Mr. M.R. Shah, J.—Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the Arbitral Tribunal State Level Industry Facilitation Council constituted under Section 21 of the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as the Act, 2006), by which, the learned Council has dismissed the application submitted by the appellant herein, submitted under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "Act, 1996") and by which, the appellant herein requested to refer the matter for arbitration in exercise of powers under Section 8 of the Act, 1996, the appellant herein preferred present First Appeal.
2. The facts leading to the present First Appeal in nutshell are as under:
2.1. That the appellant herein is a registered Small Scale Manufacturer, who has established a Factory for manufacture of goods, such as Prestressed Monoblock Concrete Sleepers, that are being supplied to the Western Railways. That the dispute arose between the appellant and the Railway Authority with respect to Contract CS 160, entered into between the parties, on 20102008. It appears that prior thereto one Contract CS 156 was entered into between the parties. It was the case of the Railways Authority that so far as CS 156 is concerned, appellant failed to supply the requisite quantity of Sleepers against the total ordered quantity and therefore, as per clause in the said contract the appellant was liable to pay Liquidated Damages at 5% of the cost of the stores. Therefore, the Railways Authority calculated the cost of the unsupplied quantity of sleepers i.e. 1,65,997 at Rs.23,81,57,164.81 and Liquidated Damages at 5%, amounting to Rs.1,19,07,858.00. The aforesaid came to be recovered by the Railways Authority from the bill of the appellant to be paid under second Contract, CS 160. Therefore, the appellant herein addressed letter dated 4.5.2009 to the Railways Authority stating that the Railways had no legal right to appropriate any amount from the payment of appellant meant for CS 160, towards the claim for damages pertaining to another contract, when such damages were neither accepted, nor acceptable by it. It appears that as no reply was received from the Railways in this regard, the appellant herein being a Registered Small scale Entrepreneur, submitted an application, as per the provisions of Section 18 of the MSMED Act, before the Council on 06/11062009, claiming the outstanding amount of Rs.1,19,07,858/, with interest. It appears that the Council initially resorted to conciliation proceedings, however thereafter the Council declared award on 21.08.2010. The award declared by the Council was challenged by the Railways Authority by way of Special Civil Application No.2471 of 2011, which came to be dismissed by the learned Single Judge against which Railways Authority preferred Letters Patent Appeal No.1997 of 2011 before the Division Bench of this Court. It was contended on behalf of the Railways Authority that considering the provision of the Act, 2006, more particularly, Section 18, unless and until there was failure of conciliation there was no question of taking any step for arbitration. It was also contended on behalf of the appellant ? Railways Authority that in fact they already moved an application before the Council under Section 8 of the Act, 1996 and no order was passed on the said application. That thereafter, with the consent of the learned advocates for the respective parties, the Division Bench remanded the matter to the Council. It was agreed by the learned advocates for the respective parties that the Court be treated that the conciliation proceedings failed and the matter should be proceeded for next date for Arbitration. That thereafter, by impugned order the Council has rejected the application submitted by the appellant ? Railways Authority, by which, it was requested to prefer matter for arbitration to the Arbitral Tribunal in exercise of powers under Section 8 of the Act, 1996.
2.2. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the Arbitral Tribunal-State Level Industry Facilitation Council constituted under Section 21 of the Act, 2006, the appellant herein - Railways Authority has preferred present First Appeal.
3. Shri Mukesh Patel, learned advocate appearing on behalf of the appellant has vehemently submitted that the learned Council has materially erred in not properly appreciating scope and ambit of the Arbitration Act, 1996.
3.1. It is submitted that once there is an arbitration agreement in existence, the dispute is required to be referred for arbitration. It is submitted that therefore, when in view of the dispute between the parties and the appellant submitted the application under Section 8 of the Arbitration Act, 1996 for referring the dispute for arbitration, the Council ought to have allowed the said application and ought to have referred the matter for arbitration.
3.2. It is vehemently submitted by Shri Patel, learned advocate for the appellant that the learned Council has materially erred in holding that it not a Judicial Authority and therefore, it has no jurisdiction to entertain the application under Section 8 of the Arbitration Act, 1996.
