TaxTMI 
TaxTMI 
2022 (11) TMI 91
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....gned orders in each appeal may be stated as under: (I) C.A. No ...... of 2022 (@ SLP (C) No. 12884/2020) The appellant Gujarat State Civil Supplies Corporation Ltd. (Original Petitioner), has challenged the Order dated 13.11.2019 passed by the Gujarat High Court in the First Appeal No. 3613/2019, whereby the High Court has dismissed the said appeal filed by the appellant under Section 37 of the Arbitration and Conciliation Act, 1996 (Hereinafter referred to as "the Arbitration Act, 1996"). In the said First Appeal, the appellant had challenged the Order dated 20.08.2018 passed by the Commercial Court, Ahmedabad in Commercial Civil Misc. Application No. 54/2016 filed under Section 34 of the Arbitration Act read with Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as "the MSMED Act, 2006"), whereby the commercial court had confirmed the award made by the Madhya Pradesh Micro and Small Enterprises Facilitation Council, Bhopal in Reference No. NSEFC 442/2012, holding that the provisions of MSMED Act, 2006 had an effect overriding the provisions of the Arbitration Act and that the Facilitation Council at Bhopal had the jur....
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....tion. (V) C.A. ...... of 2022 (@ SLP (C) No. 7375/2020) The appellant Bharat Electronics Ltd. & Anr. (Original Petitioners) have challenged the Order dated 20.01.2020 passed by the High Court of Judicature at Bombay in W.P. No. 7899/2017, whereby the High Court has dismissed the said petition along with the W.P. No. 9356/2018, holding that when the Facilitation Council had conducted the arbitration proceedings and passed an award under Section 18(3) of the MSMED Act, 2006 the remedy of the aggrieved party would be to take recourse to Section 34 of the Arbitration Act. The High Court relied upon the ratio in case of SBP & Company Vs. Patel Engineering Ltd. (2005) 8 SCC 618 which disapproved the practice of High Courts entertaining petitions under Article 226/227 of the Constitution of India challenging the orders passed by the Arbitration Tribunal. (VI) C.A. ...... of 2022 (@ SLP (C) No. 2135/2021) The appellant Union of India (Original Appellant) has challenged the Order dated 23.08.2019 passed by the Delhi High Court in LPA 42/2019, whereby the High Court while dismissing the said LPA held that despite the arbitration clause in the agreement between the par....
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....tation 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,1996? 5. Before adverting to the afore-stated questions of law, beneficial would be to glance through the legislative history and the objects and reasons as also the relevant provisions of the MSMED Act, 2006 and of the Arbitration Act, 1996. So far as the legislative history of MSMED Act, 2006 is concerned, it appears that in order to promote and strengthen the small, tiny and medium scale industrial undertakings, the "Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993" (hereinafter referred to as "The Delayed Payments Act") was enacted by the Parliament. The object of the said enactment was to provide for and regulate the payment of interest on delayed payments to the small scale and ancillary industrial undertakings. Though Sections 4 and 5 of the Delayed Payments Act, made the provisions of the recovery of amount and computation of compound interest and....
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....ED Act, 2006 being relevant for the purpose of deciding these appeals are reproduced hereunder: - "2. Definitions. -In this Act, unless the context otherwise requires, - (a) .... (b) "appointed day" means the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier. Explanation. -For the purposes of this clause, - (i) "the day of acceptance" means, - (a) the day of the actual delivery of goods or the rendering of services; or (b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier; (ii) "the day of deemed acceptance" means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services; (c) ..... ....
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....n of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), having investment in plant and machinery of more than one crore rupees but not exceeding ten crore rupees and, in pursuance of the notification of the Government of India in the erstwhile Ministry of Industry (Department of Industrial Development) number S.O. 477(E), dated the 25th July, 1991 filed an Industrial Entrepreneur's Memorandum, shall within one hundred and eighty days from the commencement of this Act, file the memorandum, in accordance with the provisions of this Act." 8. Chapter-V of the MSMED Act, 2006 pertaining to the "delayed payments to micro and small enterprises" contains Sections 15 to 25, out of which Sections 15 to 20 and 24 being relevant are reproduced herein below: "15. Liability of buyer to make payment. -Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: Provided that in no case the period agr....
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....o and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India. (5) Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference. 19. Application for setting aside decree, award or order -No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent. of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court: Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the ....
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....greement" to mean an agreement referred to in Section 7. Section 2(4) reads as under: "(4) This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder." Section 7 reads as under: "7. Arbitration agreement. - (1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in- (a) a document signed by the parties; (b) an exchange of letters, ....
