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TMI Blog2017 (9) TMI 2004X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration agreement, that the DRIPLEX and BHEL had agreed to refer disputes to an arbitrator appointed by BHEL and this in material variance with the provisions of Section 18(3) of the Act. In this view, the contention that there is no conflict between the arbitration agreement and Section 18(3) of the Act, is not persuasive. The arbitration clause under the GCC provides for an arbitration by an arbitrator to be appointed by BHEL, which is repugnant to an institutional arbitration - Section 24 of the Act contains an non-obstante provision and, expressly provides that the provisions of Section 15 to 23 of the Act will have an overriding effect. Thus, the provisions of Section 18(3) of the Act cannot be diluted and must be given effect to notwithstanding anything inconsistent, including the arbitration agreement in terms of section 7 of the A C Act. In BHEL v. State of U.P. others [ 2014 (2) TMI 1420 - ALLAHABAD HIGH COURT ], a Division Bench of the Allahabad High Court had considered the case where the agreement between the disputing parties contained an arbitration clause, however, the MSEFC had decided to arbitrate the disputes under Section 18(3) of the Act. BHEL was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present petitions is whether MSEFC could - in terms of Section 18 (3) of The Micro, Small and Medium Enterprises Development Act, 2006 (hereafter 'the Act') - refer the disputes for arbitration under the aegis of DIAC, considering that the disputing parties had also entered into an arbitration agreement. The General Conditions of Contracts (hereafter 'GCC'), included as a part of the agreements (purchase orders) entered into between the parties, contains an arbitration clause in terms of which the disputes are to be referred to an arbitrator appointed by BHEL. It is BHEL's contention that MSEFC does not have the jurisdiction to override the arbitration agreement and refer the disputes to DIAC. According to BHEL, once MSEFC had concluded that the disputes could not be resolved through conciliation, it could refer the parties to resolve their disputes by arbitration in terms of their agreement but it could not supplant the arbitration agreement. The respondents, both MSEFC and DRIPLEX, dispute the same. According to the respondents, in terms of Section 18(3) of the Act, if the conciliation proceedings initiated is not successful, MSEFC is enjoined to adjudicate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, thus, BHEL was not obliged to make any payments to DRIPLEX. DRIPLEX filed rejoinders countering the contentions advanced by BHEL. 4.5. It appears that certain proceedings were undertaken by MSEFC for reconciliation of the disputes but since MSEFC found that the same was not possible, MSEFC passed the impugned orders referring the disputes to arbitration under the aegis of DIAC. Submissions 5. Mr. Ashim Vachher, learned counsel appearing for BHEL contended that there was no dispute that MSEFC would have the jurisdiction to undertake the conciliation proceedings in terms of Section 18(3) of the Act. However, the parties could not be referred to arbitration contrary to the arbitration agreement entered into between them. He submitted that Section 18(3) of the Act only provided for the disputes to be resolved by arbitration failing the conciliation proceedings, however, the said arbitration was to be conducted in terms of the agreement between the parties. He canvassed that there was no conflict between the arbitration agreement and the provisions of Section 18(3) of the Act and, the same must be read in an harmonious manner. He relied on the decision of the Bombay High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions contended that the Act being a Special Act would override the provisions of Arbitration and Conciliation Act, 1996 (hereafter the 'A C Act'). 8. Mr. Nandrajog also contended that BHEL, in its reply filed before MSEFC, had not raised any objection as to jurisdiction of MSEFC and, therefore, was estopped from raising such objections at this stage. He referred to paragraph 3 of the replies filed on behalf of BHEL wherein BHEL had reserved its rights to urge further grounds in case the matter was referred to arbitration under the Act. Reasons and Conclusion 9. At the outset, it is relevant to observe that the Act was enacted with the object of facilitating the promotion, development and enhancing the competitiveness of small and medium enterprises. Chapter V of the said Act (funiculus of sections 15 to 24) contains provisions to address the issue of delayed payment to Micro and Small Enterprises. Section 15 of the Act mandates that where any supplier supplies any goods or renders any services to any buyer, the buyer would make the payment for the same on or before the date agreed, which in any case could not exceed 45 days from the date of acceptance/deemed accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 19 of the Act, inter alia, provides that 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 would be entertained, unless the appellant (not being a supplier) has deposited 75% of the amount in terms of the decree or award in the manner as directed by the Court. Section 19 of the Act is set out below:- 19. Application 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 percent 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 circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifically provided in the Order/Contract, all disputes concerning questions of the facts arising under the Order/Contract, shall be decided by purchaser, subject to written appeal by the Seller/Contractor to the purchaser, whose decision shall be final. 29.2 Any disputes or differences shall be to the extent possible settled amicably between the parties hereto, failing which the disputed issues shall be settled through arbitration. 29.3 The Seller/contractor shall continue to perform the Order/Contract, pending settlement of dispute(s). 30.0 ARBITRATION 30.1 In the event of any dispute or difference arising out of the execution of the Order/Contract or the respective rights and liabilities of the parties or in relation to interpretation of any provision by the Seller/Contractor in any manner touching upon the Order/Contract, such dispute or difference shall (except as to any matters, the decision of which is specifically provided for therein) be referred to the arbitration of the person appointed by the competent authority of the Purchaser. Subject as aforesaid, the provisions of Arbitration and Conciliation Act, 1996 (India) or statutory modifications or re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is in conformity with the object of the Act to minimise the incidence of sickness in Small and Medium Enterprises and to enhance their competitiveness. It is understood that the Small and Medium Enterprises do not command a significant bargaining power and - as indicated in the statement of object and reasons of the Act - the object of the Act is, inter alia, to extend the policy support and provide appropriate legal framework for the sector to facilitate its growth and development. It is, apparently, for this reason that Section 18 (3) does not contemplate an arbitration to be conducted by an arbitrator which is to be appointed by either party, but expressly provides that the same would be conducted by MSEFC or by any institution or a centre providing alternate dispute resolution services. 22. Section 19 of the Act also ensures a more expedient recovery by making pre-deposit of 75% of the awarded amount a pre condition for assailing the award. The benefit of this provision is not available in case of arbitrations in terms of agreements between the parties (and not by a statutory reference under Section 18 (3) of the Act). 23. In BHEL v. State of U.P. others (Supra), a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt further observed as under:- 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. 27. This court, respectfully, is unable to concur with the view of the Bombay High Court in M/s. Steel Authority of India v. The Micro, Small Enterprise Facilitation Council (supra). In that case, the Court had reasoned that Section 24 of the Act, which was enacted to give an overriding effect to provisions of Section 15 to 23 of the Act would override only such provisions which were inconsistent with Section 15 to 23 of the Act. And, since the Court was of the view that there was no inconsistency between the provisions of Section 18 (3) of the Act and the agreement between the parties to refer the disputes to arbitration under the 'A C Act', it held that the arbitration agreement between the parties could not be rendered ineffective. 28. This Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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