Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd.

Vireshkumar B. Mayani, J.:— Being aggrieved and dissatisfied by the judgment and decree dated 20.8.2018 passed by the learned Commercial Court at Ahmedabad passed in Commercial Civil Misc. Application No. 54 of 2016 (old Civil Misc. Application No. 172 of 2014) the appellant herein preferred the present first appeal under Section 37 of the Arbitration and Concilliation Act, 1996 on the grounds mentioned in the appeal memo.

2. In the present appeal memo in para-2 the appellant has prayed as under:—

“(A) Be pleased to admit and allow the present Appeal.

(B) Be pleased to quash and set aside the judgment dated 20/08/2018 passed by the Learned Commercial Court, Ahmedabad, passed in Commercial Civil Misc. Application No. 54/2016 (Old Civil Misc. Application No. 172/2014).

(C) Be pleased to pass such other and further orders as may be deemed fit in the interest of justice.”

3. Brief facts of the present case are as under:—

That the appellant herein is a Government Corporation and respondent No. 1 is a company duly incorporated under the provisions of the Companies Act, 1956 and having its registered office in the State of Madhya Pradesh. The respondent No. 1 Company is engaged in the business of manufacturing and processing Soya Flour and other food items. The appellant had issued a short tender notice dated 8.11.2010 inviting tenders from the eligible manufacturers for supply of 10,000 MT of Toasted Defacted Soya Flour (‘TDSF’ for short) from the date of contract as per the requirement of welfare schemes and delivery to 13 purchase centers of the Corporation. The respondent No. 1 Company participated in the tender process and submitted its bids offering to supply TDSF at Gandhinagar and Himmatnagar Centers. On 4.12.2010, the appellant Corporation issued the Work Order to respondent No. 1 Company for supplying 1524 MT TDSF at Gandhinagar and 811.5 MT TDSF at Himmatnagar center. On 18.12.2010, a contract was executed between the appellant Corporation and the respondent No. 1 Company. During the period from 30.12.2010 to 4.5.2011, respondent No. 1 Company had delivered the entire quantity worth of Rs. 6,75,20,700/- as per the specifications prescribed and to the satisfaction of the appellant Corporation. The goods were accepted by the appellant Corporation. The appellant Corporation had also made payment to the tune of Rs. 4,75,94,760/-.

Thus, an amount of Rs. 1,99,25,940/- was due and payable by the appellant Corporation on account of the delivery and a further sum of Rs. 23,36,000/- was also due and payable towards the performance security deposit by respondent No. 1 Company. On 16.4.2011, M/s. Navratna Agro supplied some goods to Madhya Pradesh Agro BRK Energy Foods Ltd. Some of the goods supplied were packed in bags containing the name of the Corporation. On suspicion, Madhya Pradesh Agro BRK Energy Foods Ltd., lodged a police complaint with Devas Police Station at Madhya Pradesh against Vikash Jain, as owner of Navratna Agro. Out of seized bags, 1130 bags were printed in the name of Gujarat State Civil Supplies Corporation and Gujarat Ambuja Export and 83 bags were printed in the name of Surat Roller Flour Mills and remaining 230 bags, there was no name printed on these bags. For the very same incident, the appellant Corporation has lodged a complaint at Ahmedabad, before CID Crime Gujarat on 13.5.2011, alleging that some 19,750/- quintals TDSF worth Rs. 5,83,000/- were stolen from the godown of the appellant Corporation. On 27.9.2011, the appellant Corporation took the possession of the goods seized by the Devas Police. Since the allegation of the theft was levelled against the authorised representative of respondent No. 1 Company, the appellant has withheld the balance payment. Thereafter, respondent No. 1 Company approached the learned Council for resolution of disputes. On 11.9.2014, the learned Council had passed the Award. The said Award had been challenged by the appellant before the Commercial Court, Ahmedabad by Commercial Civil Misc. Application No. 54 of 2016 which is rejected hence appellant has filed this appeal.

