is such as to make that arbitration clause part of the contract.
8. Power to refer parties to arbitration where there is an arbitration agreement.--
(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.
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 arbitration 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.
Page 24 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral 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.
45. Power of judicial authority to refer parties to arbitration. -- Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.
80. Role of conciliator in other proceedings.--Unless otherwise agreed by the parties,--
(a) the conciliator shall not act as an arbitrator or as a 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."
[27.0.] Initially while starting the arguments by Shri Nanavaty, learned Senior advocate, the jurisdiction of the MSEFC was objected to only on the ground that there is no privity of contract with respondent No.3- Rachna, it has no jurisdiction to entertain the reference. While filing the reply to the reference, there is no case pleaded in it that the MSEFC inherently lacks jurisdiction to entertain the reference filed by respondent No.-3 Rachna. Drawing attention of the Court to the affidavit in reply filed by the petitioner before the MSEFC, more particularly, to paragraph No.4.2, it was Page 25 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT submitted that the petitioner has not awarded any letter of intent and / or work order or executed any contract with respondent No.3- Rachna for the alleged outstanding. The liability is disowned before the MSEFC on the ground that there is no privity of contract between the parties to the reference made before the MSEFC. However, having realized that the said argument, if at all to be raised, it is to be raised before the Arbitrator, a wicket gate sought to be opened by submitting that there is no "Buyer-Supplier Relationship" between the petitioner and respondent No.3- Rachna, and therefore, the MSEFC has no jurisdiction to entertain the reference.
[28.0.] Considering the definition of buyer, it is clear that whoever buys any goods or receives any services from a supplier for consideration becomes buyer. The contention raised by Mr. Nanavaty, learned Senior advocate for the petitioner that there has to be some agreement / contract / arrangement for consideration between the parties, then only a person can be said to be a buyer or a supplier under the MSME Act, appears to be attractive but has no substance in it on the following reasons.
[29.0.] Considering the case pleaded before the MSEFC by the petitioner as also documents at page No.201, which is comfort letter assuring payment issued by the petitioner to respondent No.3 - Rachna and page No.202 is the copy of the minutes of 52 nd Board Meeting of petitioner -company , which otherwise has to be produced by the petitioner but did not produced and respondent No.3- Rachna had to produce it on record alongwith the reply, it is very clear that the petitioner has promised to pay vide that comfort Page 26 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT letter as also the decision in the meeting of Board of Directors of the petitioner - company to not only respondent No.3- Rachna but to all the sub-contractors of respondent No.4- FCIPL. Not only that, reading comfort letter itself, it is clear that the petitioner promised to pay, may be a particular sum, with a request to respondent No.3- Rachna to expedite the completion of road works at the earliest. Thus, it is clear that though there is no written contract entered with respondent No.3- Rachna, on promise to make payment directly to respondent No.3- Rachna, they had obtained their work and, that too, within time frame from respondent No.3- Rachna. Once they promised to pay, it is their obligation to pay respondent No.3- Rachna and a person who undertakes obligation to pay and fails to discharge the said obligation, he can certainly be said to have received the goods or services for consideration, it becomes buyer. To satisfy the definition of buyer, there is no contract in writing is ever required, therefore, it is rightly submitted by Mr. Nanavaty, learned Senior advocate for the petitioner that there may be any agreement / contract / or arrangement between the parties to become a buyer as defined under Section 2(d) of the MSME Act.
[30.0.] Here, in the present case, not only under the promise to pay directly to respondent No.3- Rachna, to maintain their time schedule finishing of project, entered into an agreement / arrangement and obtained the goods and services from respondent No.3- Rachna, and therefore, the petitioner satisfies the definition of a buyer and amenable to the jurisdiction of the MSEFC. At the same time, there is no submission by the learned Senior advocate for the petitioner that the MSEFC inherently lacks jurisdiction. The Page 27 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT bone of the contention of the petitioner is that in absence of any contract in writing with respondent No.3- Rachna, there is no privity of contract, and therefore, even MSEFC, who has kept the dispute between the parties for arbitration before it, cannot do so.
