Gujarat High Court
Jitf Water Infrastructure Limited vs Msme Commissionerate on 9 September, 2019
Author: A.Y. Kogje
Bench: A.Y. Kogje
C/SCA/11169/2018 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 11169 of 2018
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JITF WATER INFRASTRUCTURE LIMITED
Versus
MSME COMMISSIONERATE & 1 other(s)
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Appearance:
MR HM PARIKH, SENIOR ADVOCATE assisted by M/S.RASESH PARIKH
and HEMANG PARIKH for the Petitioner(s) No. 1
MR DHAWAN JAYSWAL, AGP for the Respondent(s) No. 1
MR MITUL SHELAT with MR RUTUL P DESAI(6498) for the Respondent(s)
No. 2
MR GM AMIN(124) for the Respondent(s) No. 3
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CORAM: HONOURABLE MR.JUSTICE A.Y. KOGJE
Date : 09/09/2019
ORAL ORDER
1. This petition is filed under Article 226 of the Constitution of India for quashing and setting aside order dated 30.06.2018 (Annexure-A) passed by MSME Commissionerate. Under the said order, reference was made to respondent No.3 for arbitral proceeding in exercise of power under Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter to be referred as "MSME Act").
2. Learned Senior Advocate for the petitioner submitted that the petitioner is an Infrastructure Company and had entered into an agreement with joint venture consisting of Aquafil Polymers Company Pvt. Ltd. Page 1 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER (respondent No.2) and Wintech Engineering Pvt. Ltd. in respect of the work order issued in favour of the petitioner under 'Guwahati Water Supply Project'. It is submitted that respondent No.2 and Wintech Engineering Pvt. Ltd. being joint venture were separate entities. The joint venture did not perform its work as per the agreement and therefore, the petitioner was constrained to issue several notices to overcome defaults /breaches /defects in the work done. As the work was not carried out as per the agreement and to the satisfaction, by notice dated 08.01.2018, contract was terminated. Under the terms of the agreement, more particularly providing for arbitration clause, the joint venture, vide letter dated 08.02.2018 proposed name of Hon'ble Retired Supreme Court Judge as sole Arbitrator to adjudicate the disputes. In response, the petitioner took a stand by letter dated 14.02.2018 that under the relevant clause of the agreement, only the petitioner had right to appoint Arbitrator and such right was not available to the joint venture and accordingly, Hon'ble Retired Supreme Court Judge was appointed as sole Arbitrator.
2.1 It is submitted that the Hon'ble Retired Supreme Court Judge entered into the reference and directed the parties to appear for preliminary hearing. At that stage, respondent No.1-constituent of the joint Page 2 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER venture, filed application before respondent No.1 by invoking provisions of the MSME Act.
2.2 Respondent No.1 issued notice. The petitioner appeared in response to such notice and ultimately, respondent No.1 reported failure of conciliation as provided under Section 18(2) and referred the matter to respondent No.3 in exercise of powers under Section 18(3).
2.3 Learned Senior Advocate for the petitioner submitted that the impugned order is in excess of jurisdiction by Respondent No.1 inasmuch as there is no privity of contract between Petitioner and Respondent No.2. It is submitted that reference under section 18 is competent only if condition under section 17 is satisfied i.e. if there is relation of supplier and buyer between the parties. In the case of hand, without admitting the fact that Respondent No.2 is supplier within meaning of the Act, there is no relation between Respondent No.2 and Petitioner much less that of buyer and supplier. 2.4 It is submitted that the order is a non- speaking order. It is cardinal rule of the law that quasi-judicial authority exercising its function must pass speaking order. In the facts of the present case, the Petitioner has filed detailed response contesting Page 3 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER issuance of notice by Respondent No.1. It was incumbent upon Respondent No.1 to decide every contention raised by Petitioner failing which impugned order is non-speaking and untenable.
2.5 It is submitted that Respondent No.2 is alien as far as dispute between Petitioner and JV. It is submitted that JV and Respondent No.2 are two independent legal entities and in a contract made by JV with third parties, Respondent No.2 has no privity. In the facts of the present case, Respondent No.2 has no privity of contract with Petitioner and therefore, in a dispute between Petitioner and JV, Respondent No.2 has no locus standi.
2.6 The Respondent No.2 and AquafilWintech JV are two different entities in eye of law. The Petitioner had entered into contract with AquafilWintech JV (page 17) and the dispute has arisen between Petitioner and AquafilWintech JV to which Respondent No.2 is alien. It is submitted that following facts will demonstrate independence of AquafilWintech JV and Respondent No.2:
a. AquafilWintech JV is joint venture between Respondent No. 2 and M/s. Wintech Engineering Private Ltd. (Refer clause 1 on page 207 & also page 210 at clause 2).
