Bombay High Court
M/S. P.L. Adke A Sole Prop. Concern ... vs Wardha Municipal Corporation / Council ... on 1 March, 2021
Equivalent citations: AIRONLINE 2021 BOM 1016
Author: A. K. Menon
Bench: A. K. Menon
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION APPEAL (ST) NO.30508 OF 2019
IN
ARBITRATION APPLICATION (COMMERCIAL) NO.7 OF 2019
M/s. P. L. Adke
A sole Proprietorship concern
through its proprietor P.L. Adke
Having its office at 02-AB,
Adhaokar Plaza, Trimbak Road,
Near ABB Circle, Mahatma Nagar,
Nashik - 422 007. .. Appellant/Applicant
v/s.
Wardha Municipal Corporation/Council
Through Chief Officer Nagar
Parishad Wardha,
Wardha, Maharashtra. .. Respondent
Mr. Prathamesh Kamat a/w Ms. Aditi Maheshwari, Mr. Shiv Iyer,
Ms. Ankita Sen i/b. Ganesh & Co. for the appellant/applicant.
Ms. Aparna Devkar for the respondent.
CORAM : A. K. MENON, J.
DATED : 1ST MARCH, 2021.
P.C. :
1. By this appeal, the appellant seeks to challenge an order dated 4th November, 2019 passed by the District Court, Nasik, in 1/39 ARA(ST)-30508-19 (AS).doc wadhwa an Arbitration Application (Commercial) under Section 9 of the Arbitration and Conciliation Act. The appellant had filed the application seeking an injunction restraining the respondent corporation from proceeding with levy of penalty, fine from deducting additional security deposit and invoking the risk and cost clause and also to restrain the respondent from blacklisting the appellant. The District Court by the impugned order rejected the petition and hence the appeal.
FACTS
2. The appellant claims to be registered under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME) and claims to have supplied goods and rendered services to the respondent under an agreement dated 27 th May, 2018 under work order dated 28th May, 2018 for the Wardha Sewerage Scheme. The contention of the appellant is that the respondent corporation failed to provide an obstruction free site and to secure the requisite permissions. Work under the contract was therefore delayed. It sought extension of time but the respondent failed to grant extension. In February 2019 the respondent levied penalty of Rs.2,65,000/- for irregularities in executing the work under the contract. The appellant had 2/39 ARA(ST)-30508-19 (AS).doc wadhwa meanwhile raised its 8th Running Account bill. The respondent in breach of contract paid the bill in part after deducting Rs.10 lakhs. The appellant contended that it was a supplier as defined under Section 2(n) of the MSEM Act and the respondent a "buyer" as defined under Section 2(d) of the Act. The appellant claims to have rendered services to the respondent a "buyer" of the services for consideration which was to be paid without any deductions towards penalty or any retention amount. That despite having received benefit of the services, the respondent failed to pay to the appellant the amounts due under the invoices/running account bills and thus a dispute resulted. It is contended that the dispute falls within the scope of Section 17 of the MSME Act and is therefore amenable to arbitration under the Act and has contemplated in Section 18(3).
3. The appellant contends that unless the respondent make payments of the bills in full for services rendered the appellant will be unable to carry out and complete the work under the contract. It claims that a prima facie case has been made out and balance of convenience was in its favour. However, the impugned order found that the application under Section 9 was not maintainable in the absence of a contractual provision to 3/39 ARA(ST)-30508-19 (AS).doc wadhwa refer disputes to arbitration. In order to appreciate the factual background it will be necessary to refer to certain provisions of the contract. The respondent corporation has contended that the sewerage scheme was undertaken by the Maharashtra Jeevan Pradikaran, a Government of Maharashtra Undertaking which plans, designs, constructs and operates water supply and sewerage scheme in the State, that is certain work of sewerage network, property connections, wet well with pump house, pumping, construction of SBR type sewage treatment plant and Nalla interception works were required to be carried out and completed by the respondent, for the sake of convenience is referred to as the "project". The appellant was a successful bidder for execution of the project for a price of Rs.95,39,62,674/-. The works contract said to have been issued on 27th May, 2018 and a work order on 28 th May, 2018. The reference is made to clauses 28, 42 and 43 of the contract and special condition no.9 under which arbitration is excluded as a dispute resolution mechanism.
4. It is the case of the respondent that the appellant has been negligent in carrying out its task. The appellant was in breach of the terms of the agreement which was getting work done by 4/39 ARA(ST)-30508-19 (AS).doc wadhwa under aged persons resulting in an accident whereby a child lost his life. The contractors merely visited the site and being in default and having left the work incomplete. The respondent had followed due process and deducted a sum of Rs.10 lakhs from the 8th running bill of the contractor towards additional security deposit and that this amount has to be refunded to the contractor upon its achieving progress set out in a Bar Chart. The Corporation has contended that the work to be carried out is not for purchase and supply but is a works contract and therefore the Act would not apply. According to the corporation, there is no valid arbitration agreement between the parties in fact the work order in terms of the general conditions of contract are said to expressly exclude reference to arbitration. Even assuming the Act applied, the appellant would be required to approach the Facilitation Council under the Act but had instead approached the District Court which had rightly dismissed the application. It is with this background that the impugned order came to be passed. It is appropriate to refer to few clauses of the agreement between the parties.
