Allahabad High Court
Executive Engineer,Water Suplly And ... vs M/S Atul Pumps Private Ltd. on 31 May, 2018
Equivalent citations: AIRONLINE 2018 ALL 2114
Author: Manoj Misra
Bench: Manoj Misra
HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Reserved on 22.05.2018 Delivered on 31.05.2018 Court No. - 33 Case :- MATTERS UNDER ARTICLE 227 No. - 3685 of 2018 Petitioner :- Executive Engineer,Water Suplly And Sanitation And 3 Others Respondent :- M/S Atul Pumps Private Ltd. Counsel for Petitioner :- Vrindavan Mishra Counsel for Respondent :- Kartikeya Saran Hon'ble Manoj Misra,J.
The present petition has been filed against an award passed by the U.P. Micro and Small Enterprises Facilitation Council, Directorate of Industries, U.P., Kanpur (in short the Facilitation Council) in its meeting held on 16.02.2016, which was drafted and signed on 11.04.2016, on Claim Petition No.5 of 2013 filed the respondent (M/s Atul Pumps Private Limited, Agra), under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (in short the Act, 2006). The petitioners have also prayed for a direction to restrain the respondent from proceeding further with Execution Case No.1824 of 2016, arising out of the above award, pending in the court of Additional District and Sessions Judge, Chandigarh.
A brief narration of facts would be helpful to understand the controversy. The respondent had supplied certain goods (PVC Pipes, etc) to the petitioners under supply order dated 16.02.2009. On 06.11.2009, a bill of Rs.1,17,66,766/- was raised by the respondent for the supplies made to the petitioners. The petitioners promptly paid Rs.25,00,000/- to the respondent against the aforesaid bill. But the balance was not paid on time. On delay in payment of the balance amount, the respondent served a legal notice dated 21.01.2011 upon the petitioners for payment of the balance amount of Rs.92,66,766/-. Upon failure to make payment by the petitioners, despite service of notice, the respondent filed Writ Petition No.11562 of 2011 in the High Court of Punjab and Haryana (in short PH High Court), which was disposed of by order dated 07.07.2011 with a direction to the respondent in the writ petition (the petitioners herein) to take an appropriate decision on the legal notice dated 21.02.2011 for settlement of the bill within a period of 12 weeks from the date of receipt of certified copy of the order. It was also observed in court's order that if the amount is found payable, the same be released without any further delay. When the order of PH High Court was not complied with, the respondent filed Contempt Petition No.2450 of 2011 before the PH High Court. In the contempt proceedings, reply/affidavit was filed by the contemnor - respondent appending order dated 11.11.2011 by which decision had been taken on the notice of the contempt petitioner (respondent herein). It was indicated in the said reply affidavit that the principal amount payable has been paid but the claim for interest was turned down. Upon filing of the said reply affidavit, the contempt notices were discharged by PH High Court, vide order dated 14.02.2012, however, liberty was given to the contempt-petitioner (respondent herein) to impugn the order rejecting the claim for interest before an appropriate forum. The respondent, thereafter, filed Claim Petition No.5 of 2013 before the Facilitation Council under Section 18 of the Act, 2006 by claiming that it was a supplier within the meaning of Section 2 (n) of the Act, 2006 located within the territorial jurisdiction of the Facilitation Council and had been provided delayed payment for the supplies made by it and, as such, was entitled to the interest payable under Section 16 read with Section 15 of the Act, 2006.
The Facilitation Council made an effort for conciliation but as the conciliation was unsuccessful, it was terminated and, thereafter, the Facilitation Council proceeded to take up the dispute as an arbitrator under sub-section (3) of Section 18 of the Act, 2006.
The Facilitation Council framed four issues:
(a) Whether the opposite parties (petitioners herein) were not liable for interest under Section 16 of the Act, 2006 for want of any covenant in respect of interest on delayed payment between the parties ?
(b) Whether the Facilitation Council had jurisdiction to take up the dispute as Arbitrator ?