3.3. Shri Patel, learned advocate for the appellant has heavily relied upon the decision of the Hon''''''''ble Supreme Court in the case of Morgan Securities and Credit Pvt. Ltd. v. Modi Rubber Ltd reported in AIR 2007 SC 683 (para 52) in support of his submission that the Council can be said to be "Judicial Authority" as defined under Section 2(e) of the Arbitration Act, 1996.
3.4. It is further submitted by Shri Patel, learned advocate for the appellant that in the present case the Division Bench of this Court in its order dated 11.04.2012 in Letters Patent Appeal No. 1997 of 2011 directed the Council to decide the application under Section 8 submitted by the appellant, thereafter the question on it "Council" being Judicial Authority or not, could not have been adjudicated by the Council. It is submitted that if Council would not have considered as Judicial Authority, the High Court would not have directed the Council to decide the application under Section 8 of the Arbitration Act. It is submitted that as such order passed by the Division Bench in Letters Patent Appeal No. 1997 of 2011 had attend the finality. It is submitted that after the order passed by the Division Bench of this Court in Letters Patent Appeal No. 1997 of 2011, thereafter it was not open for the Council not to entertain the application under Section 8 of the Arbitration Act, 1996.
3.5. It is further submitted by Shri Patel, learned advocate for the appellant that the learned Council has materially erred in not properly appreciating and/or considering the decision of the Bombay High Court in the case of M/s. Steel Authority of India Limited and Anr. v. Micro Small Enterprise Facilitation Council through Joint Director of Industries, Nagpur Region, Nagpur reported in AIR 2012 Bom 178.
3.6. Shri Patel, learned advocate for the appellant has also heavily relied upon the decision of the Hon''''''''ble Supreme Court in the case of Management Committee of Montfort Senior Secondary School v. Vijay Kumar and Others reported in AIR 2005 SC 3549, in support of his submission that in the present case Council can be said to be Judicial Authority having jurisdiction to entertain the application under Section 8 of the Arbitration Act, 1996.
3.7. It is further submitted by Shri Patel, learned advocate for the appellant that the learned Council ought to have appreciated that the respondent herein had entered into an agreement after the Act, 2006 came into force and by having agreed for resolution or dispute by way of arbitration has voluntarily and impliedly waived its rights under the Act, 2006 and therefore, now it cannot be permitted to invoke the provisions of the Act, 2006 in view of mandatory in nature of agreement as well as provision of Section 8 of the Arbitration Act, 1996.
Making above submissions and relying upon the above decisions, it is requested to allow the present appeal and quash and set aside the impugned judgment and order passed by the Council and consequently allowed the application under Section 8 of the Act, 1996 and refer the dispute for arbitration under the provisions of the Arbitration Act, 1996.
4. Present appeal is vehemently opposed by Shri Shukla, learned advocate for the respondent no.2 that in the facts and circumstances of the case and considering the provision of Section 18 of the Act, 2006, the learned Council has rightly rejected the application under Section 8 of the Arbitration Act, 1996 on the ground that it had no jurisdiction to entertain the application under Section 8 of the Arbitration Act and refer the dispute between the parties to arbitration.
4.1. It is further submitted that considering Section 18 of the Act 2006, where after following due procedure under Section 18; the Council itself can be said to be Arbitral Tribunal, it had no jurisdiction to further refer the matter to the arbitration.
4.2. It is further submitted that even considering Section 8 of the Arbitration Act, "Judicial Authority" defined under Section 2(e) of the Act, 1996, would have jurisdiction to entertain the application under Section 8 of the Act and refer the dispute for arbitration. It is submitted that in the present case the Council cannot be said to be "Judicial Authority" within the definition of Section 2(e) of the Arbitration Act, 1996. It is submitted that therefore, the Council being not "Judicial Authority" within the definition of Section 2(e) of the Act, 1996, the learned Council has rightly rejected the application submitted by the appellant under Section 8 of the Arbitration Act, 1996.