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b. AquafilWintech JV is defined as 'Sub-
contractor' in the said contract (page 22) and it includes its legal successors and permitted assigns.
c. AquafilWintech JV is duly incorporated entity and validly existing under the laws of India (Page 29, Clause 3.1.1) and having its registered office at 202-203, Shyamak Complex, Near Kamdhenu Complex, Polytechnic, Ahmedabad 380015 (Page 163 clause 2).
d. The address of AquafilWintech JV for the
purpose of communication as per the
contract is (page 47, clause 16) is Plot
No.682, UdyogVihar Phase-V. Gurgaon,
Haryana-486001 whereas that of Respondent No.2 is 202-203, Shyamak Complex, Near Kamdhenu Complex, Polytechnic, Ahmedabad 380015.
2.7 It is submitted that there is no privity of contract between Petitioner and Respondent No.2 much less relationship of buyer [Section 2(d)] and supplier [Section 2(n)] as prescribed under the MSME Act. The relationship of buyer and supplier within the meaning of the Act is sine qua non for referring parties to the arbitration by Respondent No.1. In view of the lack of this basic relationship between the Petitioner and Respondent No.2, the mandatory requirements of Sec. 15, 17 & Sec. 18 of the Act are not fulfilled and Page 5 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER consequently, the order is without jurisdiction and therefore amenable to writ jurisdiction of this Court. 2.8 It is submitted that the jurisdiction of Respondent No.1 invoked by Respondent No.2 is with respect to contract entered between Petitioner and AquafilWintech JV and therefore, exercise of jurisdiction by Respondent No.1 is illegal as Respondent No.2 is not a party to the contract between Petitioner and AquafilWintech JV. (Refer page 205 at clause 6 & 7 and page 17 respectively). Thus, order impugned in the present petition being without jurisdiction, as Respondent No.1 is authority prescribed by State Government under the provisions of the Act. In fact, at page 211, in an application before Respondent No.1, Respondent No.2 states that contract dated 08.08.2014 was entered between Petitioner and AquafilWintech JV (here AquafilWintech JV is defined as "Project company (refer page 210). Thus, in the words of Respondent No.2 before Respondent No.1, the contract dated 08.08.2014 is between Petitioner and AquafilWintech JV.
2.9 It is further submitted that the proceedings of arbitration referred by Respondent No.1 are subject to provisions of the Arbitration and Conciliation Act, 1996 as per Sec.18 of the Act. Sec.7 of the Arbitration and Conciliation Act, 1996 states that there has to be Page 6 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER written agreement between the parties. The provisions of the Act by operation of law presumes about written agreement in view of relationship of buyer and supplier.
In the facts of the present case, since relationship of supplier and buyer is lacking between Petitioner and Respondent No.2, there is no fulfillment of mandatory condition of Sec.7 of the Arbitration and Conciliation Act, 1996.
2.10 It is further submitted that without prejudice to above, the arbitration between Petitioner and Respondent No.2 is futile as neither Petitioner has any claim against Respondent No.2 and vice-versa as there is no relationship between the parties. Thus, order is without application of mind.
2.11 The arbitration pursuant to order is used as an arm twisting exercise as parties to the dispute i.e. Petitioner and AquafilWintech JV are before the Arbitration Tribunal and proceeding before Respondent No.1 are used to thwart the proper remedy invoked under the contract. Put it differently, Respondent No.2 is using proceeding before Respondent No.1 as tool to keep at bay arbitration invoked under the contract by Petitioner.
3. As against this, learned Advocate for Page 7 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER respondent No.2 submitted that the petitioner has suppressed material facts to his knowledge as insofar as arbitration referred to by the petitioner to the Hon'ble Retired Supreme Court Judge, the same is ordered not to be proceeded, which is communicated by the sole Arbitrator vide communication dated 26.03.2018. Therefore, it cannot be said that reference is entered into by the sole Arbitrator.