(c) Whether the Facilitation Council has no territorial jurisdiction as per Clause 15 of the rate contract that all disputes would be settled within the jurisdiction of headquarter of the Punjab Stores Department of Chandigarh ?
(d) To what relief, if any, the supplier is entitled to ?
After deciding all the above issues in favour of the claimant (respondent herein), impugned award was passed. As, admittedly, no application to set aside the award was filed, as per the provisions of the Arbitration and Conciliation Act, 1996 (in short Act, 1996) read with sections 18 (3) and 19 of the Act, 2006, the respondent put the award to execution as a decree of a civil court at Chandigarh by filing Execution Case No.1824 of 2016. It appears from the order dated 20.04.2008, copy of which was passed on by the learned counsel for the petitioner, that in the execution proceedings, the petitioners questioned the validity of the award, which was repelled by the execution court stating that the execution court has no jurisdiction to go beyond the decree.
Having failed thus far, the present petition has been filed assailing the award and the consequential execution proceeding.
I have heard Sri Charanjit Singh Bakshi and Sri Vrindavan Mishra for the petitioners; Sri Navin Sinha, learned Senior Counsel, assisted by Sri Kartikeya Saran, for the respondent; and have perused the record.
Sri Bakshi has contended that the impugned award has been obtained by playing fraud, inasmuch as, in the claim petition the claimant respondent had not disclosed about filing of writ petition as well as the contempt petition before PH High Court and the orders passed thereon. According to Sri Bakshi in the petition filed before PH High Court the relief sought, inter alia, demanded only 18% p.a. compound interest which was much lower than what has been awarded by the Facilitation Council. It was contended that the writ petition at PH High Court had sought complete settlement of the dues and it was disposed of by requiring the respondents therein (petitioners herein) to take a decision within a specified period and, thereafter, when no decision was taken, within the period specified, the respondent filed contempt petition in which the rule was discharged, upon noticing that the order of the writ court was complied by taking decision pursuant to the writ court's direction, by giving liberty to challenge the order rejecting the claim for interest by taking recourse to remedy before appropriate forum. It has been contended that once the respondent had chosen the remedy of filing a writ petition he could not have taken recourse to the provisions of the Act, 2006. The only course left to it was to challenge the order refusing payment of interest on delay in payment of the bill amount. It has been contended that since the order refusing to pay interest had not been assailed by the respondent before appropriate forum, the said order attained finality, and, it became a relevant/material fact, which was ought to have been disclosed in the claim petition. But the claimant had not disclosed the said fact, therefore, the award was obtained by playing fraud and, as such, it is void and unworthy of execution.
The other submission of Sri Bakshi is that under the general terms of the supply agreement between the petitioners and the respondent there existed an arbitration clause under which all disputes between the supplier and the purchaser were referable to an Arbitrator appointed by the Government. That apart, under the said agreement, all disputes were to be settled within the jurisdiction of headquarter of the Punjab Stores Department at Chandigarh and, therefore, the Facilitation Council at U.P. had no jurisdiction to proceed under the Act 2006. The only remedy, if any, available to the respondent was to invoke the arbitration clause that existed in the agreement between the respondent and the petitioners by taking recourse to appropriate application before the courts at Chandigarh /Punjab. It has been contended that for the said reason also, the award is void. In support of this contention, the learned counsel for the petitioners has cited a Division Bench decision dated 27.08.2010 of Nagpur Bench of Bombay High Court rendered in Writ Petition No.2145 of 2010 (M/s Steel Authority of India Limited and another Vs. The Micro, Small Enterprises Facilitation Council and another).
Next submission of the learned counsel for the petitioners is that a substantial portion of the claim of the respondent related to supply of PVC Pipes of the size above 200 mm which was not in the list of items reserved for purchase from Small Scale Industrial Units therefore the provisions of the Act, 2006 were not attracted and for this reason also the impugned award is void.
It was next contended that the award is a non speaking award and does not at all disclose as to how the amount found payable has been arrived at. And that apart, the award is vague and incapable of execution. As such, the award is liable to be set aside.