4.3. Shri Shukla, learned advocate for the respondent has relied upon the decision of the Allahabad High Court in the case of Paper and Board Convertors v. U.P. State Micro and Small Enterprise rendered in Writ Petition No. 24343 of 2014 by submitting that as held by the Division Bench of the Allahabad High Court after Council conducted the Conciliation proceedings and thereafter Council recorded failure of conciliation and ordered that same should be placed before the sole Arbitrator, Council had only one of two courses of action open to it, either to conduct an arbitration itself or to refer the parties to a centre or institution providing alternate dispute resolution services stipulated in Section 18(3) of the Act, 2006. It is submitted that therefore, the Council had no jurisdiction to entertain the application under Section 8 of the Act. It is submitted that therefore, in the present case, the learned Council has rightly dismissed the application under Section 8 of the Act, 1996 submitted by the appellant.
4.4. Now, so far as reliance placed upon the decisions of the Hon''''''''ble Supreme Court in the case of Morgan Securities and Credit Pvt Ltd (supra) and in the case of Vijay Kumar and Others (supra) are concerned, it is submitted that on facts and considering the provision of the Act, 2006, the said decisions shall not be applicable to the facts of the case on hand.
4.5. It is submitted that similarly the decision of the Bombay High Court in the case of M/s. Steel Authority of India Limited and Anr. (supra) also shall not be applicable to the facts of the case on hand. It is submitted that the decision of the Bombay High Court is not binding to this Court. Therefore, the considering the decision of the Allahabad High Court in the case of Paper and Board Convertors (supra), it is requested to taken independent view and hold that the Council has no jurisdiction to entertain the application under Section 8 of the Arbitration Act, 1996.
4.6. Now, so far as submission made by Shri Patel, learned advocate for the appellant that once the Division Bench of this Court in its order dated 11.04.2012 in Letters Patent Appeal No. 1997 of 2011 had directed the Council to consider the application under Section 8 of the Act, thereafter it is not open for the Council not to entertain the said application is concerned, it is submitted that in the order dated 11.04.2012 in Letters Patent Appeal No. 1997 of 2011 the Division Bench never directed to entertain the application preferred by the appellant under Section 8 of the Act and to refer the parties to arbitration. It is submitted that by aforesaid order the Division Bench simply directed the authority to decide the application under Section 8 of the Act. It is submitted that therefore, the issue whether the application under Section 8 of the Arbitration Act, 1996 before the Council was maintainable or not was still at large before the Council. It is submitted that therefore, impugned order cannot be said to be contrary to the directions issued by the Division Bench of this Court in its order dated 11.04.2012 in Letters Patent Appeal No. 1997 of 2011.
Making above submissions and relying above decision, it is requested to dismiss the present appeal.
5. Heard the learned advocates for the respective parties at length. At the outset, it is required to be noted and it is not in dispute that the parties are not governed by the provisions of Micro, Small and Medium Enterprises Development Act, 2006. In that view of the matter, if there is any dispute between the parties, the dispute is required to be resolved by following procedure as required under Section 18 of the Act, 2006. Earlier when the respondent approached Council, without following any procedure as required under Section 18(2) of the Act, 2006, the Council declared the award and at that time also the application submitted by the appellant, submitted under Section 8 of the Arbitration Act, 1996 was pending. Feeling aggrieved and dissatisfied with the award declared by the Council dated 21.08.2010, the appellant preferred Special Civil Application No. 2471 of 2011, which came to be dismissed by the learned Single Judge. Against the order passed by the learned Single Judge dismissing the petition, the appellant preferred Letters Patent Appeal No. 1997 of 2011 before the Division Bench of this Court and after considering the provision of Sections 18 and 19 of the Act, 2006, the Division Bench of the opinion that before declaring the award the procedure as required under Section 18(2) of the Act, 2005 was not followed and considering the fact that even the application under Section 8 of the Act, 1996 preferred by the appellant was pending by order dated 11.04.2012 the Division Bench allowed the said Letters Patent Appeal and quashed and set aside the order/award dated 21.08.2010 and remanded the matter to the Council to proceed with the arbitration proceedings. While remanding the matter the Division Bench passed the following order:
"In the result, this Appeal succeeds and is allowed. The order dated 21.8.2010 passed by the council is set aside. The matter is remanded back to the council to proceed with the arbitration proceedings and after serving a copy of the same on the appellant, thereafter, shall proceed to fix the date for parties to lead the evidence in support of respective claims and thereafter fix the date for hearing after giving sufficient notice to the parties and thereafter proceed to pass arbitral award in accordance with law. The order dated 11.10.2011 passed by the learned Single Judge in Special Civil Application No. 1997 of 2011 is set aside. It shall be open to the parties to raise all objections which have been raised in this Appeal and the writ petition which they want to raise before the counsel. The council shall decide the application dated 5.11.2009 preferred by appellant under section 8 of the Act as expeditiously as possible. As the Appeal is allowed, Civil Application does not survive."
