Madhya Pradesh High Court
Jabalpur Treasure Island Pvt. Ltd. vs State Of M.P. Through Department Of ... on 30 December, 2021
Author: Subodh Abhyankar
Bench: Subodh Abhyankar
1
WP No.369/2020
THE HIGH COURT OF MADHYA PRADESH,
INDORE BENCH
Single Bench: Hon'ble Shri Justice Subodh Abhyankar
Writ Petition No.369/2020
(Jabalpur Treasure Island Pvt. Ltd. & others v. State of Madhya Pradesh & others)
1 Case No. Writ Petition No.369/2020
2 Parties Name Jabalpur Treasure Island Pvt. Ltd. & others
Versus
State of Madhya Pradesh and others
3 Date of Order 30th of December, 2021
4 Bench constituted of Single Bench
Hon'ble Justice Hon'ble Shri Justice Subodh Abhyankar
5 Order passed by Hon'ble Shri Justice Subodh Abhyankar
6 Whether approved for Yes
reporting
7 Name of counsel for the Shri Vishal Baheti, learned counsel for the
parties petitioner.
Shri Sameer Verma, learned Panel Lawyer for
respondents No.1, 4 and 5 / State of Madhya
Pradesh.
Shri Yogesh Bhatnagar, learned counsel for
respondent No.3 / Sanfield India Limited.
8 Law laid down 1. A harmonious reading of sub-section (2), (3)
and (4) of S.18 of MSMED Act, 2006 clearly
reveals that even if the Facilitation council has
acted as a Conciliator, it can still act as an
Arbitrator as provided u/s.18(4) of MSMED Act,
2006.
2. Once a notice is served on a party under s.18 of
the MSME Act, it would hold good for
Conciliation proceedings as also the Arbitration
proceedings to be taken up by the Facilitation
Council, after the Conciliation proceedings have
failed and no separate notice is required to be
served by the Council for initiation of Arbitration
proceedings.
9 Judgments relied upon 1. M/s. Cummins Technologies India Private
Limited v. Micro and Small Enterprises
Facilitation Council and Others, (2020) 143
ALR 71;
2
WP No.369/2020
2. Best Towers Private Limited v. Reliance
Communications Limited, (2019) AIR (Patna)
85;
3. Bhaven Construction through Authorized
Signatory Premjibhai K. Shah v. Executive
Engineer Sardar Sarovar Narmada Nigam
Limited and another, (2021) 1 SCALE 327; and
4. Goodyear India Limited vs. Norton Intech
Rubbers (P) Ltd. and Ors., (2012) 6 SCC 345.
10 Significant paragraph 14, 16, 17, 18 & 20
ORDER
(Case was heard on 30.11.2021) Post for 30.12.2021 (SUBODH ABHYANKAR) JUDGE rcp 3 WP No.369/2020 High Court of Madhya Pradesh, Jabalpur Bench at Indore Writ Petition No.369/2020 (Jabalpur Treasure Island Pvt. Ltd.
Office No.68, 2nd Floor, Juhu Supreme Shopping Centre, Gulmohar Cross Road No.9, Juhu, Mumbai 400 049 (M.S) Abhitap Kumar Jain s/o Shri Santosh Kumar Jain, Age 47 years, Occupation - Service, R/o 9-A, Brajeshwari Main, Bangali Squire, Indore - 452 001 (MP) Narayan Khandelwal s/o Shri Kanhaiya Lal Khandelwal Age 50 years, Occupation - Service, R/o 1303, Scheme No.114, Part-I, Indore - 452 001 (MP) Yogesh Goswami s/o Late Shri R.M. Goswami, Age - 53 years, Occupation - Service, R/o - 201, Vaibhav Apartment, Scheme No.54, Amitesh Nagar, Indore - 452 012 (MP) Versus The State of Madhya Pradesh Through Principal Secretary, Department of Micro Small & Medium Enterprises, Mantralaya, Vallabh Bhawan, Bhopal (MP) Madhya Pradesh Micro & Small Industry Facilitation Council, Address - Industrial Secretariat, Vindhyachal Bhawan, Bhopal Sanfield India Limited Through Director, Mahesh Rajwani s/o Shri Mangdumal Rajwani, Age 61 years, Occupation - Business, Address - 31-A, D, Sector, Industrial Area, Govindpura, Bhopal (MP) The Collector, Indore (MP) The Tahsildar Tahsil Kanadia, District Indore MP) ***** Shri Vishal Baheti, learned counsel for the petitioners. Shri Sameer Verma, learned Panel Lawyer for respondents No.1, 4 and 5 / State of Madhya Pradesh.
Shri Yogesh Bhatnagar, learned counsel for respondent No.3 / Sanfield India Limited.