Lastly, it was contended that the petitioners are part of government machinery and such exorbitant rate of interest, as payable under the Act, 2006, ought not to be imposed upon it, particularly, when there was no clause in the agreement between the parties as regards payment of interest on delayed payment. Hence, the award of interest, as per the provisions of the Act, 2006, was not justified, particularly, when the principal amount has already been paid.
Per contra, Sri Navin Sinha, who appeared on behalf of the respondent, submitted that filing of the writ petition at P H High Court would not take away the statutory right of the petitioners available under the Act, 2006, the object of which is to facilitate the promotion and development of micro, small and medium enterprises and matters connected therewith or incidental thereto. Sri Sinha contended that from a bare reading of the award, at page 47 of the paper book, it would be clear that the Facilitation Council was aware about the proceeding before the PH High Court and, therefore, it cannot be said that the award was obtained by playing fraud. Even otherwise, the petitioners had been served notice of the proceeding by the Facilitation Council and they had all the opportunity to apprise the Facilitation Council about all aspects therefore it is completely misconceived on the part of the petitioners to state that the award has been obtained by playing fraud.
Sri Sinha further contended that existence of arbitration agreement between the parties could not take away the statutory right of the respondent under the Act and notwithstanding existence of arbitration agreement, the Facilitation Council has jurisdiction to proceed under section 18 of the Act, 2006. In support of the above submission, Sri Sinha has placed reliance on a decision of a Division Bench of this Court in M/s Paper & Board Converters Vs. U.P. State Micro & Small Enterprises and others: 2014 (5) ADJ 184 (DB) to contend that the power conferred upon a Facilitation Council, under Section 18 of the Act, 2006, is exercisable notwithstanding an arbitration agreement between the parties.
Sri Sinha contended that to tackle fund problem of micro, small and medium enterprises and to secure that there is no paucity of funds for such enterprises, Section 15 of the Act, 2006 provides for liability of buyer to make payment to the supplier (a micro or small enterprises) by or before the date agreed upon between buyer and the supplier in writing or, where there is no agreement in that behalf, before the appointed day: Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance. Section 16 of the Act, 2006 provides that where any buyer fails to make payment of the amount to the supplier, as required under Section 15, 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 compound interest with monthly rests 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 three times of the bank rate notified by the Reserve Bank. It has been submitted that Section 17 of the Act, 2006 provides that for any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16. It has been contended that Section 18 of the Act, 2006 provides for a non-obstante clause by which any party to a dispute, notwithstanding anything contained in any other law for the time being in force, is entitled to any make reference to the Micro and Small Enterprises Facilitation Council with regard to any amount due under Section 17. Sub-section (4) of Section 18 further provides that notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council shall have jurisdiction to act as an Arbitrator or Conciliator under the said Section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India. It has been submitted that in view of the non-obstante clause contained in sub-section (4) of Section 18 since the claimant respondent was located within the territorial jurisdiction of the Facilitation Council at Kanpur, the Facilitation Council had jurisdiction to deal with the claim petition against the petitioners notwithstanding the arbitration agreement between the petitioners and the claimant-respondent. Sri Sinha submitted that Section 24 of the Act, 2006 provides overriding effect to the Act, 2006.
Sri Sinha also submitted that since the contempt court of Chandigarh High Court had given liberty to the petitioners to approach an appropriate forum, the claimant respondent was not under any legal obligation to disclose about filing of either writ petition or contempt petition at PH High Court. It has been contended by him that since the claim of the petitioner was not addressed on merit either by the writ court or by the contempt court at Chandigarh, there was no occasion for the petitioners to make a disclosure about the litigation at Chandigarh and, as such, it cannot be said that the award obtained from the Facilitation Council has been obtained by playing fraud and as such void. In the alternative, it was submitted that the Facilitation Council was aware of the litigation at Chandigarh.
