2022 (11) TMI 91 - SC - Indian Laws

MSME supplier payment dispute: Section 18 Facilitation Council process overrides contract arbitration, but registration must predate contract

Chapter V of the MSMED Act, 2006 was held to override the Arbitration Act, 1996, so an independent arbitration agreement under s.7 of the Arbitration Act ... Overriding effect of a special statute over a general statute - statutory forum and statutory dispute-resolution mechanism - effect of non obstante clause in statutory provisions - deeming fiction treating statutory reference as arbitration agreement - competence of arbitral tribunal to rule on its own jurisdiction - bar on conciliator acting as arbitrator and statutory supersessionOverriding effect of a special statute over a general statute - effect of non obstante clause in statutory provisions - Whether Chapter V of the MSMED Act, 2006 overrides the Arbitration and Conciliation Act, 1996. - HELD THAT: - The Court held that Chapter V of the MSMED Act, 2006 is a special enactment targeted at disputes between defined categories of persons (buyer and supplier) and prescribes a dedicated statutory forum and procedure for recovery of dues. Given the legislative purpose, the express non obstante language in Section 18(1) and 18(4), the deeming mechanism in Section 18(3) and the specific overriding provision in Section 24, the provisions of Chapter V operate notwithstanding any inconsistent provision in other laws. Applying the established canons of construction that a later and special statute overrides a prior or general statute and construing the Act in light of its objects, the Court concluded that the Chapter-V provisions have effect overriding the Arbitration Act, 1996 in matters falling within Chapter V. [Paras 22, 23, 24, 25, 26]Chapter V of the MSMED Act, 2006 overrides the Arbitration Act, 1996 insofar as disputes falling within Chapter V are concerned.Statutory forum and statutory dispute-resolution mechanism - party's right to approach statutory forum despite arbitration agreement - Whether a party entitled to relief under Section 17 of the MSMED Act, 2006 is precluded from making a reference to the Micro and Small Enterprises Facilitation Council under Section 18(1) by reason of an existing arbitration agreement. - HELD THAT: - The Court determined that Section 18(1) is an enabling substantive provision creating a statutory right to approach the Facilitation Council for amounts due under Section 17, and that this right is not ousted by a prior private arbitration agreement. The absence of the word 'agreement' in Section 18(1) cannot be construed as a casus omissus to deny the statutory remedy; private agreements cannot override clear statutory provisions enacted for the protection of the designated class. Construing the statute to permit invocation of Section 18(1) despite an arbitration clause is necessary to effectuate the object of the MSMED Act. [Paras 21, 22, 23, 27, 28]No party to a dispute under Section 17 is precluded from making a reference to the Facilitation Council under Section 18(1) merely because an independent arbitration agreement exists between the parties.Bar on conciliator acting as arbitrator and statutory supersession - deeming fiction treating statutory reference as arbitration agreement - Whether the Facilitation Council, having conducted conciliation under Section 18(2), may thereafter take up the dispute for arbitration despite Section 80 of the Arbitration Act, 1996. - HELD THAT: - Although Section 80 of the Arbitration Act ordinarily bars a conciliator from acting as arbitrator in the same dispute, the Court held that the specific statutory scheme in MSMED Act, including the non obstante language in Section 18 and the overriding provision in Section 24, supersedes that bar. Where conciliation under Section 18(2) fails, Section 18(3) empowers the Council to take up arbitration itself or refer it for arbitration, and the Arbitration Act applies to such arbitration 'as if' it were pursuant to an arbitration agreement. The statutory fiction and express parliamentary choice thus permit the Council to act as arbitrator despite the general prohibition in Section 80. [Paras 22, 26, 29]The Facilitation Council which conducted conciliation under Section 18(2) may, upon failure of conciliation, take up the dispute for arbitration and act as arbitrator despite the bar in Section 80 of the Arbitration Act, 1996.Application of Arbitration Act to statutory arbitration - competence of