Orissa High Court
Steel Authority Of India Ltd. vs Director Of Industries And Chairman Of ... on 18 February, 2008
Equivalent citations: 106(2008)CLT84, AIR 2008 (NOC) 1877 (ORI.), 2008 (5) ABR (NOC) 806 (ORI.)
Author: I.M. Quddusi
Bench: I.M. Quddusi, A.K. Samantaray
JUDGMENT I.M. Quddusi, J.
1. These are two Writ Petitions filed by M/s. Steel Authority of India Limited against the decision of Industry Facilitation Council.
2. Writ Petition bearing O.J.C. No. 4271 of 2000 was initially filed for quashing the impugned award dated 24.3.2000 made against it by the Industry Facilitation Council as arbitrator under the provisions of the Interest on delayed payments to Small Scale & Ancillary Industrial Undertakings Act, 1993 (hereinafter referred to as "IDPSC") which was kept in abeyance for a period of one month and vide Order Dated 11.7.2000 was restored directing the Managing Director, Rourkela Steel Plant, SAIL, Rourkela to pay a sum of Rs. 24,86,998/- to Opp. Party No. 2 i.e. M/S. Modern Industries, Rourkela with interest @ 18% being one and half times the prime lending rate of the S.B.I., compounded with monthly rest, towards the cost for extra works/deviation/delays in payment/non-availability of free issue of materials/amendment in drawings etc. The interest was ordered to be payable w.e.f. 24.9.1997 (the date of last delivery i.e. 28.5.1997 plus maximum 120 days of credit period) till the date of full payment.
3. Subsequently Writ Petition number O.J.C. No. 9111 of 2000 was filed by M/s. Steel Authority of India Ltd., (hereinafter referred to as "SAIL"). In this latter Writ Petition the initial award dated 24.3.2000 which was kept in abeyance as well as the subsequent Order Dated 11.7.2000 restoring the award have been challenged. Besides this, in both the Writ Petitions, the validity of the impugned Amendment Act 23 of 1998, namely, the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings (Amendment) Act, 1998 has been challenged as invalid and unconstitutional on the grounds of repugnancy and incompetence of the legislature and as a colourable piece of legislation.
4. We have heard Sri J. Patnaik, Learned Senior Advocate along with Sri B. Mohanty, Learned Counsel on behalf of Petitioner and Sri S.C. Gosain, the proprietor of O.P.2 who appeared in person and argued. Before proceeding further, it is necessary to peruse the preamble of the Act as well as amendment made therein in the year 1998.
5. The preamble of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (hereinafter referred to as 'the Act') reads as under:
An Act to provide for and regulate the payment of interest on delayed payments to small scale and ancillary Industrial undertakings and for matters connected therewith or incidental thereto.
6. It is also necessary to peruse Sections 3, 4, 5, 6 and 10 of the Act, as it stood before the impugned amendment. They are reproduced as under:
Section 3. Liberty 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.
Section 4. 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, 3, 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 interest 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 such rate which is five per cent, points above the floor rate for comparable lending.
Section 5. Liability of buyer to pay compound interest.- Notwithstanding anything contained in any agreement between a supplier and a buyer or in any law for the time being in force, the buyer shall be liable to pay compound interest (with monthly rests) at the rate mentioned in Section 4 on the amount due to the supplier.
Section 6. Recovery of amount due.- The amount due from a buyer together with the amount of interest calculated in accordance with the provisions of Sections 4 and 5, shall be recoverable by the supplier from the buyer by way of a suit or other proceedings under any law for the time being in force.
Section 10. Overriding effect.- The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in further.
After the amendment in 1998, Sections 3, 4 and 6 read as under:
Section 3. Liberty 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 in writing shall exceed one hundred and twenty days from the day of acceptance or the day of deemed acceptance"
Section 4. 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, 3, 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 interest 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 one-and-a half time of Prime Lending Rate charged by the State Bank of India.
