Bombay High Court
Man Industries (India) Ltd vs Corro Care India on 1 July, 2019
Author: G.S. Kulkarni
Bench: G.S. Kulkarni
1 15-carapl 228-19
psv
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION APPLICATION (L.) NO.228 OF 2019
Man Industries (India) Ltd. ..Applicant
Vs.
Corro Care India ..Respondent
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Mr.Gauraj Shah i/b. Mr.Gandhar Raikar with Mr.Kshitij Shah for
Applicant.
Mr.Chirag Shah with Mr.Imran Karachiwalla i/b. M/s.Mansukhlal Hiralal
& Co. for Respondent.
-----
CORAM : G.S. KULKARNI, J.
DATE : 1st JULY, 2019
P.C.:
This is an application filed under Section 11 of the Arbitration and Conciliation Act, 1996 (for short, "the Act") whereby the applicant prays that disputes which are stated to have arisen between the parties be referred for adjudication by appointing an arbitral tribunal as per the arbitration agreement as contained in clause 12 of the Work Order which reads thus:-
"12.0 Arbitration:
The parties shall make every effort to resolve amicably by direct informal negotiations, any disagreement or dispute arising between them under or in connection with the contract.
In the event of any disputes arising out of or in connection with this work order which cannot be settled in an amicable manner, such disputes shall be settled in accordance with the rules of Conciliation and Arbitration of the Indian Arbitration Act, 1996. The jurisdiction of this work order shall be within the limits of Mumbai, and the language of communication shall be English.::: Uploaded on - 06/07/2019 ::: Downloaded on - 09/07/2019 23:13:45 :::
2 15-carapl 228-19 CONTRACTOR shall mobilise the manpower, plant and arrange all required consumable/equipment as per contractors scope within 30 calendar days from this Work Order date, and shall commence the Work not later than 40 calendar days. Subject to Monsoon season.
CONTRACTOR shall deploy sufficient manpower and maintained machinery to achieve CWC coating of minimum 60 number 24" Pipes each day. The progress of work shall be monitored and Work shall be delivered as per schedule mutually agreed between both parties."
2. Learned Counsel for the petitioner would however submit that the respondent had raised a dispute before the Micro and Small Enterprises Facilitation Council, Gandhinagar, Gujarat (for short, "Facilitation Council") under the Micro, Small and Medium Enterprises Development Act, 2006 (for short, "MSMED Act"). The Facilitation Council entered conciliation and ultimately, by a communication/order dated 23 May 2019 recorded that the conciliation as undertaken under Section 18(2) of the MSMED Act having failed directed the parties to commence arbitration proceedings under Section 18(3) of the MSMED Act. It is at this stage that the applicant is before the Court relying on the decision of Division Bench of this Court in M/s. Steel Authority of India Ltd. & Anr. V/s. The Micro, Small Enterprise Facilitation Council & Anr.1 to contend that the Division Bench has taken a view that once there is an independent agreement between the parties, the said agreement will not cease to have any effect and reference to arbitration under the agreement so entered between the parties would be required to be made. The Division Bench in M/s.Steel Authority of India 1 AIR 2012 Bombay 178 ::: Uploaded on - 06/07/2019 ::: Downloaded on - 09/07/2019 23:13:45 ::: 3 15-carapl 228-19 Ltd. & Anr. (supra) observed as under:-
"We, thus find that it cannot be said that because Section 18 provides for a forum of arbitration an independent arbitration agreement entered into between the parties will cease to have effect. There is no question of an independent arbitration agreement ceasing to have any effect because the overriding clause only overrides things inconsistent therewith and there is no inconsistency between an arbitration conducted by the Council under Section 18 and arbitration conducted under an individual clause since both are governed by the provision of the Arbitration Act, 1996."