Sri Sinha further submitted that the Facilitation Council had first taken efforts to have a conciliation between the parties and thereafter when the conciliation efforts failed, it terminated the conciliation process and took up the dispute as an Arbitrator and proceeded to pass an award as per the procedure contemplated by sub-sections (2) and (3) of Section 18 of the Act, 2006 and, as such, the award passed by the Facilitation Council cannot be said to be void, keeping in mind the non- abstante clause contained in sub-sections (1) and (4) of Section 18 of the Act, 2006.
Sri Sinha further submitted that regardless of there being an agreement to the contrary, the liability to pay interest would arise under Section 16 of the Act, 2006 and such liability is to the extent provided by Section 16 of the Act. It has been submitted that as the Facilitation Council has provided interest as payable under Section 16 of the Act, 2006, the award cannot be said to be void merely because there was no scope for payment of interest under the agreement between the petitioners and the claimant respondent.
Sri Sinha further contended that reliance placed by the petitioners' counsel on Public Procurement Preference Policy for Micro and Small Enterprises (MSES) Order 2012 to contend that PVC Pipes with diameter above 110 mm is not reserved for purchase from Small Scale Industrial Units including Handicraft Sector therefore the claim of the respondent was not maintainable under the Act, 2006, is completely misconceived. Sri Sinha contended that the aforesaid contention of the petitioners' counsel is liable to be rejected for two reasons: firstly, because the Order, 2012 was not even in existence at the time the supplies were made, inasmuch as, the supply order was of the year 2009 of which the bill was raised in the year 2009. Secondly, the Order, 2012 has been issued under Section 11 of the Act, 2006 which provides for procurement preference policy. Section 11 provides for facilitating promotion and development of micro and small enterprises, and, accordingly, enables the Central Government or the State Government to notify preference policies in respect of procurement of goods and services, produced and provided by micro and small enterprises. It has been submitted that the Order, 2012 places restriction on government aided institutions and public sector enterprises in purchasing certain category of goods specified in the Order, 2012 from any other supplier than small scale industrial units.
Sri Sinha further submitted that by virtue of Section 19 of the Act, 2006 the only remedy available to the petitioners was to file an application for setting aside the decree, award or other order made by the Council after depositing 75% of the amount in terms of the decree. Therefore challenge to the award directly in a petition under Article 227 of the Constitution of India is not liable to be entertained.
Sri Bakshi, at this stage, submitted that since the execution court at Chandigarh had rejected the objection of the petitioners against the execution of the award on the ground that the petitioners had not challenged the award as per the provisions of Section 34 of the Act, 1996 read with Section 19 of the Act, 2006, and, as the period of limitation to file an objection against the award as contemplated by Section 34 of the Act, 1996 has expired, therefore, there exists no other remedy than to invoke the jurisdiction of this Court under Article 227 of the Constitution of India.
Having considered the rival submissions the main issue that arises for consideration is whether the impugned award under Section 18 of the Act, 2006 is void: (a) on account of existence of a prior arbitration agreement between the parties; (b) on account of fraud allegedly played by the claimant respondent; and (c) on account of lack of calculation as to how the amount awarded has been arrived at.
Before proceeding to decide the issues culled out above, it would be useful to first examine the provisions contained in Sections 15, 16, 17, 18, 19 and 24 of the Act, 2006. The said provisions are extracted below:-
"15. Liability 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 forty-five days from the day of acceptance or the day of deemed acceptance.
16. 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 15, 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 compound interest with monthly rests 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 three times of the bank rate notified by the Reserve Bank.
17. Recovery of amount due.- For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16.
18. Reference to micro and small enterprises facilitation 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 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 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.
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."
Before proceeding to examine the import of the aforesaid provisions, it would be useful to refer to the object of the Act, 2006. The preamble of the Act reads as follows:-
"An Act to provide for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto."
