2022 (11) TMI 91 - SC - Indian Laws

MSMED Act overrides Arbitration Agreements, Facilitation Council's Jurisdiction affirmed

GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. Versus MAHAKALI FOODS PVT. LTD. (UNIT 2) & ANR., M/s. RAMKRISHNA ELECTRICALS LTD. Versus MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LTD. & ANR., M/s VIDARBHA CERAMICS PVT. LTD. Versus M/s STEEL AUTHORITY OF INDIA & ORS, GUJARAT STATE PETRONET LTD. Versus KRUNAL ENGINEERING WORKS & ORS., BHARAT ELECTRONICS LTD. &ANR. Versus IBEX INTEGRATED BUSINESS EXPRESS PRIVATE LTD. & ORS., UNION OF INDIA Versus M/s SIRUS GLOBAL PVT. LTD. And JITF WATER INFRASTRUCTURE LIMITED Versus MSME COMMISSIONERATE & ORS.

The court held that Chapter-V of the MSMED Act, 2006 has an overriding effect over the Arbitration Act, 1996. Parties can refer disputes to the ... Interpretation of statute - Overriding effect of provisions of MSMED Act, 2006 over the provisions of the Arbitration Act - execution of an independent agreement as contemplated in Section 7 of the Arbitration Act - Jurisdiction of Facilitation Council at Bhopal to adjudicate upon the disputes between the parties - can the Facilitation Council proceed under the provisions of Section 18(3) of MSMED Act, 2006 when there is an independent arbitration agreement between the parties? Whether the provisions contained in Chapter V of the MSMED Act, 2006 with regard to the Delayed Payments to Micro and Small Enterprises would have the precedence over the provisions contained in the Arbitration Act, 1996, more particularly when the parties by execution of an independent agreement as contemplated in Section 7 of the Arbitration Act had agreed to submit to arbitration the disputes arising between them? - HELD THAT:- It is trite to say that the provisions of the special statute would override the provisions of the general statute. It is also well settled that while determining the effect of a statute overriding the other statute, the purpose and policy underlying the two statutes and the clear intendment conveyed by the language of the relevant provisions therein would be the relevant consideration - One of principles of statutory interpretation relevant for our purpose is contained in the Latin maxim “leges posteriores priores contrarias abrogant” (the later laws shall abrogate earlier contrary laws). Another relevant rule of construction is contained in the maxim “generalia specialibus non derogant” (General laws do not prevail over Special laws). When there is apparent conflict between two statutes, the provisions of a general statute must yield to those of a special one. The Arbitration Act, 1996 in general governs the law of Arbitration and Conciliation, whereas the MSMED Act, 2006 governs specific nature of disputes arising between specific categories of persons, to be resolved by following a specific process through a specific forum. Ergo, the MSMED Act, 2006 being a special law and Arbitration Act, 1996 being a general law, the provisions of MSMED Act would have precedence over or prevail over the Arbitration Act, 1996 - Even if the Arbitration Act, 1996 is treated as a special law, then also the MSMED Act, 2006 having been enacted subsequently in point of time i.e., in 2006, it would have an overriding effect, more particularly in view of Section 24 of the MSMED Act, 2006 which specifically gives an effect to the provisions of Section 15 to 23 of the Act over any other law for the time being in force, which would also include Arbitration Act, 1996. There cannot be any disagreement to the proposition of law laid down in various decisions of this Court, relied upon by the learned counsel for the buyers that the Court has to read the agreement as it is and cannot rewrite or create a new one, and that the parties to an arbitration agreement have an autonomy to decide not only on the procedural law to be followed but also on the substantive law, however, it is equally settled legal position that no agreement entered into between the parties could be given primacy over the statutory provisions. When the Special Act i.e., MSMED Act, 2006 has been created for ensuring timely and smooth payment to the suppliers who are the micro and small enterprises, and to provide a legal framework for resolving the dispute with regard to the recovery of dues between the parties under the Act, also providing an overriding effect to the said law over any other law for the time being in force, any interpretation in derogation thereof would frustrate the very object of the Act. A party who was not the “supplier” as per Section 2 (n) of the MSMED Act, 2006 on the date of entering into the contract, could not seek any benefit as a supplier under the MSMED Act, 2006. A party cannot become a micro or small enterprise or a supplier to claim the benefit under the MSMED Act, 2006 by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods or rendering services. If any registration, is obtained subsequently, the same would have the effect prospectively and would apply for the supply of goods and rendering services subsequent to the registration. The same cannot operate retrospectively. However, such issue being jurisdictional issue, if raised could also be decided by the Facilitation Council/Institute/Centre acting as an arbitral tribunal under the MSMED Act, 2006. Application disposed off. 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.