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....he matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. (4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified. (5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. (6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34." Section 21 pertaining to the commencement of arbitral proceedings reads as under: "21. Commencement of arbitral proceedings. -Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent." Section 42 pertaining to the jurisdiction of the courts reads as under: "42. Jurisdiction. -Notwithstanding anything contained elsewhere in this Part....
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....Act and therefore Section 18 cannot take precedence over an arbitration agreement executed between the parties. (ii) The intention of the legislature not to supersede the contracts between the parties is clear, when the term "shall" in Section 16 is replaced with the term "may" in Section 18. (iii) Section 18(1) and 18(4) have a non obstante clause, whereas Section 18(2), 18(3) and 18(5) do not have such non obstante clause. Therefore, Section 18(1) only gives an option to any party to a dispute, and does not compel the party to make a reference to the Facilitation Council. Similarly, Section 18(4) confers jurisdiction upon the Facilitation Council to act as an arbitrator or the conciliator in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India. (iv) As per the well settled principle of law, the Courts cannot supply casus omissus i.e., omission in a statute cannot be supplied by construction. In this regard, reliance is placed on the decision in case of Shiv Shakti Cooperative Housing Society, Nagpur vs. Swaraaj Developers and Others (2003) 6 SCC 659. (v) Section 18 of MSMED Act, 2006 does not gran....
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.... of the Arbitration Act, 1996. (xii) Section 18 of 2006 Act does not override the contract entered into between the parties providing for referring the dispute to the arbitrator under the Arbitration Act, 1996. The reliance placed by the counsels for the Suppliers on the decision of this Court in Silpi Industries etc. vs. Kerala State Road Transport Corporation and Anr. 2021 SCC Online SC 439 is misplaced as the observations made in the said decision with regard to the issue of effect of MSMED Act over the Arbitration Act, were per incuriam. 14. The learned counsels for the Suppliers made the following submissions: - (i) The avowed object and purpose of Section 18 is to create a cost effective and expeditious dispute resolution mechanism for the recovery of an unpaid dues of a supplier under Section 17. Section 18 is not subject to a contract or an agreement to the contrary between the parties. It gives the parties a right to have their disputes adjudicated by approaching the Facilitation Council, even if there is a contractual provision setting out the manner by which the parties had to resolve their disputes. (ii) Section 18 is consistent with Sectio....
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....he MSE Facilitation Council in support of the submissions made by the learned counsels for the Suppliers, made further following submissions: - (i) Sections 15 to 19 of the MSMED Act, 2006 are interlinked and dependent on each other, which prescribe a special scheme under the Act. A cumulative effect of the said provisions would clearly override an arbitration agreement independently entered into between the parties. (ii) Section 18 is a substantive law and not a procedural law, as it provides a right and the remedy on the MSE for resolution of disputes. (iii) Beneficial or welfare statutes should be given a liberal and not a strict interpretation. If the words used in the beneficial statute are capable of two constructions, the one which is more in consonance with the object of the Act, and the interpretation for the benefit of the persons for whom the Act is made, should be preferred. In this regard, reliance is placed on decision of this Court in case of Union of India Vs. Prabhakaran Vijaya Kumar and Ors (2008) 9 SCC 517 and in case of Regional Provident Fund Commr. Vs. Hoogly Mills Co. Ltd. (2012) 2 SCC 489. 16. Now, the first and foremost issue i....
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....6 is a special enactment having an effect overriding the Arbitration Act, 1996 which is perceived to be a general enactment? As stated earlier, the very object of enacting MSMED Act, 2006 was to facilitate the promotion and development, and enhance the competitiveness of micro, small and medium enterprises. The Act also aimed to ensure timely and smooth flow of credit to the micro, small and medium enterprises, and to minimize the incidence of sickness. One of the main objects of the Act was to delete the Interest on Delayed Payments to Small Scale and Ancillary Industry Undertakings Act, 1993, and to include stringent provisions as also to provide dispute resolution mechanism for resolving the disputes of non-payment of dues to the micro and small enterprises. Thus, the seed of MSMED Act, 2006 had sprouted from the need for a comprehensive legislation to provide an appropriate legal framework and extend statutory support to the micro and small enterprises to enable them to develop and grow into medium ones. 21. Section 15 to 25 contained in Chapter-V of the MSMED Act, 2006 pertain to the 'delayed payments to micro and small enterprises.' A bare perusal of the said provisions co....