***** ORDER (Passed on this 30th day of December, 2021) Heard on IA No.10005/2021, an application on behalf of the respondent No.3 (Sanfield India Limited) for dismissal of the instant writ petition for want of jurisdiction and also on availability of efficacious alternative remedy.
4 WP No.369/20202. In brief, the facts giving rise to the present petition are that the petitioner and respondent No.3 entered into a business transactions with effect from 08.02.2011, regarding supply of construction material. Subsequently, a dispute arose between the parties and respondent No.3 filed an application under Section 18 of the Micro Small & Medium Enterprises Development Act, 2006 (herein after referred to as "the Act") for adjudication of the dispute (vide claim statement dated 17.04.2015 Annexure P/5) before the Madhya Pradesh Micro & Small Industry Facilitation Council, Bhopal (MP), respondent No.2 (herein after referred to as "the Facilitation Council").
3. In the aforesaid proceedings, the Facilitation Council vide its award dated 27.12.2017 (Annexure P/7) directed the petitioners to pay a sum of Rs.33,78,745/- (rupees thirty three lakh seventy eight thousand seven hundred forty five only) along with penal interest of Rs.23,07,729 (rupees twenty three lakh seven thousand seven hundred twenty nine only) as on 15.04.2015, as well as additional interest till the payment is made.
4. The said award dated 27.12.2017 is assailed before this Court on the ground that the Facilitation Council, although entered into conciliation proceedings, as provided under Section 18 of the Act, failed to give further notice to the petitioners, after coming to a conclusion that the conciliation proceedings have failed and as per 5 WP No.369/2020 the petitioners, immediately after holding that the conciliation proceedings have failed, the Facilitation Council decided to conclude the proceedings on the same day holding that the matter can be decided on its merits; and passed the final award.
5. The aforesaid interlocutory application IA No.10005/2021, has been filed by the respondent No.3 on the ground that against an award passed under Section 18 (3) of the Act, the remedy under Section 34 of the Arbitration and Concilliation Act, 1996 is available which is to be filed before the appropriate District Court of competent jurisdiction, along with 75% of the awarded amount, as a precondition and only to circumvent the aforesaid precondition of depositing the 75% of the awarded amount, this petition has been filed and on this ground only, the present petition is liable to be dismissed.
6. A reply to the aforesaid application has also been filed by the petitioners assailing that in the present case, the Facilitation Council has erred in not issuing notice to the petitioners, after holding that the conciliation proceedings are not successful as provided under Section 18 of the Act which is against the principles of natural justice, hence the petition is maintainable.
7. Learned counsel for the petitioners has pressed upon sub-
section (3) of Section 18 of the Act which provides that if the conciliation proceedings initiated by the Facilitation Council are not 6 WP No.369/2020 successful and stand terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution; and in such proceedings, the provisions of Arbitration & Conciliation Act, 1996 shall apply, as if the dispute is in respect of the arbitration agreement itself.
8. In support of his contention, Shri Vishal Baheti, learned counsel for the petitioners has also relied upon a decision rendered by the Bombay High Court in the case of Gujarat State Petronet Limited, Gujarat v. Micro and Small Enterprises Facilitation Council, Thane and others reported as AIR 2018 Bombay 265 (paras 17, 18, 19, 21 and 23) wherein also in similar circumstances, where after the conciliation proceedings stood terminated and the Facilitation Council went on to arbitrate the matter, the Bombay High Court has emphatically quashed the proceedings, holding that after conciliation proceedings failed before the Facilitation Council, it did not have the jurisdiction to decide the dispute, as provided under Section 80 of the Arbitration & Conciliation Act, 1996.
Similar finding has also been given in another decision of Patna High Court in the case of Reliance Communications Limited, Patna (Bihar) v. State of Bihar & others reported as AIR 2018 Patna 186 (paras 22 and 24).
In addition, Shri Baheti has also submitted that the petitioners were also not given any opportunity to present their case as soon 7 WP No.369/2020 after the conciliation proceedings came to an end, the matter was fixed for passing of the final order and thus, there is a clear violation of principles of natural justice.
9. In reply, Shri Yogesh Bhatnagar, learned counsel for respondent No.3 has submitted that the decision rendered by the Patna High Court has already been reversed by the Division Bench of Patna High Court in case of Best Towers Private Limited v.
Reliance Communications Limited reported as (2019) AIR (Patna) 85.