5.1. That thereafter, pursuant to the direction issued by the Division Bench directing the Council to decide the application dated 5.11.2009 preferred by the appellant under Section 8 of the Act, 1996, vide impugned order Council has rejected the said application by observing that it has no jurisdiction to entertain the application. On considering the order passed by the Division Bench of this Court, it cannot be said that the Division Bench directed the Council to entertain the said application under Section 8 of the Act and refer the parties to the Arbitration in exercise of powers under Section 8 of the Arbitration Act. Under the circumstances, when issue was at large before the Council and the Division Bench directed the Council to decide the said application and thereafter when the Council has decided the application, it cannot be said that the impugned order is contrary to the direction issued by the Division Bench of this Court.
6. Now, so far as the impugned order passed by the Council rejecting the application under Section 8 of the Act, 1996 preferred by the applicant is concerned, while deciding the said issue whether the learned Council is justified in not entertaining the application under Section 8 of the Arbitration Act, 1996, all the relevant provision of the Act, 2006 are required to be considered. Sections 18, 19, 20, 21 and 24 reads as under:
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 subsection (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 conciliation was initiated under Part III of that Act.
(3) Where the conciliation initiated under subsection (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 subsection (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 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 he notification.
21. Composition of Micro and Small Enterprises Facilitation Council: The Micro and Small Enterprise Facilitation Council shall consist of not less than three but not more than five members to be appointed from among the following categories, namely:
(I). Director of Industries, by whatever name called, or any other officer not below the rank of such Director, in the Department of the State Government having administrative control of the small scale industries or, as the case may be, micro, small and medium enterprises; and
(ii) one or more office-bearers or representatives of associations of micro or small industry or enterprises in the State; and
(iii) one or more representatives of banks and financial institutions lending to micro or small enterprises; or
(iv) one or more persons having special knowledge in the field of industry, finance, law, trade or commerce
2. The person appointed under clause (i) of subsection (1) shall be the chairperson of the Micro and Small Enterprise Facilitation Council
3. The composition of the Micro and Small Enterprise Facilitation Council, the manner of filling vacancies of its members and the procedure to be followed in the discharge of their functions by the members shall be such as may be prescribed by the State Government
24. The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
6.1. It cannot be disputed that the Act 2006 is a Special Act and as per Section 24 of the Act, 2006, the provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Therefore, Section 18 of the Act, 2006 would have overriding effect or any other law for the time being in force including Arbitration Act, 1996 and therefore, if there is any dispute between the parties governed 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 subsection (3) of Section 18, where the conciliation initiated under subsection (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 subsection (1) of section 7 of that Act. In the present case, therefore, after unsuccessful conciliation which was conducted as per subsection (2) of Section 18 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 applicable in case where any proceedings are pending before the "Judicial Authority". "Judicial Authority" is not defined in the Arbitration Act, 1996. However, in the case of SBP & Co. v. Patel Engineering Ltd. and another reported in (2005) 8 SCC 618, it is observed by the Hon''''''''ble Supreme Court that "Judicial Authority" as such is not defined in the Act. It would certainly include the Court as defined in Section 2(e) of the Act and would also, in our opinion include other courts and may even include a special Tribunal like the Consumer Forum. Even in the case of Morgan Securities and Credit Pvt Ltd (supra), the Hon''''''''ble Supreme Court has observed that in its ordinary parlance "Judicial Authority" would comprehend a Court defend under the Act but also courts which would either be a Civil Court or other authorities which perform judicial functions or quasi judicial functions.
