th
DATE :-
)
1.
Rule. Rule returnable forthwith. Heard finally by
consent of the parties.
2. This is a petition by M/s. Steel Authority of India,
questioning the jurisdiction of respondent no.1-the Micro, Small
Enterprises Facilitation Council (hereinafter referred to as "the
Council") in entertaining a reference under Section 18 of the Micro,
Small and Medium Enterprises Development Act, 2006 (hereinafter
referred to as "the Act"), in disputes, which have arisen between the
petitioners as a buyer of goods from respondent no.2-M/s. Vidarbha
Ceramics Pvt. Ltd, as seller.
3. Respondent no.2-M/s. Vidarbha Ceramics Pvt. Ltd.
(hereinafter referred to as "the Supplier") has supplied certain goods
to the petitioners (hereinafter referred to as "the Buyers") under a
contract for supply of Fire Clay Refractory Coke-Oven. According to
the petitioners, the materials supplied by the supplier were defective
and the supplier was, therefore, asked to replace the material. The
supplier, apparently, admitted the defects in the material vide
communications dated 01.01.2007, 25.01.2007 and 10.02.2007.
The supplier, thereafter, issued a notice to the petitioners and invoked
clause 22 of the agreement between them and proposed to appoint
Justice C. P. Sen (Retired) as Arbitrator to settle the dispute through
arbitration. However, in pursuance to clause 23 of the general
conditions of contract, the petitioners exercised, its powers and
appointed one Mr. S. K. Gulati as an Arbitrator for resolving the
disputes between the parties. The Arbitrator issued notices to the
parties on 09.03.2009 asking them to submit their claim within 21
days. However, on 26.03.2009, the supplier instead of filing the
claim submission before the Arbitrator, objected to the arbitration by
stating that the matter be either referred to Justice C. P. Sen (Retired)
or it should go before the Micro, Small Enterprise Facilitation Council
(hereinafter referred to as "the Council") established under the Act.
The petitioners declined to enter into another mode of settlement of
dispute before the Council since it had already appointed an
Arbitrator. On 17.04.2009, the supplier went ahead and filed a
reference before the respondent no.1-Council under Section 18 of the
Act. The petitioners filed an objection before the Council contending
that the matter cannot be entertained by it in view of the Arbitration
and Conciliation Act, 1996.
4. In this background, respondent no.1-Council having
decided to proceed with the matter, the petitioners have invoked
jurisdiction of this Court for a Writ of Prohibition restraining the
Council from entertaining the reference.
5. Mr. K. H. Deshpande, the learned counsel for the
petitioners, submitted that the reference under Section 18 of the Act
is not tenable in the present case before the Council since there is an
arbitration agreement between the parties, which has already been
invoked by the petitioners and in fact even by respondent-supplier,
who has mainly disputed the choice of the Arbitrator. According to
the learned Senior Advocate, a reference may be entertained by the
Council only where an arbitration agreement does not exist between
the parties. He further submitted that there is no inconsistency
between the existence of an independent arbitration agreement and
the arbitration which the Council is bound to undertake under the
Act. In the submission of the learned counsel for the petitioners, the
arbitration agreement between the parties could have been ignored
only if the Arbitration in pursuant thereof was inconsistent with the
provisions of the Act, which has an overriding effect over any law and
not in a case such as the present one where there is no inconsistency
between the arbitration agreement between the parties and the
arbitration is liable to be held in pursuance thereof on one hand and
the Arbitration, which may be conducted by the Council under the
provisions of Section 18 of the Act, since the arbitration to be
conducted by the Council is also required to be conducted under the
provisions of the Arbitration and Conciliation Act, 1996. In short, the
contention on behalf of the petitioners is that no inconsistency can
arise if the arbitration is conducted under the arbitration agreement
and the arbitration is conducted by the Council under Section 18 of
the Act since both must be conducted under the Arbitration and
Conciliation Act, 1996.
It is further submitted that the scheme under the Act
namely Sections 16, 17 and 18 provide only for recovery of a sum
allegedly due to the seller, therefore, a party such as a buyer i.e the
petitioners are not entitled to invoke that remedy. Hence, according
to the learned counsel for the petitioners, the arbitration agreement
between the parties, which allows for an adjudication of the claims
and counter claims of both the parties, if any, under the provision of
the Arbitration and Conciliation Act, 1996 is the only proper remedy.
