M/S. VIJETA CONSTRUCTION versus M/S. INDUS SMELTERS LTD. & ANR. on 23 September 2021

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 12.03.2012 passed by the High Court of Chhattisgarh atBilaspur in writ petition (c) No.418 of 2012, by which the High Courthas dismissed the said writ petition as not maintainable in view of remedyavailable to the original petitioner under Section 34 of the Arbitration andConciliation Act, 1996 (hereinafter referred to as the Arbitration Act),the original respondent No.1 has preferred the present civil appeal.

2. That the dispute arose between the parties which could not beresolved. The case on behalf of the respondent herein was that it suppliedTMT bar to the appellant herein valuing Rs.2,44,92,846/- out of which itreceived Rs.1,24,50,000/-. The appellant had not made payment of theremaining amount, therefore, the respondent being supplier approachedthe Chairman, Micro Small and Medium Enterprises Facilitation Council(hereinafter referred to as the Facilitation Council) constituted under theMicro Small and Medium Enterprises Development Act, 2006 (hereinafterreferred to as the MSMED Act) for small scale industries.

3. By order dated 10.01.2012 the Facilitation Council closed thesaid proceedings by observing that Facilitation Council has beenconstituted with limited object and jurisdiction and the Facilitation Council AB

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Ahas no jurisdiction to make thorough enquiry and take evidence and decidetruth about the challenged document. The Facilitation Council alsoobserved that parties are at liberty to move before the competent court.4. Feeling aggrieved and dissatisfied with the order dated10.01.2012, the respondent herein preferred writ petition (C) No.418 ofB2012 before the High Court of Chhattisgarh at Bilaspur. By the impugnedorder, the High Court has dismissed the said writ petition by observingthat order passed by the Facilitation Council rejecting the applicationcan be said to be an award under Section 18 of the MSMED Act and asper Section 18 (2) and (3), the provision of the Arbitration Act shallapply to the dispute as if the arbitration was in pursuance of an arbitrationCagreement referred to Sub-Section (1) of Section 7 of the MSMED Actand therefore such an order would be amenable to the appeal underSection 34 of the Arbitration Act before the district court. Thus by theimpugned order the High Court has dismissed the said writ petition onthe ground of availability of an alternate remedy of filing an appeal againstDthe order passed by the Facilitation Council dated 10.01.2012.

5. Feeling aggrieved and dissatisfied with the impugned orderpassed by the High Court dismissing the writ petition preferred by therespondent herein however holding that the order passed by the FacilitationCouncil rejecting the application can be said to be an award and thereforeas per the provision of the Arbitration Act shall apply to the dispute as ifEthe arbitration was in pursuance of an arbitration agreement referred toSub-Section (1) of Section (7) of the Arbitration Act and therefore againstsuch an order appeal under Section 34 of the Arbitration Act shall bemaintainable, the original respondent has preferred the present appeal.

6. Learned counsel appearing on behalf of the appellant hasFvehemently submitted that in the facts and circumstances of the casethe order of the Facilitation Council impugned before the High Courtcannot be said to be an award as by such an order the Facilitation Councildid not conclusively settle the dispute and rejected the application simplyon the ground of jurisdiction and on the ground that the Facilitation Councilhas no jurisdiction to make thorough enquiry and take evidence and decideGthe truth about the challenged document.

6.1 It is submitted by the counsel appearing on behalf of theappellant that therefore when the order passed by the Facilitation Councilimpugned before the High Court cannot be said to be an award, thesame was not amenable to the appeal before the district court underHSection 34 of the Arbitration Act.

7. Per contra learned counsel appearing on behalf of therespondent – original applicant has vehemently submitted that the orderpassed by the Facilitation Council rejecting the application can be said tobe an “award” and therefore such an order of rejecting the claim petition/application before the Facilitation Council can be challenged before thedistrict court under Section 34 of the Arbitration Act.

7.1 It is further submitted that as such the Facilitation Councilwas not justified in observing that it has no jurisdiction to make thoroughenquiry and take evidence and that the Facilitation Council has beenconstituted with limited object and jurisdiction. Heavy reliance is placedon Section 27 of the Arbitration Act. It is submitted that the FacilitationCouncil has all the jurisdiction which are available to the Arbitrator underthe provisions of the Arbitration Act including taking the evidence.

8. We have heard the learned counsel appearing on behalf of therespective parties at length.

9. At the outset, it is required to be noted and it is not in disputethat the parties are governed by the provisions of MSMED Act. As perthe MSMED Act if there is any dispute between the parties the disputeis required to be resolved by following the procedure as prescribed underSection 18 of the MSMED Act. It cannot be disputed that the MSMEDAct being a Special Act the procedure as prescribed under the MSMEDAct is required to be followed if there is any dispute between the parties.Section 15 of the MSMED Act provides for liability of the buyer tomake payment to micro small and medium enterprises. Section 16 of theMSMED Act provides for the interest payable. Section 17 of the MSMEDAct provides for any goods supplied or services rendered by the supplier,the buyer shall be liable to pay the amount with interest thereon as providedunder section 16. Section 18 of the MSMED Act provides for resolutionof the dispute between the supplier – micro and small enterprises andthe buyer. Section 19 of the MSMED Act further provides that noapplication for setting aside any decree, award or other order madeeither by the Council itself or by any institution or centre providing alternatedispute 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 thedecree, award or, as the case may be, the other order in the mannerdirected by such court.

