2014 (4) TMI 1286 - HC - Indian Laws

Recovery of outstanding dues - petitioner filed a claim before the Micro and Small Enterprises Facilitation Council of the State of Uttar Pradesh at Kanpur claiming an award - submission of the petitioner is that once the petitioner had invoked the provisions of the 2006 Act, the Facilitation Council was conferred with the exclusive jurisdiction under Section 18 to enter upon the dispute and to initially conduct the conciliation proceedings. HELD THAT - Chapter V of the Act contains special provisions in regard to delayed payments to Micro and Small Enterprises. Section 15 provides that where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment on or before the date agreed upon between him and the supplier in writing or, where there is no agreement, before the appointed day. The proviso stipulates that, in any case, the period agreed upon between the supplier and the buyer shall not exceed forty-five days from the day of acceptance or the day of deemed acceptance. Section 16 provides for the payment of interest by the buyer at three times of the Bank rate notified by the Reserve Bank upon a failure of the buyer to make payment, as required under Section 15 notwithstanding anything contained in any agreement or in any law for the time being in force. The petitioner invoked the provisions of the 2006 Act by filing a reference to the Facilitation Council on 3 October 2011. There was undoubtedly a dispute between the petitioner and the respondents in regard to the claim of the petitioner arising out of non payment of its bills. The respondents appointed a sole arbitrator on 5 October 2011 after the petitioner had invoked the intervention of the Facilitation Council on 3 October 2011 under Section 18 of the 2006 Act. Once the jurisdiction of the Facilitation Council has been validly invoked, the Council has exclusive jurisdiction to enter upon conciliation in the first instance and after conciliation has ended in failure, to refer the parties to arbitration - The Facilitation Council was clearly in error in entertaining the objection filed by the respondents and referring the petitioner to the sole arbitrator so designated by the respondents. The impugned order of the Facilitation Council directing the parties to a reference before the sole arbitrator appointed by the respondents was manifestly illegal - the proceedings are restored back to the first respondent - The first respondent shall now act in accordance with the provisions of sub-section (3) of Section 18 and either conduct the arbitration itself or refer the arbitral proceedings to any institution or centre providing alternate dispute resolution services. The first respondent shall pass necessary orders in consequence of this direction within a period of one month from the receipt of a certified copy of this order. Petition allowed.

Issues Involved:
1. Jurisdiction of the Micro and Small Enterprises Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006.
2. Validity of the appointment of a sole arbitrator by the respondents.
3. Applicability of the non-obstante clause in Section 18 of the 2006 Act.
4. Legal framework for delayed payments to Micro and Small Enterprises.
5. Compliance with statutory provisions for arbitration and conciliation.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Micro and Small Enterprises Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006:
The petitioner, a registered partnership firm and small-scale industry, invoked the provisions of the 2006 Act by filing a reference to the Facilitation Council on 3 October 2011 due to non-payment of its bills by the respondents. The court emphasized that once the jurisdiction of the Facilitation Council is validly invoked, it has exclusive jurisdiction to conduct conciliation and, if it fails, to proceed with arbitration or refer the dispute to an alternate dispute resolution institution. The Facilitation Council's jurisdiction is conferred by Section 18 of the 2006 Act, which operates notwithstanding any other law.

2. Validity of the appointment of a sole arbitrator by the respondents:
The respondents appointed a sole arbitrator on 5 October 2011, after the petitioner had already invoked the Facilitation Council's intervention on 3 October 2011. The court found that the Facilitation Council was in error in referring the petitioner to the sole arbitrator appointed by the respondents. The Facilitation Council should have either conducted the arbitration itself or referred the parties to a designated alternate dispute resolution institution.

3. Applicability of the non-obstante clause in Section 18 of the 2006 Act:
Section 18 of the 2006 Act contains a non-obstante clause that ensures the Facilitation Council's jurisdiction to act as an arbitrator or conciliator in disputes involving suppliers and buyers, overriding any other law. The court emphasized that this clause mandates that the Facilitation Council has exclusive jurisdiction once invoked, and it must follow the statutory procedure outlined in the Act.

4. Legal framework for delayed payments to Micro and Small Enterprises:
The 2006 Act provides a comprehensive legal framework for addressing delayed payments to Micro and Small Enterprises. Sections 15 and 16 mandate timely payments and stipulate interest on delayed payments. The court highlighted the legislative intent to provide a robust mechanism for dispute resolution through the Facilitation Council, ensuring timely and effective redressal of payment disputes.

5. Compliance with statutory provisions for arbitration and conciliation:
The court noted that under Section 18(2) of the 2006 Act, the Facilitation Council must conduct conciliation or refer the matter to an alternate dispute resolution institution. If conciliation fails, the Council must either arbitrate the dispute itself or refer it to an appropriate institution. The Facilitation Council's failure to adhere to this statutory mandate and its erroneous referral to the sole arbitrator appointed by the respondents was deemed illegal.

Conclusion:
The court allowed the petition, set aside the impugned order dated 13 February 2014, and restored the proceedings to the first respondent. The first respondent was directed to comply with Section 18(3) of the 2006 Act by either conducting the arbitration itself or referring the dispute to an alternate dispute resolution institution within one month. The court made it clear that it expressed no opinion on the merits of the petitioner's claim, leaving all rights and contentions open for the arbitral forum. The petition was allowed with no order as to costs.

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