Shri Bhatnagar has also relied upon the following judgments: -
Bhaven Construction through Authorized Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Limited and another reported as (2021) 1 CTC 450 = (2021) 1 JT 9 = (2021) 1 SCALE 327;
Goodyear India Limited v. Norton Intech Rubbers (P) Limited and another reported as (2012) 2 CTC 829 = (2012) 6 SCC 345;
Decision rendered by the Supreme Court dated 29.06.2021, in the case of M/s. Silpi Industries etc. v. Kerala State Road Transport Corporation and another etc. in Civil Appeal No.1570-1578 of 2021 and M/s. Khyaati Engineering v. Prodigy Hydro Power Private Limited in Civil Appeal No.1620-1622 of 2021;
TBED (India) Transformer Private Limited v. U.P. Micro and Small Enterprises and another reported as (2020) 4 ADJ 681 = 8 WP No.369/2020 (2020) 3 AllLJ 243 = (2020) 3 AllWC 2220 = (2020) 142 ALR 617 = (2020) 149 RD 826;
M/s. Cummins Technologies India Private Limited v. Micro and Small Enterprises Facilitation Council and others reported as (2020) 10 ADJ 611 = (2020) 3 AllWC 2845 = (2020) 143 ALR 71 = (2021) 150 RD 99;
Ballarpur Industries Limited v. Andhra Pradesh Micro, Small Enterprises Facilitation Council reported as (2014) 5 ALT 502 = (2014) 6 AndhLD 266;
and a judgment dated 02.11.2018 of Madhya Pradesh High Court in the case of Fives Stein India Project Pvt. Ltd. Kolkata v. State of MP and others in Writ Petition No.22577 of 2018.
Regarding the objection as to opportunity of hearing, it is submitted that the petitioner was already represented by a counsel who stopped appearing subsequently hence it cannot be said that no opportunity of hearing was afforded to the petitioner.
It is also submitted by Shri Bhatnagar that even a writ petition cannot be entertained by this court unless the 75% of the awarded amount is deposited as has been held by the Supreme Court in the case of Goodyear India Limited (supra).
10. In rebuttal, Shri Baheti has submitted that the Division Bench of Patna High Court has passed the order on the ground that the petitioner in that case, after filing the petition in the High Court 9 WP No.369/2020 under Article 226 of the Constitution of India, also filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 but no intimation was given to the High Court which was already seized of the matter, before the final order could be passed by the High Court and thus, it is submitted that the Division Bench has taken note of the aforesaid supression of facts to reverse the order passed by the Single Bench.
11. Heard learned counsel for the parties and perused the record.
12. In the considered opinion of this Court, the question that, 'whether, after the initiation of the conciliation proceedings by the Facilitation Council, it could also take up the arbitration proceedings between the parties, and if the answer is yes, 'whether the petitioner was prevented from contesting the arbitration proceedings as no separate notice was served on them of the arbitration proceedings', have already been answered by the Division Bench of the High Court of Patna as also of the Allahabad High Court.
13. So far as the first issue is concerned, i.e., whether, after the initiation of the conciliation proceedings by the Facilitation Council, it could also take up the arbitration proceedings between the parties, this court finds that Section 18 and 19 of the MSME Act provides for the same which read, as under:-
"18. Reference to Micro and Small Enterprises Facilitation 10 WP No.369/2020 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 it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that Act.
(4) Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.
(5) Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference.
19. Application for setting aside decree, award or order.--No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court: Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose."
Section 34 of the Arbitration & Conciliation Act, 1996 reads, as under: -
"34. Application for setting aside arbitral award.-- (1) 11 WP No.369/2020 Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if--
(a) the party making the application furnishes proof that--
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
[Explanation 1.--For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,--
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.--For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.] [(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re- appreciation of evidence.] (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that 12 WP No.369/2020 request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.
(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party."
14. A harmonious reading of sub-section (2), (3) and (4) clearly reveals that even if the Facilitation council has acted as a Conciliator, it can still act as an Arbitrator as provided u/s.18(4) which starts with a non-obstante clause in the following manner:-
"(4). Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India."
