Indian Kanoon - Search engine for Indian Law

1. By way of the present petition under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (hereinafter „the A&C Act‟), the Petitioner prays that the parties be referred to arbitration under the aegis of Delhi International Arbitration Centre to adjudicate the disputes that have arisen between the parties.

Brief Facts:

2. Petitioner (BATA India Ltd.), is a company manufacturing footwear.

Respondent [AVS International Pvt. Ltd., also Respondent No. 1 in OMP(I)(Comm) 201/2019] is also engaged in the same business. Respondent No. 2 in OMP(I)(Comm) 201/2019, is the MSME Facilitation Council (hereinafter „the Council‟). Petitioner entered into a contract with the Government of India for supply of footwear to the Indian Navy and the Respondent agreed to manufacture and supply such footwear incompliance with the terms of the said contract. To this effect, the parties entered into an agreement dated 7th January, 2016 which was valid for a period of one year and subsequently a fresh Manufacturing Agreement was executed between the parties on 10th January, 2017. In respect of the said contract, certain disputes arose between the parties as Indian Navy raised several issues regarding the quality and/or defective supply of the footwear. In these circumstances, demands were raised by the Petitioner against the Respondent followed by legal notices dated 21 st July 2018, 8th December 2018 and 23rd January 2019. Parties attempted to resolve the disputes amicably and several meetings took place in this regard. During this process, on 23rd January 2019, Respondent apprised the Petitioner that it is a registered MSME enterprise and the provisions of MSME Development Act, 2006 are applicable to the Respondent. On 22nd April 2019, the Council sent a notice to the Petitioner on a claim/reference filed by the Respondent under the provisions of the MSME Act, 2006 (hereinafter „the MSME Act‟). Thereafter, under Section 18 of the MSME Act, Conciliation proceedings were held on 16th May 2019, which Petitioner did not attend. Accordingly, the proceeding was adjourned for 21st May, 2019. On the said date, the representative of the Petitioner was present and he informed the Council that settlement talks between the parties were in progress. On the basis of the aforesaid statement, the Council gave one month‟s time to the parties to conclude the settlement talks. However on 28th May 2019, the Petitioner sent a notice to the Respondent and the Council, terminating the Conciliation proceedings under 76(d) of the A&C Act. In the same notice Petitioner also invoked the arbitration clause contained in the manufacturing agreement dated 10th January 2017.

Order In View of reasons given hereinbefore, representation of M/s Bata India Limited Dated 19.06.2019 is rejected."

Case of the Petitioner:

9. Petitioner contends that disputes are now liable to be referred to Arbitration in terms of Clause 25 of the Agreement and this Court has territorial jurisdiction to entertain the present petition. It is also contended that as per Section 18 (3) of the MSME Act, upon the termination of the Conciliation proceedings, the dispute could either be taken up by the Council itself, for Arbitration or they could be referred to any institution or Centre providing Institutional Arbitration Services. By virtue of Section 80 of the A&C Act, the Council would be barred from acting as the Arbitral Tribunal under Section 18 (3) of the MSME Act, since it has already acted as the Conciliator under Section 18(2) of the MSME Act.

(5) Every reference made under this section shall be decided within a period of ninety days from the date of making such reference."

12. Section 24 of the MSME Act, also contains a non-obstante clause which read as under:

"24. 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."

13. A plain reading of Section 18 of the MSME Act, would show that upon receipt of reference under Section 18 (1) of the MSME Act, the Council could either itself conduct the Conciliation in the matter or seek assistance of any institution or centre providing alternate disputes resolution services. It is also expressly provided that Section 65 to 81 of the A&C Act, would apply to such disputes as it applies to the Conciliation initiated under Part-III of the A&C Act. It is thus clear that the provisions of Section 18 of the MSME Act, incorporate the legislative intent to apply the provisions of Section 65 to 81 of the A&C Act to the Conciliation proceedings conducted by the Council. Section 18(3) of the MSME Act provides that in the event the Conciliation initiated under section 18 (2) of the MSME Act does not fructify into a settlement, the Council can take up the disputes itself for arbitration or refer them to any institution or centre providing alternate disputes resolution services for such Arbitration.

14. It is also relevant to note that the judgement of this Court in BHEL v. Micro and Small Enterprises Facilitation Centre (W.P.(C) 10886/2016), dated 18th September 2019. Though, the challenge in the said case was to the decision of the Council terminating the conciliation proceedings and referring the disputes to Delhi International Arbitration Centre (DIAC), however, the ratio of the said decision squarely applies to the facts of the present case. The Court considered the contention of the parties therein and held that there was no inconsistency between the arbitration agreement and Section 18 (3) of the MSME Act. In the aforesaid judgment, the Court also took note of the decision of another coordinate Bench of this Court - GE T&D India Ltd. V. Reliable Engineering Projects and Marketing, 2017 SCCOnline Del 6978, wherein the Court has held that the MSME Act (overrides the A&C Act), to the extent it provides for a special forum of adjudication of the disputes involving a supplier registered under the MSME Act.