2023 (6) TMI 1447 - HC - Indian Laws

Seeking appointment of a sole Arbitrator on the basis of a Letter of Invocation dated 8.4.2023 - respondent failed to reply to the said letter - objection taken on behalf of the respondent is primarily on the ground that the respondent is an MSME or rather an entity defined under section 2 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 and that the respondent should accordingly get the protection of the 2006 Act - HELD THAT - Resisting the application under section 11 on the ground that the petitioner/buyer should have approached the Facilitation Council under section 18(1) of the MSMED Act is misconceived and contrary to the purport of section 18(1) read with section 17 of the MSMED Act - Section 24 of the Act which provides for sections 15-23 to have overriding effect will only apply where a reference has been made to the Council under section 18(1) of the Act. Section 24 does not contemplate automatic application of the provisions of sections 15-23, including section 18 - where the jurisdiction of the Council has not been invoked by a party who seeks recovery of an amount due under section 17 of the Act. In NATIONAL PROJECTS CONSTRUCTION CORPORATION LIMITED ANR. VERSUS WEST BENGAL STATE MICRO SMALL ENTERPRISES FACILITATION COUNCIL ORS. 2017 (2) TMI 1557 - CALCUTTA HIGH COURT , a Co-ordinate Bench of this Court was of the view that where one of the parties to an arbitration agreement is an entity within the meaning of the MSME Act, the Council under the said Act would have jurisdiction to arbitrate on the dispute between the parties. The facts in that case were hence substantially different as the parties had already made a reference to the Facilitation Council and the stage had already progressed through conciliation to arbitration under section 18(3) of the MSME Act. Absence of an arbitration agreement as contemplated by section 7(2) of the 1996 Act - HELD THAT - This objection is belied from the material on record. The Service Order dated 9.12.2021 contains the arbitration clause that refers to a S.O No. C321364073. The S.O number finds specific mention/reference in the notice issued by the petitioner to the respondent on 8.4.2023 under section 21 of the 1996 Act. The Invocation Letter also sets out the arbitration clause in the Service Order. Section 7(4) of the 1996 Act provides that an arbitration agreement is in writing if it is contained in an exchange of letters, telex, telegrams or other means of telecommunications including through electronic means providing for a record of the agreement (7(4)(b)). Further, the mails exchanged between the parties in July, 2022 shows that petitioner referred to the contract bearing the Service Order number and date and the respondent replied to the mail without denying the existence of the arbitration agreement. The respondent did not deny or dispute the existence of the arbitration agreement as reiterated by the petitioner in its section 21 notice of 8.4.2023. The existence of the arbitration agreement between the parties in writing as contained in the Service Order is hence established from the exchange of electronic communications between the parties under section 7(4)(b) of the Act of 1996. Application is accordingly allowed and disposed of by appointing Mr. Jayanta Biswas, former Judge of this Court, to act as the Sole Arbitrator for resolving the disputes and differences between the parties subject to the Arbitrator communicating his consent to the Registrar, Original Side of this Court in the required format under the provisions of the 1996 Act within 3 weeks from date.

Summary

Issues:
1. Appointment of a sole Arbitrator based on a Letter of Invocation.
2. Dispute arising from a contract for transportation of coal.
3. Interpretation of provisions of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.
4. Existence of an arbitration agreement as per section 7(2) of the 1996 Act.

Analysis:

Issue 1: Appointment of a sole Arbitrator
The petitioner sought appointment of a sole Arbitrator based on a Letter of Invocation as the respondent failed to reply to the said letter. The dispute arose from a contract for transportation of coal, and preliminary questions of law were raised by the counsel for both parties.

Issue 2: Interpretation of MSMED Act, 2006
The respondent claimed protection under the MSMED Act, arguing that the petitioner should have approached the Micro and Small Enterprises Facilitation Council as per section 18(1) of the Act. However, the Court held that the reference to the Council must be made by the supplier for any amount due under section 17, emphasizing the Act's protection for suppliers.

Issue 3: Interpretation of arbitration agreement
The respondent objected to the absence of an arbitration agreement as per section 7(2) of the 1996 Act. The Court found that the arbitration clause in the Service Order, referenced in communications between the parties, constituted a valid arbitration agreement under section 7(4)(b) of the Act.

Conclusion
The Court dismissed the objections raised by the respondent and allowed the application for the appointment of an arbitrator under section 11(6) of the 1996 Act. Mr. Jayanta Biswas was appointed as the Sole Arbitrator to resolve the disputes between the parties. The judgment clarified the legal interpretations of the MSMED Act and the existence of a valid arbitration agreement, ensuring the parties' rights and obligations were upheld in the arbitration process.