[31.0.] Considering the minutes of Board meeting of the petitioner which they have suppressed from the Court, have been brought on record in affidavit in reply filed by respondent No.3- Rachna, it is clear that the Board had accorded approval to make direct payment and opening of Lcs, on behalf of respondent No.4- FCIPL, to all sub-vendors / sub-contractors of respondent No.4- FCIPL on the recommendation of EIL and FCIPL. Not only that, Board had accorded approval for processing invoices of FCIPL for work executed from 1st September 2014 onward for direct payment to all sub-contractors / sub-vendors. Therefore, with clarity in mind, petitioner had requested for the goods and / or services to be provided to it by respondent No.3- Rachna, now petitioner cannot raise their hands when it comes for payment to respondent No.3- Rachna for the work done. At any rate, the said action of petitioner fulfills the relationship of buyer and supplier conferring jurisdiction to MSEFC for entertaining a reference.
[32.0.] The contention raised regarding absence of privity of contract between the parties is also fallacious. If in any suit filed by respondent No.3- Rachna, if the petitioner is compelled to go for arbitration, the said argument is available to it. However, conferring jurisdiction to MSEFC is concerned, the basic requirement is the "buyer-supplier relationship" and under the scheme of the MSME Act, it can conciliate or arbitrate the dispute Page 28 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT between the parties by itself or through other agencies. Therefore, there is no requirement that there must exist any written contract or any arbitration agreement or any privity of contract between the parties to conciliate or arbitrate the dispute between them before the MSEFC, so long as 'buyer-supplier relationship" exists.
[33.0.] Considering the statement of objects and reasons as also the preamble, with a view to facilitate the promotion and development and enhancing competitiveness of micro, small and medium enterprises, a different mode for adjudication of the dispute between the parties assuring timely payment with interest for delayed payment fulfilling the criteria defined under the MSME Act is provided for with time limits to conclude the proceedings. Section 18 of the MSME Act open ups with a non-obstante clause conferring jurisdiction to MSEFC to entertain reference with regard to recovery of amount due from buyer for any goods supplied or services rendered by the supplier. So despite any other mode for recovery of the due payment, the adjudicative process undertaken by the MSEFC is given primacy over any other process under the MSME Act. At the same time, with the overriding effect as provided under Section 24 of the MSME Act, it can conciliate / arbitrate a dispute with regard to payment for the goods supplied and services rendered with interest as provided under Section 18 of the MSME Act.
[34.0.] The contention raised by Mr. Sudhir Nanavaty, learned Senior advocate for the petitioner that there has to be some agreement even for entering into conciliation by the MSEFC requires rejection. Considering the subsection (2) of Section 18 of Page 29 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT the MSME Act, it is clear that when a dispute is brought to the notice of MSEFC by filing reference, the conciliation can be entered into without necessity of any agreement between the buyer and the supplier in writing as provisions of Sections 65 to 81 of the Arbitration Act shall apply to such a dispute as if the conciliation was initiated under part-III of that Act. Therefore, in view of the said provisions, conciliation can be entered into between the parties by the MSEFC or any other agency enumerated therein. Therefore, the requirement or existence of any contract or arbitration contract to the dispute under the MSME Act, as argued by the learned senior advocate for the petitioner, is without any substance.
[35.0.] The contention raised by the learned senior advocate for the petitioner regarding arbitration agreement as defined under Section 2(b) of the Arbitration Act read with Section 7 of it, which provides for existence of agreement by the parties containing arbitration clause, that too, in writing, pales into insignificance when arbitration is to be conducted for a dispute as defined under MSME Act in between buyer and supplier.