4. Mr. Niral Mehta, the learned advocate for the appellant has submitted mainly that at the time of considering the application for arbitration before the Council at Bhopal, Madhya Pradesh an opportunity was not provided to the appellant to lead the evidence or cross-examine the respondent No. 1 and, therefore, there is breach of principles of natural justice. He has also submitted that in the present case the Micro Small Medium Enterprise Development Act (MSMED Act) will not apply in the present case but Arbitration Act will apply. He has also submitted that Council at Bhopal, Madhya Pradesh who had decided the arbitration matter has no jurisdiction to decide the arbitration because the contract itself describe that, in case of dispute there will be arbitration and the venue will be Gandhinagar or Ahmedabad and, therefore, the Council at Bhopal, Madhya Pradesh has no jurisdiction. He has also submitted that respondent No. 1 Company is not entitled for the interest on the security deposit. Moreover, he has also submitted that the Council should not order to hand over the security deposit to the respondent No. 1 with interest. He has also submitted that litigation in the Ahmedabad is not mentioned in the proceedings before the Council at Bhopal, Madhya Pradesh and, therefore, the respondent No. 1 has not come with clean hands.

5. He has also submitted that the criminal proceeding is in progress and pending and, therefore, Council should not decide the arbitration matter and the Council has decided the matter in a casual manner. He has also submitted that the issue of criminal proceedings is a serious issue which has not been taken into consideration by the Council. Moreover, he has also submitted that before the Commercial Court all such points and issues are raised in the proceedings under Section 34 of the Arbitration Act but the learned Judge of Commercial Court has not appreciated all the arguments in a right manner and the application of the present appellant under Section 34 of Arbitration Act was rejected by the Commercial Court and hence the present appeal has been filed on the above mentioned grounds.

6. Mr. Saurabh G. Amin, the leaned advocate for the respondent No. 1 Company has mainly submitted that Micro Small Medium Enterprise Development Act (MSMED Act) and particularly Section 18(4) are important and the same start with non obstante clause and, therefore, this Act has overriding effect over all the Act and in this regard he has cited the citation. He has also submitted that as per MSMED Act the Council at Bhopal has jurisdiction for the arbitration. He has further submitted that point regarding jurisdiction has not been taken by the appellant at the time of filing the reply before the counsel at Bhopal but afterwards at the time of arguments the point of jurisdiction was raised. He has also submitted that Council at Bhopal has passed reasoned award. He has also cited some citations which are taken into consideration. He has also submitted that Commercial Court has taken into consideration all the facts and circumstances as well as the record of the Council at Bhopal and considered the same and then after rightly rejected the application of the present appellant under Section 34 of the Arbitration Act.

7. We have considered arguments of learned advocates for the respective parties. We have also considered the impugned order, citations of both the sides and facts and circumstances are considered and observations has been made by the learned Judge, Commercial Court at Ahmedabad.

8. The first point raised by the learned advocate for the appellant regarding the jurisdiction of the Council at Bhopal, Madhya Pradesh to decide the matter of the Arbitration Act.

9. It is not in dispute that there was a contract between the present appellant and the respondent No. 1 to supply the goods mentioned in the contract and other conditions mentioned in the contract which has been arrived at after the procedure of tender. In the present case the respondent No. 1 Company is the supplier of goods and appellant is the receiving concern. The contract has an arbitration clause. In clause (24) of the contract the arbitration point is considered which is as under:—

“24. Arbitration:

In case the dispute is not settled as per above, then the same shall be referred to arbitration under the Concilliation and Arbitration Act-1996 or any amendments made in the same from time to time. The venue of arbitration in all such cases shall be Gandhinagar/Ahmedabad.”

In view of the above mentioned contract and arbitration clause the venue for the arbitration in case of dispute shall be at Gandhinagar or Ahmedabad.

In this regard, learned advocate for the respondent No. 1 has drawn attention towards Section 18(4) of MSMED Act which is as follows:—

“Section 18(4) : Notwithstanding anything contained in any other law for the time being in force, the micro and small enterprises facilitation council or the center 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 the buyer located anywhere in India.”

