2017 (2) TMI 1557 - HC - Indian Laws

Jurisdiction of the West Bengal State Micro Small Enterprises Facilitation Council in purporting to arbitrate in the disputes between the first petitioner and the third respondent - claim of the third respondent is live or not - existence of arbitration agreement between two parties or not. Is the claim of the third respondent live? - HELD THAT - In view of the fact that, the security deposit made by the third respondent is still lying with the first petitioner, it cannot be said that the claim of the third respondent is barred by the laws of limitation. The petitioners are not claiming forfeiture of the security deposit. In absence of such particulars, it is safe to infer that, the jural relationship between the first petitioner and the third respondent still exists. The final bill has not been settled. The security deposit is yet to be refunded. The first petitioner is, therefore, holding on to the security deposit of the third respondent as a trustee of the third respondent. Limitation is a mixed question of fact and law. On the conspectus of the facts narrated above it cannot be said that the claim made by the third respondent is barred even as on date. The claim of the third respondent is, therefore, live. When there exists an arbitration agreement between two parties, and one of such parties to the arbitration agreement is an entity within the meaning of Micro, Small and Medium Enterprises Development Act, 2006, does the Council established under the provisions of the Act of 2006 have jurisdiction to arbitrate the disputes between such parties on a request being made for such purpose? - HELD THAT - Section 18(4) of the Act of 2006 allows the Council to arbitrate in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India. The territorial jurisdiction of the first respondent has not been questioned. The third respondent is a supplier within the meaning of the Act of 2006. Therefore, in terms of Section 18(4) of the Act of 2006, the first respondent is the authority designated to arbitrate the disputes between the first petitioner and the third respondent. The existence of a live dispute between the first petitioner and the third respondent is established. On the other side of the spectrum is the arbitration agreement between the first petitioner and the third respondent. The arbitration agreement, however, has not been placed on record by the petitioners - The arbitrator designated by the agreement between the first petitioner and the third respondent is not the same as that designated by Section 18 of the Act of 2006. Therefore, there is an inconsistency between the forum for arbitration under the Act of 2006 and the one governed by the Act of 1996. In view of Section 2(4) of the Act of 1996 read with Sections 18(1), 18(4) and 24 of the Act of 2006, the provisions of the Act of 2006 will prevail. The Council established under the Act of 2006 or the institution or centre identified by it will arbitrate the disputes between the buyer and the supplier. The petitioners had approached the Council for arbitration of the disputes. On such request being made the Council by a writing dated June 12, 2015 had called upon the first petitioner to attend the conciliation before the Council on June 30, 2015. The Council by a writing dated November 6, 2015 had made a further request for conciliation to the first petitioner. It is only thereafter that by a writing dated November 9, 2015 that the first petitioner claims to have appointed the sole arbitrator. Prior to the first petitioner appointing the arbitrator, the Council had assumed jurisdiction and had issued notices for conciliation. Thus, when there exists an arbitration agreement between two parties and one of such parties to the arbitration agreement is an entity within the meaning of the Act of 2006, the Council established under the provisions of the Act of 2006 or any institution or centre identified by it has the jurisdiction to arbitrate such disputes on a request being received by such Council for such purpose. The challenge of the petitioners to the writing dated March 17, 2016 issued by the Council fails. The petitioners are not entitled to any relief in the present writ petition. Petition dismissed.

Summary

Issues Involved:

1. Is the claim of the third respondent live?
2. Does the Micro, Small and Medium Enterprises Development Act, 2006 supersede an existing arbitration agreement between parties?
3. To what relief, if any, are the petitioners entitled to?

Issue-wise Detailed Analysis:

1. Is the claim of the third respondent live?

The court examined whether the claims made by the third respondent were barred by the laws of limitation. The first petitioner had awarded a contract to the third respondent in August 1995, and the third respondent claimed that not all dues were settled, specifically pointing to a security deposit still held by the first petitioner. The court noted that the first petitioner did not claim that the accounts were settled or that the security deposit was forfeited. Therefore, the presence of the security deposit indicated an ongoing jural relationship, and the claim was considered live. The court concluded that the claim of the third respondent was not barred by limitation, thus answering the first issue in the affirmative.

2. Does the Micro, Small and Medium Enterprises Development Act, 2006 supersede an existing arbitration agreement between parties?

The court analyzed the provisions of the Micro, Small and Medium Enterprises Development Act, 2006, particularly Section 18, which allows disputes to be referred to the Micro and Small Enterprises Facilitation Council. The Act contains a non-obstante clause, allowing the Council to arbitrate disputes notwithstanding any existing arbitration agreement. The court highlighted that the Act of 2006 mandates statutory arbitration, which overrides any pre-existing arbitration agreement. The court noted that the Act of 2006 provides a statutory right to make a reference to the Council, which supersedes the arbitration agreement between the parties. The court concluded that the Council has jurisdiction to arbitrate disputes under the Act of 2006, even if an arbitration agreement exists, thus answering the second issue affirmatively.

3. To what relief, if any, are the petitioners entitled to?

Given the court's findings on the first two issues, the petitioners were not entitled to any relief. The court dismissed the writ petition, holding that the Council's jurisdiction to arbitrate the disputes was valid and that the petitioners' challenge to the Council's actions was unfounded. Consequently, the court dismissed the writ petition and the interim application seeking an extension of the interim order, with no order as to costs.