JURISDICTION OF MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL

[Mr. M. GOVINDARAJAN]

Payment of dues to MSEs

Section 15 of the Micro and Small Enterprises Development Act, 2006 (‘Act’ for short) provides that where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment there for on or before the date agreed upon between him and the supplier in writing.  In no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.  If the buyer fails to pay the dues to the MSEs within the stipulated date the buyer is liable to pay compound interest with monthly rests to the supplier on that amount from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.

Reference to Facilitation Council

Section 18 of the Act provides that any party to a dispute may, with regard to any amount due make a reference to the Micro and Small Enterprises Facilitation Council.  On receipt of a reference the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 shall apply to such a dispute as if the conciliation was initiated under Part III of that Act.

Where the conciliation is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement.

Jurisdiction

The Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.

If any of the parties is outside India then the Council has no jurisdiction to entertain any reference from either buyer or seller.

Case law

In M/S. VAISHNO ENTERPRISES VERSUS HAMILTON MEDICAL AG & ANR. [2022 (4) TMI 58 - SUPREME COURT] the appellant is a registered partnership firm and a consultant providing consultancy services to foreign medical equipment companies.  The respondent 1 is the foreign company incorporated in Switzerland.  The 1^st respondent is a manufacturer and supplier of critical care ventilation   solutions for a variety of patient segments, applications and environments across the world.  The appellant approached the respondent and requested to be associated with them in implementation of their projects in India.

One HLL Infra-Tech Services Limited floated a tender to purchase/procure 1186 high end ventilators and other medical equipment to be supplied to various hospitals/medical colleges/departments across India.  The respondent company participated in the said tender by offering its bid through its authorized agents in India, Medelec Health Care Solutions.  The tender was awarded to the said agent.  Then the appellant and the respondent entered into a Consulting Agreement with a restricted term of 6 months agreeing that the appellant shall act as a consultant to the respondent company.

Since the earlier agreement entered into between them expired they entered into a fresh Consulting Agreement on 24.08.2020 for a period of 6 months.  The appellant got registered under the Act on 28.08.2020. 

Thereafter disputes arised between the appellant and the respondent.  The appellant issued a legal notice to the respondent to pay the amount due on their invoices along with ₹ 50 lakhs as damages.  The respondent terminated the contract on 22.10.2020.  The appellant replied to the termination notice. 

The appellant approached the MSE Facilitation Council and registered a case against the respondent.  The appellant put forth the following prayers before the MSE Facilitation Council-

• The respondent is liable to pay the following dues to the appellant-

• USD 711845 (₹ 5,21,85,357/-) towards invoice No. 5, dated 22.06.2020;
• USD 104205 (₹ 7626073/-) towards invoice No. 6, dated 07.09.2020;

• To declare the termination letter dated 02.10.2020 issued by the respondent is illegal, void and contrary to the terms of the Consulting Agreement dated 24.05.2020;
• To direct the respondent No. 1 to pay the petitioner a sum of USD 304964 (₹ 22356910/-) towards the proforma invoice dated 21.10.2020 towards balance 25% commission payable in respect of 1158 ventilators pursuance to the Consulting Agreement dated 24.08.2020.
• To direct the respondent No. 1 to pay interest as per section 16 of the Act till the date of payment.

The Council sent intimation to the respondent No. 1on 22.10.2020.   The respondent, on receipt of the notice, contended the following before the Council-

• The company of the respondent is based in Switzerland and therefore the Act is not applicable to them.
• The respondent company has no office in India more particularly in New Delhi as indicated in the notice.

The Council sent to the respondent company Form 2 calling for the statement of defence on 04.11.2020.  Another notice was sent to the respondent company on 12.11.2020.   The Council further sent a notice dated 23.11.2020 for a conciliation meeting and the hearing was fixed on 28.11.2020. 

The respondent company, therefore, filed a writ petition before the High Court challenging the legality and validity of the notices issued by the Council to the respondent.  The Single Bench allowed the writ petition holding that the Council has no jurisdiction to resolve the disputes between the parties.  The appellant challenged the order of the Single Judge before the Division Bench which also confirmed the decision of the Single Judge.  Therefore the appellant filed the present appeal before the Supreme Court.

The appellant submitted the following before the Supreme Court-

• The Single Judge as well as the Division Bench of the High Court has erred in holding that the Council has no jurisdiction to entertain the dispute between the appellant and the respondent.
• The Single Judge as well as the Division Bench has erred in holding that in the present case as the supplier was outside the territorial jurisdiction of India, considering section 18 of the Act, the Council has no jurisdiction to entertain a dispute between the suppliers located outside the jurisdiction.
• Two agreements were entered into between the appellant and the respondent in New Delhi only.
• The services rendered to the respondent by the appellant were in India and the respondent was conducting its business through its registered service centers at New Delhi, Mumbai, Kolkata, Bangalore etc.
• The respondent also appointed a power of Attorney in New Delhi to act on behalf of the respondent.  Therefore the cause of action arose only in India.
• No cause of action arose in Switzerland and therefore the Council is having jurisdiction to resolve the disputes between the appellant and the respondent.

The respondent submitted the following before the Supreme Court-

• The buyer, i.e., the respondent is in Switzerland and the address of the respondent is Switzerland mentioned in both the agreements.
• The contract was entered into between the appellant and the respondent on 24.08.2020 and the appellant registered with MSE on 28.08.2020.  Therefore the appellant is not governed by the Act on the date of agreement and therefore the Council is having no jurisdiction to entertain the reference of the appellant.

The appellant contended that the dispute arose only after 28.08.2020 and therefore the appellant is governed by the Act and the Council is having jurisdiction to entertain the reference.

The Supreme Court heard the parties to the present appeal at length.  The Supreme Court analyzed the case in entirety.  The point for the consideration of the Supreme Court in his case is whether the Council under MSE Act is having jurisdiction with respect to the dispute between the appellant and the respondent.

The Supreme Court considered the provisions of agreement made between the parties.  Clause 9 of the agreement provides that the rights of the parties shall be governed and construed in accordance with the laws of India.  The parties agreed to resolve their differences, disputes, if any, mutually, within 30 days of the initiation of the dispute which can be extended by the mutual consent of the parties, if necessary.  In the event the parties are not able to resolve the differences by way of the said mutual dialogues, they are at a liberty to initiate appropriate actions as per law.

The Supreme Court observed that the contract was made on 24.08.2020 and therefore the laws of India are applicable to the said contract.  At the time of making agreement on 24.08.2020 the appellant did not register under the Act.  The appellant registered under the said Act only on 28.08.2020.  The Supreme Court held that the parties would not be governed by the Act and shall be governed by other laws of India applicable and prevailing at the time of contract.  The Supreme Court, therefore, confirmed the judgment of Single Bench as confirmed by the Division Bench that the Council has no jurisdiction to resolve the disputes between the appellant and the respondent.