TaxTMI 
TaxTMI 
2021 (6) TMI 1119
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.... arbitrator. The High Court has remanded the matters to the arbitrator for disposal de novo in the light of the observations made in the judgment. 3. Civil Appeal Nos. 1620-1622 of 2021 are filed, aggrieved by the order dated 06.09.2017 in O.P. No. 617 of 2017, passed by the High Court of Madras, allowing the Original Petition filed by the Respondent Under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the 1996 Act') and the orders dated 31.10.2017 and 12.12.2017 passed in applications seeking interim directions. 4. Necessary facts in brief in the first batch of appeals referred above are as under: The Respondent No. 1-Kerala State Road Transport Corporation (for short 'KSRTC'), invited tenders for supply of thread rubber for tyre rebuilding. The Appellants herein who were the claimants before the arbitrator were given purchase orders. As per the terms of the purchase order, 90% of the total purchase price was payable to the Appellants/claimants on supply of materials and the balance 10% was to be paid subject to final performance report. This was so, since it was the condition that the thread rubber supplied by the....
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....Director, Industries, U.P. (Facilitation Centre), Kanpur and Ors.[2009 SCC OnLine All 565] and the Division Bench judgment of the High Court of Bombay at Nagpur in the case of M/s. Steel Authority of India Ltd. and Anr. v. Micro, Small Enterprise Facilitation Council [2010 SCC OnLine Bom 2208]. Primarily aggrieved by the findings recorded by the High Court on the applicability of Limitation Act, 1963 and maintainability of counter claim, the claimants have filed these appeals on various grounds. 6. Necessary facts in Civil Appeal Nos. 1620-1622 of 2021 are as under: The Appellant and Respondent herein have entered into a contract for supply and installation of hydro-mechanical equipments for 2 x 3 MW Baner-II SHP. The parties have signed an agreement on 27.03.2011, containing various clauses. It is the case of the Appellant that it has completely executed the contract and project was commissioned on 27.06.2015. The Appellant herein alleging that, though it has fulfilled all its obligations under the contract, the Respondent has refused to make payments as per the contract, has filed a Claim Petition, before the Micro and Small Enterprises Facilitation Council constituted unde....
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....8 of 2021 and Sri P.B. Suresh, learned Counsel appearing for the Appellant and Sri Basava Prabhu Patil, learned Senior Counsel appearing for the Respondent, in Civil Appeal Nos. 1620-1622 of 2021. 13. Having regard to contentions of the parties, only two issues arise for consideration before this Court, namely: (i) Whether the provisions of Indian Limitation Act, 1963 is applicable to arbitration proceedings initiated Under Section 18(3) of Micro, Small and Medium Enterprises Development Act, 2006?; and (ii) Whether, counter claim is maintainable in such arbitration proceedings? 14. Before we deal with the above issues, we need to refer certain background aspects of the Micro, Small and Medium Enterprises Development Act, 2006 and the earlier Act, namely, Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 which was repealed by virtue of Section 32 of the MSMED Act. 15. The Act 32 of 1993 was an outcome pursuant to a policy statement on small scale industries made by the Government in Parliament. It was felt that, inadequate working capital in small scale or an ancillary industrial undertaking causes serious and end....
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....the small scale industry is the dynamic and vibrant sector of the country's economy, it was felt to bring a comprehensive Central enactment to provide appropriate legal framework for the sector to facilitate its growth and development. It is also clear from the Statement of Objects and Reasons of the Act, that the need which was felt to extend policy support for small scale sector so that they are enabled to grow into medium ones and to adopt better and higher levels of technology and achieve higher productivity to remain competitive in fast globalization period. It was also noticed that medium industry or enterprise was not defined by any law. From the Statement of Objects and Reasons, it is clear that the said Act was enacted to provide statutory definitions to 'small enterprise' and 'medium enterprise'; to provide for establishment of National Small and Medium Enterprises Board; provide for classification of small and medium enterprises on the basis of investment in plant and machinery; empower the Central Government to notify programmes, guidelines for enhancing the competitiveness of small and medium enterprises; to make provisions for ensuring timely and s....
