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TMI Blog2022 (11) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... A. No ...... of 2022 (@ SLP (C) No. 12884/2020) The appellant Gujarat State Civil Supplies Corporation Ltd. (Original Petitioner), has challenged the Order dated 13.11.2019 passed by the Gujarat High Court in the First Appeal No. 3613/2019, whereby the High Court has dismissed the said appeal filed by the appellant under Section 37 of the Arbitration and Conciliation Act, 1996 (Hereinafter referred to as "the Arbitration Act, 1996"). In the said First Appeal, the appellant had challenged the Order dated 20.08.2018 passed by the Commercial Court, Ahmedabad in Commercial Civil Misc. Application No. 54/2016 filed under Section 34 of the Arbitration Act read with Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as "the MSMED Act, 2006"), whereby the commercial court had confirmed the award made by the Madhya Pradesh Micro and Small Enterprises Facilitation Council, Bhopal in Reference No. NSEFC 442/2012, holding that the provisions of MSMED Act, 2006 had an effect overriding the provisions of the Arbitration Act and that the Facilitation Council at Bhopal had the jurisdiction to adjudicate upon the disputes between the parties. (II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. & Anr. (Original Petitioners) have challenged the Order dated 20.01.2020 passed by the High Court of Judicature at Bombay in W.P. No. 7899/2017, whereby the High Court has dismissed the said petition along with the W.P. No. 9356/2018, holding that when the Facilitation Council had conducted the arbitration proceedings and passed an award under Section 18(3) of the MSMED Act, 2006 the remedy of the aggrieved party would be to take recourse to Section 34 of the Arbitration Act. The High Court relied upon the ratio in case of SBP & Company Vs. Patel Engineering Ltd. (2005) 8 SCC 618 which disapproved the practice of High Courts entertaining petitions under Article 226/227 of the Constitution of India challenging the orders passed by the Arbitration Tribunal. (VI) C.A. ...... of 2022 (@ SLP (C) No. 2135/2021) The appellant Union of India (Original Appellant) has challenged the Order dated 23.08.2019 passed by the Delhi High Court in LPA 42/2019, whereby the High Court while dismissing the said LPA held that despite the arbitration clause in the agreement between the parties, if the MSMED Act, 2006 is applicable to the party, Facilitation Council would have the jurisdiction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proceedings under sub-section (2) of the Section 18 of the MSMED Act, 2006 in view of the bar contained in Section 80 of the Arbitration Act,1996? 5. Before adverting to the afore-stated questions of law, beneficial would be to glance through the legislative history and the objects and reasons as also the relevant provisions of the MSMED Act, 2006 and of the Arbitration Act, 1996. So far as the legislative history of MSMED Act, 2006 is concerned, it appears that in order to promote and strengthen the small, tiny and medium scale industrial undertakings, the "Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993" (hereinafter referred to as "The Delayed Payments Act") was enacted by the Parliament. The object of the said enactment was to provide for and regulate the payment of interest on delayed payments to the small scale and ancillary industrial undertakings. Though Sections 4 and 5 of the Delayed Payments Act, made the provisions of the recovery of amount and computation of compound interest and section 10 thereof provided for the effect overriding the other laws for the time being in force, it did not provide for any dispute resolution m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ires, - (a) .... (b) "appointed day" means the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier. Explanation. -For the purposes of this clause, - (i) "the day of acceptance" means, - (a) the day of the actual delivery of goods or the rendering of services; or (b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier; (ii) "the day of deemed acceptance" means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services; (c) ..... (d) "buyer" means whoever buys any goods or receives any services from a supplier for consideration; (e) ..... (f) ..... (g) ..... (h) "micro enterprise" means an enterprise classified as such under sub-clause (i) of clause ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number S.O. 477(E), dated the 25th July, 1991 filed an Industrial Entrepreneur's Memorandum, shall within one hundred and eighty days from the commencement of this Act, file the memorandum, in accordance with the provisions of this Act." 8. Chapter-V of the MSMED Act, 2006 pertaining to the "delayed payments to micro and small enterprises" contains Sections 15 to 25, out of which Sections 15 to 20 and 24 being relevant are reproduced herein below: "15. Liability of buyer to make payment. -Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: Provided that 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. 16. Date from which and rate at which interest is payable.-Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for setting aside decree, award or order -No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent. of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court: Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose. 20. Establishment of Micro and Small Enterprises Facilitation Council. -The State Government shall, by notification, establish one or more Micro and Small Enterprises Facilitation Councils, at such places, exercising such jurisdiction and for such areas, as may be specified in the notification. 21.... 22....... 23...... 