Orissa High Court
The Deputy General Manager vs M/S. Maa Bhairabi Traders on 14 February, 2025
Author: S.K. Panigrahi
Bench: S.K. Panigrahi
Signature Not Verified
Digitally Signed
Signed by: BHABAGRAHI JHANKAR
Designation: AR-CUM- SR. SECRETARY
Reason: Authentication
Location: ORISSA HIGH COURT, CUTTACK
Date: 18-Feb-2025 17:31:36
IN THE HIGH COURT OF ORISSA AT CUTTACK
ARBA No.3 of 2023
Along with
ARBA No.37 of 2022,
ARBA No.4 of 2023,
ARBA No.5 of 2023
(IN ARBA No.3 of 2023)
(From the Judgment dated 12.1.2023 passed by the Learned District
Judge, Ganjam in Arbitration Petition No.1 of 2021 arising out of
award dated 18.7.2018 passed by the Micro and Small Enterprises
Facilitation Council in MSEFC Case No. 33 of 2017)
The Deputy General Manager, .... Appellant (s)
(Elect.), Electrical Circle,
Berhampur,
-versus-
M/s. Maa Bhairabi Traders, .... Respondent (s)
Lochapada Road, PO. Berhampur,
Dist.-Ganjam &Anr.
Advocates appeared in the case through Hybrid Mode:
Appellant (s) : Mr. Anindya Kumar Mishra, Adv.
Respondent (s) : Mr. Rajeet Roy, Adv.
Mr. Suryakanta Dwibedi, Adv.
Mr. R.K. Mahanta, Adv.
(IN ARBA No.37 of 2022)
(From the order dated 14.09.2022 passed by the Learned District
Judge, Ganjam, Berhampur in Arbitration Petition No.1 of 2021
arising out of award dated 18.07.2018 passed by the Micro and Small
Enterprises Facilitation Council in MSEFC Case No. 33 of 2017)
Page 1 of 25
Signature Not Verified
Digitally Signed
Signed by: BHABAGRAHI JHANKAR
Designation: AR-CUM- SR. SECRETARY
Reason: Authentication
Location: ORISSA HIGH COURT, CUTTACK
Date: 18-Feb-2025 17:31:36
Superintending Engineer (TPSODL, .... Appellant (s)
Electrical Circle, Bidyutpuri Colony,
Berhampur
-versus-
M/s. Maa Bhairabi Traders, .... Respondent (s)
Lachapada Road, PO. Berhampur,
Dist.-Ganjam & Anr.
Advocates appeared in the case through Hybrid Mode:
Appellant (s) : Mr.Suresh Chandra Dash, Adv.
Respondent (s) : M/s. G.M. Rath, Adv.
Mr. S.S. Padhy, Adv.
(IN ARBA No.4 of 2023)
(From the Judgment dated 12.1.2023 passed by the Learned District
Judge, Ganjam in FAO No.20 of 2022 arising out of award dated
19.01.2019 passed by the Micro and Small Enterprises Facilitation
Council in MSEFC Case No.35 of 2017)
Chief Operating Officer, SOUTHCO .... Appellant (s)
Utility, Corporate Office,Berhampur
-versus-
Director of Industries, Cuttack, .... Respondent (s)
Odisha & Ors.
Advocates appeared in the case through Hybrid Mode:
Appellant (s) : Mr. Anindya Kumar Mishra, Adv.
Respondent (s) : Mr. Rajeet Roy, Adv.
Mr. Suryakanta Dwibedi, Adv.
Mr. R.K. Mahanta, Adv.