The statement of objects and reasons for the Act, 2006 discloses that it was felt to extend support for the small enterprises so that they are enabled to grow into medium one's, adopt better and higher levels of technology and achieve higher productivity to remain competitive in a fast globalisation era. Thus, as in most developed and many developing countries, it was found necessary, that in India too, the concerns of the entire small and medium enterprises sector were addressed and the sector is provided with a single legal framework. Objects and reasons further provide that Bill aims at making provisions for ensuring timely and smooth flow of credit to small and medium enterprises as also to make further improvements in the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertaking Act, 1993 and to make that enactment a part of the proposed legislation and to repeal that enactment.
From above, it is clear that the object of the Act, 2006 was not only to promote the small enterprises but also to ensure timely and smooth flow of credit to it and to provide with a single legal framework towards that end as also for improving upon the provisions of existing Interest on Delayed Payments Act, 1993 (supra).
In furtherance of that object, when the provisions of Sections 15, 16, 17, 18, 19 and 24 of the Act, 2006, as above quoted, are read together, it becomes clear that the buyer from a supplier (as defined in Section 2(n) of the Act, 2006) has to make payment on or before the date agreed between the buyer and the supplier in writing or, where there is no agreement in that behalf, before the appointed day, with a rider that in no case the period agreed upon between the supplier and the buyer in writing shall exceed 45 days from the date of acceptance or the day of deemed acceptance. Section 16 provides that notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, the buyer shall be liable to pay compound interest with monthly rests to the supplier on the amount which is required to be paid by him as per Section 15, from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank. Section 17 further provides for the liability of the buyer to pay the amount with interest as provided under Section 16. Section 18 provides for the forum by which the amount due under Section 17 of the Act could be recovered. Section 18 begins with non- obstante clause by providing that 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. Sub-section (2) of Section 18 provides that on receipt of a reference application, 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 shall apply as if the conciliation was initiated under Part III of that Act. Sub-section (3) provides that 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 shall then apply to the disputes as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of the Act, 1996. Sub-section (4) also contains a non-obstante clause by providing that 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 the Section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.
In the case of M/s Paper & Board Converters (Supra) a challenge was laid to an order of the Facilitation Council in bringing the proceedings under Section 18 of the Act, 2006 to an end by placing reliance on an existing arbitration agreement between the supplier and the buyer. A Division Bench of this Court after taking a conspectus of the provisions of the Act, 2006 and the object which it seeks to achieve, in paragraphs 10, 11, 12, 13 and 14 of the judgment, held as follows:-
"10. Certain salient aspects of Section 18 would merit emphasis. Sub-section (1) of Section 18 provides for a reference to the Micro and Small Enterprises Facilitation Council notwithstanding anything contained in any other law for the time being in force, by any party to a dispute, with regard to any amount due under Section 17. Consequently, what Section 18 (1) does, is to stipulate a statutory reference to the Facilitation Council for the resolution of disputes. Under sub-section (2), on receipt of a reference, the Council shall either conduct a conciliation in the matter itself or seek assistance of any institution or centre providing alternate dispute resolution services. Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 are to apply to such a dispute. Sub-section (3) provides for the consequences if the conciliation is not successful. Once the conciliation proceeding is terminated without any settlement, the Council has one of two courses of action open. The Council may either itself take up the dispute for arbitration or refer the dispute to an institution or centre providing alternate dispute resolution services for such arbitration. Thereupon the provisions of the Arbitration and Conciliation Act, 1996 apply as if the arbitration was in accordance with the provisions of Section 7 (1) of the Act of 1996. Sub-section (3) of Section 18, therefore, contains a statutory reference to arbitration. This is not dependent on the existence of an arbitration agreement in the contract between the parties.
11. Under sub-section (4) of Section 18, this position is made abundantly clear because it stipulates that notwithstanding anything contained in any other law for the time being in force, the 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 a supplier located within its jurisdiction and a buyer located anywhere in India.