Explanation- For the purposes of this Section, 'Prime Lending Rate' means the Prime Lending Rate of the State Bank of India which is available to the best borrowers of the Bank.
Section 6. Recovery of amount due-(1) The amount due form a buyer, together with the amount of interest calculated in accordance with the provisions of Sections 4 and 5, shall be recoverable by the supplier form the buyer by way of a suit or other proceeding under any law for the time being in force.
(2) Notwithstanding anything contained in Sub-Section (1), any part to a dispute may make a reference to the Industry Facilitation Council for acting as an arbitrator or conciliator in respect of the matters referred to in that Sub-Section and the provisions of the-Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such dispute as if the arbitration or conciliation were pursuant to an arbitration agreement referred to in Sub-Section (1) of Section 7 of the Act.
7. The validity of the Act was earlier challenged before the High Court of Andhra Pradesh in a batch of Writ Petitions leading case of which was W.P. No. 10179 of 2001 (A.P. Transco v. M/s. Sri Gouri Shankar Cabale Industries and Ors.) disposed of on 22.11.2001 on two grounds namely (i) that the Act was outside the legislative competence of Parliament and (ii) that the Act was otherwise violative of Article 14 of the Constitution of India since it operated in discriminatory manner. The Andhra Pradesh High Court upheld the validity of the Act and thereafter SLPs were filed which were converted into the Civil Appeals leading case of which was Civil Appeal No. 5597 of 2002 (A.P. Transcc V. Bala Conductors (P) Ltd. and Anr.) which were dismissed by the Hon'ble Apex Court vide Order Dated 23.9.2003. Therefore, it is not open for the Petitioner now to challenge the validity of the Act which has already been upheld by the Hon'ble Supreme Court.
8. In Clause-5 of the Statement of Objects and Reasons of the Amendment Act, it has been indicated that it is proposed to provide an alternative mechanism of arbitration and conciliation apart from Section 6 to resolve the disputes under the Act. For this purpose, State Governments are proposed to be authorized to set up one or more 'Industry Facilitation Councils'( in short, 'l.F.C.') for the purpose of arbitration and conciliation. These Councils shall act as arbitrators or conciliators for settling disputes between SSI suppliers and buyers. This aims at facilitating resolution of disputes between the two parties amicably.
9. However, a bare perusal of Sections 3 and 4 of the Act shows that the scope of the Act is only when 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 the buyer and supplier in writing or, where there is no agreement in this behalf, before the appointed day; and in no case the period agreed between the supplier and the buyer in writing shall exceed one hundred and twenty days from the day of acceptance or the day of deemed acceptance and the buyer shall also be liable to pay interest to the supplier on that amount from the appointed day or from the date of expiry of the period agreed upon by the parties for payment. Therefore, a plain reading of these two Sections show that there should be (i) a settled amount to be paid by the buyer to the supplier; and (ii) either the date should be agreed upon between the supplier and buyer in writing or in the absence of the same, the payment should be made within one hundred and twenty days from the day of acceptance or the day of deemed acceptance. Therefore, question arises as to whether the Act would be applicable in a case where there is dispute regarding the amount to be payable.
10. In the instant matter, the brief facts of the Petitioners case are that pursuant a notice dated 30.8.1992 issued by it inviting tender for fabrication and supply of Right Manipulator side guard as per detailed mentioned for Blooming and Slabbing Mill Plant of Rourkela Steel Plant (in short, 'RSP'), Opposite Party No. 2 i.e. M/s. Modern Industries representing to have expertise to provide Right Manipulator Side Guard after fabrication at their works, submitted its tender which was accepted by the Petitioner on 5.1.1983 and acceptance was communicated to Opposite Party No. 2. Purchase order was issued in favour of Opposite Party No. 2 on 15.1.1983 to manufacture one number of Right Manipulator Side Guard for its use in Blooming Slabbing Mill of RSP at a total value of Rs. 8.19 lakhs with the following major terms and conditions:
(i) Value of contract 8.19 lakhs.