Page 2 of 25
Signature Not Verified
Digitally Signed
Signed by: BHABAGRAHI JHANKAR
Designation: AR-CUM- SR. SECRETARY
Reason: Authentication
Location: ORISSA HIGH COURT, CUTTACK
Date: 18-Feb-2025 17:31:36
(IN ARBA No.5 of 2023)
(From the Judgment dated 12.1.2023 passed by the Learned District
Judge, Ganjam in FAO No.19 of 2022 arising out of award dated
19.01.2019 passed by the Micro and Small Enterprises Facilitation
Council in MSEFC Case No.34 of 2017)
Chief Operating Officer, SOUTHCO .... Appellant (s)
Utility, Corporate Office,
Berhampur
-versus-
Director of Industries, Cuttack, .... Respondent (s)
Odisha & Anr.
Advocates appeared in the case through Hybrid Mode:
Appellant (s) : Mr. Anindya Kumar Mishra, Adv.
Respondent (s) : Mr. Rajeet Roy, Adv.
Mr. Suryakanta Dwibedi, Adv.
Mr. R.K. Mahanta, Adv.
CORAM:
DR. JUSTICE S.K. PANIGRAHI
DATE OF HEARING:-25.11.2024
DATE OF JUDGMENT: -14.02.2025
Dr. S.K. Panigrahi, J.
1. These Appeals under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‚A&C Act‛) have been filed against the Judgments dated 12.1.2023 passed by the Ld. District Judge, Ganjam in Arbitration Petition No. 1 of 2021 as well as FAO No. 19 of 2022 and FAO No. 20 of 2022 arising out of award dated 18.7.2018 passed by Micro and Small Enterprises Facilitation Council in MSEFC Case No. 33 Page 3 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 of 2017, award dated 19.1.2019 passed by Micro and Small Enterprises Facilitation Council in MSEFC Case No. 34 of 2017 and award dated 19.1.2019 passed by Micro and Small Enterprises Facilitation Council in MSEFC Case No. 35 of 2017. As all the aforesaid Appeals involve the same contesting parties and raise the same questions of law, it is considered prudent to deal with them together.
I. FACTUAL MATRIX OF THE CASE:
2. For the sake of brevity, the facts involved in the aforesaid appeals are summarily discussed herein:
i. ARBA No. 3 of 2023
i. This Appeal u/s 37 of the A&C Act challenges the Judgment dated 12.1.2023 passed by the Ld. District Judge, Ganjam in Arbitration Petition No. 1 of 2021.The same arises out of award dated 18.7.2018 passed by Micro and Small Enterprises Facilitation Council in MSEFC Case No. 33 of 2017. ii. As desired by the Asst. Engineer, PH Division Aska for a 11 KV dedicated feeder for strengthening the water supply system of NAC, Polasara a tender call notice was issued by the office of the G.M. Electrical Circle, Berhampur. M/s Maa Bhairabi being the lowest bidder in the said tender was selected and work order was issued on 8.2.2016 for construction of 11KV dedicated feeder for power supply to Ranipada & Rameswar PHD Substation under Polasara Electrical Sub Division.
Page 4 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR
Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 iii. As per clause 3.1 of the work order M/s Maa Bhairabi had to complete the work within a period of 120 days from the date of issuance of the work order. The same was not completed in time and M/s Bhairabi time and again request for extension of time for completion of the work.
iv. Subsequently, after allegedly not completing the entire work and leaving glaring deficiencies in the same, the present Petitioner was intimated that M/s Maa Bhairabi has filed a claim before the MSEFC, Cuttack, Odisha for payment of Rs. 32,32,580.00 out of which principal amount is Rs. 31,28,823.00 and interest amount is Rs. 1,03,757.00 on the ground that M/s Maa Bhairabi has completed the work and energized the same on 23.6.2017.
v. After receipt of notice, a detailed reply was filed disputing the averments made in the claim petition and bringing it to the notice of the authority that the original Claimant has not completed the work as per the terms of the work order. It was also pointed out that the line was not handed over in time, therefore there is no question of paying a final bill. It was also contended that the bills so contended having not been paid, were never sent to the present Petitioner.
vi. After hearing the parties, the Ld. Council vide order dated 18.7.2018 in MSEFC Case No. 33 of 2017 was pleased to direct the present Petitioner to pay the principal amount of Rs.