[36.0.] In my opinion, for a dispute in between buyer and supplier under MSME Act, there may not exist any agreement in writing containing an arbitration clause. I am forfeited in the said view by the language used in sub-section (3) of Section 18 of the MSME Act, which provides deeming fiction empowering the MSEFC either itself to take up the dispute for arbitration or refer to any institution or centre providing alternate dispute resolution services for such arbitration as if the arbitration was in pursuance of an arbitration agreement referred to in subsection (1) of Section 7 of the Arbitration Act. Though provision of Arbitration Act is made Page 30 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT applicable to the arbitration conducted under the MSME Act, considering the overriding effect provided under Section 24 of the MSME Act, any provisions inconsistent with provisions made in MSME Act, the MSME Act would prevail over it. However, in absence of any agreement, that too, an agreement in writing, the dispute between the supplier and buyer can be arbitrated under MSME Act as if there exists arbitration agreement as defined under Section 7 of the Arbitration Act. To my mind for resolution of a dispute by MSEFC in between buyer and supplier either by conciliation or arbitration, there is no need to have any agreement / contract in writing between them. In absence of such arbitration agreement, the dispute between the buyer and the supplier can be conciliated or arbitrated, although provisions of Arbitration Act applies to the arbitration conducted under it. Thus, there is ample material before the MSEFC and in absence of any claim before it by the petitioner while conciliation proceedings were on, denying existence of "buyer supplier relationship", the petitioner cannot be heard to say that there exists none, more particularly, when on termination of conciliation proceedings where MSEFC directed to arbitrate the dispute between the parties before it. In my opinion, when any right is to be enforced under the MSME Act existence as to the arbitration agreement containing arbitration clause between the parties, that too, in writing is not required at all.
[37.0.] The contention raised by the learned Senior advocate for the petitioner complaining about order impugned being non speaking and unreasoned order cannot be countenanced as well. Since the MSEFC is not a judicial authority so as to assign reasons in support of the conclusion reached, more particularly, for Page 31 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT recording failure of conciliation, the said argument is worthless. At the same time, after tireless efforts by the MSEFC, it has in terms recorded failure of conciliation, and therefore, directed the parties to arbitrate before it. For recording failure to conciliation proceedings between the parties, the MSEFC is not supposed to pass any reasoned order. At the same time, the liability was disowned by the petitioner before MSEFC only on the ground that there is no privity of contract between the parties. The order impugned manifested that the principles of natural justice were followed and efforts were made to conciliate between the parties. There was no need to assign any reasons recording failure of conciliation and directing parties to arbitrate the dispute before it. At any rate, the reference submitted by respondent No.3- Rachna to the MSEFC, joining the petitioner even as a party respondent, it was a competent reference submitted by respondent No.3- Rachna and the MSEFC had inherent jurisdiction to entertain such reference. There is no dispute raised by the petitioner even while arguing the petition that respondent No.3- Rachna cannot be termed as a supplier as defined under Section 2(n) of the MSME Act, and therefore, the said issue need not be gone into, though raised in a draft amendment to the petition which was granted by this Court, as it dropped the same.
[38.0.] However, considering the affidavit filed by respondent No.2- MSEFC, notice was issued to it alone by this Court with a purpose to clarify about their jurisdiction to entertain the reference, it is clear that respondent No.3- Rachna satisfied the definition of supplier under the MSME Act as a precondition having small category status of EM2 24-00722-05138 issued on 06.10.2009 from Page 32 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT the impugned order itself. Thus, though no such argument is ever raised, which is not required to be even dealt with, but the MSEFC has examined before undertaking or entertaining the reference whether parties satisfy the basic requirement to confer jurisdiction upon it.