15. This issue, i.e., the power of the Facilitation Council to take up the arbitration proceedings after the failure of conciliation proceedings, is also dealt with by the Supreme Court, in a recent decision rendered in the case of M/s. Silpi Industries etc. v. Kerala State Road Transport Corporation and another etc. passed in 13 WP No.369/2020 Civil Appeal No.1570-1578 of 2021 where the primary issue was of limitation and right of the defendant to counter claim, had had the occasion to reflect upon the various provisions/scheme of the Act and in paras 18, 20 and 23 the same read as under: -
"18. With regard to first issue, namely, applicability of Limitation Act, 1963 to the arbitration proceedings initiated under provisions of Micro, Small and Medium Enterprises Development Act, 2006, we need to notice certain relevant sections of the Act. As per Section 15 of the said Act, where supplier supplies any goods or renders any services to any buyer, the buyer shall make payment on or before the agreed date between the parties in writing or where there is no agreement, before the appointed day. Section 16 deals with date from which and rate of interest payable in the event of not making the payment. The recovery mechanism for the amount due is covered by Sections 17 and 18 of the said Act. If any party has a dispute with regard to amount due under Section 17, a reference is required to be made to the Micro and Small Enterprises Facilitation Council. On such reference, the Council is empowered to conduct conciliation in the matter or seek assistance of any institution or centre providing alternate dispute resolution services by making a reference to such institution for conducting conciliation. If the conciliation is not successful, as contemplated under Section 18(2) of the said Act, same stands terminated under Section 18(3) of the said Act. Thereafter, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of Arbitration and Conciliation Act, 1996 are made applicable as if the arbitration was in pursuance of arbitration agreement between the parties, under sub-section (1) of Section 7 of the 1996 Act. Applicability of Limitation Act, 1963 to the arbitrations is covered by Section 43 of the 1996 Act. The High Court, while referring to above-said provisions and the judgment of this Court in the case of Andhra Pradesh Power Coordination Committee & Ors. v. Lanco Kondapalli Power Ltd. & Ors. (2016) 3 SCC 468 has held that the Limitation Act, 1963 is applicable to the arbitrations covered by Section 18(3) of the 2006 Act. A reading of Section 43 itself makes it clear that the Limitation Act, 1963 shall apply to the arbitrations, as it applies to proceedings in court. When the settlement with regard to a dispute between the parties is not arrived at under Section 18 of the 2006 Act, necessarily, the Micro and Small Enterprises Facilitation Council shall take up the dispute for arbitration under Section 18(3) of the 2006 Act or it may refer to institution or centre to provide alternate dispute resolution services and provisions of Arbitration and Conciliation Act 1996 are made 14 WP No.369/2020 applicable as if there was an agreement between the parties under sub-section (1) of Section 7 of the 1996 Act. ....................."
20. From a reading of Section 18(3) of the 2006 Act it is clear that when the conciliation initiated under sub-section (2) of Section 18 of the said Act is not successful, the Council shall either itself take up the dispute for arbitration or refer to any institution for arbitration. Further Section 18(3) of the said Act also makes it clear that the provisions of 1996 Act are made applicable as if there is an agreement between the parties under sub-section (1) of Section 7 of the 1996 Act. Section 23 of the 1996 Act deals with the statement of claim and defence. Section 23(2A), which gives a right to respondent to submit a counter claim or plead set-off with regard to claims within the scope of the arbitration agreement, is brought into Statute by Amending Act 3 of 2016. If we look at the Statement of Objects and Reasons of the Amending Act, same is also enacted to provide for speedy disposal of cases relating to arbitration with least court intervention. Clause 11 of the Bill, by which sub-section (2A) was proposed to be inserted, states that sub-section (2A) was intended to give an opportunity to the respondent, in support of his case, to submit counter-claim or a set-off if such counterclaim or set-off falls within the scope of arbitration agreement. When Section 18(3) makes it clear that in the event of failure by the Council under Section 18(2) if proceedings are initiated under Section 18(3) of the 1996 Act, the provisions of 1996 Act are not only made applicable but specific mention is made to the effect as if the arbitration was in pursuance to an arbitration agreement referred to in sub-section (1) of Section 7 of the 1996 Act. When there is a provision for filing counter-claim and set-off which is expressly inserted in Section 23 of the 1996 Act, there is no reason for curtailing the right of the respondent for making counter-claim or set-off in proceedings before the Facilitation Council.
23. The obligations of the buyer to make payment, and award of interest at three times of the bank rate notified by Reserve Bank in the event of delay by the buyer and the mechanism for recovery and reference to Micro and Small Enterprises Facilitation Council and further remedies under the 2006 Act for the party aggrieved by the awards, are covered by Chapter V of the 2006 Act. The provisions of Section 15 to 23 of the Act are given overriding effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. From the Statement of Objects and Reasons also it is clear that it is a beneficial legislation to the small, medium and micro sector. The Arbitration and Conciliation Act, 1996 is a general law whereas the Micro, Small and Medium Enterprises Development Act, 2006 is a special beneficial legislation which is intended to benefit micro, small and medium enterprises covered by the said Act. The Act of 2006 contemplates a statutory arbitration when conciliation fails. A party which is covered by the provisions of 2006 Act allows a party to apply to the Council constituted under the Act to first conciliate and then arbitrate on the dispute between it and 15 WP No.369/2020 other parties. There are fundamental differences in the settlement mechanism under the 2006 Act and the 1996 Act. The first difference is, the Council constituted under the 2006 Act to undertake mandatory conciliation before the arbitration which is not so under the 1996 Act. Secondly, in the event of failure of conciliation under the 2006 Act, the Council or C.A.Nos.1570-1578 of 2021 etc. 35 the centre or institution is identified by it for arbitration. The 1996 Act allows resolution of disputes by agreed forum. The third difference is that, in the event of award in favour of seller and if the same is to be challenged, there is a condition for predeposit of 75% of the amount awarded. Such is not the case in the 1996 Act. When such beneficial provisions are there in the special enactment, such benefits cannot be denied on the ground that counter-claim is not maintainable before the Council. In any case, whenever buyer wish to avoid the jurisdiction of the Council, the buyer can do on the spacious plea of counter-claim, without responding to the claims of the seller. When the provisions of Sections 15 to 23 are given overriding effect under Section 24 of the Act and further the 2006 Act is a beneficial legislation, we are of the view that even the buyer, if any claim is there, can very well subject to the jurisdiction before the Council and make its claim/ counter claim as otherwise it will defeat the very objects of the Act which is a beneficial legislation to micro, small and medium enterprises. ......................................"