6. It is, therefore, necessary to look into the provisions of
the Act. The Act is 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
identical thereto. The Act has enacted special provisions for
preventing delayed payments to such enterprises and a special
procedure for recovery of the amount due to a supplier is also laid
down. Chapter V of the Act contains the special provisions. Section
15 of the Act provides that a buyer is liable to make payment of goods
purchased from a micro or small enterprise 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, which is the
16th day from the day of acceptance or deemed day of acceptance of
the goods. Section 16 of the Act provides that notwithstanding
anything contained in any agreement between the buyer and the
supplier or in any law for the time being in force, the buyer shall be
liable to pay compound interest with monthly rests to the supplier on
the amount due from the appointed day or, as the case may be, from
the date immediately following the date agreed upon, at three times
of the bank rate notified by the Reserve Bank. Section 17 provides
that the buyer shall be liable to pay entire amount i.e. price of goods
with interest as contemplated by Section 16. Section 18 provides for
mechanism for reference i.e. reference of the dispute by any of the
parties to the Micro and Small Enterprises Facilitation Council. And
section 19 provides for an application for setting aside a decree,
award or other order made by Council or by institution or Centre,
which acts as an Arbitrator. However, it is not necessary to deal with
other provisions of Chapter V since they do not have direct bearing on
this matter, except Section 24. Section 24 of the Act provides for an
overriding effect of Sections 15 to 23 notwithstanding anything
inconsistent therewith contained in any other law for the time being
in force.
7. Sections 17, 18, 19 and 24 of the Act read as follows:-
17. Recovery of amount due.- For any goods supplied or
services rendered by the supplier, the buyer shall be liable to
pay the amount with interest thereon as provided under
Section 16.
18. Reference to Micro and Small Enterprises
Facilitation Council-(1) Notwithstanding anything
contained in any other law for the time being in force, any
party to a dispute may, with regard to any amount due
under Section 17, make a reference to the Micro and Small
Enterprises Facilitation Council.
(2) On receipt of a reference under sub-section (1), the
Council shall either itself conduct conciliation in the matter
or seek the assistance of any institution or centre providing
alternate dispute resolution services by making a reference
to such an institution or centre, for conducting conciliation
and the provisions of Sections 65 to 81 of the Arbitration
and Conciliation Act, 1996 (26 of 1996) shall apply to such
a dispute as if the condition was initiated 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 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 (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 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 within 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) .....
(21) .....
(22) .....
(23) .....
(24)Overriding effect.- The provisions of Section 15 to 23
shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in
force.
8. Mr. Deshpande, the learned counsel for the petitioners,
submitted that where there is an independent arbitration agreement
in existence between the parties, the Council has no jurisdiction under
Section 18 of the Act either to conduct conciliation or to enter upon
the reference for the purposes of arbitration. According to
Mr.Deshpande, Section 24 of the Act, which provides for an
overriding effect of the provisions of the Act including Section 18,
which provides for reference to a Council is of no effect in a case
where there is an arbitration agreement capable of being given full
effect to under the provisions of the Arbitration and Conciliation Act,
1996. Since such an agreement serves the same purpose as that of
arbitration, which might be entered upon under Section 18 of the Act
by the Council. According to the learned counsel for the petitioners, a
buyer like the petitioners, have no remedy under the Act and are not
entitled to invoke the provisions of Section 18 of the Act at all either
for conciliation or for arbitration since an amount can be claimed
under Section 18 of the Act only in respect of an amount due under
Section 17, which in term can only be an amount payable by the
buyer for service provided or goods provided by the supplier.
9. As against this, Mrs. Dangre, the learned Additional
Government Pleader for respondent no.1, submitted that though
Section 17 of the Act makes a provision for recovery of the amount
due from the buyer alone at the instance of the supplier, Section 18
clearly contemplates that any party to the dispute may; with regard to
any amount due under Section 17; make reference to the Council in
view of the expressed provisions of Section 18 (1) supra. According
to the learned Addl. Government Pleader, the purport of the Act is to
provide for a special procedure for micro, small and medium
enterprises to recover the amount and the Act has, therefore, a set up
a Facilitation Council, which is required to deal with the dispute,
which has arisen between a buyer and a micro and small enterprise,
initially by conciliation and later if conciliation fails, by arbitration.
