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2023 (4) TMI 1372 - HC - Indian LawsPrayer for setting aside of an award made - jurisdiction of Arbitrator to pass the impugned Award - petitioner questions the jurisdiction of the Arbitrator on the ground that the Facilitation Council had the exclusive jurisdiction to decide on the reference made by the petitioner in terms of the provisions of the MSMED Act 2006 - whether the Facilitation Council under the provisions of The Micro Small and Medium Enterprises Development Act 2006 would have exclusive jurisdiction to entertain and decide disputes brought before it by the petitioner? - HELD THAT - The date of execution of a contract between a buyer and a supplier under the MSMED Act is irrelevant for the application of the provisions of the MSMED Act provided the supplier claims recovery of the amount due under section 17 for goods supplied or services rendered after the date of registration. In other words whether the supplier was registered as an MSME on the date of the contract would not disqualify the supplier from making reference to the Micro and Small Enterprises Facilitation Council under section 18 for recovery of outstanding amounts as long as the amounts claimed are relatable to goods supplied or services rendered after the date of registration of the supplier as a micro small or medium enterprise under section 8(1) of the Act. If the supplier fulfils the aforesaid condition and makes a reference to the Facilitation Council under section 18 the Council steps in as the only and exclusive forum - to decide the reference under the provisions of the MSMED Act 2006. The unilateral act of the respondent in invoking the contractual arbitration clause and appointing the learned Sole Arbitrator on 23.9.2016 after the petitioner made a reference to the Facilitation Council is thus patently contrary to the provisions of the MSMED Act. Moreover the respondent invoked the arbitration clause and proceeded with the arbitration and made a reference before the Arbitrator appointed by it being fully aware that the reference before the Facilitation Council under the MSME Act was pending as on the date of the appointment of the Arbitrator. The impugned Award dated 23.9.2018 by which the claim of the respondent (which was the claimant in the arbitration proceedings) of Rs. 30, 24, 849/- was allowed in full is hence in the form of a face-off with the provisions of the MSMED Act so to speak. The impugned Award dated 23.9.2018 is hence liable to be set aside under section 34 of The Arbitration and Conciliation Act 1996 as being in contravention with the fundamental policy of Indian law and being vitiated by patent illegality appearing on the face of the award. Application allowed.
Issues Involved:
1. Jurisdiction of the Arbitrator under the MSMED Act, 2006. 2. Definition and qualification of the petitioner as a "supplier" under the MSMED Act. 3. Applicability of the MSMED Act to contracts executed prior to registration as an MSME. 4. Conflict between the MSMED Act and the Arbitration and Conciliation Act, 1996. Detailed Analysis: 1. Jurisdiction of the Arbitrator under the MSMED Act, 2006: The primary issue for adjudication is whether the Arbitrator had jurisdiction to pass the impugned Award. The petitioner contended that the Facilitation Council had exclusive jurisdiction to decide the reference made by the petitioner under the MSMED Act, 2006. The petitioner argued that the non obstante clause in section 18 of the MSMED Act grants exclusive jurisdiction to the Facilitation Council, and the arbitration clause invoked by the respondent was a counteraction to the pending reference before the Council. The petitioner was compelled to continue with the arbitration proceedings due to section 16(5) of the Arbitration and Conciliation Act, 1996, and challenged the Arbitrator's finding under section 16(6) of the Act. 2. Definition and Qualification of the Petitioner as a "Supplier" under the MSMED Act: The petitioner claimed to be a "supplier" under section 2(n) of the MSMED Act, which would allow it to approach the Facilitation Council for dispute resolution. The respondent argued that the petitioner was not a "supplier" as the contract was executed before the petitioner's registration as an MSME. However, the petitioner contended that the relevant date for payment was after the completion of services and raising of bills, which occurred after registration as an MSME. The court found that the petitioner was indeed a "supplier" as the services were rendered after the registration date, thus qualifying for the benefits under the MSMED Act. 3. Applicability of the MSMED Act to Contracts Executed Prior to Registration as an MSME: The court examined whether the MSMED Act applies to contracts executed before the supplier's registration as an MSME. The petitioner completed the services in July 2013, after registration on April 19, 2013, and raised bills in February 2015. The court referenced the Supreme Court's decision in Shanti Conductors, which held that the buyer's liability to make payments and pay interest arises if supplies are made after the enforcement of the Act, regardless of the contract's execution date. The court concluded that the MSMED Act applies as long as the services were rendered after registration. 4. Conflict between the MSMED Act and the Arbitration and Conciliation Act, 1996: The court addressed the conflict between the MSMED Act and the Arbitration and Conciliation Act, 1996. The Supreme Court in Silpi Industries held that the MSMED Act, being a special statute, has an overriding effect over the Arbitration and Conciliation Act. The court found that the Facilitation Council had exclusive jurisdiction to entertain the dispute under section 18 of the MSMED Act, and the unilateral appointment of the Arbitrator by the respondent was contrary to the provisions of the MSMED Act. The impugned Award was set aside as it contravened the fundamental policy of Indian law and was vitiated by patent illegality. Conclusion: The court concluded that the date of contract execution is irrelevant for applying the MSMED Act, provided the supplier claims recovery for services rendered after registration. The Facilitation Council has exclusive jurisdiction under section 18 of the MSMED Act. The impugned Award dated September 23, 2018, was set aside under section 34 of the Arbitration and Conciliation Act, 1996, for being in contravention with the fundamental policy of Indian law.
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