(emphasis supplied)
16. The Division Bench of Allahabad high Court wherein the same issue was involved, in the case of M/s. Cummins Technologies India Private Limited v. Micro and Small Enterprises Facilitation Council and Others (supra) has in Paras 29, 59, 61 and 62 held as under: -
"29. Section 24 says that Sections 15 to 23 shall have effect notwithstanding anything contained in any other law for the time being in force and this provision is also of utmost importance in this petition, hence reproduced as under:-
"S.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."
(Emphasis added) ***********************
59. Karnataka High Court in fact followed the judgment of Bombay High Court in Gujarat State Petronet Ltd. Vs. Micro and Small Enterprises Facilitation Council and others (supra) and Gujarat High Court in Principal Chief Engineer Vs. M/s.
16 WP No.369/2020Manibhai and Brothers (supra). We find that in para-15, learned Single Judge has observed that Section 80 of Act, 1996 incorporates a salutary principle that a 'Conciliator' cannot act also as an Arbitrator and this salutary principle cannot be whittled down or excluded by inferring a contrary intent in the provisions of Section 18(3) and applying Section 24. Unfortunately, when we enquired, are not shown any such alleged salutary principle which could have been given an overriding effect over express statutory provision providing otherwise. Further, we also find that Section 18(4) has been completely overlooked and no reason has been given by referring to Section 18(4) as to why MASEF Council cannot act as Arbitrator, when a specific declaration has been made that it shall have jurisdiction to act an Arbitrator. For application of Section 18(4) to that extent, there is no such condition provided. In our view, therefore, aforesaid Single Judge judgment will not help petitioners and we record our respectful disagreement with the aforesaid authority of the learned Single Judge of Karnataka High Court."
"61. There is one more aspect. Normally an Arbitral Tribunal consists of sole Arbitrator or two Arbitrators with or without an Umpire. In such a case, there may be an element of personal prejudice or bias on the part of such persons constituting Arbitral Tribunal, if one of them or all of them have also acted as Conciliator. However, that is not the position in respect of a Reference made under Section 18 (1) of MSMED Act, 2006 since MASEF Council is a statutory body. Section 21 of MSMED Act, 2006 provides that such Conciliator shall have members not less than three but not more than five. The composition of Council is also given in Section 21(1) (i) to (iv) and it includes Director of Industries or any other officer not below the rank of such Director, in the Department of State Government; Office Bearer or Representatives of Association of Micro or Small Industries or Enterprises; Representatives of Banks and Financial Institutions lending to micro or small enterprises. The persons mentioned in Clause (iv) of Section 21(1) may be brought in Council in the alternative of Representative of Banks and financial institutions lending to Micro and Small Enterprises, if it is found necessary to include persons having special knowledge in the field of industry, finance, law, trade or commerce. Director is Chairperson of MASEF Council. Therefore, the statutory body like MASEF Council does not suffer the element of personal prejudice or bias as is available in the case of individual persons constituting Arbitral Tribunal. It may be that persons constituting MASEF Council at the time of conciliation may not be the same when the said Conciliator took up the matter for arbitration. Therefore, central idea beyond the embargo created by Section 80(1) available in case of individuals constituting Arbitral Tribunal is absent in the matter covered by Section 18 of MSMED Act, 2006 since here, the Council, which is permitted to act as Conciliator as well as Arbitrator is a statutory body 17 WP No.369/2020 having not less than there persons but upto five persons and, therefore, the element of personal bias, prejudice is absent in such a case."
"62. Even otherwise, as we have already discussed, Section 80 itself permits an otherwise agreement between the parties. Meaning thereby the embargo that Conciliator shall not be Arbitral Tribunal is not absolute. That being so, the mandatory and overriding effect contained in Section 18(3) and 18(4) and Section 24 of MSMED Act, 2006 cannot be whittled down by referring to a salutary principle though, in our view, no such salutary principle having force of law to the extent that a legislative provision must be read as sub-serving is recognized or available."
