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TMI Blog2023 (5) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... r that purpose, Section 24 of the Act of 2006 has given overriding effect to Sections 15 to 23 of the Act of 2006. The provisions under 18 of the Act of 2006 have overriding effect in view of the provisions contained in Section 24 of the Act of 2006. The legislature in Section 18(2) of the Act of 2006 has categorically provided that the Council may either itself act as a Conciliator or may refer the matter for conciliation to any institution providing alternate dispute resolution services and the procedure of conciliation proceedings will be carried out as per Sections 65 to 81 of the Act of 1996. Thereafter, the legislature under Section 18(3) of the Act of 2006 has given absolute discretion to the Council that in the event of failure of the conciliation proceedings either Council itself can proceed to arbitrate the dispute between the parties or Council may refer the arbitration to an institution providing alternate dispute resolution services and it has been further provided that during such arbitration the provisions of the Act of 1996 will be applicable. The Act of 2006 is a special law and in view of the provisions made in Section 24 of the said Act, the discretion given to C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners by filing this writ petition have challenged the order dated 11.6.2019 passed by U.P. State Micro and Small Enterprises Facilitation Council (hereinafter referred to as the Council ), whereby the decision has been taken that in view of Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as the Act of 2006 ), the Council itself will arbitrate the dispute in between the petitioners and Respondent No.2. Petitioners have also challenged the order dated 24.7.2019 passed by the Council whereby the petitioners representation pursuant to order dated 2.7.2019 passed by Delhi High Court in Arbitration Petition No.402/2019, for referring the arbitration between petitioners and Respondent No.2 to any institution or centre providing alternate dispute resolution services, has been rejected. Brief facts of the Case 3. Brief facts of the case are that Petitioner No.1 is a company incorporated under Indian Companies Act, 1930 and is India s largest retailer and leading manufacturer of footwear and accessories. Petitioner No.1 in addition to manufacturing its goods in its own factories also appoint various manufacturers during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs on 21.5.2019. Petitioners representative and the representative of Respondent No.2 appeared in the conciliation proceedings before the Council on 21.5.2019 and the Council was apprised that parties themselves are negotiating for a settlement and for that reason the Council granted one month s time to the parties to conclude negotiations. However, the parties could not arrive at the settlement and petitioners decided to terminate the conciliation proceedings as per Section 76(4) of Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996). 9. Since there was provision for arbitration under Clause 25 of the agreement entered into in between Petitioner No.1 and Respondent No.2, as such petitioners filed the petition under Section 11(6) of the Act of 1996 before Delhi High Court for appointment of Arbitrator. Petitioners also informed regarding termination of conciliation proceedings with Respondent No.1 to the Council in aforementioned Claim Petition No.58 of 2019. The Council again issued a notice on 6.6.2019 to the parties for conciliation proceedings on 11.6.2019. Petitioners authorized representative attended the proceedings on 11.6.2019 before the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent opposes the present petition on the ground of maintainability. However on instruction from her client she states that Respondent has no objection, in case, the matter is referred to any institution or centre providing alternate dispute resolution services for such arbitration. However, she further contends that this decision should be left open to be considered by the Facilitation Council. 3. At this juncture, learned counsel for the Petitioner informs the court that, his client has made a representation dated 19th June, 2019, wherein inter alia, a request has been made to refer the matter for arbitration to an institution. This representation is presently pending. He says that though in the said representation a request has been made for referring the matter to Delhi International Arbitration and Conciliation Centre, however, his clients would have no objection in case, the arbitration is carried out under the aegis of any other institution or centre providing alternate dispute resolution services. Thus, both the counsels without prejudice to the rights and contentions agree that the facilitation council may make a decision for referring the matter to an institution. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be in English and the arbitrator s decision shall be final and conclusive. The parties shall bear the arbitration expenses in equal proportion. The courts of Delhi shall have exclusive jurisdiction regarding any issue arising out of the arbitration process above and with respect to interim relief, all in accordance with the Arbitration and Conciliation Act, 1996. This Agreement shall be governed by and interpreted in accordance with the laws of India with specific territorial jurisdiction of Delhi Courts. Each party hereto shall be bound by the award rendered by the arbitrators. 