3.1 It is submitted that the order of respondent No.1 is as per the provisions of the MSME Act, more particularly Section 18(3). It is submitted that once the order is passed under Section 18(3) of the Act then the provision of Arbitration and Conciliation Act, 1996 will 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. It is submitted that if the impugned order is perused, the Council has already held that the matter is referred to the GCCI, who will be an arbitrator for arbitration proceeding under Section 18(3) of the MSMED Act, 2006. It is further submitted that thereafter the respondent No.1, has issued the letter to GCCI dated 6.7.2018, with a copy to the petitioner and the respondent No.2, intimating the said fact to the petitioner and the respondent No.2 herein. Further, the G.C.C.I. has accepted the referred Page 8 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER arbitration by Resp.-1 vide its letter dated 12.7.2018 and has also vide its communication dated 20.7.2018 has communicated to the Resp.-2 and petitioner herein, inviting the parties to resolve the issues at G.C.C.I.- ADRC.
3.2 It is submitted that in the present case the request for the dispute to be referred to the arbitration is received by the petitioner and Resp.-2 through impugned order dated 30.6.2018, as well as again a letter dated 6.7.2018 is issued by Resp.-1 G.C.C.I., referring the dispute to G.C.C.I. for arbitration, and thereafter G.C.C.I. communication dated 20.7.2018 communicating to the petitioner and Resp.-2, inviting the parties to resolve the issues at GCCI-ADRC, amounts to commencement of arbitration proceeding under Section 21 of the Act and therefore, Section 5 of the Arbitration & Conciliation Act, 1996, will come into play which restricts the judicial intervention "wherein notwithstanding anything contained in any other law for the time being in force in the matter governed by this part, no judicial Authority shall intervene except where so provided in this part". In view of above, the present petition is required to be rejected on the ground of bar that has been provided under Section 5 of the Arbitration & Conciliation Act, 1996.
Page 9 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER 3.3 It is submitted that it appears that the sole contention raised in the memo of petition by the petitioner is on the ground that Aquafil-Wintech JV and respondent No.2 are two separate legal entity and the respondent No.2 has no privity of contract with the petitioner. However, the fact is that the Aquafil JV is an unincorporated joint venture and, therefore, right can be claimed through their respective parties to the Agreement. It is submitted that the petitioner is fully aware that it is merely a contractual joint venture which does not have a separate legal entity. Even otherwise, it is submitted that for execution of the project, the petitioner has taken the individual performance Bank Guarantee bearing No.0505414BG0022899 dated 3.11.2014 of Rs.99,33,750/- from M/s. Aquafil Polymers Co. Pvt. Ltd. - Resp. No.2 herein and another performance Bank Guarantee bearing No.0007BG00147915 dated 24.10.2014 of Rs.99,33,750/- was taken from M/s. Wintech Engineering Pvt. Ltd., receiving these Bank Guarantees and later on invoking the same by the petitioner itself shows that there was a privity of contract between the petitioner and the respondent No.2 and, therefore, also on this ground, the contention raised by petitioner in petition is devoid of any merits. It is submitted that by accepting the individual bank guarantee of Resp. 2 and Page 10 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER thereby invoking the said bank guarantee, petitioner itself have recognized that there is a privity of contract between the petitioner and respondent no.2 and therefore at this stage it is not open for the petitioner to sate that there is no contract with Resp. no.2 and therefore the ground raised by the petitioner is devoid of any merits.
3.4 It is further submitted that if the scheme of the Act, 2006 is seen, then it can be clearly seen that any order passed under section 18(3) is a consequence of the order under section 18(2), meaning thereby section 18(3) is dependent upon the proceedings under section 18(2), therefore without there being any challenge to the decision taken by the M.S.E.F council under section 18(2) of the Act, 2006, the challenge of the order under section 18(3) alone is not maintainable.
4. Learned Advocate Mr.Amin for respondent No.3 has supported the decision of respondent No.1 and submitted that even non-signatory or third party can be subjected to arbitration. He relied upon judgment of the Apex Court in case of Chloro Controls India Private Limited Vs. Severn Trent water Purification Inc. & Ors., reported in (2013) 1 SCC, 641.
5. In rejoinder, learned Senior Advocate for the Page 11 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER petitioner tried to submit that the JV and respondent No.2 are separate entities, by drawing attention of the Court to the addresses mentioned of the respective parties being different.
6. Having heard learned Advocates for the parties and having perused documents on record, it appears the petitioner entered into an agreement with M/s.Aquafil- Wintech JV, a joint venture of Aquafil Polymers Co. Pvt. Ltd., i.e. respondent No.2 and Wintech Engineering Pvt. Ltd. In respect of Work Order No.JWIL/GU-1/CS/14054/PH dated 08.08.2014, on Turnkey basis. The said work order related to procurement of Design, Supply, installation and Commissioning of Intake Facilities, Transmission Mains, Water Treatment Plant and Reservoir for North Zone [Contract package No.C-01] including 5 years of operation and Maintenance of JICA funded Guwahati Water Supply Project. The completion period of the contract for the work other than operation & maintenance (O&M) service was 28 months from the commencement date. Thereafter the JV was obliged to render O&M service for 5 years. The total contract value was Rs.79.47 Crore for EPC and O&M.