In view of the above mentioned circumstances though there is an arbitration clause in contract itself which describe the venue for arbitration at Gandhinagar or Ahmedabad, MSMED Act Section 18(4) describes and start with non obstante clause i.e. notwithstanding anything contained in other law for the time being in force means the MSMED Act has overriding effect over all the law prevailing at that time which include Arbitration Act as well as the Contract Act and contract between the parties. Therefore, considering the provisions of law, particularly when the Act is a Central Act and having an overriding effect, the clause of contract regarding the venue of arbitration will not be considered but the venue describe in the MSMED Act is to be considered and in this regard in the above mentioned Section 18(4) it has been stated that an arbitrator or conciliator under this section in a dispute between the supplier located within its jurisdiction and the buyer located anywhere in India. It is not in dispute that the supplier is located in Madhya Pradesh and the receiver means the buyer is located at Gujarat, in view of the above mentioned section where the supplier is located the Council of that area has jurisdiction for the arbitration. Moreover, the appellant has not taken or raised the point regarding jurisdiction in his reply before the Council at Bhopal but at the time of argument the point regarding the jurisdiction raised, is also considered.

10. The citation Principal Chief Engineer v. Manibhai & Brothers (Sleeper), reported in (2016) 4 GLR 3349 of Hon'ble Gujarat High Court is helpful to the present respondent No. 1 in which this Court has held that once the Council act as arbitrator itself it has no jurisdiction to entertain the application under Section 8 of the Arbitration Act. This Court has also held that Section 18 of MSMED Act would have overriding effect over any other law for the time being in force including the Arbitration and Concilliation Act, 1996. Moreover, in the case of Dy. General Manager (C) H.S.M. North Eastern Electric Power Corporation Ltd., reported in (2015) 119 CLT 412 and also in the case of Welpsun Corporation v. The Micro and Small, Medium Enterprices Facilitation Council, Punjab, reported in 2011 SCC OnLine P&H 16956, the Court may consider that MSMED Act has overriding effect. Moreover in the judgment of MSP Infrastructure Ltd. v. Madhya Pradesh Road Development Corporation Ltd., reported in (2015) 13 SACC 713 of Apex Court in which it is held that on the plain reading of Section 16 of the Arbitration Act, 1996 transpire that tribunal does not have jurisdiction, shall not be raised later on submission of statement of defence. Therefore, at the time of filing the statement of defence by the appellant before the Council at Bhopal shall have to take defence regarding the jurisdiction but in the statement of defence means the reply the said point regarding the jurisdiction was not raised and it was for the first time raised at the time of argument before the Council at Bhopal and, therefore, the above mentioned citation of Apex Court is helpful to the respondent No. 1. Moreover, in the case of Ms. Steel Authority of India Ltd. v. Micro, Small Enterprice Facilitation Council through Joint Director of Industries, Nagpur Regiion, Nagpur, reported in AIR 2012 Bom 178, as well as in the case of Principal Chief Engineer (Supra) the above mentioned ratio laid down by the Apex Court has been taken into consideration.

11. In view of the above mentioned overriding effect of Section 18(4) of MSMED Act over all other Acts and also the appellant has not raised the issue or point regarding jurisdiction at the earlier point of time means at the time of filing of statement of defence or reply. The issue raised by the appellant regarding the jurisdiction of Council at Bhopal was not accepted. In this regard the Commercial Court at Ahmedabad had taken the fact and the circumstances as well as the provisions of law in paras 16 to 19 are considered. The learned Commercial Court at Ahmedabad had properly considered all the aspect regarding the fact as well as the provisions of law and has not accepted the objections raised for jurisdiction of Council at Bhopal and has not committed any error.

12. The another point raised by the appellant is regarding the breach of principles of natural justice. In this regard the learned advocate for the appellant has mainly submitted that the Council at Bhopal has not provided an opportunity for cross-examination of respondent No. 1 and also has not provided an opportunity to lead the evidence before the Council at Bhopal.