10. Mr. Dhole, the learned counsel for respondent no.2,
submitted that the arbitration agreement between the parties cannot
be given effect to in view of the Forum provided by Section 18, which
has been given an overriding effect by Section 24 of the Act.
11. Having considered the matter, we find that Section 18
(1) of the Act, in terms allows any party to a dispute relating to the
amount due under Section 17 i.e. an amount due and payable by
buyer to seller; to approach the facilitation Council. It is rightly
contended by Mrs. Dangre, the learned Addl. Government Pleader,
that there can be variety of disputes between the parties such as about
the date of acceptance of the goods or the deemed day of acceptance,
about schedule of supplies etc. because of which a buyer may have a
strong objection to the bills raised by the supplier in which case a
buyer must be considered eligible to approach the Council. We find
that Section 18(1) clearly allows any party to a dispute namely a
buyer and a supplier to make reference to the Council. However, the
question is; what would be the next step after such a reference is
made, when an arbitration agreement exists between the parties or
not. We find that there is no provision in the Act, which negates or
renders an arbitration agreement entered into between the parties
ineffective. Moreover, Section 24 of the Act, which is enacted to give
an overriding effect to the provisions of Section 15 to 23-including
section 18, which provides for forum for resolution of the dispute
under the Act-would not have the effect of negating an arbitration
agreement since that section overrides only such things that are
inconsistent with Section 15 to 23 including Section 18
notwithstanding anything contained in any other law for the time
being in force. Section 18(3) of the Act in terms provides that where
conciliation before the Council is not successful, the Council may itself
take the dispute for arbitration or refer it to any institution or centre
providing alternate dispute resolution and that the provisions of the
Arbitration and Conciliation Act, 1996 shall thus apply to the disputes
as an arbitration in pursuance of arbitration agreement referred to in
Section 7 (1) of the Arbitration and Conciliation Act, 1996. This
procedure for arbitration and conciliation is precisely the procedure
under which all arbitration agreements are dealt with. We, thus find
that it cannot be said that because Section 18 provides for a forum of
arbitration an independent arbitration agreement entered into
between the parties will cease to have effect. There is no question of
an independent arbitration agreement ceasing to have any effect
because the overriding clause only overrides things inconsistent
therewith and there is no inconsistency between an arbitration
conducted by the Council under Section 18 and arbitration conducted
under an individual clause since both are governed by the provision of
the Arbitration Act, 1996.
12. At this stage, it is necessary to deal with another
contention raised on behalf of the Council by Mrs. Dangre, the
learned Addl. Government Pleader. According to the learned Addl.
Government Pleader, the procedure of conciliation contemplated by
Section 18 (2) of the Act is a procedure, which has been specially
enacted for the purposes providing a Forum for conciliation which
itself is capable of settling a dispute between the micro, small and
medium enterprises and any other party. We find that the arbitration
agreement in question, like most arbitration agreements, does not
contain a specific provision for conciliation and, therefore, it would be
necessary for the parties to submit to the conciliation process under
Section 18 (2) of the Act notwithstanding the existence of an
arbitration agreement. Undoubtedly, the Council may either itself
conduct the conciliation in accordance with the provisions of Section
65 to 81 of the Arbitration and Conciliation Act, 1996 or as provided
by Section 18 (2) of the Act refer it to any institute or centre provided
for alternate dispute resolution.
13. At one stage, it was also submitted at the bar that the
procedure contemplated by Section 18 of the Act for resolution of
dispute is not compulsory either for the seller or the buyer and the
parties are free to adopt any course including the civil suit. We,
however, find that it is not possible for the parties-whether a buyer or
seller-to invoke jurisdiction of a Civil Court by filing Civil Suit in
respect of its claim particularly since the requirement of conciliation is
mandatory and the buyer or seller must approach the Council where
there is a dispute with regard to any amount due under Section 17 of
the Act.
14. In the circumstances, we hold that respondent no.1-
Council is not entitled to proceed under the provisions of Section 18
(3) of the Act in view of independent arbitration agreement dated
23.09.2005 between the parties. The petitioners and respondent no.2
shall, however, participate in the conciliation, which shall be
conducted by respondent no.1-Council under the provisions of Section
18 (1) and (2) of the Act. Respondent no.1-Council shall complete
the process of conciliation within a period of two weeks from the date
the parties appear before it. The parties are directed to appear before
respondent no.1-Council on 25.10 .2010.
Rule made absolute in the above terms. No order as to
costs.