Document Fragment View

Matching Fragments

wp 5459.15.doc On 18th July, 2007, in pursuance of the said tender, the purchase order, came to be issued to respondent No.3 by the petitioner.
Clause 14 of the said purchase order contained arbitration clause.
There was dispute between the parties regarding completion of tender work, quality of work and the payment of money for the tender work as agreed under the said purchase order. Respondent No.3 thereafter approached respondent No.1-Micro and Small Enterprises Facilitation Council (for short "MSEFC") by making MSME reference seeking compensation of Rs.36,60,054/64 paise from the petitioner and served copy of the same upon the petitioner on 14 th October, 2011. The petitioner, by filing reply to this reference application on 17 th November, 2011 and 19th February, 2015, inter alia raised a preliminary objection that respondent No.1 - MSEFC has no jurisdiction to try and entertain the said reference. The objection was taken on the ground that the parties have clearly and unequivocally agreed for an independent arbitration agreement in the said purchase order.

5. In short, the petitioner is questioning the jurisdiction of respondent No.1 - MSEFC in entertaining the reference under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 ( for short " the MSMED Act") in a dispute which has arisen between the petitioner as a buyer of goods from respondent No.3 as seller.

6. Mr. Kane, learned counsel for the petitioner submitted that the reference under Section 18 of the MSMED Act is not tenable in the present case before the MSEFC since there is an arbitration agreement between the parties. According to the learned counsel for the petitioner, reference can be entertained by the MSEFC only when there is no arbitration agreement between the parties. He further submitted that there is no inconsistency between existence of independent arbitration agreement and the arbitration which the MSEFC is bound to undertake under the MSMED Act. Mr.Kane submitted that the arbitration agreement between the parties could have been ignored only if arbitration in pursuant thereof was inconsistent with the provisions of the MSMED Act which has an overriding effect over any law. In support of his contention, he strongly relied upon the decision of the Division Bench of Nagpur Bench of this Court in M/s.Steel Authority of India Ltd. and anr. Versus The Micro, Small Enterprise Facilitation Council wp 5459.15.doc and anr. AIR 2012 Bombay 178. Mr. Kane further submitted that even assuming for the sake of argument that respondent No.1 - MSEFC has jurisdiction to entertain the reference under Section 18 of the MSMED Act, once the MSEFC conducts conciliation proceedings and fails, in that case, the MSEFC itself cannot initiate arbitration proceedings under Section 18(3) of the MSMED Act.

Section 18 of the Act provides for making reference i.e. reference of dispute by any of the parties to the Micro and Small Enterprises Facilitation Council.

Section 19 of the Act provides setting aside decree, award or order made by the Council which acts like an arbitrator.

wp 5459.15.doc

10. Section 24 of the Act gives an overriding effect to the provisions of Sections 15 to 23 which provide statutory framework for micro, small and medium enterprises to address the issues of delayed payment. Sub-section (1) of Section 18 contains non-obstante clause which enables the party to a dispute to make a reference to MSEFC. Similarly, sub-section (4) of Section 18 which also contains a non- obstante clause provides for arbitration to be conducted by MSEFC or any institution or a centre providing alternate dispute resolution services. It is thus evident that the act does not contemplate arbitration through an arbitrator appointed by the parties but provides for special forum in the form of MSEFC or under the aegis of any institution or a centre providing alternate dispute resolution services as referred by MSEFC. Furthermore, Section 19 which mandates pre-deposit of 75% of awarded amount ensures expedient recovery of the dues and thus safeguard the interest of micro, small and medium enterprises. The Arbitration Act 1996 and/or the arbitration agreement entered into by the parties does not contain such provisions.

23. Admittedly, in the present case, respondent No.1 conducted the conciliation proceedings between the petitioner and respondent No.3 and by the impugned order, terminated the same as being unsuccessful. What is surprising is that respondent No.1 - MSEFC, having conciliated the dispute between the parties and conciliation proceedings being unsuccessful and terminated, the MSEFC itself initiated to arbitrate the dispute between the same parties. In our view, respondent No.1-MSEFC itself, could not have initiated arbitration proceedings between the petitioner and respondent No.3. In terms of the provisions of sub-section (3) of Section 18 the MSMED Act, respondent No.1 - MSEFC ought to have referred the dispute between the petitioner and respondent No.3 to any institution or centre providing alternate dispute resolution services for arbitration. The impugned order, so far as it wp 5459.15.doc relates to authorising respondent No.1 - MSEFC to initiate arbitration proceedings/arbitral dispute cannot be sustained and the same deserves to be quashed and set-aside.