(ii) Quantity of 1 Nos. of Right Manipulator side guard to be manufactured (fabrication) and to be supplied.
(iii) Technical specification as mentioned in the AT.
(iv) 90% payment against proof of dispatches.
(v) Essentiality Certificate for required ST 55 HTM and ST 42 W was to be issued by RSP but the same is not linked with delivery.
(vi) SAIL P/1 of RSP form a part of contract.
11. The material was to be delivered within ten months from the date of placement of the order i.e. 15.1.1983. On the request of the Opposite Party No. 2, essentiality certificate for issue of steel plate was issued by the Petitioner to facilitate Opposite Party No. 2 to quickly manufacture side guard as the same was a necessary component of the machinery. According to the Petitioner, after lot of persuasion when Opposite Party No. 2 failed to deliver the material, the Petitioner to help the Opposite Party No. 2 agreed to issue the raw material. In spite of supply of raw material, the Opposite Party No. 2 miserably failed to supply the fabricated manipulator side guard even after the extended period. Since the raw material worth more than Rs. 2.00 lakhs was issued by the Petitioner, it had no other alternative than to persuade Opposite Party No. 2 to deliver the materials and ultimately Opposite Party No. 2 delivered the material after 7.4.1995 i.e. after more than eight years and payment was released immediately thereafter. However, the machinery could not be put to use as by the date of supply the technology has changed. Therefore, the Petitioner suffered irreparable loss for the delay and laches in supply.
12. In the counter affidavit filed on behalf of Opposite Party No. 2 it has been stated that the Petitioner placed an order for fabrication of right manipulator side guard but did not issue the required essentiality certificate, for which the Opposite Party No. 2 requested the Dy. Controller of Purchase, R.S.P. in its letter dated 23.4.83 and in the meantime, due to non-supply of material's, Opposite Party No. 2 in its letter dated 12.12.84 requested R.S.P. to cancel the order, or to accept the request for price escalation and to make available the required materials. The R.S.P. thereafter in their letter dated 17.5.85 brought the Amendment to Acceptance of Tender and in letter dated 28.5.85 brought another Amendment to Acceptance to Tender for supplying materials free of cost. But in the meantime, the RSP has assured to make 50% payment as advance but did not make any payment. In their letter dated 17/18.5.89, the Dy. Chief Materials Manager informed that the Chief Superintendent, Blooming Slabbing Mill had visited the works of Opposite Party No. 2 two years ago and in order to motivate the Opposite Party No. 2 to supply side guard expeditiously had agreed to pay 50% as advance on progress but since Opposite. Party No. 2 had inordinately delayed the supply, therefore, the question of payment of advance, would not arise. Thereafter, various amendments to the acceptance were made from time to time by the Petitioner and vide letter dated 26.9.95, Opposite Party No. 2 requested the RSP to supply a copy of arbitration clause, if any, in its contract with RSP but no response was received. In the meantime, the RSP made allegations against Opposite Party No. 2 for delay in delivery of the side guard. The Opposite Party No. 2 also submitted its reply of the letter from time to time and thereafter the RSP authorities vide their letter dated 6/7.5.97 requested for an amicable settlement of the pending issues and also issued an amendment to the inspection report/certificate dated 7.4.95 to Opposite Party No. 2 in their letter dated 23.5.97. Thereafter, vide Order Dated 23/26.7.97, the RSP authorities approved to release of Rs. 6,07,493 and made payment vouchers dated 14.10.97 & 4.11.97 which were accepted by Opposite Party No. 2.
13. It is alleged in the counter affidavit filed by Opposite Party No. 2 that it had failed to get legitimate dues and it has submitted a claim before the RSP authorities. When the RSP did not respond, it approached the IFC and ultimately the IFC had taken the matter as Arbitrator under Section 6 and passed the award.
14. From the above facts, it is clear that there was dispute between the parties regarding timely supply of material as well as supply of side guard by Opposite Party No. 2. Initially in the agreement, there was no mention about the supply of materials by the RSP but later on the RSP agreed to supply the materials to Opposite Party No. 2 and thereafter it is not a case where there was a settlement amount between the parties to be paid to Opposite Party No. 2 by the Petitioner.