7. In the subcontract agreement on back to back basis executed on 08.08.2014, the party to the agreement as second part is M/s.Aquafil-Wintech JV. The constituent of the JV being set up by and between Aquafil Page 12 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER Polymers Co. Pvt. Ltd. (lead partner of JV firm)- respondent No.1 herein and Wintech Engineering Pvt. Ltd. The principal employer of the contract as defined in the agreement is Guwahati Metropolitan Development Authority, Guwahati. The sub-contractors is to mean M/s.Aquafil- Wintech JV. JWIL, which is the petitioner and JWIL- Ranhill JV is consortium of JWIL and Ranhill Utilities, Malaysia. The principal agreement is between the principal employer and JWIL-Ranhill JV. Clause-20.1 provides for 'Amicable Settlement'. Clause-20.2 provides for 'Assistance of Export' for the purpose and Clause- 20.3 provides for 'Arbitration'. From the facts, it appears that in terms of the agreement, both the constituents of JV, viz. Aquafil Polymers Co. Pvt. Ltd. and Wintech Engineering Pvt. Ltd. have given their individual performance guarantees which, accepted by the petitioner. It is the case of respondent No.1 and not controverted by the petitioner that such performance bank guarantees were invoked by the petitioner. Therefore, apparently, the petitioner has also recognized individual existence of separate entities, i.e. Aquafil Polymers Co. Pvt. Ltd. and Wintech Engineering Pvt. Ltd. and by entering into the contract with JV, has accepted both the constituents as a JV. On account of disputes, the JV had issued notice to the petitioner. However, there was no reconciliation as provided under the agreement and Page 13 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER therefore, JV invoked arbitration clause of the contract proposing a sole Arbitrator, to which the petitioner refuted the allegations and under Clause-20.3 concluded that the authority to appoint sole Arbitrator lies with the petitioner company and therefore, appointed Hon'ble Retired Supreme Court Judge as sole Arbitrator. The order of the sole Arbitrator dated 26.03.2018 records existence of and resorting to remedy available under the MSME Act and proceeded to record arbitration to proceed only after parties to the arbitration are clear about applicability of MSME Development Act, 2006.
8. The question therefore comes up for consideration as to whether in the facts of the case, respondent No.2-a constituent of JV can invoke provisions of the MSME Act. As recorded earlier, the petitioner had accepted the JV of the two separate entities, viz. Aquafil Polymers Co. Pvt. Ltd. and Wintech Engineering Pvt. Ltd., both covered under the MSME Act independently. Section 2(d) of the MSME Act defines "buyer" to mean whoever buys any goods or receives any services from a supplier for consideration. Section 2(n) of the MSME Act defines "supplier" and reads as under:-
"2(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,-
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(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;
9. Considering the relationship between the
petitioner and the respondent No.2 based on the agreement referred to hereinabove, the Court is of the view that insofar as the petitioner is concerned, respondent No.2 would fall in the definition of "supplier" as sub-clause
(iii) of Clause-2(n) clearly includes any entity by whatever name called registered or constituted under any law and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises. Without any manner of doubt, respondent No.2, an MSME and the nature of work under the agreement will attract requirements of definition of "supplier". Hence, MSME Act was correctly Page 15 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019 C/SCA/11169/2018 ORDER invoked by respondent No.1. Section 18 provides for "Reference to Micro and Small Enterprises Facilitation Council". Respondent No.1, being one such constituted council under Section 18, was within its power to receive reference under Section 18(2), which provides that the council shall itself either conduct conciliation or seek assistance of any institution or centre providing for alternate dispute resolution services. In the instant case, in exercise of powers under Section 18(2), the council came to conclusion that the council itself is not in a position to reconcile the dispute and therefore, was left with option to refer the conciliation involved under Section 18(3). In this case, such reference is made to respondent No.3. The impugned order therefore appears to be in consonance with the requirements of relevant provisions of the MSME Act.
10. In view of the aforesaid, no interference is called for. The petition deserves to be and is hereby dismissed. Notice is discharged. No order as to costs.
(A.Y. KOGJE, J) SHITOLE Page 16 of 16 Downloaded on : Mon Sep 09 21:49:16 IST 2019