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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 ..... ayed 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? - HELD THAT:- 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 intendment conveyed by the language of the relevant provisions therein would be the relevant consideration - One of principles of statutory interpretation relevant for our purpose is contained in the Latin maxim leges posteriores priores contrarias abrogant (the later laws shall abrogate earlier contrary laws). Another relevant rule of construction is contained in the maxim generalia specialibus non derogant (General laws do not prevail over Special laws). When there is apparent conflict between two statutes, the provisions of a general statute must yield to thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration, is obtained subsequently, the same would have the effect prospectively and would apply for the supply of goods and rendering services subsequent to the registration. The same cannot operate retrospectively. However, such issue being jurisdictional issue, if raised could also be decided by the Facilitation Council/Institute/Centre acting as an arbitral tribunal under the MSMED Act, 2006. Application disposed off. - CIVIL APPEAL NO. …… OF 2022 (Arising out of SLP (C) No. 12884/2020) - - - Dated:- 31-10-2022 - CJI UDAY UMESH LALIT And JUSTICE BELA M. TRIVEDI JUDGMENT BELA M. TRIVEDI, J. 1. Leave to appeal is granted in SLP(C) No. 12884/2020, SLP(C) No. 31227/2018, SLP(C) No. 7375/2020, SLP(C) No. 2135/2021 and SLP(C) No. 6166/2021. 2. All these seven appeals though factually different, involve certain common questions of law and therefore were heard together. 3. The broad outline of the impugned orders in each appeal may be stated as under: (I) C.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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ujarat State Petronet Ltd. (Original Petitioner) has challenged the Order dated 06.08.2018 passed by the High Court of Judicature at Bombay, in W.P. No. 5459/2015, whereby the High Court disposed of the Writ Petition by holding that despite independent arbitration agreement between the parties, the respondent Facilitation Council, Thane had the jurisdiction to entertain the reference made by the Respondent No. 1 Krunal Engineering Works (Original Respondent No. 3) under Section 18 of the MSMED Act, 2006, however the High Court held that the respondent Facilitation Council itself having conducted the conciliation proceedings, could not have taken up the disputes for arbitration in view of Section 80 of the Arbitration Act, 1996. The High Court directed the Facilitation Council to refer the disputes between the parties to any institution or centre providing alternative dispute resolution services for arbitration. (V) C.A. of 2022 (@ SLP (C) No. 7375/2020) The appellant Bharat Electronics Ltd. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to the institution or centre providing alternative dispute resolution services for carrying out the matter further in accordance with the provisions of Arbitration Act, 1996. 4. In the background of afore-stated spectrum of cases, following common questions of law arise for consideration: (i) Whether the provisions of Chapter-V of the MSMED Act, 2006 would have an effect overriding the provisions of the Arbitration Act, 1996? (ii) Whether any party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council under sub-section (1) of Section 18 of the said Act, if an independent arbitration agreement existed between the parties as contemplated in Section 7 of the Arbitration Act, 1996? (iii) Whether the Micro and Small Enterprises Facilitation Council, itself could take up the dispute for arbitration and act as an arbitrator, when the council itself had conducted the conciliation 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - to make further improvements in the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 and making that enactment a part of the proposed legislation and to repeal that enactment. 6. The MSMED Bill having been passed by both the Houses of Parliament, received the assent of the President on 16th June, 2006 and came into the Statute Book as the MSMED Act, 2006, (27 of 2006). The long title of the Act states that the said Act has been enacted to provide for facilitating the promotion and development, and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. The Act has been divided into Six Chapters, and Chapter-V pertains to the Delayed payments to micro and small enterprises. 7. Some of the definitions and provisions contained in the MSMED Act, 2006 being relevant for the purpose of deciding these appeals are reproduced hereunder: - 2. Definitions. -In this Act, unless the context otherwise requires, - (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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of services may, at his discretion; or (c) a medium enterprise engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), shall file the memorandum of micro, small or, as the case may be, of medium enterprise with such authority as may be specified by the State Government under sub-section (4) or the Central Government under sub-section (3): Provided that any person who, before the commencement of this Act, established- (a) a small-scale industry and obtained a registration certificate, may, at his discretion; and (b) an industry engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), having investment in plant and machinery of more than one crore rupees but not exceeding ten crore rupees and, in pursuance of the notification of the Government of India in the erstwhile Ministry of Industry (Department of Industrial Development) number S.O. 477(E), dated the 25th July, 1991 filed an Industrial Entrepreneur's Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated under Part III of that Act. (3) Where the conciliation initiated under sub-section (2) 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 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that Act. (4) Notwithstanding anything contained in any other law for the time being in force, 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. (5) Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference. 