12. The petitioner invoked the provisions of the 2006 Act by filing a reference to the Facilitation Council on 3 October 2011. There was undoubtedly a dispute between the petitioner and the respondents in regard to the claim of the petitioner arising out of non payment of its bills. The respondents appointed a sole arbitrator on 5 October 2011 after the petitioner had invoked the intervention of the Facilitation Council on 3 October 2011 under Section 18 of the 2006 Act. Once the jurisdiction of the Facilitation Council has been validly invoked, the Council has exclusive jurisdiction to enter upon conciliation in the first instance and after conciliation has ended in failure, to refer the parties to arbitration. The Facilitation Council could either have conducted the arbitration itself or could have referred the parties to a centre or institution providing alternate dispute resolution services. The Facilitation Council was clearly in error in entertaining the objection filed by the respondents and referring the petitioner to the sole arbitrator so designated by the respondents.
13. The non-obstane provision contained in sub-section (1) of Section 18 and again in sub-section (4) of Section 18 operates to ensure that it is a Facilitation Council which has jurisdiction to act as an arbitrator or Conciliator in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India. The Facilitation Council had only one of the two courses of action open to it : either to conduct an arbitration itself or to refer the parties to a centre or institution providing alternate dispute resolution services stipulated in sub-section (3) of Section 18.
14.In this view of the matter, the impugned order of the Facilitation Council directing the parties to a reference before the sole arbitrator appointed by the respondents was manifestly illegal. We would, accordingly, have to allow the petition and set aside the impugned order dated 13 February 2014. We order accordingly."
Emphasis Supplied From the above decision of this Court it is clear that the supplier could take recourse to the remedy available under Section 18 of the Act, 2006 notwithstanding existence of an arbitration agreement between the supplier and the buyer.
The decision of Nagpur Bench of the Bombay High Court rendered in the case of M/s Steel Authority of India Limited and another (supra) on which great reliance has been placed by the learned counsel for the petitioners, with due respect, would not be binding on this Court and, therefore, keeping in mind the Division Bench view of this Court, which is binding on a Single Judge of this Court, would have to be followed. More so, because it has not been demonstrated by the learned counsel for the petitioners that any binding precedent either of the Apex Court or a Larger Bench of this Court or any statutory provision of the Act, 2006 or any other Act or law, has escaped the notice of the Division Bench of this Court.
In view of the above, this Court holds that the award of the Facilitation Council would not be void on account of existence of a prior arbitration agreement between the supplier and the buyer.
The second part of the issue that the award was void because fraud was played by the respondent upon the Facilitation Council would have to be decided in the context of the facts of the case.
From the record it appears that at PH High Court the respondent had filed a petition for payment of its dues in respect of goods supplied by it to the petitioners herein. By that time, the respondent had served a claim by way of demand/legal notice upon the petitioners on which no decision was taken by the petitioners. The PH High Court disposed of the writ petition by following order:-
"1. Learned counsel for the petitioner states that he would be satisfied if the legal notice which is issued under Annexure P-3 dated 21.2.2011 seeking for settlement of the bill for the work that he had done is considered and appropriate decision be taken for releasing the payment.
2. The writ petition is disposed of with a direction to dispose of the notice to the respondents having regard to the nature of relief granted that the respondents shall consider and take an appropriate action within a period of twelve weeks from the date of receipt of copy of the order.
3. if the amount is found payable as per the decision the same be released without any further delay."
The prayer in the writ petition filed before the Punjab and Haryana High Court was, as per the document at page 126 to 127 of the paper book, as follows:-
"It is, therefore, respectfully prayed that this Hon'ble Court may be pleased to,
i) summon the complete records of the case;
ii) issue a writ in the nature of Mandamus directing the respondents to make the payment of works of supply of U-PVC Pipes by the petitioner alongwith compound interest @ 18% per annum.
iii) issue any other appropriate writ, order or direction which this Hon'ble Court may deem fit and proper in peculiar facts and circumstances of the present case.
iv) issuance of advance notices to the respondents may kindly be dispensed with;
v) cost of the writ petition may kindly be awarded in favour of the petitioner;
vi) filing of certified copies of annexures may kindly be dispensed with;"
From the prayer made in the writ petition and the body of the petition which is there on record as Annexure 7-A to the petition it would be clear that by the date of filing of the writ petition even the principal amount had not been paid and no decision had been taken by the petitioners herein as regards admissibility of the amount due and payable by the petitioners to the claimant respondent.