31,28,823.00 (Rupees Thirty one Lakhs twenty eight thousand Page 5 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 eight hundred twenty three) only and interest claim of Rs. 1,03,757.00 (Rupees One Lakh three thousand seven hundred fifty seven) only calculated up to 31.07.2017 (statement enclosed as Annexure-II) as per Section 15 & 16 of MSMED Act, 2006. It was further directed that compound interest with monthly rests shall be payable at the rate of 3 times of the Bank rate as notified by Reserve Bank of India from time to time till realization of dues.
vii. Thereafter, after a slew of litigation to condone delay, this Court directed the Ld. District Judge, Ganjam to hear the present Petitioner's appeal u/s 34 of the A&C Act on merits, which was not entertained by the Ld. District Judge, hence the present Appeal.
ii. ARBA No.37 of 2022 i. This Appeal under Section 37 of the A & C Act arises out of the order dated 14.09.2022 passed by the Learned District Judge, Ganjam, Berhampur in C.M.A. No.05 of 2022 arising out of Arbitration Petition No.1 of 2021, wherein the application filed by the Appellant under Sections 5 and 14 of the Indian Limitation Act, 1963 has been rejected. In the process, the Arbitration Petition No.1 of 2021 filed under Section 34 of the & C Act was dismissed.
ii. Challenging the order/ award dated 18.07.2018 passed in MSEFC Case No.33 of 2017 by the Director of Industries-cum- Chairman, MSEFC Industries, Directorate Odisha, Cuttack, the Page 6 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 present Appellant had filed a Writ Petition being W.P.(C) No.19024 of 2018 which was disposed of on 16.09.2019 with a direction that if along with the Appeal, a Petition for condonation of delay is filed by the Petitioner therein within three weeks from passing of the order, the same shall be disposed of in accordance with law quite liberally. iii. Aggrieved by the aforesaid order of this Court, the present Appellant filed W.A. No.551 of 2019 before the Division Bench of this Court which was disposed of as withdrawn with liberty to approach the appropriate forum under Section 34 of the A & C Act. vide order dated 27.07.2021.
iv. Pursuant to the aforesaid order dated 27.07.2021 passed in W.A. No.551 of 2019, the Appellant preferred ARBP No.01 of 2021 in the court of the learned District Judge, Ganjam, Berhampur assailing the order/ award dated 18.07.2018 passed in MSEFC Case No.33 of 2017 by the Director of Industries- cum- Chairman, MSEFC Industries, Directorate Odisha, Cuttack along with a petition under Section 5 of the Limitation Act i.e. CMA No.05 of 2022 for condonation of delay in preferring the ARBP No.01 of 2021.
v. Learned District Judge, Ganjam, Berhampur vide order dated 14.09.2022 passed in CMA No.05 of 2022 dismissed the ARBP No.01 of 2021 being barred by limitation. Hence, the present Appeal.
Page 7 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR
Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 iii. ARBA No. 4 of 2023 i. This Appeal u/s 37 of the A&C Act arises out of judgment dated 12.1.2023 passed by the Ld. District Judge, Ganjam in FAO No. 20 of 2022 arising out of award dated 19.1.2019 passed by Micro and Small Enterprises Facilitation Council in MSEFC Case No. 35 of 2017.
ii. The present Respondent No.2 as petitioner therein had filed MSEFC Case No.35/2017 against the Chief Operating Officer, Southco Utility. Alleging therein that the management of Southco Utility had placed three numbers of work order on National Small Industries Corporation Ltd. (NSIC Ltd.) vide Work Order No. 14732 dated 24.11.2014, Work Order No.14733 dated 24.11.2014 and Work Order No.14734 dated 24.11.2014 respectively. Thereafter, M/s Maa Bhairabi Traders had been awarded the work orders by NSIC vide Letter No. NSIC/BAM/SUB-BR/Maa Bhairabi/14-15/0363, dated 3.12.2014 of Branch Manager. NSIC, Berhampur being a registered MSME vendor for execution.