19. Application for setting aside decree, award or order -No applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation, and for matters connected therewith and incidental thereto. The Act has been divided into five parts. Part-I pertains to Arbitration, Part-IA to Arbitration Council of India, Part-II to Enforcement of certain Foreign Awards, Part-III to Conciliation and Part-IV pertains to Supplementary Provisions. 11. Some of the relevant provisions of the Act are reproduced hereunder for ready reference: - Section 2(1)(b) defines arbitration agreement to mean an agreement referred to in Section 7. Section 2(4) reads as under: (4) This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder. Section 7 reads as under: 7. Arbitration agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. (4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified. (5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. (6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Suppliers and some by the Buyers, for the sake of convenience, the learned counsels shall be referred to as the counsels for the Suppliers and the counsels for the Buyers instead of the counsels for the Appellants or the Respondents. Their respective submissions may be summarized as under. 13. The learned counsels for the Buyers submitted as under: (i) The non obstante portion of Section 18 of the MSMED Act, 2006 does not include agreement as expressly done in Section 16 of the said Act and therefore Section 18 cannot take precedence over an arbitration agreement executed between the parties. (ii) The intention of the legislature not to supersede the contracts between the parties is clear, when the term shall in Section 16 is replaced with the term may in Section 18. (iii) Section 18(1) and 18(4) have a non obstante clause, whereas Section 18(2), 18(3) and 18(5) do not have such non obstante clause. Therefore, Section 18(1) only gives an option to any party to a dispute, and does not compel the party to make a reference to the Facilitation Council. Similarly, Section 18(4) confers jurisdiction upon the Facilitation Council to act as an arbitrator or the concili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt about the mode of dispute resolution, then only the recourse to the provisions of Section 18 can be said to be valid. However, when the contract itself mentions about the dispute to be resolved through arbitration, then there is no occasion for invoking the provisions of MSMED Act, 2006. (xi) The Facilitation Council cannot act as a conciliator and as an arbitrator over the same dispute, in view of the bar contained in Section 80 of the Arbitration Act, 1996. (xii) Section 18 of 2006 Act does not override the contract entered into between the parties providing for referring the dispute to the arbitrator under the Arbitration Act, 1996. The reliance placed by the counsels for the Suppliers on the decision of this Court in Silpi Industries etc. vs. Kerala State Road Transport Corporation and Anr. 2021 SCC Online SC 439 is misplaced as the observations made in the said decision with regard to the issue of effect of MSMED Act over the Arbitration Act, were per incuriam. 14. The learned counsels for the Suppliers made the following submissions: - (i) The avowed object and purpose of Section 18 is to create a cost effective and expeditious dispute resolution mechanism for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is also treated as a special statute, the MSMED Act, 2006 would still prevail, since a special statute enacted subsequently in time prevails in case of any conflict. In this regard, reliance is placed in case of Solidaire India Ltd. Vs. Fairgrowth Financial Services Ltd. Ors (2001) 3 SCC 71 and Maruti Udyog Ltd. Vs. Ram Lal Ors (2005) 2 SCC 638. 15. The learned counsel appearing for the MSE Facilitation Council in support of the submissions made by the learned counsels for the Suppliers, made further following submissions: - (i) Sections 15 to 19 of the MSMED Act, 2006 are interlinked and dependent on each other, which prescribe a special scheme under the Act. A cumulative effect of the said provisions would clearly override an arbitration agreement independently entered into between the parties. (ii) Section 18 is a substantive law and not a procedural law, as it provides a right and the remedy on the MSE for resolution of disputes. (iii) Beneficial or welfare statutes should be given a liberal and not a strict interpretation. If the words used in the beneficial statute are capable of two constructions, the one which is more in consonance with the object of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, in contradiction to the general rules of law laid down, as applicable generally to all cases with which the general law deals. 