[39.0.] The contention with regard to MSEFC arbitrating itself on failure of conciliation before it, a strong reliance is placed on Section 80 of the Arbitration Act, which prohibits conciliator from acting as an arbitrator which is the subject of the conciliation proceedings. However, despite such provision vide Section 80 of the Arbitration Act enacted in the year 1996, the MSME Act came to be enacted in the year 2006 to arbitrate the dispute between the parties itself with the overriding effect provided under Section 24 of the MSME Act, the disability of conciliator to act as an arbitrator under Section 80 of the Arbitration Act being inconsistent with, the MSME Act authorizing MSEFC to take up the dispute for arbitration itself, the MSEFC has jurisdiction to arbitrate the said dispute itself despite it had conciliated the dispute between the parties. It is a conscious departure by the legislature authorizing MSEFC to arbitrate itself even if it had acted as conciliator under MSME Act. Therefore, the said argument has also no legs to stand.
I am fortified in my aforesaid view supported by a decision in the case of Mackintosh Burn Limited Vs. Micro and Small Enterprises Facilitation Council reported in AIR 2020 Calcutta 103 wherein decision in the case of M/s Steel Authority of India Limited and Anr. Versus Micro, Small Enterprises Facilitation Council reported in AIR 2012 Bombay Page 33 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT 178 is dissented from as also our own High Court in the case of Principal Chief Engineer Versus Manibhai & Brothers reported in 2016 (4) GLR 3349 has also dissented from the said decision and held that in view of the overriding effect, though no arbitration agreement between the parties is existing but legal fiction under Section 18(3) of the MSME Act would operate, as if arbitration agreement entered between the parties.
[40.0.] Strong reliance placed on a decision in the case of M/s Essar Oil Limited (Supra) is out of context. Though there cannot be any dispute with regard to the ratio laid down in it before the Supreme Court while determining the privity of contract between the parties, the provision of MSME Act was never at a issue and in context thereof, the said decision has not been rendered. Therefore, on the reasons assigned hereinbefore, considering the provisions of MSME Act alongwith Arbitration Act with regard to it, the said decision is not a precedent on the controversy before this Court, and therefore, it cannot be relied on.
[41.0.] The precedents relied on by the learned Senior advocate for the petitioner as referred to hereinabove were only on the issue of privity of contract and arbitrability of the dispute between the parties without considering the provisions of MSME Act, are not applicable at all in the facts of the present controversy and the case. None of the precedent relied on by the learned senior advocate for the petitioner are applicable to the present controversy as in those decisions provisions of MSME Act were never involved to be determined alongwith the overriding effect of the MSME Act and in absence of any decision considering the effect Page 34 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT of Arbitration Act and MSME Act with regard to conciliation and / or arbitration of a dispute raised before MSEFC on a reference filed by a supplier against the buyer of goods or services, it is of no help to the petitioner for determining the issue raised herein.
[42.0.] The decision of the learned Single Judge of this Court in the case of Easun Reyrolle Limited (Supra) heavily relied on by the learned Senior advocate for the petitioner with regard to similarity of prayers made in it and ultimate relief granted by the Court, to submit that this Court has jurisdiction to entertain a petition under Article 226 of the Constitution of India challenging the decision of MSEFC. However, the said decision of the learned Single Judge of this Court which is confirmed by the Division Bench of this Court in Letters Patent Appeal No.619 of 2019, was on the issue that the person, who filed the reference before MSEFC did not fulfill the criteria of supplier under Section 2(n) of the MSME Act, and therefore, this Court held that the MSEFC has no jurisdiction to undertake the exercise under MSME Act. However, in the present case there is no such controversy at all and rightly so. Therefore, the said decision is not applicable in the present case.