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....e to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of the Arbitration Act, 1996. Sub-section (4) of Section 18 again starts with a non obstante clause i.e., 'notwithstanding anything contained in any other law for the time being in force', and confers jurisdiction upon the Facilitation Council to act as an arbitrator or a conciliator in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India. Sub-section (5) of Section 18 fixes the time limit of ninety days to decide such reference. Section 19 prescribes the procedure to be followed when any application is made in the court for setting aside any decree, award or other order made either by the Council itself or by any institution or centre to which reference is made by the Council. Section 24 of the MSMED Act, 2006 states that the provisions of Section 15 to 23 shall have an effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. 23. Having regard to the purpose, intention and objects as also the scheme of the MSMED Act, 2006 and having regard to the unamb....
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.... foreign arbitral awards and also to define the law relating to Conciliation. It was enacted taking into account the UNCITRAL Model Law on international commercial arbitration. The main objectives amongst others of the said Act were to make provision for an arbitral procedure which was fair, efficient and capable to meet the needs of the specific arbitration and to minimize the supervisory role of courts in the arbitral process, as also to permit arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings in the settlement of disputes etc Bharat Sewa Sansthan Vs. U.P. Electronics Corporation; AIR 2007 SC 2961. The Arbitration Act, 1996 focuses and covers the law relating to the Arbitration and Conciliation, providing for the requirements of the arbitration agreement, composition of arbitral tribunal, conduct of arbitration proceedings, finality and enforcement of domestic arbitral awards as well as of certain foreign awards, and covers the law relating to Conciliation. Having regard to the entire scheme of the Arbitration Act 1996, it appears that it is a general law relating to the domestic arbitration, international commercial arbitration ....
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.... fiction is created in the Section 18(3) by using the expression 'as if' for the purpose of treating such arbitration as if it was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of the Arbitration Act, 1996. As held in K. Prabhakaran v. P. Jayarajan (2005) 1 SCC 754, a legal fiction presupposes the existence of the State of facts which may not exist and then works out the consequences which flow from that state of facts. Thus, considering the overall purpose, objects and scheme of the MSMED Act, 2006 and the unambiguous expressions used therein, this court has no hesitation in holding that the provisions of Chapter-V of the MSMED Act, 2006 have an effect overriding the provisions of the Arbitration Act, 1996. 27. The submissions made on behalf of the counsel for the Buyers that a conscious omission of the word "agreement" in sub-section (1) of Section 18, which otherwise finds mention in Section 16 of the MSMED Act, 2006 implies that the arbitration agreement independently entered into between the parties as contemplated under Section 7 of the Arbitration Act, 1996 was not intended to be superseded by the provisions contained under Section 1....
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.... Act, 2006 cannot countenanced. As such, sub-section (1) of Section 18 of the MSMED Act, 2006 is an enabling provision which gives the party to a dispute covered under Section 17 thereof, a choice to approach the Facilitation Council, despite an arbitration agreement existing between the parties. Absence of the word 'agreement' in the said provision could neither be construed as casus omissus in the statute nor be construed as a preclusion against the party to a dispute covered under Section 17 to approach the Facilitation Council, on the ground that there is an arbitration agreement existing between the parties. In fact, it is a substantial right created in favour of the party under the said provision. It is therefore held that no party to a dispute covered under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Facilitation Council under Section 18(1) thereof, merely because there is an arbitration agreement existing between the parties. 29. The aforesaid legal position also dispels the arguments advanced on behalf of the counsel for the buyers that the Facilitation Council having acted as a Conciliator under Section 18(2) of the MSMED Act, 20....
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.... the provisions of the Act, as on the date of entering into the contract. In any event, for the supplies pursuant to the contract made before the registration of the unit under provisions of the MSMED Act, no benefit can be sought by such entity, as contemplated under MSMED Act. While interpreting the provisions of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, this Court, in the judgment in the case of Shanti Conductors Pvt. Ltd. v. Assam State Electricity Board has held that date of supply of goods/services can be taken as the relevant date, as opposed to date on which contract for supply was entered, for applicability of the aforesaid Act. Even applying the said ratio also, the appellant is not entitled to seek the benefit of the Act..... ....by taking recourse to filing memorandum under sub-section (1) of Section 8 of the Act, subsequent to entering into contract and supply of goods and services, one cannot assume the legal status of being classified under MSMED Act, 2006, as an enterprise, to claim the benefit retrospectively from the date on which appellant entered into contract with the respondent. The appellant cannot b....
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....ibunal by virtue of Section 18(3) of the MSMED Act, 2006 would be competent to rule on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration Act, 1996. (vi) A party who was not the 'supplier' as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract cannot seek any benefit as the 'supplier' under the MSMED Act, 2006. If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration. 35. Though afore-stated discussions and conclusions cover all the issues involved in the appeals, it would be appropriate to deal with each of the Appeals individually. (I) C.A. No ...... of 2022 (@ SLP(Civil) No. 12884 of 2020) (i) In this case, the Gujarat State Civil Supplies Corporation Ltd. had challenged the award made by the Facilitation Council, Bhopal before the Commercial Court, Ahmedabad, under Section 34 of the Arbitration Act, 1996 and the commercial court vide Order dated 20.08.2018 had confirmed the said award. The appeal being the F.A. No. 3613/2019 filed by the appel....