iii. Soon after receipt of the said work orders from NSIC, the petitioner started execution of work assigned against package IV and package V of work order under the guidance, supervision and direction of the Engineer-in-charge and Project Manager. In spite of some field problems in conducting Page 8 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 joint verification by various inter departmental officers and delayed support of Southco Utility for resolving the site problem, M/s Maa Bhairabi was able to execute the said two package of works after expiry of scheduled completion period and the said line was energised on 8.8.2015. Accordingly, it is submitted that the entire newly constructed asset was handed over and taken over by the Southco Utility as per the formality of the work order.
iv. Thereafter, M/s Maa Bhairabi submitted its invoices to NSIC and consequently NSIC submitted the invoices to Project Manager, Southco Utility. In response, an advance payment against NSIC for the amount of 32,16,840/- was released on 6.11.2015 through RTGS. Thereafter NSIC released the amount of Rs.31,33,492/- in favour of M/s Maa Bhairabi after deducting statutory taxes and duties of Rs.83,348/-. But an amount of Rs.13,11,823/- was kept pending by Southco Utility without showing any reason at the time of release of payment. v. Further, due to non-support for joint survey, revised bill of quantity and single line diagram according to route alignment against pending package VI of work order, the work of package VI was hampered. Due to delayed execution of work of package VI of work order, M/s Maa Bhairabi had purchased and deployed materials to the site to the tune of Rs. 24,82,894/- which remained unutilized and suffered severe depreciation of materials and thereby cost escalation occurred. Page 9 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR
Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 vi. Therefore, for release of the dues of Rs.84,29,765/- out of which the principal, amount Rs.39,62.511/- and Rs.44,67,254 towards interest, M/s Maa Bhairabi filed an application before the MSEFC for realization of the same.
vii. As being noticed by the MSEFC, Cuttack the Appellant appeared in this case and filed his written objection denying the averments made in the claim petition. The Appellant (Opposite Party in the MSEFC below) in his written objection has stated that at no point of time any work orders have been placed with the respondent No.2 by Southco and all the work orders have been placed with the NSIC Ltd. with different terms and conditions. Accordingly, as per the work order placed by the NSIC Ltd., the respondent No.2 has executed the work. It was also brought to the notice of the council that as against the invoice raised by the claimant through NSIC for execution of his works, an amount of Rs. 31,33,492/- has already been released in favour of the respondent No.2 by deducting statutory dues and taxes amounting to Rs.83,348/-. As the respondent No.2 had not complied with the observations of the Engineer-in-charge and Project Manager, an amount of Rs.13,1 1,823/- has been kept and the same shall be released after compliance of the observations. viii. That on 19.1.2019 in its 64th sitting it is alleged that the MSEFC conducted a hearing and passed an order without considering the matter in its proper perspectives, without going through Page 10 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 the factual aspect of the case and without applying its judicial mind and sans any suitable reasons observed that M/s Maa Bhairabi has approached the present Appellant for amicable settlement but the Appellant did not pay any attention to it, therefore the Appellant is liable to pay the legitimate outstanding dues of M/s Maa Bhairabi. Accordingly it was directed that the present Appellant would pay the principal amount of Rs.39,62,511/- and interest claim of Rs.44,67,254/- calculated up to 31.7.2017 as per Section 15 & 16 of MSMED Act, 2006 and further compound interest with monthly rest shall be payable at three times of bank rate as notified by the Reserve Bank of India from time to time till realization of the dues.
ix. Thereafter, after a slew of litigation to condone the delay, this Court directed the Ld. District Judge, Ganjam to hear the present Appellant's appeal u/s 34 of the A&C Act on merits, which was not entertained by the Ld. District Judge, hence the present Appeal.
iv. ARBA No. 5 of 2023 i. This Appeal u/s 37 of the A&C Act arises out of judgment dated 12.1.2023 passed by the learned District Judge, Ganjam in FAO No. 19 of 2022 arising out of award dated 19.1.2019 passed by Micro and Small Enterprises Facilitation Council in MSEFC Case No. 34 of 2017.
