2019 (9) TMI 1352 - HC - Companies Law

Applicability of MSME Act - Privity of contract - relationship of supplier and buyer - whether in the facts of the case, respondent No.2 a constituent of JV can invoke provisions of the MSME Act? - HELD THAT - Considering the relationship between the petitioner and the respondent No.2 based on the agreement referred, the Court is of the view that insofar as the petitioner is concerned, respondent No.2 would fall in the definition of supplier as sub-clause (iii) of Clause-2(n) clearly includes any entity by whatever name called registered or constituted under any law and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises. Without any manner of doubt, respondent No.2, an MSME and the nature of work under the agreement will attract requirements of definition of supplier . MSME Act was correctly invoked by respondent No.1. Section 18 provides for Reference to Micro and Small Enterprises Facilitation Council . Respondent No.1, being one such constituted council under Section 18, was within its power to receive reference under Section 18(2), which provides that the council shall itself either conduct conciliation or seek assistance of any institution or centre providing for alternate dispute resolution services - In the instant case, in exercise of powers under Section 18(2), the council came to conclusion that the council itself is not in a position to reconcile the dispute and therefore, was left with option to refer the conciliation involved under Section 18(3). The impugned order appears to be in consonance with the requirements of relevant provisions of the MSME Act - Petition dismissed.

Summary

Issues Involved:
1. Jurisdiction of MSME Commissionerate under Section 18(3) of the MSME Act.
2. Privity of contract between the petitioner and respondent No.2.
3. Validity of the arbitration proceedings initiated by the petitioner.
4. Applicability of the MSME Act to the dispute.
5. Whether the order passed by respondent No.1 is a "speaking order."

Detailed Analysis:

1. Jurisdiction of MSME Commissionerate under Section 18(3) of the MSME Act:
The petitioner challenged the jurisdiction of the MSME Commissionerate (respondent No.1) in referring the matter to arbitration under Section 18(3) of the MSME Act. The petitioner argued that there was no privity of contract between them and respondent No.2, and hence, the reference was not competent. The petitioner contended that the order was in excess of jurisdiction as the MSME Act applies only if there is a buyer-supplier relationship, which was absent in this case.

2. Privity of Contract Between the Petitioner and Respondent No.2:
The petitioner asserted that respondent No.2, a constituent of the joint venture (JV), had no privity of contract with them. The petitioner highlighted that the contract was with the JV, not with respondent No.2 individually. The petitioner emphasized that the JV and respondent No.2 are separate legal entities, and respondent No.2 had no locus standi in the dispute.

3. Validity of the Arbitration Proceedings Initiated by the Petitioner:
The petitioner had appointed a retired Supreme Court Judge as the sole arbitrator under the arbitration clause of the contract. However, respondent No.1 issued a notice and reported failure of conciliation under Section 18(2) of the MSME Act, subsequently referring the matter to respondent No.3 for arbitration. The petitioner argued that the arbitration proceedings initiated by respondent No.1 were illegal and without jurisdiction.

4. Applicability of the MSME Act to the Dispute:
The petitioner contended that the MSME Act was not applicable as there was no buyer-supplier relationship between them and respondent No.2. They argued that the JV, not respondent No.2, was the contracting party. However, the court found that respondent No.2, being an MSME and a constituent of the JV, fell within the definition of "supplier" under Section 2(n) of the MSME Act. The court concluded that the MSME Act was correctly invoked by respondent No.1.

5. Whether the Order Passed by Respondent No.1 is a "Speaking Order":
The petitioner argued that the impugned order was a non-speaking order, lacking detailed reasoning. They asserted that it was a cardinal rule for quasi-judicial authorities to pass speaking orders. The court, however, found that the order was in consonance with the requirements of the MSME Act and did not require interference.

Conclusion:
The court held that respondent No.2, as a constituent of the JV, fell within the definition of "supplier" under the MSME Act. The MSME Commissionerate (respondent No.1) was within its jurisdiction to refer the matter to arbitration under Section 18(3) of the MSME Act. The court dismissed the petition, upholding the validity of the arbitration proceedings initiated by respondent No.1 and confirming the applicability of the MSME Act to the dispute. The impugned order was found to be in accordance with the relevant provisions of the MSME Act, and no interference was warranted. The petition was dismissed with no order as to costs.