In that context, since the issue was pending before the petitioners, the PH High Court, by its order dated 07.07.2011, had disposed of the writ petition as above.
Thereafter, when direction of the PH High Court was not complied with, within the time provided, the respondent had filed a contempt petition which was disposed of by order dated 14.02.2012, which is extracted below:-
"1. The reply/affidavit is appended with speaking order dated 11.11.2011 (Annexure R-4/1) which further reveals that principal amount has been paid to the petitioner but interest claimed has been turned down.
2. This petition is disposed of with liberty to the petitioner to impugn the above stated order with regard to denial of interest before an appropriate forum, if so advised.
3. Rule discharged."
The afore-quoted order on the contempt petition would reveal that the contempt court also did not address the merit of the claim of the respondent as regards interest payable and left it open to the respondent to raise its claim before an appropriate forum with regard to denial of interest.
The submission of the learned counsel for the petitioner is that the respondent under the order of PH High Court could have only challenged the order denying interest and therefore had played fraud upon the Facilitation Council by not making disclosure about the contempt court's order. He has also contended that full disclosure was required because the claimant respondent had claimed compound interest at the rate of 18% per annum before the writ court whereas the interest provided by the Facilitation Council is three times of the bank rate notified by the Reserve Bank of India, which is higher than 18%. Therefore the demand as made before the writ court at Chandigarh ought to have been placed before the Facilitation Council to enable it to come to a proper conclusion as to at what rate the interest on delayed payment was payable. It has been contended that since the petitioners had deliberately suppressed the demand raised before the PH High Court, the Facilitation Council proceeded to award statutory interest payable under Section 16 of the Act, 2006. It is thus his case that non disclosure of the above facts has vitiated the award and rendered it void.
The aforesaid contention of the learned counsel for the petitioners cannot be accepted because at the time when the claimant respondent had approached the writ court at Chandigarh, the principal amount payable to the petitioners had not been admitted or even denied by the petitioners and therefore the question of raising a claim in respect of interest payable thereon, at that stage, had not arisen. The cause of action to claim statutory interest on delayed payment had arisen when they took decision refusing to pay interest, pursuant to direction of PH High Court. Thereafter, the contempt court at PH High Court left it open to raise claim before appropriate forum by challenging the decision denying interest. Use of the words that the claimant would be at liberty to challenge the decision before appropriate forum would not take away the statutory right of the claimant (the supplier) to approach the Facilitation Council. Under the circumstances, this court is of the view that there was nothing material in the litigation at PH High Court the disclosure of which was necessitated so much so that non disclosure of which rendered the award vitiated by fraud as alleged by the petitioners' counsel.
Otherwise also, by not making a claim of statutory interest payable under the Act, 2006 before the writ court, at that stage, would not amount to waiver of right under the statute so as to oust the jurisdiction of the Facilitation Council to award statutory interest. Moreover, the petitioners had full opportunity to place their case before the Facilitation Council and make necessary disclosures, if it was considered necessary.
For the foregoing reasons, this court is of the view that the award of the Facilitation Council cannot be said to be void as having been obtained by playing fraud.
The other aspect raised by the petitioner that the award does not disclose reason as to how the amount found payable was discovered therefore the award is void, is equally unacceptable because non disclosure of calculation would not render the award void though it might have been a ground to challenge the award as per the procedure provided by law as contemplated by section 19 of the Act, 2006 read with sections 34 of the Act, 1996 and section 18(3) of the Act, 2006. However, as admittedly, the award has not been challenged by taking recourse to the statutory remedy, the same has become final and the merits of the award can therefore not be tested in this jurisdiction.
The other issue that arises for consideration is whether the award passed by the Facilitation Council would be void, inasmuch as, the claim raised by the claimant respondent was in respect of goods that were not reserved for purchase from Small Scale Industrial Units.