3. Thus, relying on the decision of M/s.Steel Authority of India Ltd. & Anr. (supra), learned Counsel for the applicant would submit that the applicant would be entitled to the prayers as made in the application under Section 11 of the Act that the disputes be referred for arbitration by appointing an arbitral tribunal. Learned Counsel for the applicant however has fairly drawn the Court's attention to a recent decision of the Division Bench of this Court in Writ Petition No.5459 of 2015 in case of Gujarat State Petronet Ltd. vs. Micro and Small Enterprise Facilitation Council & Ors. where the Division Bench noting the decision of the Division Bench in M/s.Steel Authority of India Ltd. & Anr. (supra) however relying on a decision of the Gujarat High Court in Principal Chief Engineer vs. M/s.Manibhai and Brothers (Sleeper) & Anr. 2 whereby the Gujarat High Court did not agree with the decision taken by this Court in M/s.Steel Authority of India Ltd. & Anr. (supra) and while agreeing with the decision of Allahabad High Court in case of Paper and Board Convertors vs. U.P. State Micro and Small Enterprise 3 observed 2 2016 4 GLR 3349 3 Writ Petition No.24343 of 2014 ::: Uploaded on - 06/07/2019 ::: Downloaded on - 09/07/2019 23:13:45 ::: 4 15-carapl 228-19 that the Facilitation Council as constituted under the MSMED Act would be entitled to enter a reference although there is an independent arbitration agreement between the parties. The Division Bench held thus:-
"18. Section 18(1) of the MSMED Act provides for reference to the Facilitation Council of a dispute with regard to any amount due under Section 17. Sub-section (2) of Section 18 contemplates of conduct of conciliation either by council itself or by seeking assistance of any institution or centre providing alternate dispute resolution services. For purpose of such conciliation proceedings, the provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 are applicable. Sub-section (3) thereof, makes a provision for arbitration if the conciliation proceedings between the parties are not successful and stand terminated without any settlement either by the Council itself or by reference to any institution or centre providing alternate dispute resolution services. To such arbitration, the provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 are made applicable.
19. A plain reading of sub-sections (2) and (3) of Section 18 of the MSMED Act makes it clear that is is obligatory for the Council to conduct conciliation proceedings either by itself or seek assistance of any institute or centre providing alternative dispute resolution services. The provisions of Sections 65 to 81 of the Arbitration Act 1996 are made applicable to conciliation proceedings. In the event, the conciliation proceedings are unsuccessful and stand terminated, the Council can either itself take up the dispute for arbitration or refer it to any institution or centre proving alternate dispute resolution services for such arbitration. The provisions of Arbitration Act 1996, in its entirety, are made applicable as if the arbitration was in pursuance of the arbitration agreement referred to in sub-section(1) of Section 7 of the Arbitration Act, 1996.
20. It is thus evident that sub-section (2) and sub-section (3) of the MSMED Act vests jurisdiction in the Council to act as conciliator as well as arbitrator. The question is in view of the provisions of Section 80 of the Arbitration Act 1996, the Council which has conducted the conciliation proceedings is prohibited from acting as arbitrator. As stated earlier, certain provisions of Arbitration Act 1996 including Section 80 are specifically made applicable to conciliation ::: Uploaded on - 06/07/2019 ::: Downloaded on - 09/07/2019 23:13:45 :::
5 15-carapl 228-19 proceedings contemplated by Section 18(2) of the MSMED Act. Whereas provisions of Arbitration Act 1996, in its entirety, are made applicable to the arbitration and conciliation proceedings contemplated by sub-section (3) of Section 18 of the MSMED Act.
21. A harmonious reading of these provisions clearly indicate that Section 80 of the Arbitration Act, 1996 is applicable to conciliation as well as arbitration proceedings under sub-sections (2) and (3) of Section 18 of the MSMED Act. Section 80 of the Arbitration Act, 1996 reads thus :
"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; and
(b) the conciliator shall not be presented by the parties as a witness in any arbitral or judicial proceedings."
22. A plain reading of Section 80 makes it clear that the conciliator cannot act as an arbitrator or his representative or counsel of a party in any arbitral or judicial proceedings in respect of a dispute. It is thus evident that the MSEFC cannot act as conciliator as well as arbitrator, or it may choose to refer the dispute to any centre or institution providing alternate dispute resolution services for the parties to conciliation or arbitration. However, once the MSEFC acts as conciliator, in view of provisions of Section 80, it is prohibited from acting as arbitrator.