13. In the above mentioned issue it is on record that the appellant had written letter dated 18.10.2013 for seeking permission to lead the evidence and another dated 12.11.2013 and the said letter/request considered by the Council and the request was not accepted by the Council by its order dated 30.5.2014. In this regard the appellant had already filed affidavit which was available on the record of the Council and, therefore, it cannot be said that the Council has not given any opportunity to file the affidavit for defence. Moreover, the respondent No. 1 has not examined any witness and, therefore, there is no question of cross-examination of the witness. In the case of Ayaaubkhan Noorkhan Pathan v. State of Maharashtra, reported in (2013) 4 SCC 465 : AIR 2013 SC 58 it has been held that if the opportunity for cross-examination was not available or effective cross-examination opportunity is not available then there will be breach of principles of natural justice. But in the present case the respondent No. 1 has not examined any witness or led any oral evidence and, therefore, the question of cross-examination by the appellant does not arise and, therefore, this citation will not be helpful to the appellant. Moreover, in the case of Mohd. Sartaj v. State of U.P., reported in JT (2006) 1 SC 331, the Hon'ble Apex Court has held that there should be prejudice caused to the party on non observation of principles of natural justice. Here in the present case the appellant has not shown any prejudice which has been caused to the appellant due to non providing the opportunity for cross-examination. Moreover, the respondent No. 1 has cited the citation of Apex Court in the case of Sohanlal Gupta (Dead) through Lrs. v. Asha Devi Gupta (SMT), reported in (2003) 7 SCC 492, in which it has been held that in the arbitration matter the party complaining of violation of principles of natural justice must show the resultant prejudice. In the present case the appellant has not shown any prejudice which has been arrived in non cross-examination of witness of respondent No. 1. However, it is clear that the respondent No. 1 has not examined any witness and had not led any oral evidence. Therefore, in view of the above mentioned facts and circumstances the learned Commercial Court at Ahmedabad has at length considered the fact as well as the citation and, therefore, has rightly come to the conclusion in the impugned judgment.

14. The next point raised by the appellant regarding the interest cast upon the security deposit. In this regard there is a clause (25) in the contract itself regarding the performance security deposit which is as under:—

“25. PERFORMANCE SECURITY DEPOSIT (PSD):

Within 7 days of receipt of notification of award, the successful bidder shall furnish Performance Security Deposit (PSD) for the contract period amounting to Rs. 2000/- per MT for the two month's Order Quantity in form of a crossed account payee demand draft issued by a nationalized or schedule bank or reputed private bank in favour of “The Gujarat State Civil Supplies Corporation Ltd.” payable at Gandhinagar. Failure of the successful bidder to submit the Performance Security Deposit shall constitute sufficient ground for the annulment of the award and forfeiture of the EMD in which event the Corporation may make the award to the next lowest evaluated bidder or call for new bids.

The bidder will be allowed to adjust EMD amount against PSD, or its request. No interest will be paid on PSD.

The proceeds of the Performance Security Deposit shall be payable to the Corporation as compensation for any loss resulting from the Supplier's failure to complete its obligation under the Contract. The PSD shall be forfeited, if the successful bidder fails to perform as per the terms and conditions of the contract/tender document.

The performance security deposit will be discharged by the Corporation and returned to the Supplier on due performance of the contract for the contract period;

a) not later than two (2) months following the date of last month's delivery of the contract,

b) after adjusting the final accounts,

c) after submission of the indemnify bond by the bidder on the stamp paper in a format given by the Corporation and completion of the respective accounts with the tenderer.”