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....ith the reference made by the party in respect of the dispute covered under Section 17 of the MSMED Act, 2006 despite the existence of an independent arbitration agreement between the parties. The appeal stands allowed accordingly. (III) Civil Appeal No. 6167 of 2013 (i) The present appeal is arising out of the judgment dated 21.08.2010 passed by the Division Bench of Bombay High Court, Nagpur Bench. In the said case, the present appellant (original respondent no. 2) had supplied certain goods to the respondent M/s Steel Authority of India under a contract. However, some disputes arose between the parties, and therefore the appellant invoked an arbitration clause-22 contained in the agreement and proposed to appoint Justice C.P. Sen (retired) as the arbitrator to settle the disputes through arbitration. However, the respondent Steel Authority, invoking Clause 23 of the General Conditions of Contract appointed one Mr. S. K. Gulati as an arbitrator. The said arbitrator issued notices to the parties asking them to submit their respective claims. M/s Vidarbha Ceramics instead of filing a statement of claim before the arbitrator, raised objection to the arbitration by statin....
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....ad invoked Section 18 (1) of the MSMED Act, 2006 by approaching the Micro and Small Enterprises Facilitation Council. In the said reference, the appellant GSPL had raised an objection with regard to the jurisdiction of the Facilitation Council to entertain the reference in view of an arbitration agreement existing between the parties. The Facilitation Council had initiated conciliation proceedings between the parties, however the same having failed, the Council vide the Order dated 29.04.2015, decided to take up the dispute for arbitration. The said order was challenged by the GSPL before the Bombay High Court. (iii) In our view, both the issues have been elaborately discussed and concluded hereinabove by holding that the reference to Facilitation Council by a party to a dispute with regard to any money due under Section 17 would be maintainable despite an independent arbitration agreement existing between the parties and that the Facilitation Council could also take up the dispute for arbitration and act as an arbitrator as contemplated under Section 18 (3) of the MSMED Act, 2006 despite the bar contained in Section 80 of the Arbitration Act 1996. (iv) The impugn....
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.... and therefore any order passed or award made by such council/institute/centre has to be challenged as per the Arbitration Act. The Appeal therefore deserves to be dismissed and is dismissed. (VI) C.A. No...... of 2022(@ SLP (C) No. 2135 of 2021) (i) The appeal filed by the Union of India is directed against the judgment and order dated 23.08.2019 passed by the High Court of Delhi at New Delhi in L.P.A. No. 42 of 2019. So far as the facts of the appeal are concerned - the appellant and the respondent had entered into an agreement for Annual Maintenance Contract for all equipment's at all UTS, PRS and UTS-cum-PRS locations and all equipment at the location under the control of Chief Commercial Manager (CCM)/Passenger Marketing (PM)/ Eastern Railways. When the dispute arose between the parties, the respondent instead of invoking an arbitration clause containing the agreement, approached the Micro and Small Enterprises Facilitation Council under Section 18 of the MSMED Act, 2006. The conciliation process having failed, the Facilitation Council in exercise of the powers conferred under Section 18(3) of the MSMED Act, 2006 referred the dispute between the parties to the Delh....
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.... (i) The appeal arises out of the judgment and order dated 24.07.2020 passed by the Division Bench of the Gujarat High Court in L.P.A. No. 1667 of 2019, whereby the Division Bench while dismissing the L.P.A held that the Respondent No. 2- M/s. Aquafil Polymers Company Pvt. Ltd. - Supplier had rightly applied under Section 18(1) of the MSMED Act, 2006 to the Respondent No. 1- MSME Commissionerate- Facilitation Council, and on the conciliation process having failed, the Facilitation Council had no option left but to refer the disputes between the parties to the Respondent No. 3- Gujarat Chambers of Commerce and Industry. (ii) Broadly stated the facts of the case are that the appellant- JITF Water Infrastructure Limited was an Infrastructure Company which had entered into the agreement with the joint venture consisting of the Respondent No. 2 - M/s. Aquafil Polymers Company Private Limited and one Wintech Engineering Pvt. Ltd. In respect of an order issued in favour of the appellant under Guwahati Water Supply Project. The joint venture did not perform its work as per the agreement and, therefore, the appellant terminated the Contract by Notice dated 08.01.2018. In view of....