2021 (6) TMI 1119 - SC - Indian Laws

Limitation Act Applies to Arbitration Under MSMED Act; Counterclaims Maintainable, Appeals Dismissed, HC Judgments Upheld.

M/s. Silpi Industries etc. and M/s. Khyaati Engineering Versus Kerala State Road Transport Corporation & Anr. etc. and Prodigy Hydro Power Pvt. Ltd.

The court concluded that the Limitation Act, 1963 applies to arbitration proceedings under the MSMED Act, 2006, and counterclaims are maintainable in such ... Applicability of time limitation to arbitration proceedings initiated Under Section 18(3) of Micro, Small and Medium Enterprises Development Act, 2006 - maintainability of counter claim in such arbitration proceedings - HELD THAT:- Applicability of Limitation Act, 1963 to the arbitrations is covered by Section 43 of the 1996 Act - The High Court, while referring to abovesaid provisions and the judgment of this Court in the case of Andhra Pradesh Power Coordination Committee and Ors. v. Lanco Kondapalli Power Ltd. and Ors. [2015 (11) TMI 1005 - SUPREME COURT] has held that the Limitation Act, 1963 is applicable to the arbitrations covered by Section 18(3) of the 2006 Act. A reading of Section 43 itself makes it clear that the Limitation Act, 1963 shall apply to the arbitrations, as it applies to proceedings in court. When the settlement with regard to a dispute between the parties is not arrived at Under Section 18 of the 2006 Act, necessarily, the Micro and Small Enterprises Facilitation Council shall take up the dispute for arbitration Under Section 18(3) of the 2006 Act or it may refer to institution or centre to provide alternate dispute resolution services and provisions of Arbitration and Conciliation Act 1996 are made applicable as if there was an agreement between the parties Under Sub-section (1) of Section 7 of the 1996 Act. In view of the express provision applying the provisions of the Limitation Act, 1963 to arbitrations as per Section 43 of the Arbitration and Conciliation Act, 1996, the High Court has rightly relied on the judgment in the case of Andhra Pradesh Power Coordination Committee (2016) 3 SCC 468 and held that Limitation Act, 1963 is applicable to the arbitration proceedings Under Section 18(3) of the 2006 Act - no further elaboration is necessary on this issue and it is held that the provisions of Limitation Act, 1963 will apply to the arbitrations covered by Section 18(3) of the 2006 Act. Maintainability of counter claim in the arbitration proceedings initiated as per Section 18(3) of the 2006 Act - HELD THAT:- From a reading of Section 18(3) of the 2006 Act it is clear that when the conciliation initiated Under Sub-section (2) of Section 18 of the said Act is not successful, the Council shall either itself take up the dispute for arbitration or refer to any institution for arbitration. Further Section 18(3) of the said Act also makes it clear that the provisions of 1996 Act are made applicable as if there is an agreement between the parties Under Sub-section (1) of Section 7 of the 1996 Act. Section 23 of the 1996 Act deals with the statement of claim and defence. Section 23(2A), which gives a right to Respondent to submit a counter claim or plead set-off with regard to claims within the scope of the arbitration agreement, is brought into Statute by Amending Act 3 of 2016 - When there is a provision for filing counter-claim and set-off which is expressly inserted in Section 23 of the 1996 Act, there is no reason for curtailing the right of the Respondent for making counter-claim or set-off in proceedings before the Facilitation Council. MSMED Act, being a special Statute, will have an overriding effect vis-à-vis Arbitration and Conciliation Act, 1996, which is a general Act. Even if there is an agreement between the parties for resolution of disputes by arbitration, if a seller is covered by Micro, Small and Medium Enterprises Development Act, 2006, the seller can certainly approach the competent authority to make its claim. If any agreement between the parties is there, same is to be ignored in view of the statutory obligations and mechanism provided under the 2006 Act. Further, apart from the provision Under Section 23(2A) of the 1996 Act, it is to be noticed that if counter-claim is not permitted, buyer can get over the legal obligation of compound interest at 3 times of the bank rate and the '75% pre-deposit' contemplated Under Sections 16 and 19 of the MSMED Act. On a harmonious construction of Section 18(3) of the 2006 Act and Section 7(1) and Section 