24. Overriding effect. -The provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "7. Arbitration agreement. - (1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in- (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract." Section 8(1) pertaining to the power of the judicial authority to refer p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the commencement of arbitral proceedings reads as under: "21. Commencement of arbitral proceedings. -Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent." Section 42 pertaining to the jurisdiction of the courts reads as under: "42. Jurisdiction. -Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court." Section 43 pertaining to the Limitations reads as under: "43. Limitations. - (1) The Limitation Act, 1963 (36 of 1963), shall apply to arbitrations as it applies to proceedings in Court. (2) For the purposes of this section and the Limitation Act, 1963 (36 of 1963), an arbitration shall be deemed to have commenced on the date referred in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction and a buyer located anywhere in India. (iv) As per the well settled principle of law, the Courts cannot supply casus omissus i.e., omission in a statute cannot be supplied by construction. In this regard, reliance is placed on the decision in case of Shiv Shakti Cooperative Housing Society, Nagpur vs. Swaraaj Developers and Others (2003) 6 SCC 659. (v) Section 18 of MSMED Act, 2006 does not grant any substantive right to the supplier and it is merely a procedure/mechanism available to him under the Act to make reference with regard to the dispute to the Facilitation Council. The said remedy would be available only when there is no clause in the contract providing for the resolution of dispute by way of arbitration under the Arbitration Act, 1996. (vi) Sections 15, 16 and 17, though are substantive in nature, Section 18 is procedural, providing for an option to go to the Facilitation Council for the recovery of dues under Section 17. (vii) Commercial contracts must be construed with care, since it not only affects the party's autonomy but also the country's economy. The parties to an arbitration agreement have the autonomy to decide not only on the procedural law to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not subject to a contract or an agreement to the contrary between the parties. It gives the parties a right to have their disputes adjudicated by approaching the Facilitation Council, even if there is a contractual provision setting out the manner by which the parties had to resolve their disputes. (ii) Section 18 is consistent with Section 2(4) of the Arbitration Act, 1996 inasmuch as Section 18(3) deems the reference to statutory arbitration as the arbitration agreement for the purposes of Section 7(1) of the Arbitration Act, 1996 and therefore, once availed, the reference under Section 18 would override any agreement including arbitration agreement between the parties. The observations made in M/s. Silpi Industries (supra) clinches the issue that the MSMED Act, 2006 being the special legislation to protect the MSME's by setting out the statutory mechanism for the payment of interest on delayed payments, the said Act would override the provisions of the Arbitration Act 1996, which is a general legislation. (iii) In view of the specific mandate under Section 24 of the MSMED Act 2006, the provisions of Sections 15 to 23 would have an effect notwithstanding anything inconsistent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be preferred. In this regard, reliance is placed on decision of this Court in case of Union of India Vs. Prabhakaran Vijaya Kumar and Ors (2008) 9 SCC 517 and in case of Regional Provident Fund Commr. Vs. Hoogly Mills Co. Ltd. (2012) 2 SCC 489. 16. Now, the first and foremost issue involved in these appeals is whether the provisions contained in Chapter V of the MSMED Act, 2006 with regard to the Delayed Payments to Micro and Small Enterprises would have the precedence over the provisions contained in the Arbitration Act, 1996, more particularly when the parties by execution of an independent agreement as contemplated in Section 7 of the Arbitration Act had agreed to submit to arbitration the disputes arising between them? In other words, whether the provisions contained in Chapter V of the MSMED Act, 2006 would have an effect overriding the provisions contained in the Arbitration Act, 1996? 17. It is trite to say that the provisions of the special statute would override the provisions of the general statute. It is also well settled that while determining the effect of a statute overriding the other statute, the purpose and policy underlying the two statutes and the clear in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory support to the micro and small enterprises to enable them to develop and grow into medium ones. 21. Section 15 to 25 contained in Chapter-V of the MSMED Act, 2006 pertain to the 'delayed payments to micro and small enterprises.' A bare perusal of the said provisions contained in Chapter-V shows that a strict liability is fastened on the buyer to make payment to the supplier who supplies any goods or renders any services to the buyer, prescribing the time limit in Section 15. Section 16 further fastens the liability on the buyer to pay compound interest if any buyer fails to make payment to the supplier as required under Section 15. Such compound interest is required to be paid at three times of the bank rate notified by the Reserve Bank, notwithstanding contained in any agreement between the buyer and supplier or in any law for the time being in force. An obligation to make payment of the amount with interest thereon as provided under Section 16 has been cast upon the buyer and a right to receive such payment is conferred on the supplier in Section 17. Thus, Section 17 is the ignition point of any dispute under MSMED Act, 2006. Section 18 thereof provides for the mechani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Section 15 to 23 shall have an effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. 