6.2. Considering the aforesaid decisions of the Hon''''''''ble Supreme Court and the law laid down by the Hon''''''''ble Supreme Court, the Council acting under Section 19 of the Act, 2006 cannot be said too be "Judicial Authority" performing judicial function or quasi judicial functions. As observed herein above, after conciliation failed, thereafter once the Council act as an Arbitrator itself, thereafter the Council had no jurisdiction to entertain the application under Section 8 of the Act. On fair reading of subsection( 3) of Section 18 only in a case where the Council itself does not act as an Arbitrator and decide to refer the parties, centre or institution providing alternate dispute resolution services as observed in subsection (3) of Section 18 the provision of the Arbitration Act shall then apply to the dispute if the arbitration is in pursuance of the Arbitration Act refer to subsection (1) of section 7 of that Act. However, in any case, the application under Section 8 of the Arbitration Act would not be maintainable before the Council who itself take up issue as Arbitrator.
7. Identical question came to be considered by the Division Bench of the Allahabad High Court in the case of Paper and Board Convertors (supra). While interpreting the very provision of Section 18 of the Act, 2006, in para 12, the Division Bench has observed and held as under:
12. The non-obstance provision contained in sub-section (1) of Section 18 and again in subsection (4) of Section 18 operates to ensure that it is a Facilitation Council which has jurisdiction to act as an arbitrator or Conciliator in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India. The Facilitation Council had only one of the two courses of action open to it : either to conduct an arbitration itself or to refer the parties to a centre or institution providing alternate dispute resolution services stipulated in subsection (3) of Section 18.
7.1. After observing as above, the Division Bench of the Allahabad High Court has set aside the order passed by the Facilitation Council directing the parties to place it version before the sole arbitrator in terms of the rate contract agreement and restored the proceedings back to the Council and directed the Council to act in accordance with the provisions of subsection (3) of Section 18 and either conduct the arbitration itself or refer the arbitral proceedings to any institution or centre providing alternate dispute resolution services.
8. Now, so far as reliance placed upon the decision of the Division Bench of the Bombay High Court in the case of M/s. Steel Authority of India Ltd. and Anr. (supra) relied upon by Shri Patel, learned advocate for appellant, for the reasons stated above provision of Act 2006 referred herein above and the Act 2006 being Special Act under which the parties are governed, we are not in agreement with the view taken by the Division Bench of the Bombay High Court and we are in complete agreement with the view taken by the Division Bench of the Allahabad High Court in the case of Paper and Board Convertors (supra).
9. Now, so far as reliance placed upon the decision of the Hon''''''''ble Supreme Court in the case of Morgan Securities and Credit Pvt Ltd (supra) and decision in the case of Vijay Kumar and Others (supra) are concerned, on going through the said decisions, we are of the opinion that said decisions shall not be applicable to the facts of the case on hand. In the case before the Hon''''''''ble Supreme Court, the dispute was as to whether the provision of Arbitration Act, 1996 would prevail over the provision of Sick Industrial Companies (Special Provisions) Act or not (in the case of Morgan Securities and Credit Pvt Ltd (supra). In the case before the Hon''''''''ble Supreme Court in the case of Vijay Kumar and Others (supra) a dispute was whether the Tribunal constituted under the Delhi School Education Act can be said to be "Judicial Authority" or not. Under the circumstances, the said decision shall not be applicable to the facts of the case on hand.
10. In view of the above and for the reasons stated above, no error has been committed by the learned Council in not entertaining the application under Section 8 of the Arbitration Act, 1996. We see no reason to interfere with the order passed by the learned Council. As observed herein above and considering the subsection (1) of Section 18 of the Act, 2006 the Facilitation Council has jurisdiction to act as Arbitrator and / or conciliator any dispute between the parties and that Council had only one of two courses of action open to it, either to conduct an arbitration itself or to refer the parties to a centre or institution providing alternate dispute resolution services stipulated in Section 18(3) of the Act, 2006. Therefore, while dismissing the present appeal, it is observed that Council shall now act in accordance with provision of subsection (3) of Section 18 and either to conduct an arbitration itself or to 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.