[43.0.] The reliance placed on a decision of Orissa High Court in the case of Shri Mahavir Ferro Alloys Pvt. Ltd. (Supra), was pertaining to an arbitration petition filed under Section 11(5) of the Arbitration Act, that too, by the buyer. It prayed for an appointment of arbitrator for its counter claim against the supplier. Considering the argument that dispute with regard to non-payment in lieu of the supply may have been raised by the opposite party before the MSEFC under the provisions of the MSME Act, the MSEFC could only Page 35 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT decide the claim for non-payment of supply made by the opposite party-supplier to the purchaser - petitioner, and therefore, the contention was raised that the MSEFC would not have the jurisdiction to decide the claim of the buyer which was yet not registered under the MSME Act relating to liquidated damages for supply of defective material as provided under Clause-12 of the purchase order which can only be considered and decided in terms of Clause-19 of the purchase order relating to arbitration proceedings therein. To support that contention, a reliance was placed in the case of M/s. Steel Authority of India Ltd. (supra) which is specifically dissented to by the decision rendered by the Division Bench of this Court in the case of Principal Chief Engineer Versus Manibhai & Brothers reported in 2016 (4) GLR 3349, and therefore, it need not be dealt with separately. However, the very decision relied on by the petitioner on analysis of the provisions of MSME Act opined that the claim before the MSEFC under Section 18 of the MSME Act can only be that of a supplier against the buyer and no claim of any buyer for liquidated damages or otherwise against the supplier. As such, in the present case, there is no such controversy, and therefore, the said authority is also not applicable in the present case.
[44.0.] The reliance placed on a decision in the case of V.G. Santhosam (supra) is again analysis of the Supreme Court in the judgment of Chloro Controls India (p) Ltd. (supra) with regard to arbitration can be conducted even with a person who is a non- signatory to the contract also in certain exigencies. The said decision is also not an authority on the issue raised before this Court with regard to consideration of provisions made under the Page 36 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT Arbitration Act vis-a-vis the MSME Act.
[45.0.] The disputes with regard to quantum of payment, time period for it or even liability of payment and accounting are not the issues for this Court to determine, that too, in a petition under Article 226 of the Constitution of India, more particularly, when the said dispute can be raised and very well considered by the arbitral tribunal, may be it MSEFC or may be any other person or agency, the argument raised in respect thereof is not dealt with herein leaving it open to be raised under Section 16 of the Arbitration Act, before the arbitral tribunal.
[46.0.] Though "goods" is defined under the MSME Act, legislature in its wisdom, has not defined "service" restricting it in a narrow compass, it is to be understood in a general parlance as service can be rendered of any kind to anyone. Therefore, it is rightly submitted by Mr. Nanavaty learned Senior advocate for the petitioner that the service can be rendered either on the basis of written or oral contract or any other arrangement agreed upon. Considering the resolution of Board of Directors of the petitioner company issuing comfort letter and recognizing work to be carried on by respondent No.3- Rachna on promise of direct payment to be made, may be restricted as claimed by the petitioner, for that services rendered by respondent No.3- Rachna, there is no escape in holding that in between the petitioner and respondent No.3- Rachna relationship in the nature of "buyer -supplier" exists conferring jurisdiction to the MSEFC to entertain reference made under the MSME Act and proceed further with it in accordance with law. At the same time, though petitioner appeared before the Page 37 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020 C/SCA/7858/2020 CAV JUDGMENT MSEFC, filed reply to the reference made by respondent No.3- Rachna, participated in conciliation proceedings did not raise issue with regard to jurisdiction of MSEFC and rightly so on the ground that there exists no relationship as that of 'buyer-supplier" in between the parties. Only objection with regard to jurisdiction raised in reply was on the ground that there is no privity of contract with respondent No.3- Rachna, and therefore, Council has no jurisdiction as petitioner does not become buyer for want of contract. However, with a view not to prejudice case of the either party, I restrain myself recording any finding with regard to privity of contract between the parties and leaving it open to be raised at appropriate stage before appropriate forum.
[47.0.] Considering the arguments made by the appearing parties in the context of the different provisions of the law involved, the order impugned does not call for any interference, that too, in a petition under Article 226 of the Constitution of India, and therefore, this petition is required to be rejected and it is hereby rejected. Notice is discharged.
(UMESH A. TRIVEDI, J.) K.K. SAIYED / LALJI DESAI Page 38 of 38 Downloaded on : Tue Sep 01 23:34:24 IST 2020