5. In the appeal, an Interim Application was moved seeking grant of an interim injunction to restrain the respondent from 5/39 ARA(ST)-30508-19 (AS).doc wadhwa deducting any sums towards penalty, compensation, additional security deposit from the running account bills. By an interim order the appellant was protected by granting reliefs prayer clauses (a) and (b) of the interim application. Prayer clauses (a) and (b) read as follows;
"(a) Pending the hearing and disposal of the Arbitration and until the award passed in such arbitration becomes executable, this Court be pleased to grant an interim injunction restraining the respondent from deducting any sums in the nature of penalty/compensation/ additional security deposit from the R.A. Bills raised by the applicant/original appellant.
(b) Pending hearing and final disposal of the present appeal, this Court be pleased to restrain the respondent from deducting any payments from the R.A. Bills raised by the applicant/original appellant on the respondent."
6. The Corporation filed its own Interim Application seeking to vacate the ad-interim order dated 10 th December, 2020. On that application, the Court observed that it would be appropriate to dispose the appeal itself and hence this appeal has been taken up for final hearing in this court.
SUBMISSIONS
7. Mr. Kamat on behalf of the appellant submitted that 6/39 ARA(ST)-30508-19 (AS).doc wadhwa the MSME Act provided for statutory arbitration and in view thereof, the appellant who is entitled to file application under Section 9 of the Arbitration and Conciliation Act, 1996 and restrain the respondent from deducting amounts towards running account bills pending the disposal of arbitration proceedings. Inviting my attention to the provisions of Act, Mr. Kamat submitted that under Section 17 in respect of any goods supplied or services rendered by a supplier the buyer is required to pay the price along with interest as contemplated in Section 16. Section 18 of the MSME Act contains a non- obstante clause whereby any party to a dispute may in connection with amount due under Section 17, make a reference to the Micro and Small Enterprises Facilitation Council. The Council either may conduct conciliation itself or seek assistance of an institution there for. If the conciliation fails, the institution shall itself take up the dispute for arbitration or refer to it to any institution, the Arbitration and Conciliation Act would then apply as if the arbitration was in pursuance of an arbitration agreement.
8. Mr. Kamat therefore contended that there is no doubt that the MSME Act would apply. The MSME Act 7/39 ARA(ST)-30508-19 (AS).doc wadhwa provides for reference to the Facilitation Council for conciliation/arbitration and in those circumstances, the appellant is entitled to move the application under Section 9 for interim measures of protection. He submits that in the numerous decisions he has cited the fact that the MSME Act is a Special Act and would operate independent of any separate arbitration agreement between the parties is well settled. According to Mr. Kamat, even if the agreement provides for arbitration that will stand superseded by provisions of the MSME Act.
9. The applicant registered under the MSME Act on 13th February, 2018. By virtue of said registration, Mr. Kamat contends that the applicant became entitled to avail of the provisions of the MSME Act. The appellant has invoked the jurisdiction of the District Court, Nasik with intention of submitting to the jurisdiction of the Facilitation Council. According to him, Chapter V of the Act applies since disputes between a buyer and seller is arbitrable and the Nasik Facilitation Council where the appellant located as "Seller" will have jurisdiction. He submits that the appellant has undertaken to file a reference in the council, in the meantime 8/39 ARA(ST)-30508-19 (AS).doc wadhwa he had approached the court under Section 9.
10. In view of these provisions, Mr. Kamat submitted that notwithstanding the provisions of the agreement, the Corporation was bound by Section 18(1) of the MSME Act and would therefore be bound to submit to arbitration under the auspices of the council. He therefore submitted that pending dispute resolution by reference to arbitration as aforesaid, the appellant is entitled to interim measures of protection under Section 9 of the Act. He therefore submitted that the impugned order is liable to be set aside and the protection granted by this Court at the ad-interim stage is liable to continue pending disposal of the arbitral reference.
11. Mr. Kamat has placed reliance on the following judgments:
(1) Scigen Biopharma Pvt. Ltd. v/s. Jagtap Horticlature Pvt.
Ltd.1 (2) Gujarat State Petronet Ltd. v/s. Micro and Small Enterprises Facilitation Council & Ors.2 (3) Reliance Life Science Pvt. Ltd. v/s. Klenzaids 1 2019 SCC Online Bom 4542 2 2018 SCC Online Bom 2039 9/39 ARA(ST)-30508-19 (AS).doc wadhwa Contamination Controls (P) Ltd.3 (4) Shah & Parikh v/s. Urmi Trenchless Technology Pvt.