15. On perusal of Sub-Section (2) of Section 6, it appears that any party to a dispute may make a reference to IFC for acting as an arbitrator or conciliator in respect of the matters referred to in that Sub-Section and the provisions" of the Arbitration and Conciliation Act, 1996 shall apply to such dispute as if the arbitration or conciliation were pursuant to an arbitration agreement referred to in Sub-Section-1 of Section 7 of the Act. Sub-Section (1) of Section 6 provides that the amount due from a buyer, together with the amount of interest calculated in accordance with the provisions of Sections 4 and 5, shall be recoverable by the supplier from the buyer by way of a suit or other proceeding under any law for the time being in force.
16. Therefore, the said matter before the IFC would be limited to the amount due from the buyer together with amount of interest calculated only in accordance with the provisions of Sections 4 and 5 of the Act. Section 4 applies only when Section 3 is applied. Therefore, the ultimate focus in the Act is on Section 3 as already discussed above. Section 3 speaks about the settled amount and not the amount which may be calculated according to the calculations of the supplier disputed by the buyer or where there is dispute regarding delayed supply causing loss to the buyer or defective supply of the materials. Therefore "the amount due from a buyer would be interpreted in its plain and natural manner i.e. amount admitted to be due" and when it is not paid by the buyer, the provisions of Sections 3 to 6 along with other provisions of the Act would be applicable.
17. In the instant case, the buyer i.e. the Petitioner has alleged that the supply was not made by the Opposite Party No. 2 in time and there was delay in supply of materials which caused loss to the Petitioner and by the time of supply of materials, technology has already been changed. Therefore, in nutshell, the Petitioner has alleged breach of contract by Opposite Party No. 2 and therefore, in case of allegation of breach of contract, it cannot be said that there is any amount admitted to be due or settled amount. Hence, there is no question of delayed payment and referring the dispute to the IFC under the provisions of Sub-Section 2 of Section 6, to our mind, would be without jurisdiction.
18. In the Arbitration and Conciliation Act, 1996, the arbitral tribunal has been given a very wide and deep area of operation curtailing the Court's power but under Sub-Section (2) of Section 6 of the Act, the IFC has been conferred jurisdiction for acting as arbitrator or conciliator in respect of only dispute which can arise under the Act. The IFC cannot go beyond the scope of the Act in acting as arbitrator. Therefore, it is an alternative forum confined to the dispute related to Section 3 of the Act, which is to be read with the Preamble of the Act.
19. The Preamble of the Act is to provide for and regulate the payment of interest on delayed payments to small scale and ancillary Industrial undertakings and for matters connected therewith or incidental thereto. Therefore, the statute was enacted for the purpose of payment of interest on delayed payments. Decision in respect of the matters identical thereto comes within the scope of the Act. Therefore, a dispute in respect of delay in making supply by the supplier to the buyer contrary to the terms and conditions of the agreement cannot be decided by the I.F.C. as a primary dispute. Petitioners had raised the point of jurisdiction before the I.F.C. But since at the time of hearing no one from the side of the Petitioner was present before the I.F.C. it decided the matter ex parte and the point of jurisdiction was not considered by it.
20. In view of the above mentioned facts and circumstances, we are of the opinion that the Writ Petitions are liable to be allowed. Therefore, the Writ Petitions are allowed. The impugned Orders Dated 24.3.2000 and 11.7.2000 passed by the I.F.C. are quashed. However, this will not debar the Petitioner to consider the case of the Opp. Party No. 2 sympathetically considering the facts and circumstances due to which it could not supply the right Manipulator side guard pursuant to the tender submitted by it and also as per agreement. This will also not debar the Opp. Party No. 2 to approach the appropriate forum by following the remedy available to it under the law.
A.K. Samantaray, J.
21. I agree.