14. Learned counsel for the petitioners has further submitted that since there was a dispute between the petitioners and Respondent No.2 and as per the agreement the said dispute was to be resolved by referring the matter to an Arbitrator as per clause 25 of the agreement, therefore the petitioners filed Arbitration Petition No.402 of 2019 before Delhi High Court and a prayer was made that an institutional arbitrator providing alternate dispute resolution services may be given the responsibility to arbitrate the dispute in question. 15. Learned counsel for the petitioners has also submitted that the disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the petitioners has vehemently argued that Section 18(2) of the Act of 2006 provides that the Council on receipt of a reference 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 in the said conciliation proceedings the provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 will be applicable. Learned counsel for the petitioners has further argued that no doubt Section 18(3) of the Act of 2006, in case of failure of conciliation proceedings, gives power to the Council either itself take up the dispute for arbitration or to refer it to any institution or centre providing alternate dispute resolution services but since conciliation proceedings initiated by the Council under Section 18(2) of the Act of 2006 failed and since the Council itself was Conciliator, therefore in view of the prohibition contained in Section 80 of the Act of 1996, the Council itself could not have taken up to arbitrate the dispute between the parties. For ready reference, Section 80 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution or centre proving alternate dispute resolution services for such arbitration. The provisions of Arbitration Act 1996, in its entirety, are made applicable as if the arbitration was in pursuance of the arbitration agreement referred to in sub-section(1) of Section 7 of the Arbitration Act, 1996. 20. It is thus evident that sub-section (2) and sub-section (3) of the MSMED Act vests jurisdiction in the Council to act as conciliator as well as arbitrator. The question is in view of the provisions of Section 80 of the Arbitration Act 1996, the Council which has conducted the conciliation proceedings is prohibited from acting as arbitrator. As stated earlier, certain provisions of Arbitration Act 1996 including Section 80 are specifically made applicable to conciliation proceedings contemplated by Section 18(2) of the MSMED Act. Whereas provisions of Arbitration Act 1996, in its entirety, are made applicable to the arbitration and conciliation proceedings contemplated by sub-section (3) of Section 18 of the MSMED Act. 21. A harmonious reading of these provisions clearly indicate that Section 80 of the Arbitration Act, 1996 is applicable to conciliation as well as arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction to entertain reference made by respondent No.3 under Section 18 of the MSMED Act. 2. Clause 2 of the operative part of the impugned order i.e. Arbitration proceeding be initiated U/s 18(3) of MSMED Act 2006 and that this council shall act as an Arbitrator Tribunal is quashed and set-aside and respondent No.1 - MSEFC is directed to refer the dispute between the petitioner and respondent No.3 to any institution or centre providing alternate dispute resolution services for arbitration. Respondent No.1 - MSEFC Shubhada S Kadam 23/24 wp 5459.15.doc shall take necessary steps as expeditiously as possible and, in any case, within a period of four weeks from the date of receipt of this order. 3. Rule is, accordingly, made absolute in the above terms. 20. Learned counsel for the petitioners has also argued that the Micro, Small and Medium Enterprises Council is not well equipped to arbitrate the dispute between petitioners and Respondent No.2 whereas Delhi International Arbitration Centre under the aegis of Delhi High Court is well equipped to carry out the quality arbitration proceedings and thereby has submitted that even if the discretion was with the Council either itself to arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Act, 2006, the said dispute is required to be resolved only through the procedure as provided under Section 18 of the Act, 2006. Thus, considering Section 18 of the Act, 2006, after conciliation has failed as per Section 18(2) of the Act, 2006, thereafter as per sub-Section (3) of Section 18, 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 to it 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 (2) of Section 18 of the Council shall have jurisdiction to take up dispute for arbitration. Therefore, once the Council itself is acting as an Arbitrator in that case, thereafter the Council who acts as an Arbitrator has no authority and/or jurisdiction to entertain the application under Section 8 of the Arbitration Act, 1996. Section 8 of the Arbitration Act, 1996 would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, 2006. Therefore, while dismissing the present appeal, it is observed that Council shall now act in accordance with provision of sub-section (3) of Section 18 and either to conduct an arbitration itself or refer the parties to a centre or institution providing alternate dispute resolution services. With the above observations, present appeal is dismissed. No costs. In view of dismissal of the First Appeal, Civil Application stands dismissed accordingly. 