arbitral tribunal to rule on its own jurisdiction - Whether proceedings before the Facilitation Council/institution/centre acting as arbitrator under Section 18(3) are governed by the Arbitration Act, 1996 and whether such tribunal can rule on its own jurisdiction. - HELD THAT: - The Court held that once arbitration is taken up under Section 18(3), the provisions of the Arbitration Act apply to the dispute 'as if' the arbitration were pursuant to an arbitration agreement. Consequently, all relevant trappings of the Arbitration Act govern such proceedings, including the arbitral tribunal's competence under Section 16 to rule on its own jurisdiction. Thus a Facilitation Council/institution/centre acting as arbitrator is subject to the Arbitration Act and possesses the same jurisdictional powers as an arbitral tribunal appointed under that Act. [Paras 22, 30, 34]Proceedings before the Facilitation Council/institution/centre acting as arbitrator under Section 18(3) are governed by the Arbitration Act, 1996 and the tribunal is competent to rule on its own jurisdiction.Temporal effect of registration as supplier - jurisdictional competency to determine supplier status - Whether an entity that was not a 'supplier' under Section 2(n) of the MSMED Act on the date of contract can claim benefits under the MSMED Act by registering subsequently, and who may determine that issue. - HELD THAT: - Relying on prior precedent, the Court held that an entity cannot claim retrospective status as a 'supplier' by filing a memorandum after entering into a contract; registration obtained subsequently operates prospectively and applies only to supplies after registration. This is a jurisdictional matter, and the Facilitation Council/institution/centre acting as arbitral tribunal is competent to decide such jurisdictional issues when exercising powers under the MSMED Act and Arbitration Act. [Paras 32, 33, 34]A party not a 'supplier' on the date of contract cannot claim benefits under the MSMED Act by later registration; the question is jurisdictional and may be decided by the Facilitation Council/institution/centre acting as arbitral tribunal.Remedy for challenge to awards made under statutory arbitration - exclusivity of challenge under the Arbitration Act - Whether a party aggrieved by an award or order made by the Facilitation Council acting as arbitrator must challenge it under the Arbitration Act, 1996. - HELD THAT: - The Court observed that when the Facilitation Council or referred institution acts as arbitrator under Section 18(3), the Arbitration Act governs the arbitration proceedings. Consequently, challenges to awards or orders made in such arbitration fall to be made in accordance with the procedures prescribed by the Arbitration Act (for example, Section 34 for setting aside an award), and High Courts should not entertain collateral writ petitions in place of the remedies provided under the Arbitration Act where the arbitration regime applies. [Paras 30, 34, 35]An aggrieved party to an arbitration conducted under Section 18(3) must challenge awards or orders in accordance with the Arbitration Act, 1996.Final Conclusion: The Court held that Chapter V of the MSMED Act, 2006 overrides the Arbitration Act, 1996 in disputes falling within Chapter V; parties covered by Section 17 may invoke the statutory remedy under Section 18(1) despite an existing arbitration agreement; the Facilitation Council may conduct conciliation and, if conciliation fails, may itself arbitrate or refer the matter for arbitration (notwithstanding Section 80 of the Arbitration Act); such arbitration is governed by the Arbitration Act and the tribunal may rule on its own jurisdiction; supplier status must exist on the contract date and is a jurisdictional question for the tribunal; and awards under Section 18(3) are to be challenged under the Arbitration Act. Issues Involved:1. Whether the provisions of Chapter-V of the MSMED Act, 2006 would have an effect overriding the provisions of the Arbitration Act, 1996Rs.2. Whether any party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council under sub-section (1) of Section 18 of the said Act, if an independent arbitration agreement existed between the parties as contemplated in Section 7 of the Arbitration Act, 1996Rs.3. Whether the Micro and Small Enterprises Facilitation Council, itself could take up the dispute for arbitration and act as an arbitrator, when the council itself had conducted the conciliation proceedings under sub-section (2) of the Section 18 of the MSMED Act, 2006 in view of the bar contained in Section 80 of the Arbitration Act, 1996Rs.Comprehensive, Issue-Wise Detailed Analysis:Issue 1: Overriding Effect of MSMED Act, 2006 Over Arbitration Act, 1996The court held that Chapter-V of the MSMED Act, 2006 has an overriding effect over the Arbitration Act, 1996. The MSMED Act, 2006, being a special statute aimed at facilitating the promotion and development of micro, small, and medium enterprises, provides a specific dispute resolution mechanism through the Micro and Small Enterprises Facilitation Council. The provisions of this Act, particularly Sections 15 to 23, have an overriding effect as specified in Section 24 of the MSMED Act, 2006, which states that these provisions shall prevail notwithstanding anything inconsistent in any other law, including the Arbitration Act, 1996.Issue 2: Reference to Facilitation Council Despite Existing Arbitration AgreementThe court concluded that no party to a dispute under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Facilitation Council under Section 18(1) of the MSMED Act, 2006, even if an independent arbitration agreement exists between the parties. The statutory mechanism under the MSMED Act, 2006, once triggered, overrides any other agreement independently entered into between the parties due to the non obstante clauses in Sections 18(1) and 18(4).Issue 3: Facilitation Council Acting as ArbitratorThe court held that the Facilitation Council could act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act, 1996. This is because the provisions of the MSMED Act, 2006 have an overriding effect over the Arbitration Act, 1996. The Facilitation Council, after the failure of conciliation proceedings under Section 18(2), can take up the dispute for arbitration or refer it to any institution or center for arbitration as per Section 18(3) of the MSMED Act, 2006. The arbitration proceedings conducted by the Facilitation Council are governed by the Arbitration Act, 1996.Separate Judgments Delivered:(I) C.A. No. ... of 2022 (@ SLP(C) No. 12884/2020)- Facts: Gujarat State Civil Supplies Corporation Ltd. challenged the award made by the Facilitation Council, Bhopal.- Judgment: The appeal was dismissed as the court upheld the overriding effect of the MSMED Act, 2006 over the Arbitration Act, 1996.(II) Civil Appeal No. 127/2018- Facts: Maharashtra State Electricity Distribution Company challenged the jurisdiction of the Facilitation Council.- Judgment: The appeal was allowed, setting aside the High Court's order, and confirming the jurisdiction of the Facilitation Council under the MSMED Act, 2006.(III) Civil Appeal No. 6167/2013- Facts: Vidarbha Ceramics Pvt. Ltd. challenged the High Court's decision favoring Steel Authority of India.- Judgment: The appeal was allowed, confirming the Facilitation Council's jurisdiction despite an existing arbitration agreement.(IV) C.A. ... of 2022 (@ SLP(C) No. 31227/2018)- Facts: Gujarat State Petronet Ltd. challenged the Facilitation Council's decision to initiate arbitration.- Judgment: The appeal was disposed of, confirming the Facilitation Council's authority to act as an arbitrator.(V) C.A. ... of 2022 (@ SLP(C) No. 7375/2020)- Facts: Bharat Electronics Ltd. challenged the Facilitation Council's award.- Judgment: The appeal was dismissed, confirming that the remedy lies under Section 34 of the Arbitration Act, 1996.(VI) C.A. ... of 2022 (@ SLP(C) No. 2135/2021)- Facts: Union of India challenged the Facilitation Council's jurisdiction.- Judgment: The appeal was dismissed, confirming the Facilitation Council's jurisdiction under the MSMED Act, 2006.(VII) C.A. ... of 2022 (@ SLP(C) No. 6166/2021)- Facts: JITF Water Infrastructure Ltd. challenged the Facilitation Council's referral to arbitration.- Judgment: The appeal was dismissed, confirming the Facilitation Council's authority to refer disputes for arbitration.Conclusion:1. Chapter-V of the MSMED Act, 2006 overrides the Arbitration Act, 1996.2. Parties can refer disputes to the Facilitation Council under Section 18(1) of the MSMED Act, 2006, despite existing arbitration agreements.3. The Facilitation Council can act as an arbitrator despite Section 80 of the Arbitration Act, 1996.4. Proceedings before the Facilitation Council are governed by the Arbitration Act, 1996.5. The Facilitation Council can rule on its own jurisdiction.6. Registration under the MSMED Act, 2006 must exist at the time of entering the contract to claim benefits.