Ltd. & Anr.4 (5) Principal Chief Engineer v/s. Manibhai and Brothers (Sleepers) 5 (6) GE T&D India Limited v/s. Reliable Engineering Projects and Marketing6 (7) M/s. Mircrovision Technologies Pvt. Ltd. v/s. Micro & Small Enterprises Facilitation Council & Anr. 7 (8) Bata India Limited v/s. AVS International Private Limited8
12. On behalf of the respondent Corporation, Ms. Devkar submitted that the contract did not provide for arbitration. On the other hand, the contract expressly excluded arbitration. According to Ms. Devkar, the provisions of Section 18(1) cannot be imposed upon the corporation since it had expressly provided in the contractual conditions that arbitration is not an acceptable method of dispute resolution. According to Ms. Devkar, the relevant conditions of the contract are clauses 3 2017 SCC Online Bom 9999 4 2019 SCC Online Bom 340] 5 2016 SCC Online Guj 10012 6 2017 SCC Online Del 6978 72016 SCC Online Bom 10039 8 2019 SCC Online Del 9801 10/39 ARA(ST)-30508-19 (AS).doc wadhwa 28, 42 and 43 of the General Conditions of Contract and Special Condition no.9. She submitted that the general conditions of contract provided that in case any dispute arises during execution of the work, no arbitrator shall be appointed and the decision of the Member Secretary of Maharashtra Jeevan Pradhikaran (MJP) be final. According to her, although the contract is governed by the laws of India, the MSME Act would not apply. She submitted that Clause 43 also provided that dispute between the contractor and the Jeevan Pradikaran the decision of the Chief Engineer would be final and binding.
13. Special Condition no.9 also provided that in case dispute between the Contractor and Executive Engineer, Incharge of the project there would be no provision for appointment of an arbitrator and the decision of the Members Secretary MJP shall be final. According to her, the contract between the parties is not for supply of goods. The appellant was neither a supplier nor the respondent a buyer. It was a Works Contract and the MSME Act does not apply to the works contract. Ms. Devkar therefore submits that the appeal is liable to be rejected and the impugned order sustained. 11/39 ARA(ST)-30508-19 (AS).doc wadhwa
14. Ms. Devkar has placed reliance on the following judgments;
(1) Sterling and Wilson Private Limited v/s. Union of Inia & Ors.9 (2) Scigen Biopharma Pvt. Ltd. v/s. Jagtap Horticlature Pvt.
Ltd.10 (3) International Amusement Limited v/s. India Trade Promotion Organisation and anr.11 (4) M/s. Rahul Singh v/s. Union of India & Ors.12 (5) Nik San Engineering Co. Ltd. v/s. Easun Reyroller Limited 13
15. The issue that arises is within a narrow compass viz. Whether in the face of the General and Special conditions of contact and the work order, the Respondent corporation can be subjected to provisions of MSME Act? It will be appropriate to reproduce some of the clauses of the contract relevant for the present exercise. These are to be found in the tender notice issued by the respondent and the work order. The work to be 9 2017 SCC Online Bom 6829 102019 SCC Online Bom 4542 11(2015) 12 SCC 677 12 Writ Petition no.2316 of 2016 , Allahabad High Court (D.B.) 13Letters Patent Appeal no.619 of 2019 in Special Civil Application no.6265 of 2018 12/39 ARA(ST)-30508-19 (AS).doc wadhwa carried out by the applicant is described as;
"Wardha Sewerage Scheme (Under AMRUT
Programme)
Sewerage Network, Property connections, Wet well with pump House, Pumping main, Construction of SBR Type Sewage Treatment Plant and Nalla Interception Works."
Clauses of contract nos.28, 42 and 43 of General Conditions and Special condition no.9 are reproduced below for ease of reference;
28. Arbitration In case any dispute arises out during execution of work, no arbitrator shall be appointed for redressal of the dispute. In this regard, decision of the Member Secretary, MJP Mumbai shall be final and remain binding on both parties.(Emphasis supplied)
42. Laws and Regulations
43. Governing Law The contract documents shall be governed by the laws and bye-laws of India, the State of Maharashtra and the local bodies in this region.
Special Condition no.9: Appointment of Arbitrator:
In case of any disputes raised between contractor and Executive Engineer/Engineer in charge during the course of contract regarding work, there shall be no 13/39 ARA(ST)-30508-19 (AS).doc wadhwa provision for the appointment of an Arbitrator. The decision of the Member Secretary MJP / Secretary UDD2/ Any other person appointed by secretary UDD2 shall be held as valid and final. If the contractor files a case in appropriate court, the action of withdrawing the work and allotting it to any other agency shall be deemed to be continued as per the practice in vogue in the larger interest of implementation of work in time and as per original time schedule." (Emphasis supplied)
16. On first glance, it would appear that an arbitration clause is embodied in the contract but on closer scrutiny it is found that the agreement between the parties provides that disputes will not be referred to arbitration but would be subjected to the decision of the Member Secretary, Maharashtra Jeevan Pradhikaran. This is evident from the reading of clause 28. Although the heading reads "Arbitration", in fact there is no doubt that parties agreed not to refer disputes to arbitration Clause
44 also contemplates reference of disputes to the decision of "the Commissioner". In case of any further disputes, the decision of the Secretary UDD-2 / Member Secretary MJP or any other person appointed by the Secretary / UDD-2 would be final.