(emphasis supplied)
17. Similarly, the Division Bench of Patna High Court, in the case of Best Towers Private Limited v. Reliance Communications Limited (supra), in which an appeal was preferred against the order dated 19th June, 2018 passed by Single Bench in a petition having the same title on which heavy reliance is also placed by the learned counsel for the petitioner, it has been held in paras 15, 20, 26 and 27, as under: -
"15. It is urged that the provisions of Section 18 (3) of the 2006 Act have an overriding effect and, therefore, there is a statutory requirement and obligation on the part of the Facilitation Council to enter upon arbitration as if the said proceedings are in pursuance of an agreement referred to under Section 7 of the 1996 Act. It is submitted that in view of this express arrangement under the 2006 Act, which is a special Act, the Facilitation Council was well within its authority to enter upon arbitration and deliver an Award. The same, therefore, could have been appropriately challenged through proceedings under Section 34 of the 1996 Act, that was actually done by the respondent petitioner, and the writ petition ought not to have been entertained as there was no lack of jurisdiction on the part of the Facilitation Council. Learned counsel for the appellant has relied on the judgment of a learned Single Judge of the Delhi High Court in the case of GE T&D India Limited. Vs. Reliable Engineering Projects and Marketing [O.M.P. (COMM) 76/2016], decided on 15th February, 2017 to contend Patna High Court LPA No.1035 of 2018 dt.14-02-2019 that the 2006 Act is a special Act and has invited the attention of 18 WP No.369/2020 the Court to Paragraphs 38 and 39 of the said judgment which is extracted herein under:-
"38. In the present case, therefore, the Court is satisfied that the MSMED Act to the extent it provides for a special forum for adjudication of the disputes involving a 'supplier' registered thereunder, overrides the Act i.e., the Arbitration and Conciliation Act, 1996. The following observations in Snehadeep Structures Pvt. Ltd. V Maharashtra Small Scale Industries Development Corporation Ltd. (supra) which deal with the statute of 1993 proceeding the MSMED Act equally applies to the MSMED Act:
"47. The requirement of pre-deposit of interest is introduced as a disincentive to prevent dilatory tactics employed by the buyers against whom the small-scale industry might have procured in award, just as in cases of a decree or order. Presumably, the legislative intent behind Section 7 was to target buyers, who only with the end of pushing off the ultimate event of payment to the small-scale industry undertaking, institute challenges against the award/decree/order passed against them. Such buyers cannot be allowed to challenge arbitral awards indiscriminately, especially when the section requires predeposit of 75% interest even when appeal is preferred against an award, as distinguished from an order or decree."
39. Likewise, in Edukanti Kistamma (Dead) through LRs. v. S. Venkatareddy (dead) through LRs. (supra), the Supreme Court explained that a special statute would be preferred over a general one where it is beneficial. It was explained that the purport and object of the Act must be given its full effect by applying the principles of "purposive construction." The question whether the dispute resolution mechanism under Section 18 of the MSMED Act overrides the arbitration clause under the contract has to be answered in the affirmative. As was explained in Waman Shriniwas Kini v. Ratilal Bhagwandas & Co. (supra) an agreement contrary to a statutory provision that prohibits it would be unenforceable."
*********************
20. We may at the outset undertake a comparative study of the provisions of the MSMED Act, 2006 and the Arbitration and Conciliation Act, 1996. To begin with the object and reasons for enacting the 2006 Act was to clearly protect the development of Micro, Small and Medium Enterprises and to extend support to them to enable them to grow and adopt higher levels and higher productivity to remain competitive in a fast globalization era. It is for this reason, a single legal framework was required to facilitate the promotion and development of such industries. The statement of objects and reasons in Clause 2(d)(h) clearly recites that the procedure also envisages to make further improvements in respect of delayed payments. In this background, the appellant before us is a supplier within the meaning of Section 2 (n) of the 2006 Act and the respondent- petitioner is a buyer within the meaning of Section 2 (d) of the Act. To facilitate the resolution of disputes relating to delayed payments, Chapter-5 was incorporated in the 19 WP No.369/2020 Act fixing a statutory liability on the buyer to make payments within a specified time. Section 16 fixes the liability of payment of interest and Section 17 empowers the supplier to receive payments with interest thereon. On a dispute being raised with Patna High Court LPA No.1035 of 2018 dt.14-02-2019 regard to delay in payments or any amount due, a forum named as a Facilitation Council is created under Section 18 of the Act where any party to a dispute may make a reference to the Facilitation Council. Sub-section (2) of Section 18 enjoins upon the Council to either itself conduct a conciliation or seek the assistance of any Institution or Centre providing alternate dispute resolution services by making a reference to it. The provisions of Section 65 to Section 81 of the Arbitration and Conciliation Act, 1996 are to apply to such a dispute as if the conciliation was under Part-III of the 1996 Act. Thus, the first step on the reference of a dispute is to undertaking a conciliation effort by the Council or reference of such conciliation to any Institution or Centre as provided therein. The words "shall apply" in respect of Section 65 to Section 81of the 1996 Act, therefore, clearly stipulates that in an effort of conciliation the same process will be adopted in respect of conciliation proceedings with a specific bar in Section 80 that the Conciliator shall not act as an Arbitrator