It has been argued by the learned advocate for the appellant that in the above mentioned Clause (25) of the Contract there is no provision for the interest on the security deposit. In this regard it is not in dispute that there is no dispute between the parties regarding the quality and quantity provided or supplied by respondent No. 1 to the appellant Corporation who is the buyer of the goods. There is no dispute regarding the fulfillment of the contract means there is no any issue, point or dispute regarding the quality of the goods provided by the respondent No. 1 to the appellant Corporation. Moreover, there is no any dispute or issue regarding the quality or quantity provided by the respondent No. 1 to the appellant Corporation. When there is no dispute about the quantity and quality of the goods provided by the respondent No. 1 to the appellant Corporation then the subject matter of the contract is apparently fulfilled. If there is any dispute regarding the police case or criminal proceedings between the parties then it is a different issue but the quality and quantity provided are as per the contract then the security deposit requires to be refunded to the respondent No. 1. However, there is nothing mentioned regarding the interest whether it will be given with interest or not. Here in the present case the contract has been apparently fulfilled and security deposit is to be refunded and if the appellant has not refunded the security deposit then naturally the respondent No. 1 has loss of interest upon such retained security deposit amount. It is also not mentioned in the above mentioned Clause (25) of the contract that no interest will be granted if the security deposit will not be refunded in time. In view of the above mentioned circumstances if security deposit has been retained by the Corporation even the contract is apparently fulfilled and the respondent No. 1 has loss of interest. Therefore providing the refund of security deposit with interest cannot be considered as ultra vires the Clause (25) of the contract or any provision of law as obligation has been apparently fulfilled even though the security deposit has been retained by the appellant. The learned Commercial Court at Ahmedabad has discussed this point in para-21 and has observed that interest can be granted upon the security deposit amount.

15. The next point raised by the appellant regarding the pendency of the criminal proceeding, even though the arbitrator/conciliator at Bhopal has passed an award in favour of the respondent No. 1.

16. The learned advocate for the appellant has submitted that FIR has been lodged by the appellant Corporation with CID Crime in which it is alleged that goods worth Rs. 5,83,000/- has been stolen. Moreover, it has come on record that another FIR was lodged at Devas Police Station in which the goods has been seized by the Devas police and the goods has been released in favour of the appellant Corporation. In the case of China Railway Shisiju GR. Corporation v. New Delhi Municipal Council, reported in (2015) 16 SCC 258, the Apex Court has held that pending of criminal case is not any embargo to appoint the arbitrator to resolve the dispute arising out of contractual obligation. In the present case the arbitrator has to consider the civil liability means what is the amount due and whether the contract has been fulfilled or not etc., and at the same time there is a criminal proceeding also going on. In view of the above mentioned judgment of Apex Court, even though there is a criminal proceeding is going on the dispute of contractual liability cannot be restrained by restriction for arbitration. In view of the above mentioned citation the Council at Bhopal has rightly considered the arbitration proceeding to be going on and finalized. The learned Commercial Court at Ahmedabad has also considered the same and come to the right conclusion.

17. The learned advocate for the appellant has also raised the point that there was violation of public policy and, therefore, the proceeding before the counsel Council Bhopal should not be concluded. But at the same time the appellant is not able to show that how there is a violation of public policy of India. In the case of Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd., reported in (2003) 5 SCC 705 : AIR 2003 SC 2629, the Hon'ble Apex Court has held that an award can be set aside in violation of public policy of India. This ratio cannot be applicable to the present case because the appellant is not able to show that how this matter or award is in violation of public policy of India and, therefore, the citation is not helpful to the appellant.

18. The learned Commercial Court at Ahmedabad has considered that there is a limited scope under Section 34 of the Arbitration Act before the Court and the award of the arbitration can be set aside only in the circumstances laid down in Section 34 of the Arbitration Act. In the case of Associate Builders v. Delhi Development Authority ., reported in (2015) 3 SCC 49, wherein it has been held that under Section 34 of Arbitration Act the Court has limited power to set aside the award of the arbitrator on the ground of public policy of India. Moreover, the Court means the District Court (Commercial Court) cannot sit as the appellate Court on the award of the arbitrator. The Court shall not appreciate or reappreciate the evidence under Section 34 of the Arbitration Act.

19. In view of the above mentioned facts and circumstances and discussion as well as the provisions of law and citations there is no merit in the present appeal and, therefore, it deserves to be dismissed. Hence the present appeal is hereby dismissed and the impugned judgment and decree dated 20.8.2018 passed by the learned Commercial Court at Ahmedabad passed in Commercial Civil Misc. Application No. 54 of 2016 is hereby confirmed. No order as to costs. Civil Application, if any, pending is disposed of accordingly.