2010 (8) TMI 1100 - HC - Indian Laws

Arbitration Proceedings - mode of settlement of dispute - objection raised u/s 18 - invoked jurisdiction - HELD THAT - In the circumstances, we hold that respondent no.1- Council is not entitled to proceed under the provisions of Section 18 (3) in view of independent arbitration agreement dated 23.09.2005 between the parties. The petitioners and respondent no.2 shall, however, participate in the conciliation, which shall be conducted by respondent no.1-Council under the provisions of Section 18 (1) and (2). Respondent no.1-Council shall complete the process of conciliation within a period of two weeks from the date the parties appear before it. The parties are directed to appear before respondent no.1-Council on 25.10 .2010.

Issues Involved:
1. Jurisdiction of the Micro, Small Enterprises Facilitation Council (the Council) under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (the Act).
2. Validity and effect of an independent arbitration agreement between the parties.
3. Mandatory nature of conciliation under Section 18(2) of the Act.
4. Overriding effect of Section 24 of the Act.
5. Eligibility of a buyer to invoke the provisions of the Act.

Detailed Analysis:

1. Jurisdiction of the Micro, Small Enterprises Facilitation Council (the Council) under Section 18 of the Act:

The petitioners, M/s. Steel Authority of India, questioned the jurisdiction of the Council in entertaining a reference under Section 18 of the Act, arguing that an arbitration agreement already existed between the parties. The petitioners contended that the Council should not entertain the reference since the arbitration agreement had been invoked, and an arbitrator had been appointed.

The Court examined the provisions of the Act, particularly Sections 15 to 24, which deal with the prevention of delayed payments to micro, small, and medium enterprises and provide a special procedure for the recovery of amounts due to a supplier. Section 18(1) allows any party to a dispute regarding the amount due under Section 17 to make a reference to the Council.

2. Validity and Effect of an Independent Arbitration Agreement:

The petitioners argued that the arbitration agreement between the parties should prevail and that the Council has no jurisdiction under Section 18 of the Act to conduct conciliation or arbitration. They asserted that the arbitration agreement should be given full effect under the Arbitration and Conciliation Act, 1996.

The Court found that Section 18(3) of the Act provides that where conciliation is not successful, the Council may take up the dispute for arbitration or refer it to an institution providing alternate dispute resolution services, and the provisions of the Arbitration and Conciliation Act, 1996, shall apply. The Court concluded that an independent arbitration agreement does not cease to have effect because both arbitrations are governed by the same Act.

3. Mandatory Nature of Conciliation under Section 18(2) of the Act:

The Court addressed the contention that the conciliation process under Section 18(2) is mandatory. The Act requires that the Council conduct conciliation or refer the matter to an institution for conciliation before proceeding to arbitration. The Court emphasized that the parties must participate in the conciliation process as mandated by the Act.

4. Overriding Effect of Section 24 of the Act:

Section 24 of the Act provides that the provisions of Sections 15 to 23 shall have an overriding effect notwithstanding anything inconsistent in any other law. The petitioners argued that this overriding effect should not negate the arbitration agreement. The Court held that Section 24 does not render an arbitration agreement ineffective but ensures that the provisions of the Act are given precedence in case of any inconsistency.

5. Eligibility of a Buyer to Invoke the Provisions of the Act:

The petitioners argued that only the supplier could invoke the provisions of the Act for recovery of the amount due, and the buyer has no remedy under the Act. The Court found that Section 18(1) allows any party to a dispute to make a reference to the Council, which includes both the buyer and the supplier. The Court noted that disputes could arise regarding various aspects, such as the date of acceptance of goods, and the buyer should be eligible to approach the Council.

Conclusion:

The Court held that the Council is not entitled to proceed under Section 18(3) of the Act in view of the independent arbitration agreement between the parties. However, the parties must participate in the conciliation process as mandated by Section 18(1) and (2) of the Act. The Council was directed to complete the conciliation process within two weeks, and the parties were instructed to appear before the Council on a specified date. The rule was made absolute in these terms, with no order as to costs.

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