Page 11 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR
Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 ii. That the present respondent No.2 as petitioner had filed MSEFC Case No.34/2017 against the Chief Operating Officer, Southco Utility alleging therein that the petitioner participated in the tender under CAPEX programme for replacement of single phase meter for Ganjam North Electrical Division (GNED), Purushottampur Electrical Division (PSED), Aska Electrical Division No.ll (AED-II), Ganjam Southern Electrical Division (GSED) &Aska Electrical Division No.l (AED No.l), the Divisions functioning under Southern Electricity Supply Company (Now TPSODL) erstwhile Southco Utility. iii. The procurement committee for CAPEX after considering Techno commercial evaluation of meter replacement and price bid on different dates awarded the work in favour of the claimant O.P. No.2 for single phase meter replacement with or without shifting as per the Work Order issued on 26.6.2015 for different divisions.
iv. Thereafter, it is submitted that the M/s. Maa Bhairabi Traders completed the order in phased manner as per the direction and under direct supervision of the Executive Engineer-in-Charge and submitted Invoice date wise/ division wise against each completed work.
v. Due to delayed releasing of payment by the Southco Utility against the invoices for release of payment, M/s. Maa Bhairabi Traders issued several reminders.
Page 12 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR
Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 vi. Further, due to non-release of payment invoice wise in time (as alleged by), M/s. Maa Bhairabi Traders, they filed an application before MSME for realization of an amount of Rs.23,05,000/- as a principal and Rs.20,78,923/- as interest (Total amount of Rs.43,83,923/-) for realization of the same. vii. Upon being noticed by the MSEFC, Cuttack, the Appellant appeared in the case and filed his written objection denying the averments made in the claim petition. The Appellant in his written objection has stated that in spite of repeated request by the Engineer-in- Charge, the claimant has failed to execute the Work order within time. Due to slow progress of the work by the claimant on 28.10.2016, the procurement committee meeting for CAPEX was held at OPTCL office, Bhubaneswar and decision was taken to cancel the Work order along with forfeiture of the EMD dues. As per the Para-36 of the Work order it is stipulated that if any disputes arises the party to approach the competent authority and the competent authority is to resolve the dispute in accordance with the provisions of the arbitration and conciliation Act 1996. In fact, without exhausting the remedy available under the work order, the present application has been filed for realization of the arrear dues is not maintainable. It is also submitted that there has been no such delay as alleged in payment of dues to the claimant for the bills submitted by him.
Page 13 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR
Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 viii. On 19.1.2019 in its 64th sitting it is alleged that the MSEFC conducted a hearing and passed an order without considering the matter in its proper perspectives and without going through the factual aspect of the case and without applying its judicial mind and sans any reasons observed that M/s Maa Bhairabi has approached the present Appellant for amicable settlement but the Appellant did not pay any heed to it, therefore the Appellant is liable to pay the legitimate outstanding dues of M/s Maa Bhairabi. Accordingly, it was directed that the present Appellant would pay the principal amount of Rs.39,62,511 and interest claim of Rs.44,67,254/- only calculated up to 31.7.2017 as per Section 15 & 16 of MSMED Act, 2006 and further compound interest with monthly rest shall be payable at three times of bank rate as notified by the Reserve Bank of India from time to time till realization of the dues.