In respect of aforesaid issue, the contention of the learned counsel for the petitioners had been that under Section 11 of the Act, 2006 the Central Government had issued Order 2012 which provided list of items that were reserved for purchase from Small Scale Industrial Units including Handicraft Sector. It has been submitted that at Sl. No. 223, PVC Pipes up to 110mm are mentioned, which means that pipes with a diameter larger than 110 mm would not be covered by the provisions of the Act and since the claimant respondent had made supply of PVC Pipes of size up to 200 mm, the provisions of the Act were not applicable and hence the award is void.
The aforesaid contention of the learned counsel for the petitioners cannot be accepted for two reasons. Firstly, Order, 2012 has been notified on 26.03.2012 and has come into force with effect from 01st April, 2012 and therefore it would not apply to purchase orders prior to 01.04.2012. In the case at hand, invoice is of the year 2009. Therefore, the Order, 2012 would not come into play. Secondly, the Order 2012 is to be read in the context of Section 11 of the Act, 2006 under which it has been issued. Section 11 of the Act, 2006 is extracted below:-
"11. Procurement preference policy.- For facilitating promotion and development of micro and small enterprises, the Central Government or the State Government may, by order notify from time to time, preference policies in respect of procurement of goods and services, produced and provided by micro and small enterprises, by its Ministries or departments, as the case may be, or its aided institutions and public sector enterprises."
A perusal of Section 11 of the Act, 2006 would reveal that it relates to issuance of orders to ensure that certain category of goods and services are availed from micro and small enterprises by aided institutions and public sector enterprises. The orders issued under Section 11 of the Act, 2006 do not take away the right of a supplier, as defined by Section 2(n) of the Act, 2006, from taking recourse to the beneficial provisions of Chapter V of the Act, 2006.
In view of the discussion made above, this Court does not find any merit in the contention of the learned counsel for the petitioners that the award is void because it deals with dues payable in respect of supply of such goods which are not contemplated by Order, 2012.
The last issue raised by the petitioners' counsel was that the operative portion of the award is vague, inasmuch as, it does not specify as to at what rate interest would be payable and therefore is incapable of execution and, as such, void.
In respect of above submission, it would be useful to consider the operative portion of the impugned award, which, for convenience, is extracted below:-
"The reference is allowed. The Opposite parties buyer are liable to pay interest on Rs.1,17,66,768/- as per provision of section 16 of the Act 27 of 2006. Rs.1,22,08,316/- till the date of order.
The buyer shall also pay future interest on Rs.1,22,08,316/- as per provision of Section 16 of Act, 27 of 2006 till final payment.
Parties shall bear their own costs. The award is made accordingly."
From the operative portion of the order it is clear that the award has two parts. First part is in respect of the interest payable till the date of the order which is computed as Rs.1,22,08,316/- and the second part of the award is liability to pay future interest on Rs.1,22,08,316/- as per provision of Section 16 of the Act 27 of 2006 till final payment.
In so far as the first part of the award is concerned, that clearly specifies the amount payable and there is no ambiguity in that part of the award. If the petitioners were aggrieved by the correctness of the amount awarded, then the only course available to the petitioners, as per the provisions of the Act, 2006, was to challenge the award by taking recourse to the remedy available under Section 19 of the Act, 2006 read with Section 34 of the Act, 1996.
Merely because the award does not properly disclose the calculation of the interest found payable would not render it void though it could have been challenged through an application under Section 19 of the Act, 2006 read with Section 34 of the Act, 1996 and sub-section (3) of Section 18 of the Act, 2006. Accordingly, on that ground the court refuses to interfere with the award in exercise of its power of superintendence under Article 227 of the Constitution of India.
As regards the second part of the operative portion of the award is concerned, as to at what rate future interest would be payable, that is for the execution court to examine and since, admittedly, the execution court is seized of the matter at Chandigarh in Execution Case No.1824 of 2016, this Court does not wish to express any further opinion in that regard.
For the reasons detailed above, this Court finds no merit in this petition. The petition is dismissed. There is no order as to costs.
Order Date :- 31.5.2018 AKShukla/-