14/39 ARA(ST)-30508-19 (AS).doc wadhwa
17. Clause 9 of the Special Condition is also titled "Appointment of Arbitrator" but it provides that all disputes between the contractor and the Executive Engineer in the course of the contract shall be referred to a Member Secretary, MJP, Secretary UDD-2 other person appointed secretary UDD-2. There is no provision for arbitration. The fact that these clauses to which I have made reference do not constitute an arbitration agreement is not in dispute. The contention of the appellant is that the contract will be governed by the laws and by-laws of India as seen from Clause 43 and the MSME Act is one such law.
18. I have perused the copy of the Arbitration Application (Commercial) no.7 of 2019 in which the appellant has declared that it is a proprietary firm engaged in the business of construction especially of water supply schemes. It does not proceed on the basis that the appellant is a seller. The application proceeds on the basis that after the E-tender was published the appellant had declared as a successful bidder. Contentious issues have 15/39 ARA(ST)-30508-19 (AS).doc wadhwa been set out in the petition alluding to delays in handing over and obstruction of free site for carrying out work resulting in delays who had prompted the respondent to deduct a sum of Rs.10 lakhs from the running account bills.
19. According to the appellant it was in a position to complete the work in time but was hampered due to respondent's inadequacies inter alia delay in handing over possession of sites. We are not, in the present appeal, concerned with these aspects but only the narrow question whether in the absence of an arbitration agreement, the MSME Act applied and a party who had specifically agreed not to refer disputes arbitration can be permitted to make a unilateral reference under the MSME binding upon a party to submit disputes to Arbitration. In my view in the facts at hand, that is not permissible. The parties have come to an agreement whereby certain work is to be carried out viz that of implementing the project. The project work may entail supply of goods and supply of services but it also effectively requires use of materials and skill in order to execute the project. This aspect cannot be lost 16/39 ARA(ST)-30508-19 (AS).doc wadhwa sight of. The respondent has in categorical terms provided that there will be no arbitration. Given the fact that disputes have to be resolved by the reference to the Secretary of the Pradhikaran, MJP, it is clear that the dispute resolution contemplated in the tender/contract does not amount to an arbitration clause. The E-tender notice was published on 21 st November, 2017 the appellant was found to be the lowest bidder on 26 th January, 2018. A works contract was issued on 27 th May, 2018 and a Work Order on 28th May 2018. When parties enter into a contract they must be ad idem. In the case at hand the agreement being enforceable at law is a contract. Neither appellant nor respondent claims that it is void or voidable. The acceptance of the contract as contemplated in Section 7 of the Contract Act is also absolute and unqualified. There is also no doubt that the contract was made with free consent of parties to the contract.
20. It appears that on 13th February, 2018, the appellant registered as a MSME unit with the Ministry and that is how the certificate came to be issued. The respondent has in its additional affidavit provided a copy of certificate. Perusal of the certificate reveals that at the time of bidding, the appellant had 17/39 ARA(ST)-30508-19 (AS).doc wadhwa not indicated that it intended to register under the MSME Act. The class of the contractor was specified and the registration took place after the appellant was declared as successful bidder.
21. One of the issues that have been urged is that the subsequent registration is of no avail. In that context, it is by now clear that registration cannot deprive a party of the benefit of the Act. However, in the instant case, the contract in my view does not qualify as one for supply or purchase of goods or services. Supplier is defined under the Act as follows;
(n) "supplier" means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8, and includes,--
(i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956 (1 of 1956);
(iii) any company, co-operative society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises;
18/39 ARA(ST)-30508-19 (AS).doc wadhwa "Buyer" is defined under Section 2(d) as follows;
"buyer" means whoever buys any goods or receives any services from a supplier for consideration."
22. One major stumbling block that the appellants face is on the nature of the contract. While the appellants contend that they are suppliers and the respondents are buyers, considering the terms of the contract, I am of the view that the contract to be performed by the appellant is clearly a Works Contract. Multiple decisions have come to the common conclusion that a Works Contract is not amenable to the provisions of the MSME Act. It will be useful to look through some of the decisions on this aspect. In Shree Gee Enterprises v/s. Union of India & Anr.14 the Delhi High Court has taken a view that works contracts would not attract provisions of the MSME Act. The focus there was on the procurement policy which was intended to promote the interest of Micro Small and Medium Enterprises. Yet again, in a decision of the Allahabad High Court in the case of Rahul Singh v/s. Union of India and Others, the Division Bench of the Allahabad High Court has on 25 th January, 2017 14 Writ Petition -(C)-7201 of 2015 19/39 ARA(ST)-30508-19 (AS).doc wadhwa held in Writ Petition no.2316 of 2016 has held as follows;
"A reconstruction of Section 11 bears out that it empowers the Central Government to formulate reference policies in respect of (a) procurement of goods produced by MSM and (b) services provided by a MSE. The words 'services provided' as used in the said provision must necessarily be read as disjunctive to the expression good produced. It cannot possibly be disputed that a 'works contract' forms a completely different and distinct genre than a contract for supply for goods or for that matter a contract for providing services. A works contract is essentially an indivisible contract which may involve not just the supply of goods but also the provision of labour and service. The particular specie of contract has rightly been understood by the railways as not to fall within the ambit of the 2006 Act."
