TaxTMI 
TaxTMI 
2020 (2) TMI 1639
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....nt. Upon receipt of a reference from a supplier as defined in Section 2(n) of the Act of 2006, the machinery envisaged in Section 18 of such Act is set in motion. Section 18 of the Act may be seen in such context: "18. Reference to Micro and Small Enterprises Facilitation Council (1) Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council. (2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act. (3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take u....
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....o enterprise, there is no room for the legal fiction envisaged in Section 18(3) of the Act of 2006 to operate. It is the further submission of the appellant that a legal fiction operates when such a position as is sought to brought about by the legal fiction does not actually exist; when the parties themselves have an arbitration agreement, the legal fiction can have no manner of operation. In support of such contention of the appellant, an unreported judgment of the Nagpur Bench of the Bombay High Court delivered on August 27, 2010 in WP No.2145 of 2010 (Steel Authority of India Limited v The Micro, Small Enterprise Facilitation Council) has been brought for the law as enunciated at paragraph 11 of the judgment. So that the entirety of the reasoning in support of the view expressed in the Bombay High Court judgment may be seen, paragraph 11 of the judgment is set out: "11. Having considered the matter, we find that Section 18 (1) of the Act, in terms allows any party to a dispute relating to the amount due under Section 17 i.e. an amount due and payable by buyer to seller; to approach the facilitation Council. It is rightly contended by Mrs. Dangre, the learned Addl. Government ....
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....tion Act, 1996." Since it is a State Government company which is the appellant, in keeping with the degree of fairness which is incumbent on every litigant, the appellant has referred to a judgment reported at 2014 SCC Online All 2895. At paragraphs 5 and 6 of such Allahabad judgment, a different view has been taken from the Bombay judgment, without, however, elaborating much on the issue. Neither judgment cited on behalf of the appellant in this appeal was placed before the Single Bench. In addition, the appellant refers to a judgment reported at 2019 (8) SCC 416 and places paragraphs 88 and 89 from the report to emphasise on the construction of a deeming provision or the legal fiction that is created by a deeming provision. Upon noticing previous authorities on the subject, the Supreme Court accepted that when a legal fiction is introduced by a statute, the attended corollaries would also operate. The essence of the Act of 2006 is captured in Chapter V thereof which is intituled as "Direct payments to Micro and Small Enterprises". Section 15 is the first provision under Chapter V of the Act. Section 15 obliges a buyer who has agreed to obtain goods or services from a supplier ....
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.... when the supplier as defined in the said Act is one of the parties to the transaction. However, in practice, it is difficult to imagine that a buyer in such a transaction would make a reference to the Council under Section 18(1) of the Act. It is scarcely expected of a buyer to invite upon itself the payment of interest at the prohibitive rate as stipulated in Section 16 of the said Act; because that is the consequence of a reference being made and the buyer being found in default. Thus, ordinarily, it may only be the supplier as defined in the Act which would make a reference to the Council under Section 18(1) of the said Act. In any event, the words "with regard to any amount due under section 17" in Section 18(1) of the said Act points to the supplier as defined in the Act being the party making a reference to the Council under such provision; though it is possible, in theory, for even a buyer who has obtained goods and services from a registered micro or small enterprise to make such a reference if such buyer perceives that the amount claimed from it, whether on account of compound interest under Section 16 of the said Act or otherwise, is exorbitant. Once a reference is rece....
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....e dispute resolution services, the arbitral tribunal so constituted will have jurisdiction notwithstanding the buyer being located anywhere in India. Section 18(4) of the said Act is another indication that the reference that is envisaged under Section 18(1) thereof would, ordinarily, be made by a supplier as defined in the said Act and not by the buyer. Section 18(5) of the Act requires every reference under Section 18 is to be decided within a period of 90 days from the date of making of the reference. As in this case, it is possible that the parties to an agreement to supply goods or services by a supplier as defined in the Act of 2006 have a previous arbitration agreement. Such arbitration agreement can operate in several fields; but if the claim of the supplier is for recovery of the amount due, the private arbitration agreement may be of no relevance as such supplier is entitled to make a reference to the Council under Section 18 of the said Act and the Council is entitled to retain or send the matter for conciliation and, if necessary, for arbitration in accordance with sub-sections (2) and (3) thereof, completely disregarding the previous private agreement as to arbitrati....
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....t is entered into between the parties which has the effect of overriding the initial arbitration agreement that they had entered into. In a sense, the arbitration agreement that comes into existence as a consequence of the legal fiction is foisted on the party against whom the reference is made - ordinarily, the buyer - despite such party not submitting to the same. Any other interpretation would rob the provision of its efficacy and render it toothless. For the reasons aforesaid, the view expressed in the Bombay judgment is found to be exceptionable and unacceptable. The Allahabad view proceeds on the wording of the statute, the non- obstante clauses contained in Section 18 of the said Act and the overriding primacy given to the essential provisions of Chapter V of the statute in Section 24 thereof. It is the elementary that when the law requires something to be done in a particular manner, it must be done in such manner and in no other manner. Section 18(3) of the Act of 2006 commands that the arbitral reference may be taken up by the Council or the disputes may be referred to arbitration by any institution or centre involved in alternate dispute resolution. In the light of suc....