23(2A) of the 1996 Act, it can be held that counter-claim is maintainable before the statutory authorities under MSMED Act. It is also not in dispute that the Appellant approached the District Industrial Centre and filed entrepreneur memorandum Under Section 8 of the MSMED Act 2006 only on 25.03.2015 and later has approached the Council invoking the provisions of MSMED Act by filing application Under Section 18 of the Act. It is the specific case of the Respondent that the Appellant has abandoned the incomplete work having made deficient and defective supplies in the month of February/March 2015 - Further, as it is also not in dispute that there is an agreement for arbitration between the parties for resolution of disputes pursuant to their contract, as such, the High Court has rightly allowed the application filed by the Respondent Under Section 11(6) of the 1996 Act. Appeal dismissed. Issues Involved:1. Applicability of the Limitation Act, 1963 to arbitration proceedings under the MSMED Act, 2006.2. Maintainability of counterclaims in arbitration proceedings under the MSMED Act, 2006.Issue-wise Detailed Analysis:1. Applicability of the Limitation Act, 1963 to Arbitration Proceedings under the MSMED Act, 2006:The court examined whether the Limitation Act, 1963 applies to arbitration proceedings initiated under Section 18(3) of the MSMED Act, 2006. The relevant sections of the MSMED Act, such as Sections 15, 16, 17, and 18, were considered. It was noted that Section 43 of the Arbitration and Conciliation Act, 1996 explicitly states that the Limitation Act, 1963 applies to arbitrations as it does to court proceedings. The court referenced the judgment in Andhra Pradesh Power Coordination Committee v. Lanco Kondapalli Power Ltd. (2016) 3 SCC 468, which affirmed the applicability of the Limitation Act to arbitration proceedings under the 1996 Act. The court agreed with the High Court's view that the Limitation Act, 1963 is applicable to arbitration proceedings under Section 18(3) of the MSMED Act, 2006. The court emphasized that the primary authority should determine whether the claims/counterclaims are within the limitation period.2. Maintainability of Counterclaims in Arbitration Proceedings under the MSMED Act, 2006:The court addressed whether counterclaims are maintainable in arbitration proceedings initiated under Section 18(3) of the MSMED Act, 2006. The court analyzed the language of Section 18, which allows 'any party to a dispute' to refer the matter to the Micro and Small Enterprises Facilitation Council. The court noted that Section 23(2A) of the Arbitration and Conciliation Act, 1996, inserted by the Amending Act 3 of 2016, permits respondents to submit counterclaims or plead set-offs within the scope of the arbitration agreement. The court reasoned that since Section 18(3) of the MSMED Act makes the provisions of the 1996 Act applicable to arbitration proceedings, counterclaims should be allowed to avoid parallel proceedings and conflicting findings. The court emphasized that denying counterclaims would defeat the beneficial objectives of the MSMED Act.Specific Case Analysis:In the first batch of appeals, the appellants (suppliers) claimed the balance 10% of the purchase price withheld by the respondent (KSRTC) due to alleged non-performance. The court upheld the High Court's decision that counterclaims are maintainable, aligning with the judgments of the Allahabad High Court and the Bombay High Court.In the second set of appeals, the appellant (supplier) filed a claim before the Facilitation Council, while the respondent (buyer) sought the appointment of a second arbitrator under Section 11(6) of the 1996 Act. The court noted that the appellant did not have the necessary registration under the MSMED Act at the time of entering into the contract and supply of goods/services. The court held that benefits under the MSMED Act could not be claimed retrospectively. Consequently, the court affirmed the High Court's decision to appoint the second arbitrator, as the appellant was not entitled to invoke the MSMED Act's provisions.Conclusion:The court concluded that the Limitation Act, 1963 applies to arbitration proceedings under the MSMED Act, 2006, and counterclaims are maintainable in such proceedings. The appeals were dismissed, and the High Court's judgments were upheld. The court emphasized the need for a harmonious construction of the MSMED Act and the Arbitration and Conciliation Act to uphold the beneficial objectives of the MSMED Act.