The reference in this paragraph extracted from the judgment in Rahul Singh (supra) indicates that Section 11 only contemplates and brings within its fold. Contracts for supply of goods and providing services simpliciter.
23. The Allahabad High Court also observed that in the 2006 Act none of the provisions requires the Court to deconstruct to works contract into its elements of supplying 20/39 ARA(ST)-30508-19 (AS).doc wadhwa goods and providing services. While the focus in this judgment and several others was the Public Procurement Policy 2012, we are not concerned with that aspect of the matter and dehors the applicability of the Public Procurement Policy 2012 the fundamental principle that can be gleaned from the aforesaid discussion is that a works contract being a composite contract is indivisible and cannot be deconstructed into its elements.
24. In CCE and Customs v/s. Larsen & Toubro Ltd. 15 the Supreme Court observed that the Assessees' contention that a works contract is a separate specie of contract, distinct from contract for services is recognized by the world of commerce as such.
25. The scheme of the 2006 Act clearly entails providing a platform for the concerned enterprises to compete, given the fact that the smaller enterprises would otherwise be at a disadvantage, compared to the larger players in industry. In M/s. Kone Elevators India Pvt. Ltd. v/s. State of Tamil Nadu and others,16 the Supreme Court considered the observations in Larsen & Tubro (supra) observed that four concepts clearly 15 (2016) 1 SCC 170 16 2014(7) SCC 1 21/39 ARA(ST)-30508-19 (AS).doc wadhwa emerged. Firstly a works contract is indivisible but by legal fiction is divided into two parts for sale of goods and the other for supply of labour and services. Secondly, the concept of a dominant nature tests does not apply to a works contract. Thirdly, the term 'works contract' as used in Clause (29A) of Article 366 of Constitution takes in its sweep all genre of works contract and is not to be narrowly construed. The Supreme Court reiterated in Larsen & Tubro (supra) that the dominant nature test or the overwhelming component test or the degree of labour and service test are not really applicable if the contract is a composite one. The court observed that in a contract requiring a contractor to install a lift in building the nature of the contract is a composite contract. Although there are two components, firstly the purchase of components of the lift from a dealer, it would be a contract of sale. If a separate contract is executed for installation that would be a composite contract for it because it is not for a sale of goods. This concept has been recognized by this court in Sterling Wilson Pvt.Ltd. (supra). Having considered all the above, I am of the view that the MSME Act could not have been invoked in the case of Works Contract such as the one at hand. The respondents must therefore succeed on that count. 22/39 ARA(ST)-30508-19 (AS).doc wadhwa
26. The next point that must be considered is Mr Kamat's contention that the governing law being the laws of India and the MSME Act being a Special Act, the Act would supersede the general law and not withstanding any contrary intention that appears in the tender documents and in the work order, the appellants are entitled to invoke provisions of Section 18 of the MSME Act. This is a crucial aspect of the case. When we consider the terms of contract, there are the Special conditions and General conditions of contract as also the provision under the caption 'Arbitration' but what is evident is that disputes relating to the work being carried out are required to be subjected to the decision of the Member Secretary of the Maharashtra Jeevan Pradhikaran or the Secretary UDD-2. The provision for submission to these authorities would not constitute an arbitration agreement. This is fairly evident from the decision of the Supreme Court in the case of International Amusement Limited (supra) where clause 28 of an agreement provided thus;
"28. In case of any dispute arising out of or in connection with this agreement the disputes shall be referred to the sole arbitration of the Chairman, India Trade Promotion Organisation or his nominee whose decision/award shall be final, conclusive and binding 23/39 ARA(ST)-30508-19 (AS).doc wadhwa on the parties. Application for reference to arbitration shall be made by either party within two months of arising of the dispute."
27. Clause 28 in the facts of that case contemplated disputes arising out of or in connection with the contract being referred to the sole arbitration of the Chairman of the India Trade Promotion Organization or his nominee. Yet the Supreme Court held that the clause in question did not constitute an arbitration agreement.