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....ed Under Section 12. 6. Powers and functions of Member-Secretary of Board.--Subject to other provisions of this Act, the Member-Secretary of the Board shall exercise such powers and perform such functions as may be prescribed. 7. Classification of enterprises.--(1) Notwithstanding anything contained in Section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951), the Central Government may, for the purposes of this Act, by notification and having regard to the provisions of Sub-sections (4) and (5), classify any class or classes of enterprises, whether proprietorship, Hindu undivided family, association of persons, co-operative society, partnership firm, company or undertaking, by whatever name called,-- (a) in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), as-- (i) a micro enterprise, where the investment in plant and machinery does not exceed twenty five lakh rupees; (ii) a small enterprise, where the investment in plant and machinery is more than twenty-fi....
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....n with any subject referred to in Section 5 and furnish its recommendations to the Board. (6) The Central Government may seek the advice of the Advisory Committee on any of the matters specified in Section 9, 10, 11, 12 or 14 of Chapter IV. (7) The State Government may seek advice of the Advisory Committee on any of the matters specified in the Rules made Under Section 30. (8) The Advisory Committee shall, after considering the following matters, communicate its recommendations or advice to the Central Government or, as the case may be, State Government or the Board, namely: (a) the level of employment in a class or classes of enterprises; (b) the level of investments in plant and machinery or equipment in a class or classes of enterprises; 8 (c) the need of higher investment in plant and machinery or equipment for technological upgradation, employment generation and enhanced competitiveness of the class or classes of enterprises; (d) the possibility of promoting and diffusing entrepreneurship in micro, small or medium enterprises; and (e) the international standards for classification of small and medium enter....
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....ment after obtaining the recommendations of the Advisory Committee in this behalf. (3) The authority with which the memorandum shall be filed by a medium enterprise shall be such as may be specified, by notification, by the Central Government. (4) The State Government shall, by notification, specify the authority with which a micro or small enterprise may file the memorandum. (5) The authorities specified Under Sub-sections (3) and (4) shall follow, for the purposes of this section, the procedure notified by the Central Government Under Sub-section (2). 9. Measures for promotion and development.--The Central Government may, from time to time, for the purposes of facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises, particularly of the micro and small enterprises, by way of development of skill in the employees, management and entrepreneurs, provisioning for technological upgradation, marketing assistance or infrastructure facilities and cluster development of such enterprises with a view to strengthening backward and forward linkages, specify, by notification, such programmes, guideli....
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....6. Date from which and rate at which interest is payable.--Where any buyer fails to make payment of the amount to the supplier, as required Under Section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank. 17. Recovery of amount due.--For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided Under Section 16. 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....
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....ion Act, 1963 to the arbitration proceedings initiated under provisions of Micro, Small and Medium Enterprises Development Act, 2006, we need to notice certain relevant Sections of the Act. As per Section 15 of the said Act, where supplier supplies any goods or renders any services to any buyer, the buyer shall make payment on or before the agreed date between the parties in writing or where there is no agreement, before the appointed day. Section 16 deals with date from which and rate of interest payable in the event of not making the payment. The recovery mechanism for the amount due is covered by Sections 17 and 18 of the said Act. If any party has a dispute with regard to amount due Under Section 17, a reference is required to be made to the Micro and Small Enterprises Facilitation Council. On such reference, the Council is empowered to conduct conciliation in the matter or seek assistance of any institution or centre providing alternate dispute resolution services by making a reference to such institution for conducting conciliation. If the conciliation is not successful, as contemplated Under Section 18(2) of the said Act, same stands terminated Under Section 18(3) of the sai....
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....and record its own findings on merits. 19. The other issue is with regard to maintainability of counter claim in the arbitration proceedings initiated as per Section 18(3) of the 2006 Act. It is true that recovery amount Under Section 17 of the said Act is only with reference to the amounts claimed by the supplier Under Section 16 of the said Act. But coming to Section 18 of the said Act, the words used are, 'any party to a dispute' for making a reference to Micro and Small Enterprises Facilitation Council Under Section 18 of the Act. To decide the issue of maintainability we refer to the first batch of appeals, which are filed aggrieved by the judgment of the High Court of Kerala. The Appellants are suppliers of thread rubber for tyre rebuilding to the Respondent-KSRTC. They were given purchase orders by the Corporation and they were paid 90% of the total price and 10% was to be paid based on the final performance report. Whereas it is the case of the Appellants that they are entitled for balance amount of 10%, same was withheld illegally, on the other hand it is the case of the Corporation that as the performance of the supplies were not in accordance with the contract....