20. Keeping in view the aforestated principles of statutory interpretations as also the proposition of law laid down by this Court with regard to the general rules of construction, let us proceed to examine whether the MSMED Act, 2006 is a special enactment having an effect overriding the Arbitration Act, 1996 which is perceived to be a general enactment? As stated earlier, the very object of enacting MSMED Act, 2006 was to facilitate the promotion and development, and enhance the competitiveness of micro, small and medium enterprises. The Act also aimed to ensure timely and smooth flow of credit to the micro, small and medium enterprises, and to minimize the incidence of sickness. One of the main objects of the Act was to delete the Interest on Delayed Payments to Small Scale and Ancillary Industry Undertakings Act, 1993, and to include stringent provisions as also to provide dispute resolution mechanism for resolving the disputes of non-payment of dues to the micro and small enterprises. Thus, the seed of MSMED Act, 2006 had sprouted fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (2) is not successful and stands terminated without any settlement between the parties, the Council is further empowered under sub-section (3) to either itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration. The provisions of Arbitration Act, 1996 are then made applicable to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of the Arbitration Act, 1996. Sub-section (4) of Section 18 again starts with a non obstante clause i.e., notwithstanding anything contained in any other law for the time being in force , and confers jurisdiction upon the Facilitation Council to act as an arbitrator or a conciliator in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India. Sub-section (5) of Section 18 fixes the time limit of ninety days to decide such reference. Section 19 prescribes the procedure to be followed when any application is made in the court for setting aside any decree, award or other order made either by the Council itself or by any institution or centre t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other law for the time being in force. 24. As against the above position, if the purpose, objects and scheme of the Arbitration Act, 1996 are considered, as stated hereinabove, the said Act was enacted to consolidate and amend the law relating to the domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also to define the law relating to Conciliation. It was enacted taking into account the UNCITRAL Model Law on international commercial arbitration. The main objectives amongst others of the said Act were to make provision for an arbitral procedure which was fair, efficient and capable to meet the needs of the specific arbitration and to minimize the supervisory role of courts in the arbitral process, as also to permit arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings in the settlement of disputes etc Bharat Sewa Sansthan Vs. U.P. Electronics Corporation; AIR 2007 SC 2961 . The Arbitration Act, 1996 focuses and covers the law relating to the Arbitration and Conciliation, providing for the requirements of the arbitration agreement, composition of arbitral tribunal, conduct of arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the MSMED Act, 2006 at a stage when the Conciliation process initiated under sub-section (2) of Section 18 of the MSMED Act, 2006 fails and when the Facilitation Council itself takes up the disputes for arbitration or refers it to any institution or centre for such arbitration. It is also significant to note that a deeming legal fiction is created in the Section 18(3) by using the expression as if for the purpose of treating such arbitration as if it was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of the Arbitration Act, 1996. As held in K. Prabhakaran v. P. Jayarajan (2005) 1 SCC 754, a legal fiction presupposes the existence of the State of facts which may not exist and then works out the consequences which flow from that state of facts. Thus, considering the overall purpose, objects and scheme of the MSMED Act, 2006 and the unambiguous expressions used therein, this court has no hesitation in holding that the provisions of Chapter-V of the MSMED Act, 2006 have an effect overriding the provisions of the Arbitration Act, 1996. 27. The submissions made on behalf of the counsel for the Buyers that a conscious omission of the word agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the said law over any other law for the time being in force, any interpretation in derogation thereof would frustrate the very object of the Act. The submission therefore that an independent arbitration agreement entered into between the parties under the Arbitration Act, 1996 would prevail over the statutory provisions of MSMED Act, 2006 cannot countenanced. As such, sub-section (1) of Section 18 of the MSMED Act, 2006 is an enabling provision which gives the party to a dispute covered under Section 17 thereof, a choice to approach the Facilitation Council, despite an arbitration agreement existing between the parties. Absence of the word agreement in the said provision could neither be construed as casus omissus in the statute nor be construed as a preclusion against the party to a dispute covered under Section 17 to approach the Facilitation Council, on the ground that there is an arbitration agreement existing between the parties. In fact, it is a substantial right created in favour of the party under the said provision. It is therefore held that no party to a dispute covered under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Facilita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction to decide the disputes as an arbitrator. 32. At this juncture, a very pertinent observations made by this Court in Silpi Industries case (supra) on this issue are required to be reproduced: - 26. In our view, to seek the benefit of provisions under MSMED Act, the seller should have registered under the provisions of the Act, as on the date of entering into the contract. In any event, for the supplies pursuant to the contract made before the registration of the unit under provisions of the MSMED Act, no benefit can be sought by such entity, as contemplated under MSMED Act. While interpreting the provisions of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, this Court, in the judgment in the case of Shanti Conductors Pvt. Ltd. v. Assam State Electricity Board has held that date of supply of goods/services can be taken as the relevant date, as opposed to date on which contract for supply was entered, for applicability of the aforesaid Act. Even applying the said ratio also, the appellant is not entitled to seek the benefit of the Act .. .by taking recourse to filing memorandum under sub-section (1) of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Act. (iv) The proceedings before the Facilitation Council/institute/centre acting as an arbitrator/arbitration tribunal under Section 18(3) of MSMED Act, 2006 would be governed by the Arbitration Act, 1996. (v) The Facilitation Council/institute/centre acting as an arbitral tribunal by virtue of Section 18(3) of the MSMED Act, 2006 would be competent to rule on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration Act, 1996. (vi) A party who was not the supplier as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract cannot seek any benefit as the supplier under the MSMED Act, 2006. If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration. 