28. In this behalf, the Supreme Court considered its own decision of a three judge bench in P. Dasharatharama Reddy Complex Vs. Government of Karnataka 17 wherein the Court had occasion to consider the distinction between an expert determination and an arbitration between parties. Russell on arbitration was recalled which observed thus;
"16. ... Many cases have been fought over whether a contract's chosen form of dispute resolution is expert determination or arbitration. This is a matter of construction of the contract, which involves an objective enquiry into the intentions of the parties. First there are the express words of the disputes clause. If specific 17 (2014) 2 SCC 201 24/39 ARA(ST)-30508-19 (AS).doc wadhwa words such as 'arbitrator', 'Arbitral Tribunal', 'arbitration' or the formula 'as an expert and not as an arbitrator' are used to describe the manner in which the dispute resolve is to act, they are likely to be persuasive although not always conclusive... Where there is no express wording, the court will refer to certain guidelines. Of these, the most important used to be, whether there was an 'issue' between the parties such as the value of an asset on which they had not taken defined positions, in which case the procedure was held to be expert determination; or a 'formulated dispute' between the parties where defined positions had been taken, in which case the procedure was held to be an arbitration. This imprecise concept is still being relied on. It is unsatisfactory because some parties to contract deliberately choose expert determination for dispute resolution. The next guideline is the judicial function of an Arbitral Tribunal as opposed to the expertise of the expert... An Arbitral Tribunal arrives at its decision on the evidence and submissions of the parties and must apply the law or if the parties agree, on other consideration; an expert, unless it is agreed otherwise, makes his own enquiries, applies his own expertise and decides on his own expert opinion..."
29. Thus, in the facts of the present case the clauses which provide for reference to the Member Secretary or Secretary UDD would not constitute Arbitration clauses. This 25/39 ARA(ST)-30508-19 (AS).doc wadhwa read with clause no.28 will make it amply clear that the corporation never intended to submit disputes to arbitration. In fact it expressly provides that arbitration will not be resorted to. The question therefore is whether merely by applying for registration or being a medium or small enterprise, and not having altered the corporation of this fact while bidding and or while accepting the work order the appellants can be permitted to invoke the provisions of the MSME Act. In my view, the answer must be in the negative for the reason that at the time of bidding, the contractor was specified to be of a particular class. It was open to the appellant to clarify that it was a MSME and qualified under the Special Act. This it did not do. On other hand after the bidding was completed and it was elected successful bidder it quietly submitted an application for registration on 13th February, 2018.
30. One must recall that the submission of the bid was on 30th October, 2017 the appellant was found to be lowest bidder on 26th January, 2018 and it is only thereafter that the appellant registered on 13th February, 2018. The respondent corporation thus being unaware of the fact that the appellant qualified as a MSME unit, proceeded to enter into a work 26/39 ARA(ST)-30508-19 (AS).doc wadhwa contract on 27th May, 2018. Thereafter disputes arose between the parties leading to the filing of the arbitration petition. It is only upon filing the arbitration petition that for the first time the respondent learnt of the fact that the appellant had qualified as an MSME and had proposed to invoke provisions of that Act.
31. It may be noted here that the appellant has not resorted to conciliation but has proceeded to seek interim orders of protection by invoking Section 9 of the Arbitration and Conciliation Act. Strictly speaking, the procedure to be followed would have been to invoke conciliation and approach the Facilitation Council. At that stage, the Facilitation Council after hearing parties would have decided whether or not arbitration should be resorted to, whether the council would conduct arbitration or whether the dispute would be referred to an institution as contemplated under Section 18. This procedure was given a go-by. Instead, the respondent was presented with a fait accompli whereby it was forced to oppose an application for interim protection.
32. In the facts at hand, it will be seen that the contract is of a nature which required continuous supervision. There are 27/39 ARA(ST)-30508-19 (AS).doc wadhwa multifarious activities to be carried out. The MSME Act contemplates supply of goods, purchase of goods, and rendering an acceptance of services. In the present case, having coming to the conclusion that it is a works contract and being indivisible and absent the need to deconstruct the contract into its components of sale supply and performance of labour related work it is evident that the MSME Act cannot be made applicable. For this very reason, expert determination is contemplated under the auspices of the Member Secretary or Secretary UDD-
2.
33. Having crossed that stage even if the dispute were not to be resolved, the contract provides that no reference will be made to arbitration. This is an express provision agreed upon by both sides and it was part of a standard form tender conditions. The appellant had accepted this condition. Parties were thus ad idem that no reference could be made to arbitration. Once parties agree that arbitration was not a mode of dispute resolution, the question of an arbitration agreement or enforcing a statutory arbitration does not arise.
34. In the numerous decisions cited by counsel and 28/39 ARA(ST)-30508-19 (AS).doc wadhwa those referred to above, the facts reveal that there existed arbitration agreements between the parties. These were invoked and the contest was on the aspect whether an independent arbitration agreement would survive in the light of the special act. Under the Special law, the tide is against independent arbitration agreements. The MSME provides in its non-obstante provision that the provisions of the MSME Act would apply notwithstanding any other law in force and that includes the arbitration agreement which may be arrived at between the parties. One must consider whether the applicability of governing laws of the country would entail the application of the MSME Act despite having expressly provided that no arbitration will be resorted to.
35. For the aforesaid reasons, Mr. Kamat's reliance on the decision in Manibhai and Brothers of the Gujarat High Court (supra) and as approved by the Supreme Court will not be of any assistance to him. Likewise, in the cases of Reliance Life Sciences (supra), Gujarat State Petronet (supra) and other decisions relied upon by Mr. Kamat, the existence of an arbitration clause was evident. Even in the decision of the Delhi High Court in Reliance 29/39 ARA(ST)-30508-19 (AS).doc wadhwa Engineering Projects, an arbitration clause existed and the courts have in all those cases ruled in favour of the statutory arbitrations because the contractual arbitration clause could not prevail over the MSME Act. Seen in this light, I am afraid the appellants case cannot succeed.