3. Now the facts leading up to the instant Appeals have been laid down, this Court shall endeavour to summarise the contentions of the Parties and the broad grounds that have been raised to seek the exercise of this Court's limited jurisdiction available under S. 37 of the A&C Act. II. APPELLANTS' SUBMISSIONS:
4. The counsels for the Appellants assail the judgment of the Ld. District Judge mainly on the ground that the Ld. District Judge has not considered the mandatory provision of conciliation as provided in Page 14 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 Section 18(2) of the MSMED Act, has not been complied with and therefore, the award is bad in law and liable to be set aside. III. SUPPLIER'S SUBMISSIONS:
5. Per contra, learned counsel for the Supplier submits that there is no infirmity with the order of the Ld. District Judge who has considered all the grounds raised by the Appellants in their proper perspective to pass a well reasoned judgment and order.
IV. ISSUEFOR CONSIDERATION:
6. Having heard the parties and perused the materials available on record, this Court here has identified the following solitary issue to be determined:
A. Whether the order of the Ld. District Judge warrants interference keeping in mind the limitations of this Court's powers under Section 37 of the A&C Act?
V. ISSUE A: WHETHER THE ORDER OF THE LD. DISTRICT JUDGE WARRANTS ANY INTERFERENCE KEEPING IN MIND THE LIMITATIONS OF THIS COURT'S POWERS UNDER SECTION 37 OF THE A&C ACT?
7. This Court has had the pleasure of delving into the contours of the MSMED Act in National Aluminium Co. Ltd. v. Orissa Coal Chem. (P) Ltd.1
8. As held earlier, the very object of enacting the MSMED Act, 2006 was to facilitate the promotion and development, and enhance the 2023 SCCOnLineOri 5234 1 Page 15 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 competitiveness of micro, small and medium enterprises. The Act also aimed to ensure timely and smooth flow of credit to the micro, small and medium enterprises, and to minimise the incidence of sickness. One of the main objects of the Act was to delete the Interest on Delayed Payments under Small Scale and Ancillary Industrial Undertakings Act, 1993, and to include stringent provisions as also to provide dispute resolution mechanism for resolving the disputes of non-payment of dues to the micro and small enterprises. Thus, the seed of the MSMED Act, 2006 had sprouted from the need for a comprehensive legislation to provide an appropriate legal framework and extend statutory support to the micro and small enterprises to enable them to develop and grow into medium ones.
9. Sections 15 to 25 contained in Chapter V of the MSMED Act, 2006 pertain to the ‚delayed payments to micro and small enterprises‛. A bare perusal of the said provisions contained in Chapter V shows that a strict liability is fastened on the buyer to make payment to the supplier who supplies any goods or renders any services to the buyer, prescribing the time-limit in Section 15. Section 16 further fastens the liability on the buyer to pay compound interest if any buyer fails to make payment to the supplier as required under Section 15. Such compound interest is required to be paid at three times of the bank rate notified by the Reserve Bank, notwithstanding contained in any agreement between the buyer and supplier or in any law for the time being in force. An obligation to make payment of the amount with interest thereon as provided under Section 16 has been cast upon the Page 16 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 buyer and a right to receive such payment is conferred on the supplier in Section 17. Thus, Section 17 is the ignition point of any dispute under the MSMED Act, 2006. Section 18 of the Act provides for the mechanism to enable the party to the dispute with regard to any amount due under Section 17, to make a reference to the Micro and Small Enterprises Facilitation Council.
10.Further, if there is any dispute related to delayed payment, reference can be made to the Micro and Small Enterprises Facilitation Council (hereinafter, 'Facilitation Council') for dispute resolution. Furthermore, it has been provided in the said act that the provisions contained under Section 15 to Section 23, will have an overriding effect on any law which is in contravention of the same.
11.The MSMED Act has, therefore, provided for the establishment of MSME Facilitation Councils as the one-stop shop for resolution of disputes under the MSMED Act. Section 18 of the MSMED Act reads as:
"18. (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 (Recovery of Amount Due), 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. Page 17 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR
Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 (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 to it 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. ...
(5) Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference." [Emphasis is ours]
12. A bare perusal of the above, it appears that there is a two tiered dispute resolution system provided in the MSMED Act itself for facilitating the promotion and development, and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto.