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....ee, award or order same shall not be entertained by any court unless the Appellant (not being a supplier), has deposited with it 75% of the amount in terms of the decree or award. The said benefits are conferred, in view of the beneficial objects of the Act, to the sellers. It is submitted that if the jurisdiction of the Council is ousted on the ground that counter claim cannot be entertained, buyer can easily get over the legal obligations of payment of compound interest and pre-deposit of 75% of the awarded amount in the event of challenge to the same, as referred above. Thus, it is submitted that the counter claim is maintainable before the authorities constituted under 2006 Act. Further, it is submitted that when the conciliation is failed, for further proceedings, provisions of the Arbitration and Conciliation Act, 1996 are made applicable as if there is an agreement between the parties Under Sub-section (1) of Section 7 of the 1996 Act, as such there is no reason for not allowing counter claim by the buyer. A specific reference is made to Section 23(2A) of the 1996 Act. Learned Senior Counsel Sri Basava Prabhu S. Patil, appearing for the Respondent in C.A. Nos. 1620-1622 of 2....
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....g counter-claim or set-off in proceedings before the Facilitation Council. 21. It is also further to be noted that if we do not allow the counter-claim made by the buyer in the proceedings arising out of claims made by the seller, it may lead to parallel proceedings before the various fora. On one hand, in view of beneficial legislation, seller may approach the Facilitation Council for claims, in the event of failure of payment by the buyer under provisions of 2006 Act, at the same time, if there is no separate agreement between the parties for any arbitration in a given case, buyer may approach the civil court for making claims against the seller, or else if there is an agreement between the parties for arbitration in the event of dispute between the parties, parties may seek appointment of arbitrator. At the same time if the seller is covered by definition under micro, small and medium enterprises, seller may approach the Facilitation Council for making claims under the provisions of Micro, Small and Medium Enterprises Development Act, 2006. In such event, it may result in conflicting findings, by various forums. 22. In second set of cases it is clear that when the seller a....
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....ncil or the centre or institution is identified by it for arbitration. The 1996 Act allows resolution of disputes by agreed forum. The third difference is that, in the event of award in favour of seller and if the same is to be challenged, there is a condition for pre-deposit of 75% of the amount awarded. Such is not the case in the 1996 Act. When such beneficial provisions are there in the special enactment, such benefits cannot be denied on the ground that counter-claim is not maintainable before the Council. In any case, whenever buyer wish to avoid the jurisdiction of the Council, the buyer can do on the spacious plea of counter-claim, without responding to the claims of the seller. When the provisions of Sections 15 to 23 are given overriding effect Under Section 24 of the Act and further the 2006 Act is a beneficial legislation, we are of the view that even the buyer, if any claim is there, can very well subject to the jurisdiction before the Council and make its claim/counter claim as otherwise it will defeat the very objects of the Act which is a beneficial legislation to micro, small and medium enterprises. Even in cases where there is no agreement for resolution of disput....
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....d set-off is maintainable before the statutory authorities under MSMED Act, Appellant in this set of appeals is not entitled for the relief, for the reason that on the date of supply of goods and services the Appellant did not have the registration by submitting the memorandum as per Section 8 of the Act. The bids were invited on 23.02.2010, Appellant submitted its bid on 17.05.2010, Respondent awarded contract to the Appellant on 24.09.2010 and the parties signed the contract documents for supply of material, installation/commissioning of the power plant on 29.07.2011. Thereafter, supplies were made and the Appellant has raised first invoice on 02.11.2011 for supply contract and also raised the first invoice pursuant to contract for installation on 07.07.2012 and the Appellant has raised the last invoice in furtherance of contract for supply of material, on 29.03.2014. The Appellant also claims to have raised last invoice on 29.03.2015 in furtherance of contract for installation. It is to be noticed that Appellant approached the District Industrial Centre for grant of entrepreneur memorandum only on 25.03.2015. 26. Though the Appellant claims the benefit of provisions under MSM....