21. The said decision was challenged before the Supreme Court in Principal Chief Engineer v. M/s Manibhai Bro, SLP No. 17434/2017 decided on 5th July 2017 where the Supreme Court by a speaking order observed as under: We have given our thoughtful consideration to the submissions advanced before us yesterday and today. We are satisfied, that the interpretation placed by the High Court on Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006, in the impugned order, with reference to arbitration proceeding is fully justified and in consonance with the provisions thereof. Having affirmed the above, we are of the view, that all other matters dealt with in the impugned order are not relevant for the adjudicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction to test the legality of the decision dated 24th July, 2019, passed by the Council. The Petitioner would have to avail its remedies under the relevant provisions of the A C Act to challenge the jurisdiction of the Arbitral Tribunal. I do not find any merit in the present petition and same is dismissed. Pending applications if any are disposed of. O.M.P.(I) (COMM.) 201/2019 25. The present petition inter alia seeks the following prayers: 31. In light of the aforesaid facts and circumstances, it is most respectfully prayed that this Hon'ble Court may be pleased to stay the proposed arbitration proceedings scheduled to be initiated before the respondent no.2 on 19/5/2019 and restrain the respondent no.2 from passing any order in the proposed arbitration during the pendency of petitioner's petition under section 11(6) for reference of dispute between the parties to arbitration under the aegis of Delhi International Arbitration Centre. 26. In view of the decision rendered in arbitration petition bearing No. ARB.P. 402/2019, there is no ground to grant the relief sought in the present petition. More so since the existence of the Arbitration agreement is not disputed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been further stressed upon that so far as the jurisdiction of the Council to arbitrate the disputes is concerned, the legislature has given absolute discretion to the Council and in respect of that discretion the provisions of the Act of 1996 will not be applicable as the Act of 2006 is a special legislation dealing with a particular field and further, the provisions of Sections 65 to 81 of the Act of 1996 have been made applicable only in respect of procedure adopted by the Council while conciliating or carrying out the arbitration proceedings. 26. Learned counsel appearing for Respondent No.2 has relied upon the Division Bench judgment of this Court rendered on 3.3.2020 in Writ-C No.7785 of 2020 wherein it has been held that the prohibition contained in Section 80 of the Act of 1996 will not be applicable to the Council while exercising its jurisdiction enshrined under Sections 18(2) and 18(3) of the Act of 2006. Relevant portion of the judgment and order dated 3.3.2020 is extracted as under:- 59. Karnataka High Court in fact followed the judgment of Bombay High Court in Gujarat State Petronet Ltd. Vs. Micro and Small Enterprises Facilitation Council and others (supra) and G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... practice. It was adopted in 1985. From the preamble of Act, 1996 we find that the aforesaid Model Law as also Conciliations Rules which were adopted by UNCITRAL in 1980, have been broadly taken into consideration in enactment of Act, 1996. What we feel is that the above prohibition recognized in Section 80 is consistent with one of the well known principle of natural justice that no person shall be Judge in his own cause, of which the element of absence of bias or prejudice is one of the integral aspects. The aforesaid principle cannot be given a pedestal so as to override a mandatory provision made by Legislature, that too, by giving it an overriding effect, and, in our view, Court must endeavour to adhere and uphold the clear and specific provision instead of finding out certain principle which has not been preserved by Legislature. Validity of Section 18(3) and (4) of MSMED Act, 2006 is not under challenge before us. Therefore the provision has to be read, interpreted and followed as it is. 61. There is one more aspect. Normally an Arbitral Tribunal consists of sole Arbitrator or two Arbitrators with or without an Umpire. In such a case, there may be an element of personal prej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force of law to the extent that a legislative provision must be read as sub-serving is recognized or available. 63. In view of above discussion, we are clearly of the view that MASEF Council having acted as Conciliator is not barred from working as Arbitral Tribunal to arbitrate the dispute under Section 18(3) and such jurisdiction of MASEF Council has been given overriding effect by virtue of Section 18(4) and Section 24 which have to be given complete swing in the area covered by same. The argument, therefore, advanced otherwise by learned counsel for petitioner is hereby rejected. The question, formulated above, is answered against petitioner and we hold that MASEF Council is not prohibited from working as Arbitrator itself for adjudication of dispute between the parties and it is not obliged to refer the matter to any other body. 27. Learned counsel appearing for Respondent No.2 has also vehemently submitted that the issue involved in this writ petition regarding applicability of prohibition contained in Section 80 of the Act of 1996 in the conciliation and arbitration proceedings before the Council under Sections 18(2) and 18(3) of the Act of 2006 has already been considered a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid judgment. For ready reference, relevant portion of the aforesaid judgment dated 31st October, 2022 rendered by the Hon ble Supreme Court is extracted as under:- 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 Bharat Sewa Sansthan Vs. U.P. Electronics Corporation; AIR 2007 SC 2961. 