23. Having regard to the purpose, intention and objects as also the scheme of the MSMED Act, 2006 and having regard to the unambiguous expressions used in Chapter-V thereof, following salient features emerge: (i) Chapter-V is "party-specific", in as much as the party i.e. the 'Buyer' and the 'Supplier' as defined in Sections 2(d) and 2(n) respectively are covered under the said Chapter. (ii) A specific provision is made fastening a liability on the buyer to make payment of the dues to the supplier in respect of the goods supplied or services rendered to the buyer, as also a liability to pay compound interest at three times of the bank rate notified by the Reserve Bank, if the buyer fails to make payment within the prescribed time limit. The said liability to pay compound interest is irrespective of any agreement between the parties or of any law for the time being in force. (iii) A dedicated statutory forum i.e., Micro and Small Enterprises Facilitation Council is provided to enable any party to a dispute with regard to any amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d covers the law relating to Conciliation. Having regard to the entire scheme of the Arbitration Act 1996, it appears that it is a general law relating to the domestic arbitration, international commercial arbitration and for conciliation. It does not specify any specific dispute or specific class or category of persons to which the Act shall apply, as has been specified in the MSMED Act, 2006. 25. Thus, the Arbitration Act, 1996 in general governs the law of Arbitration and Conciliation, whereas the MSMED Act, 2006 governs specific nature of disputes arising between specific categories of persons, to be resolved by following a specific process through a specific forum. Ergo, the MSMED Act, 2006 being a special law and Arbitration Act, 1996 being a general law, the provisions of MSMED Act would have precedence over or prevail over the Arbitration Act, 1996. In Silpi Inustries case (supra) also, this Court had observed while considering the issue with regard to the maintainability and counter claim in arbitration proceedings initiated as per Section 18(3) of the MSMED Act, 2006 that the MSMED Act, 2006 being a special legislation to protect MSME's by setting out a statutory mechani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arbitration agreement independently entered into between the parties as contemplated under Section 7 of the Arbitration Act, 1996 was not intended to be superseded by the provisions contained under Section 18 of the MSMED Act, 2006 also cannot be accepted. A private agreement between the parties cannot obliterate the statutory provisions. Once the statutory mechanism under sub-section (1) of Section 18 is triggered by any party, it would override any other agreement independently entered into between the parties, in view of the non obstante clauses contained in sub-section (1) and sub-section (4) of Section 18. The provisions of Sections 15 to 23 have also overriding effect as contemplated in Section 24 of the MSMED Act, 2006 when anything inconsistent is contained in any other law for the time being in force. It cannot be gainsaid that while interpretating a statute, if two interpretations are possible, the one which enhances the object of the Act should be preferred than the one which would frustrate the object of the Act. If submission made by the learned counsel for the buyers that the party to a dispute covered under the MSMED Act, 2006 cannot avail the remedy available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The aforesaid legal position also dispels the arguments advanced on behalf of the counsel for the buyers that the Facilitation Council having acted as a Conciliator under Section 18(2) of the MSMED Act, 2006 itself cannot take up the dispute for arbitration and act as an Arbitrator. Though it is true that Section 80 of the Arbitration Act, 1996 contains a bar that the Conciliator shall not act as an Arbitrator in any arbitral proceedings in respect of a dispute that is subject of conciliation proceedings, the said bar stands superseded by the provisions contained in Section 18 read with Section 24 of the MSMED Act, 2006. As held earlier, the provisions contained in Chapter-V of the MSMED Act, 2006 have an effect overriding the provisions of the Arbitration Act, 1996. The provisions of Arbitration Act, 1996 would apply to the proceedings conducted by the Facilitation Council only after the process of conciliation initiated by the council under Section 18(2) fails and the council either itself takes up the dispute for arbitration or refers to it to any institute or centre for such arbitration as contemplated under Section 18(3) of the MSMED Act, 2006. 30. When the Facilitation Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classified under MSMED Act, 2006, as an enterprise, to claim the benefit retrospectively from the date on which appellant entered into contract with the respondent. The appellant cannot become micro or small enterprise or supplier, to claim the benefits within the meaning of MSMED Act 2006, by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods and services. If any registration is obtained, same will be prospective and applies for supply of goods and services subsequent to registration but cannot operate retrospectively. Any other interpretation of the provision would lead to absurdity and confer unwarranted benefit in favour of a party not intended by legislation." 