23. Admittedly, in the present case, respondent No.1 conducted the conciliation proceedings between the petitioner and respondent No.3 and by the impugned order, terminated the same as being unsuccessful. What is surprising is that respondent No.1 - MSEFC, having conciliated the dispute between the parties and conciliation proceedings being unsuccessful and terminated, the MSEFC itself initiated to arbitrate the dispute between the same parties. In our view, respondent No.1-MSEFC itself, could not have initiated arbitration proceedings between the petitioner and respondent No.3. In terms of the provisions of sub-section (3) of Section 18 the MSMED Act, respondent No.1 - MSEFC ought to have referred the dispute between the petitioner and respondent No.3 to any institution or centre providing alternate dispute resolution services for arbitration. The impugned order, so far as it relates to ::: Uploaded on - 06/07/2019 ::: Downloaded on - 09/07/2019 23:13:45 ::: 6 15-carapl 228-19 authorising respondent No.1 - MSEFC to initiate arbitration proceedings/arbitral dispute cannot be sustained and the same deserves to be quashed and set-aside.
24. We, accordingly, dispose of the petition by passing the following order:
1. We hold that the despite independent arbitration agreement between the petitioner and respondent No.3, respondent No.1 -
MSEFC has jurisdiction to entertain reference made by respondent No.3 under Section 18 of the MSMED Act.
2. Clause 2 of the operative part of the impugned order i.e. "Arbitration proceeding be initiated U/s 18(3) of MSMED Act 2006 and that this council shall act as an Arbitrator Tribunal" is quashed and set-aside and respondent No.1 - MSEFC is directed to refer the dispute between the petitioner and respondent No.3 to any institution or centre providing alternate dispute resolution services for arbitration. Respondent No.1 - MSEFC shall take necessary steps as expeditiously as possible and, in any case, within a period of four weeks from the date of receipt of this order.
3. Rule is, accordingly, made absolute in the above terms."
4. Learned Counsel for the applicant would submit that the decision of the Division Bench of this Court in M/s.Steel Authority of India Ltd. & Anr. (supra) has not been overruled either by larger bench or by the Supreme Court. He would submit that the observations of the Division Bench in Gujarat State Petronet Ltd. vs. Micro and Small Enterprise Facilitation Council & Ors. (supra) seem to be direct conflict with the view taken by the earlier Division Bench in M/s.Steel Authority of India Ltd. & Anr. (supra).
5. Considering the above circumstances, in my opinion, an issue ::: Uploaded on - 06/07/2019 ::: Downloaded on - 09/07/2019 23:13:45 ::: 7 15-carapl 228-19 certainly arises as to whether the law laid down in M/s.Steel Authority of India Ltd. & Anr. (supra) or as to what has been held by another Division Bench in Gujarat State Petronet Ltd. vs. Micro and Small Enterprise Facilitation Council & Ors. (supra) is required to be followed. In the event there is a conflict in these decisions as rendered by in these two cases, then the only course open to this Court would be to place this issue for consideration of Hon'ble the Chief Justice for a reference to a larger Bench. The parties would be required to be heard on these issues on the adjourned date.
6. The Court appoints Mr.J.P. Sen, Senior Advocate of this Court, as Amicus Curie to assist the Court on the above issues.
7. Learned Counsel for the applicant shall provide for a copy of proceeding as also the decisions which are being referred to the learned amicus curie. Accordingly, stand over to 15 July, 2019.
8. In the meantime, Micro and Small Enterprises Facilitation Council, Gandhinagar, Gujarat, shall not proceed with the arbitration proceedings.
9. Reply, if any, affidavit be filed within one week.
[G.S. KULKARNI, J.] ::: Uploaded on - 06/07/2019 ::: Downloaded on - 09/07/2019 23:13:45 :::