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 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. Eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions 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. (2005) 1 SCC 754 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 under Section 18(1) of the MSMED Act, 2006 when an independent arbitration agreement between the parties exists is accepted, the very purpose of enacting the MSMED ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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 Council or the institution or the centre acts as an Arbitrator, it shall have all powers to decide the disputes referred to it as if such arbitration was in pursuance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 rendering services. If any registration, is obtained subsequently, the same would have the effect prospectively and would apply for the supply of goods and rendering services subsequent to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 Section17 would be maintainable despite an independent arbitration agreement existing between the parties and that the Facilitation Council could also take up the dispute for arbitration and act as an arbitrator as contemplated under Section 18(3) of the MSMED Act, 2006 despite the bar contained 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. 32. Learned counsel appearing for Respondent No.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dispute as if the arbitration was in pursuance of an arbitration agreement referred to in Sub-section (1) of Section 7 of that Act. 36. We find that the provisions under 18 of the Act of 2006 have overriding effect in view of the provisions contained in Section 24 of the Act of 2006. The legislature in Section 18(2) of the Act of 2006 has categorically provided that the Council may either itself act as a Conciliator or may refer the matter for conciliation to any institution providing alternate dispute resolution services and the procedure of conciliation proceedings will be carried out as per Sections 65 to 81 of the Act of 1996. Thereafter, the legislature under Section 18(3) of the Act of 2006 has given absolute discretion to the Council that in the event of failure of the conciliation proceedings either Council itself can proceed to arbitrate the dispute between the parties or Council may refer the arbitration to an institution providing alternate dispute resolution services and it has been further provided that during such arbitration the provisions of the Act of 1996 will be applicable. 37. We find that so far as the selection of forum of arbitration is concerned, the legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing so, the mandatory and overriding effect contained in Section 18(3) and 18(4) and Section 24 of MSMED Act, 2006 cannot be whittled down by referring to a salutary principle though, in our view, no such salutary principle having force of law to the extent that a legislative provision must be read as sub-serving is recognized or available. 63. In view of above discussion, we are clearly of the view that MASEF Council having acted as Conciliator is not barred from working as Arbitral Tribunal to arbitrate the dispute under Section 18(3) and such jurisdiction of MASEF Council has been given overriding effect by virtue of Section 18(4) and Section 24 which have to be given complete swing in the area covered by same. The argument, therefore, advanced otherwise by learned counsel for petitioner is hereby rejected. The question, formulated above, is answered against petitioner and we hold that MASEF Council is not prohibited from working as Arbitrator itself for adjudication of dispute between the parties and it is not obliged to refer the matter to any other body. 41. We also find that the issue in respect of applicability of prohibition contained in Section 80 of the Act of 1996 in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he MSMED Act, 2006 deserves to be set aside and is accordingly set aside. 44. We find that the legislature has enacted a special law in the form of Act of 2006 containing the special provisions in respect of Micro, Small and Medium Enterprises and further the legislature has given overriding effect to Sections 15 to 23 of the Act of 2006. Thus, the discretion given to Facilitation Council under Section 18(3) of the Act of 2006 in respect of selection of forum of arbitration between the parties is absolute and has overriding effect to any other law. Therefore, in the event of conciliation proceedings being carried out by the Council and on its failure the Council itself can proceed to arbitrate the dispute between the parties and the prohibition contained in Section 80 of the Act of 1996 will have no application in exercise of the said discretion by the Council. 45. The law in respect of the application of prohibition contained in Section 80 of the Act of 1996 has already been dealt by the Division Bench of this Court and by the Hon ble Supreme Court in the aforementioned judgments and it has been categorically held that where Facilitation Council was itself Conciliator and in the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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