36. In Bata India (Supra) also the Delhi High Court after taking note of the difference of opinion amongst various high Court and the contrasting views observed the fact that Section 18 the MSME Act will prevail cannot be a matter of contest. The provisions of the MSME Act were applicable dehors any arbitration clause that the parties would have agreed to. In the present case the parties have not agreed to arbitration at the time the contract was awarded. In fact the heading of the clause no.28 is a misnomer because the parties have agreed not to submit to arbitration and would not amount to contracting out of the statute owing to the belated registration under the Special law. Thus in view of such an agreement being arrived at between the parties, I am of the view that the appellant was not entitled to invoke the provisions of the MSME Act in the facts of the present case. Some of the cases cited are matters where the Public Procurement Policy was involved. That policy does not 30/39 ARA(ST)-30508-19 (AS).doc wadhwa affect the facts at hand. However, the principle remains, inasmuch as, at the time of entering into the contract, the respondent ought to have been made aware that the petitioner was an MSME unit though would have enable the respondent to make a considered choice on whether to proceed to award the contract or not.
37. In this respect useful reference can be made to the observations of this Court in Scigen Biopharma Pvt. Ltd. (supra) in which the effect of the contracting party changing its status by registering as a MSME unilaterally and without the knowledge of the other party and causing prejudice to the other party to the contract has been considered. In paragraph 30, the Court considered that arbitration cannot be foisted on other contracting party unilaterally. The fact that the appellant proceeded to register under the Act and/or claim registration and without any intimation to the respondent at the time of accepting work order amounts to an attempt to suppressing vital information as between the contracting parties. The appellant knew the consequences of registering under the contract. The respondent was not aware of the registration or the fact that the appellant would claim under the Special Act. 31/39 ARA(ST)-30508-19 (AS).doc wadhwa
38. To my mind, this disclosure was material and required. The respondent could not have been taken by surprise especially in the light of the fact that the parties are agreed that disputes will not be referred to arbitration. Apart from the fact that clause 28 reproduced above is not an arbitration clause and expressly states that "no arbitrator shall be appointed for redressal of the dispute", Clause 44 also does not amount to an arbitration clause. In fact clauses 28 and 44 read together clearly convey to the appellant that disputes would have to be referred to either the Commissioner initially then to the Secretary UDD-2 and/or Member Secretary, MJP or any other person appointed by the Secretary UDD-2. Merely because the Work Order was issued after the appellant applied for /obtained registration will not change the bargain struck by the parties.
39. Prima facie it appears that clause 28 read with clause 44 contemplates expert determination as contemplated and discussed in P. Dashratharama Reddy (supra) and the commentary of Russell on arbitration quoted therein. Expert determination does not entail mandatory reference to arbitration but clause 28 makes it clear that no arbitrator will be appointed 32/39 ARA(ST)-30508-19 (AS).doc wadhwa for "redressal of the dispute".
40. I have resisted to urge to make reference to other provisions of the contract which would entail a conclusion that this is not a contract for supply of goods or services separately since it is quite obviously a works contract. It is also necessary to observe the language of said clause 9 of the Special Conditions reproduced above. This once again establishes the intention of the arbitrator that "there will be no provision for appointment of an arbitrator." The language may not be inspiring it is yet intelligible and enables us to conclude without a shadow of doubt that the parties did not contemplate arbitration when the contract was entered into. In effect they expressly excluded reference to arbitration. In this light of the matter, it was incumbent on the applicant to inform the respondent of the fact that it had proceeded to register as MSME and thereby the respondent would invite the consequences that flow from the operation of Section 18 of the MSME.
41. Mr. Kamat's brief reliance on the decision of this Court in M/s. Microvision Technologies Pvt. Ltd. (supra) or the case of Shah & Parikh (supra) will not come to his assistance 33/39 ARA(ST)-30508-19 (AS).doc wadhwa since in all these cases, an independent arbitration clause was agreed to between the parties. Needless to mention the effect of the MSME Act would mean that the entire process of arbitration would have been gone through either with the Facilitation Council Chief or by any institution by it. Thus, in all these decisions that have been relied upon by Mr. Kamat one prominent feature is undisputed viz. the existence of a contractual arbitration provision.