13.Section 18 starts with a non obstante clause i.e. ‚notwithstanding anything contained in any other law for the time being in force‛. It means that the said provision has been enacted with the aim to supersede other laws for the time being in force. Further, a dedicated statutory forum i.e. the Micro and Small Enterprises Facilitation Council (as established under Section 20of the MSMED Act, 2006), has been provided so that a reference could be made by any party to the dispute. Sub-section (2) of Section 18 empowers the Facilitation Council, on receipt of such reference made under sub-section (1), to conduct conciliation in the matter or seek assistance of any institution or centre Page 18 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation, as contemplated in Sections 65 to 81 of the Arbitration Act, 1996. If the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council is further empowered under sub-section (3) to either itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration. The provisions of the Arbitration Act, 1996 are then made applicable to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of the Arbitration Act, 1996. Sub-section (4) of Section 18 again starts with a non obstante clause i.e. "notwithstanding anything contained in any other law for the time being in force", and confers jurisdiction upon the Facilitation Council to act as an arbitrator or a conciliator in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India. Sub- section (5) of Section 18 fixes the time-limit of ninety days to decide such reference.
14.It is, therefore, clear that only when the conciliation initiated under Section 18 (2) is not successful, then in the absence of any settlement between the parties, the Facilitation Council under Section 18 (3) is to either itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration.
Page 19 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR
Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36
15.The conciliation envisioned in the MSMED Act, not being a voluntary but compulsory step, any failure to initiate/conduct the same would render a consequent award passed by the MSEFC bad in law and liable to be set aside. The same view has also been reiterated by the Supreme Court in Jharkhand Urja Vikas Limited v. The State of Rajasthan and Ors.2 wherein the Apex Court held as under:
"9. From a reading of Section 18(2) and 18(3) of the MSMED Act it is clear that the Council is obliged to conduct conciliation for which the provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 would apply, as if the conciliation was initiated under Part III of the said Act."(emphasis is ours)
16.As far as this Court's powers of interference under Section 37 of the A&C Act is concerned, it is apt to advert to the decision of the Supreme Court in Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited3 which was subsequently discussed in Associate Builders v. Delhi Development Authority4. The position of law was clarified and laid down recently by the Supreme Court in Ssangyong Engg. & Construction Co. Ltd. v. NHAI5 and more recently reiterated in UHL Power Company Ltd. v. State of Himachal Pradesh6.
17.The award passed in pursuance of an arbitration under Section 18(3) of the MSMED Act can therefore also only be set aside under Sections 2 Judgement dated 15.12.2021 in Civil Appeal No. 2899 of 2021 3 (2014) 9 SCC 263 4 (2015) 3 SCC 49 5 (2019) 15 SCC 131 6 (2022) 4 SCC 116 Page 20 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 34/37 of the Arbitration Act, if the award is found to be contrary to, (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal.
18.A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the 1996 Act is made, Section 5 and Section 34 of the 1996 Act would make it clear that judicial interference with the arbitral awards is limited to the grounds in Section 34. While deciding applications filed under Section 34 of the Act, Courts are mandated to strictly act in accordance with and within the confines of Section 34, refraining from appreciation or re-appreciation of matters of fact as well as law. This Court may refer to the Apex Court's judgment in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.7, Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd.8 And RashtriyaIspat Nigam Ltd. v. Dewan Chand Ram Saran9 for the same.
19.The limited grounds available to Courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the Courts. There is a disturbing tendency of Courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing 7 (2020) 2 SCC 455 8 (2022) 1 SCC 75 9 (2012) 5 SCC 306 Page 21 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award. This approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial interference with arbitral awards.
20.The scope of Section 37 of the Arbitration Act was further analysed by the Supreme Court in MMTC Limited v. Vedanta Limited10 where it was held that any such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34.A similar view, as stated above, has been taken by the Supreme Court in K. Sugumar v. Hindustan Petroleum Corpn. Ltd.11.