or as a representative or Counsel of a party in "any arbitral or judicial proceedings in respect of a dispute that is the subject of conciliation proceedings". Thus, according to Section 80 the Conciliator cannot act as an Arbitrator. The question raised before us by the Patna High Court LPA No.1035 of 2018 dt.14-02-2019 learned counsel for the respondent petitioner is that if the Facilitation Council acts as a Conciliator then the Council cannot act as an Arbitrator as in the present case when after having attempted conciliation proceedings and its termination in failure, the Council itself has proceeded to arbitrate which it could not have done in terms of Section 80 of the 1996 Act read with Section 18 (2) of the 2006 Act. This argument on behalf of the respondent petitioner has been accepted by the learned Single Judge that has been questioned by the appellant contending that Section 24 of the 2006 Act clearly provides that Section 15 to 23 thereof shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. What we find is that sub-section (2) of Section 18 only refers to conciliation and the procedure to be followed in terms of Part-III of the 1996 Act to the extent of Section 65 to Section 81 thereof. Immediately thereafter, sub- section (3) of Section 18 introduces an absolutely novel procedure allowing the commencement of arbitration proceedings with a mandate on the Council that in the event conciliation ends in failure, the Council shall "either itself" take up the dispute for arbitration or refer it to any Institution or Centre providing alternate dispute resolution services for such Patna High Court LPA No.1035 of 2018 dt.14-02-2019 arbitration and the provisions of the 1996 Act "shall then" apply to the disputes as if the arbitration was in pursuance of an agreement. The overriding effect given to this provision in terms of Section 24 of the 2006 Act, in our opinion, clearly overrides any bar as 20 WP No.369/2020 suggested by the learned counsel for the respondent petitioner under Section 80 of the 1996 Act. It is trite law that the meanings assigned and the purpose for which an enactment has been made should be construed to give full effect to the legislative intent and we have no doubt in our mind that the provisions of Section 18 (3) mandates the institution of arbitration proceedings under the 2006 Act itself and it is "then" that the provisions of the Arbitration and Conciliation Act, 1996 shall apply. The institution of arbitration proceedings would be governed by sub-section (3) of Section 18 of the 2006 Act which having an overriding effect cannot debar the Facilitation Council from acting as an Arbitrator after the conciliation efforts have failed under sub-section (2) of Section 18 of the Act. A combined reading of sub-section (2) and sub-section (3) of Section 18 of the 2006 Act read with the overriding effect under Section 24 thereof leaves no room for doubt that any inconsistency that can possibly be read keeping in view Section 80 of the 1996 Act stands overridden and the Facilitation Patna High Court LPA No.1035 of 2018 dt.14-02- 2019 Council can act as an Arbitrator by virtue of the force of the overriding strength of sub-section (3) of Section 18 of the 2006 Act over Section 80 of the 1996 Act. The conclusion of the learned Single Judge that there is a prohibition on the Council to act in a dual capacity is, therefore, contrary to the clear intention of the legislature and, therefore, the verdict that the Facilitation Council lacked inherent jurisdiction does not appear to be a correct inference. Thus, on a comparative study of the provisions referred to herein above, there is no scope for any doubt with regard to the overriding effect of the provisions of the 2006 Act that empowers the Facilitation Council to act as an Arbitrator upon the failure of conciliation proceedings. The cloud of suspicion and doubt about the role of the Facilitation Council, therefore, stands clarified on the basis of the analysis made by us herein above.
26. For all the reasons given herein above, we find that the judgment of the learned Single Judge cannot be sustained and costs deserve to be imposed on the respondent petitioner for having attempted to delay the proceedings as observed herein above.
27. The appeals are accordingly allowed and the impugned judgment dated 19th June, 2018 is set aside with cost of Rs. 50,000/- (fifty thousand) on the respondent No. 1 petitioner payable and to be deposited with the Patna High Court Legal Services Committee within one month from today."
Similar findings have also been recorded by a Division Bench of Allahabad High Court in TBED (India) Transformer Private Limited v. U.P. Micro and Small Enterprises and another (supra).
21 WP No.369/202018. The Supreme Court in the case of Bhaven Construction through Authorized Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Limited and another (supra) has also emphasized that even if the Arbitrator has failed to adjudicate upon its jurisdiction in that case, the remedy lies under Section 34 of the Arbitration & Conciliation Act, 1996 and petition under Article 226 / 227 of the Constitution of India would not be maintainable. Paras 25 and 26 of the said decision read, as under: -
"25. It must be noted that Section 16 of the Arbitration Act, necessarily mandates that the issue of jurisdiction must be dealt first by the tribunal, before the Court examines the same under Section 34. Respondent No. 1 is therefore not left remediless, and has statutorily been provided a chance of appeal. In Deep Industries case (supra), this Court observed as follows:
"22. One other feature of this case is of some importance. As stated herein above, on 09.05.2018, a Section 16 application had been dismissed by the learned Arbitrator in which substantially the same contention which found favour with the High Court was taken up. The drill of Section 16 of the Act is that where a Section 16 application is dismissed, no appeal is provided and the challenge to the Section 16 application being dismissed must await the passing of a final award at which stage it may be raised under Section 34."