42. In the additional affidavit in reply filed by the respondent, the respondent has annexed the copy of a certificate which is described as Udyog Adhar Registration Certificate, the name of the enterprise is that of the appellant. The major activity is shown as manufacturing and it is listed as a Micro Enterprise. Other activities include professional, scientific and technical activities of civil engineering. The activity type and construction activity type is services and manufacturing, the date of filing is 13th February, 2018. Thus, it is clear that as on date of the tender and being awarded the tender it had not registered under the said Act. Reference may be made to the application itself copy of which is at Exhibit B to the appeal. The Work Order was issued after the appellant registered. 34/39 ARA(ST)-30508-19 (AS).doc wadhwa
43. In the factual background, narrated in the arbitration application, the appellant states that it is involved in various works contracts with government agencies. Clearly admitting the nature of the contract that it was entering into. In paragraph 3 of the application the appellant narrates the process after E-tender was published and upon finding that the bid was the lowest. In the application, the reference to the understanding of the appellant is that the work had to be carried out, schedule of work was not properly planned and that R.A. bills must be regularly paid. Clearly the averments reflect the understanding of the appellant at the material time and does not reveal that the appellant was expecting to supply goods or render services. On the contrary, it clearly admits to being involved works contract with government agencies and that the respondent was wanting the sewerage work carried out in accordance with the tender. It is only paragraph 19 that the appellant disclose that it is a MSME unit and seller, thus, invoking provisions of Section 18 as a dispute between buyer and seller.
44. In paragraph 25 of the application, the averment 35/39 ARA(ST)-30508-19 (AS).doc wadhwa reads thus;
"The present work is mainly divided into four category namely (1) STP (2) Networking (3) Wet Well, Anicut & Pumping (4) Push-through. Work under Category three is not progressed as desired since respondent failed to handover the site;
furthermore category 4 work is suspended for
statutory permission from Railway & PWD
Authorities."
45. Except for paragraph 19 in which the appellant claimed to be a MSME unit and seller and that the dispute was between buyer and seller, the rest of the application thereby admits to work to be carried out. No reference to price of supply is made. The impugned order has not considered these aspects. The order does not appear to have noticed this aspect but has considered clauses 28, 42, 43 of general conditions, special condition no.9 and condition of contract clause no.2. Disputed facts are also briefly referred to and the finding as to the effect that petition under Section 9 is not tenable. Therefore a Section 9 application could not have been filed. Reference to the Commercial Courts Act, in paragraph 16 of the impugned judgment appears to be intended to consider the jurisdiction of the Court. The impugned judgment after considering the 36/39 ARA(ST)-30508-19 (AS).doc wadhwa provisions of the MSME Act has in paragraph 20 observed that no attempt has been made at settlement and that in the cases referred as precedents therein arbitration clauses existed. In absence of the clause, no interim measure could be granted. The appellants do not appear to have urged the aspect which they have now canvassed that mere registration would entitle them to reference to the Facilitation Council. In my view the rejection of the petition need not be disturbed although the reasons may not be entirely in focus.
46. In my view the special law will not apply in the facts at hand since the appellant had itself agreed that no reference will be made to arbitration. That itself is an agreement between the parties and cannot be negated merely by registering as a MSME. Otherwise it would deprive a party such as the respondent corporation from exercising their discretion while entering into a contract and "Free Consent" contemplated under Section 14 of the Contract Act to the extent it concerns dispute resolution. If the appellant had, prior to acknowledging its being selected as a lowest bidder and having agreed to execute the work order, disclosed the fact that it was qualified to be an 37/39 ARA(ST)-30508-19 (AS).doc wadhwa MSME or that it intended to register under the Special Act, the respondent corporation could have made an informed choice of proceeding with the contract on those terms. By awarding the contract after such knowledge, the respondent would have been bound by the provisions of the Act. However, in the instant case, the appellant sprang a surprise upon the respondent at the time of filing the Section 9 petition. Nowhere in the correspondence prior to filing the petition has the appellant contended that it was a MSME unit and entitled to invoke provisions of the Act. Furthermore, the dispute itself relates to the retention of additional security deposit which the corporation was entitled to and not but not on the aspect of "supply" of any goods or specifically and stand alone "services" rendered. This once again takes us back into the realm of a Works Contract and I do not deem it necessary to deal with that aspect any longer.
47. In view of the above, while in law there is no doubt that the provisions of the MSME Act would prevail over contractual provisions of arbitration, on facts in hand, I find that the appellant being a successful contracting party to a Works Contract and in view of express and consensual exclusion of arbitration as a means of dispute resolution could not have 38/39 ARA(ST)-30508-19 (AS).doc wadhwa invoked the provisions of MSME Act.
48. For these reasons I am unable to find any merit in the appeal and as a result, the appeal cannot succeed. Therefore I pass the following order;
(i) Appeal is dismissed.
(ii) Interim order is vacated.
(iii) Interim Application (St) no.94967 of 2020 and Interim Application no.3676 of 2019 are disposed.
(iv) The appellant shall be entitled to adopt such other proceedings as they may be entitled to in law.
At this stage Mr. Kamat seeks continuation of the ad-interim order dated 19th December, 2019. Since the ad- interim order has continued from 19 th December, 2019 it will continue for four weeks from today.
(A. K. MENON, J.) Digitally signed by Sandhya Sandhya Wadhwa Wadhwa Date:
2021.03.01 18:26:49 +0530 39/39 ARA(ST)-30508-19 (AS).doc wadhwa