21.This Court had the opportunity to peruse the Awards passed by MSEFC, Cuttack, Odisha and the Ld. District Judge's judgments.
22.Section 18(2) of the MSME Act provides, on receipt of a reference, 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. It is only in the event that such conciliation fails, shall the Council proceed to enter into the realm of arbitration under Section 18 (3) of the MSMED Act. Section 18(2) of the MSMED Act further provides that Sections 65 to 81 of the A&C Act shall apply to such a conciliation attempt.
10
(2019) 4 SCC 163 11 (2020) 12 SCC 539 Page 22 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36
23.It is pertinent to mention herein that the basic tenet of a conciliation proceeding is derived from a person being appointed as the conciliator who shall then assist the parties in an ‚independent‛ manner in their attempt to reach an amicable settlement of their dispute. The purpose behind making this a mandatory pre-cursor to the MSEFC entering into the realms of arbitration is that the parties have the opportunity to explore the possibility of privately settling their issue with the assistance and support of an independent person, who would facilitate and buttress such dialogue.
24. In the facts of the present case, upon a perusal of the orders of the Facilitation Council, this Court is perturbed to note that the Council did not refer the parties for a proper attempt of conciliation despite the statutory mandate prescribed under Section 18(2). Firstly, no reference to Section 18(2) of the MSMED Act was made, and secondly, no conciliator was appointed. There is only one line pertaining to M/s. Maa Bhairabi approaching the Appellant for 'settlement' and then complete silence.
25.This ground and glaring infirmity was raised by the Appellants before the Ld. District Judge who was, however, of the opinion that the fact that the party had allegedly approached the Appellant for settlement satisfied the statutory requirement under Section 18(2) of the MSMED Act.
26.This Court is unable to accept the same. When the statute mandates that upon receipt of a reference, the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or Page 23 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation, the Council was bound to conduct the conciliation itself or refer the parties for such conciliation. There is no whisper of either things being done and therefore, given the gross irregularities as well as non- conformity committed by the MSEFC in its awards, the same in the opinion of this Court and for the reasons stated above, shocks the conscience of this Court.
27.Violating the mandate that was laid down by the same statute that created the Facilitation Council and a step that it was bound to follow tantamounts to contravention with the fundamental policy of Indian law and being in conflict with the most basic notions of justice. Hence, such contravention affords a ground under Section 34, including its explanations.
VI. CONCLUSION:
28.In light of the discussion above, keeping the settled principles of law in mind and for the reasons given above, this Court is of the considered view that the judgment dated 12.1.2023 passed by the learned District Judge, Ganjam in Arbitration Petition No.1 of 2021, FAO No.19 of 2022 and FAO No.20 of 2022 arising out of award dated 18.7.2018 passed by Micro and Small Enterprises Facilitation Council in MSEFC Case No.33 of 2017, award dated 19.1.2019 passed by Micro and Small Enterprises Facilitation Council in MSEFC Case No.34 of 2017 and award dated 19.1.2019 passed by Micro and Small Enterprises Facilitation Council in Page 24 of 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Designation: AR-CUM- SR. SECRETARY Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 18-Feb-2025 17:31:36 MSEFC Case No.35 of 2017 are all liable to be interfered with and set aside.
29. The parties are directed to appear before the concerned MSEFC within 15 days from the date of this judgment/order to facilitate the Council to adjudicate afresh on the dispute between the parties in strict terms of Section 18 of the Act.
30.ARBA No.3 of 2023, ARBA No.37 of 2022, ARBA No.4 of 2023 and ARBA No.5 of 2023 are disposed of on the abovementioned terms. No order as to costs.
31. Interim order, if any, passed earlier in any of the aforesaid Appeals stands vacated.
(Dr.S.K. Panigrahi) Judge Orissa High Court, Cuttack, Dated the 14th February, 2025/ Page 25 of 25