35. Though afore-stated discussions and conclusions cover all the issues involved in the appeals, it would be appropriate to deal with each of the Appeals individually. (I) C.A. No of 2022 (@ SLP(Civil) No. 12884 of 2020) (i) In this case, the Gujarat State Civil Supplies Corporation Ltd. had challenged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the independent agreement existing between the parties. (ii) The impugned order of the High Court deserves to be set aside in view of the foregoing conclusion arrived at by us to the effect that the Facilitation Council shall have the jurisdiction to proceed with the reference made by the party in respect of the dispute covered under Section 17 of the MSMED Act, 2006 despite the existence of an independent arbitration agreement between the parties. The appeal stands allowed accordingly. (III) Civil Appeal No. 6167 of 2013 (i) The present appeal is arising out of the judgment dated 21.08.2010 passed by the Division Bench of Bombay High Court, Nagpur Bench. In the said case, the present appellant (original respondent no. 2) had supplied certain goods to the respondent M/s Steel Authority of India under a contract. However, some disputes arose between the parties, and therefore the appellant invoked an arbitration clause-22 contained in the agreement and proposed to appoint Justice C.P. Sen (retired) as the arbitrator to settle the disputes through arbitration. However, the respondent Steel Authority, invoking Clause 23 of the General Conditions of Contract appointed one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conducted the conciliation proceedings, it could not have decided to initiate arbitration proceedings under Section 18 (3) of the MSMED Act, 2006. (ii) In the instant case, the respondent no.1 i.e., Krunal Works (original respondent no.3) had invoked Section 18 (1) of the MSMED Act, 2006 by approaching the Micro and Small Enterprises Facilitation Council. In the said reference, the appellant GSPL had raised an objection with regard to the jurisdiction of the Facilitation Council to entertain the reference in view of an arbitration agreement existing between the parties. The Facilitation Council had initiated conciliation proceedings between the parties, however the same having failed, the Council vide the Order dated 29.04.2015, decided to take up the dispute for arbitration. The said order was challenged by the GSPL before the Bombay High Court. (iii) In our view, both the issues have been elaborately discussed and concluded hereinabove by holding that the reference to Facilitation Council by a party to a dispute with regard to any money due under Section 17 would be maintainable despite an independent arbitration agreement existing between the parties and that the Facilita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecourse to Section 34 of the Arbitration Act, 1996. (iii) As held earlier, the proceedings before the Facilitation Council/institute/centre acting as an arbitrator are governed by the Arbitration Act, 1996 and therefore any order passed or award made by such council/institute/centre has to be challenged as per the Arbitration Act. The Appeal therefore deserves to be dismissed and is dismissed. (VI) C.A. No of 2022(@ SLP (C) No. 2135 of 2021) (i) The appeal filed by the Union of India is directed against the judgment and order dated 23.08.2019 passed by the High Court of Delhi at New Delhi in L.P.A. No. 42 of 2019. So far as the facts of the appeal are concerned the appellant and the respondent had entered into an agreement for Annual Maintenance Contract for all equipment s at all UTS, PRS and UTS-cum-PRS locations and all equipment at the location under the control of Chief Commercial Manager (CCM)/Passenger Marketing (PM)/ Eastern Railways. When the dispute arose between the parties, the respondent instead of invoking an arbitration clause containing the agreement, approached the Micro and Small Enterprises Facilitation Council under Section 18 of the MSMED Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule on its own jurisdiction. In that view of the matter, the present appeal deserves to be dismissed and is, accordingly, dismissed. (VII) C.A. No of 2022 (@ SLP(C) No. 6166 of 2021) (i) The appeal arises out of the judgment and order dated 24.07.2020 passed by the Division Bench of the Gujarat High Court in L.P.A. No. 1667 of 2019, whereby the Division Bench while dismissing the L.P.A held that the Respondent No. 2- M/s. Aquafil Polymers Company Pvt. Ltd. Supplier had rightly applied under Section 18(1) of the MSMED Act, 2006 to the Respondent No. 1- MSME Commissionerate- Facilitation Council, and on the conciliation process having failed, the Facilitation Council had no option left but to refer the disputes between the parties to the Respondent No. 3- Gujarat Chambers of Commerce and Industry. (ii) Broadly stated the facts of the case are that the appellant- JITF Water Infrastructure Limited was an Infrastructure Company which had entered into the agreement with the joint venture consisting of the Respondent No. 2 M/s. Aquafil Polymers Company Private Limited and one Wintech Engineering Pvt. Ltd. In respect of an order issued in favour of the appellant under G ..... X X X X Extracts X X X X X X X X Extracts X X X X
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