(emphasis supplied)
26. In view of the above reasoning, we are of the considered opinion that the High Court erred in utilizing its discretionary power available under Articles 226 and 227 of the Constitution herein. Thus, the appeal is allowed and the impugned Order of the High Court is set aside. There shall be no order as to costs. Before we part, we make it clear that Respondent No. 1 herein is at liberty to raise any legally permissible objections regarding the jurisdictional question in the pending Section 34 proceedings."
(emphasis supplied)
19. On the aforementioned discussion, with due respect to the learned judge of the Bombay High Court, the decision in the case of Gujarat State Petronet Limited, Gujarat (supra) cannot be relied upon, as the aforesaid decision does not lay down the lay down the 22 WP No.369/2020 correct legal preposition in respect of MSME Act, 2006 read with the provisions of Arbitration & Conciliation Act, 1996 because the same view taken by the Single Bench of Patna High Court in the case of Reliance Communications Limited v. Best Towers Private Limited has already been negated by the Division Bench of the Patna High Court in the case of Best Towers Private Limited v.
Reliance Communications Limited (supra). Thus, the contentions, as advanced by Shri Baheti, learned counsel for the petitioner, have not legs to stand and are liable to be rejected.
20. So far as the contention regarding non-service of notice to the petitioner in respect of commencement of Arbitration proceedings after the failure of Conciliation proceedings before the Facilitation Committee is concerned, it is found that the petitioner was represented by its counsel on 30.05.2015, 08.10.2015 and 27.04.2016. On 27.04.2016, a detailed reply was also filed by the petitioners but as per the request of the parties, to allow them to discuss if any settlement is possible, they were directed to meet in Indore on 18.05.2016 but no settlement could be arrived at and on the next date of hearing before the Facilitation Council, i.e., on 03.11.2016, the petitioners or their counsel failed to appear before the Council and thus, the final award was passed on 27.12.2017. It is apparent that after failing to appear before the Facilitation Council, the petitioner is now claiming that proper opportunity of hearing was 23 WP No.369/2020 not given to them which is not tenable and is liable to be rejected.
This court is of the considered opinion that once a notice is served on a party under s.18 of the MSME Act, it would hold good for Conciliation proceedings as also the Arbitration proceedings to be taken up by the Facilitation Council, after the Conciliation proceedings have failed and no separate notice is required to be served by the Council for initiation of Arbitration proceedings.
21. Another aspect of the matter, of pre-deposit of 75% of the awarded amount as provided u/s.19 of the Act need not engage this court in the light of the aforementioned discussion.
22. Resultantly, this Court finds the present petition to be totally misconceived and misplaced, as this Court cannot exercise its jurisdiction under Article 226 / 227 of the Constitution of India against the award passed by the Facilitation Council under Section 18 the MSME Act.
22. It is also a matter of concern, the manner in which the process of this court has been misused by filing this petition. It is found that the impugned award was passed on 27.12.2017 and the demand notice was issued on 04.05.2019, whereas, the petition has been filed on 06.01.2020 and there is no explanation provided in clause 4 of the petition. It is also found that the decisions relied upon by the counsel for the petitioners viz. Bombay and Patna High Courts in the case of Gujarat State Petronet Limited, Gujarat v. Micro and Small 24 WP No.369/2020 Enterprises Facilitation Council, Thane and others (supra) and Reliance Communications Limited, Patna (Bihar) v. State of Bihar & others (supra) respectively, already stood reversed by the Division bench of the Allahabad High Court and the Patna High Court, but the counsel has cited the aforesaid decisions rendered by the single benches in the petition itself by relying upon the judgments which have already been held to be bad in law by the Division benches of two High Courts.
23. In view of the same, Writ Petition No.369/2020 being devoid of merits is hereby dismissed with a cost of Rs.1,00,000/- (Rupees One Lakh) out of which Rs.50,000/- be given to the respondent, whereas Rs.50,000/- to be paid to the COVID Fund in the office of Zila Balsanrakshan Samiti, District Indore (MP) [Axis Bank Account No.911010007267684 IFSC Code UTIB000053].
IA No.10005/2021; IA No.6066/2021; and IA No.6067/2021, stand disposed of.
(Subodh Abhyankar) Judge Pithawe RC RAMESH CHANDRA PITHWE 2021.12.31 16:48:47 +05'30'