33. Following the above-stated ratio, it is held that a party who was not the "supplier" as per Section 2 (n) of the MSMED Act, 2006 on the date of entering into the contract, could not seek any benefit as a supplier under the MSMED Act, 2006. A party cannot become a micro or small enterprise or a supplier to claim the benefit under the MSMED Act, 2006 by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial court vide Order dated 20.08.2018 had confirmed the said award. The appeal being the F.A. No. 3613/2019 filed by the appellant-Gujarat State Civil Supplies Corporation under Section 37 of the Arbitration Act, 1996 before the High Court of Gujarat was dismissed by the High Court vide the impugned Order dated 13.11.2019. (ii) In the said First Appeal, the appellant had raised the issue with regard to the jurisdiction of the Facilitation Council, Bhopal, M.P. to decide the disputes between the appellant and respondent no. 1- Mahakali Foods Pvt. Ltd. The High Court following its earlier decision in Principal Chief Engineer Vs. M/s. Manibhai & Brothers (Sleeper) & Anr AIR 2016 Guj 151 held that Section 18 of the MSMED Act, 2006 would have an overriding effect over any other law for the time being in force including the Arbitration Act, 1996. The High Court also held that the contention with regard to the jurisdiction having not been raised at the time of filing the statement of defence or reply, the said contention raised subsequently could not be accepted. (iii) As already held in the earlier part of this judgement, the provisions contained in Chapter-V of the MSMED Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of filing a statement of claim before the arbitrator, raised objection to the arbitration by stating that the matter be either referred to Justice C.P. Sen (retired) or be referred to the Micro and Small Enterprise Facilitation Council established under the MSMED Act, 2006. The respondent Steel Authority did not agree to the said proposition. The supplier i.e M/s Vidarbha Ceramics thereafter filed a reference before the Facilitation Council under Section 18(1) of the Act. The respondent Steel Authority filed objections before the Facilitation Council contending that the matter could not be entertained by it in view of the arbitration agreement existing between the parties. The respondent Steel Authority thereafter invoked the jurisdiction of the High Court by filing the writ petition for restraining the Council from entertaining the reference. The High Court vide impugned Order dated 28.08.2010 allowed the said writ petition by holding that the MSMED Facilitation Council was not entitled to proceed further under the provisions contained in Section 18 (3) of the MSMED Act, 2006 in view of an independent arbitration agreement having entered into between the parties. (ii) In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in Section 80 of the Arbitration Act 1996. (iv) The impugned order passed by the High Court, therefore to the extent it records the finding that the Facilitation Council could not have decided to initiate arbitration proceedings by itself under Section 18 (3) of the MSMED Act, 2006 deserves to be set aside and is accordingly set aside. (v) The arbitration proceedings before the Facilitation Council shall be proceeded further as per the Arbitration Act, 1996. The Appeal stands disposed of accordingly. (V) C.A. ...... of 2022 (@ SLP (C) No. 7375 of 2020) (i) The appeal is directed against the judgment and order dated 20.01.2020 passed by the High Court of Judicature at Bombay, whereby the High Court dismissed the writ petitions filed by the appellants (original writ petitioners) holding that the party aggrieved by the order passed by the Arbitral tribunal has to challenge the same in accordance with the provisions of the Arbitration Act, 1996. In the said case, the present respondent no.1 IBEX Integrated Business Express Private Limited (original respondent no.1- supplier) had approached the Facilitation Council for the recovery of its dues against the appellants. The appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the parties to the Delhi International Arbitration Centre. The appellant challenged the said order by filing the Writ Petition being Writ Petition No. 2273 of 2018 before the Delhi High Court on the ground that the said order was without any jurisdiction, and even otherwise the respondent was not registered as the Micro and Small Enterprises under the MSMED Act, 2006 at the material point of time and, therefore, the respondent being not the supplier under the MSMED Act, 2006 the provisions of the said Act were not applicable. The Single Bench of the Delhi High Court dismissed the said petition holding that by virtue of the provisions contained in Section 24 of the MSMED Act, 2006 the provisions of the said Act would have the effect notwithstanding anything inconsistent in any other law or instrument and, therefore, the provisions of Section 18(3) of the MSMED Act, 2006would be applicable notwithstanding the arbitration agreement in terms of Section 7 of the Arbitration Act, 1996. Being aggrieved by the said order, the appellant had preferred the appeal before the Division Bench of the Delhi High Court, which by the impugned order dated 23.08.2019 dismissed the same. The aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Arbitration Clause contained in the agreement, the joint venture vide letter dated 08.02.2018 proposed the name of a retired Supreme Court Judge for being appointed as the Sole Arbitrator to adjudicate upon the disputes between the parties. In response to the said letter, the appellant vide the letter dated 14.02.2018 replied that as per the relevant clause of Arbitration, only the appellant had right to appoint the Arbitrator and such right was not available to the joint venture. Accordingly, the appellant appointed another retired Supreme Court Judge as the Sole Arbitrator. The said Arbitrator appointed by the appellant directed the parties to appear for preliminary hearing, and at that stage, the respondent no. 2, i.e., the constituent of the joint venture filed an application before Respondent No. 1- Facilitation Council invoking the provisions of the MSMED Act, 2006. The Respondent No. 1- Facilitation Council undertook the process of conciliation, however, same having failed, the Respondent No. 1 referred the disputes to Respondent No. 3- Gujarat Chambers of Commerce and Industry in exercise of the powers conferred under Section 18(3) of the MSMED Act, 2006 vide order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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