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ASection 15 to Section 19 of the MSMED Act which are relevantfor our purpose read as under:-

15. Liability of buyer to make payment.—Where any suppliersupplies any goods or renders any services to any buyer, the buyershall make payment therefor on or before the date agreed uponbetween him and the supplier in writing or, where there is noagreement in this behalf, before the appointed day: Provided thatin no case the period agreed upon between the supplier and thebuyer in writing shall exceed forty-five days from the day ofacceptance or the day of deemed acceptance.

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16. Date from which and rate at which interest is payable.—Where any buyer fails to make payment of the amount to thesupplier, as required under section 15, the buyer shall,notwithstanding anything contained in any agreement betweenthe buyer and the supplier or in any law for the time being inforce, be liable to pay compound interest with monthly rests to thesupplier on that amount from the appointed day or, as the casemay be, from the date immediately following the date agreed upon,at three times of the bank rate notified by the Reserve Bank.

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17. Recovery of amount due.—For any goods supplied or servicesrendered by the supplier, the buyer shall be liable to pay the amountwith interest thereon as provided under section 16.

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18. Reference to Micro and Small Enterprises FacilitationCouncil.—(1) Notwithstanding anything contained in any otherlaw for the time being in force, any party to a dispute may, withregard to any amount due under section 17, make a reference toFthe Micro and Small Enterprises Facilitation Council. (2) On receiptof a reference under sub-section (1), the Council shall either itselfconduct conciliation in the matter or seek the assistance of anyinstitution or centre providing alternate dispute resolution servicesby making a reference to such an institution or centre, forGconducting conciliation and the provisions of sections 65 to 81 ofthe Arbitration and Conciliation Act, 1996 (26 of 1996) shall applyto such a dispute as if the conciliation was initiated under Part IIIof that Act. (3) Where the conciliation initiated under sub-section(2) is not successful and stands terminated without any settlementbetween the parties, the Council shall either itself take up theHdispute for arbitration or refer it to any institution or centre providing G

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alternate dispute resolution services for such arbitration and theprovisions of the Arbitration and Conciliation Act, 1996 (26 of1996) shall then apply to the dispute as if the arbitration was inpursuance of an arbitration agreement referred to in sub-section(1) of section 7 of that Act. (4) Notwithstanding anything containedin any other law for the time being in force, the Micro and SmallEnterprises Facilitation Council or the centre providing alternatedispute resolution services shall have jurisdiction to act as anArbitrator or Conciliator under this section in a dispute betweenthe supplier located within its jurisdiction and a buyer locatedanywhere in India. (5) Every reference made under this sectionshall be decided within a period of ninety days from the date ofmaking such a reference.

19. Application for setting aside decree, award or order.—Noapplication for setting aside any decree, award or other ordermade either by the Council itself or by any institution or centreproviding alternate dispute resolution services to which a referenceis made by the Council, shall be entertained by any court unlessthe appellant (not being a supplier) has deposited with it seventy-five per cent. of the amount in terms of the decree, award or, asthe case may be, the other order in the manner directed by suchcourt: Provided that pending disposal of the application to set asidethe decree, award or order, the court shall order that suchpercentage 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.

9.1 Therefore as per the scheme of the MSMED Act when thereis a dispute between the micro and small enterprises – supplier andbuyer, the same is required to be resolved by following the procedure asprescribed under Section 18 of the MSMED Act, reproducedhereinabove. As observed hereinabove, the MSMED Act is a SpecialAct and as per Section 24 of the MSMED Act, the provisions of Section15 to 23 shall have overriding effect notwithstanding inconsistent therewithcontained in any other law for the time being in force. Therefore, Section18 of the MSMED Act would have overriding effect over any other lawfor the time being in force including the Arbitration Act (to the extentinconsistent) and therefore if there is any dispute between the partiesgoverned by the MSMED Act the said dispute has to be resolved onlythrough the procedure as provided under Section 18 of the MSMED

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AAct. As per Sub-Section (1) of Section 18, notwithstanding anythingcontained in any other law for the time being in force, any party to adispute may, with regard to any amount due under section 17, mayapproach by way of a reference/application to the Micro and SmallEnterprises Facilitation Council. As per Sub-Section (2) of Section 18,on receipt of a reference under sub-section (1), the Council shall haveBto resolve the dispute through conciliation either by the Council itself orseek the assistance of any institution or centre providing alternate disputeresolution (ADR) services by making a reference to such an institutionor centre, for conducting conciliation and the provisions of sections 65 to81 of the Arbitration and Conciliation Act, 1996 shall apply to such aCdispute as if the conciliation was initiated under Part III of the ArbitrationAct. Thus at the stage of conciliation the council/conciliator have tobear in mind the provisions of sections 65 to 81 of the Arbitration Act,which read as under:- “65. Submission of statements to conciliator.—(1) The conciliator,Dupon his appointment, may request each party to submit to him abrief written statement describing the general nature of the disputeand the points at issue. Each party shall send a copy of suchstatement to the other party (2) The conciliator may request eachparty to submit to him a further written statement of his positionand the facts and grounds in support thereof, supplemented byEany documents and other evidence that such party deemsappropriate. The party shall send a copy of such statement,documents and other evidence to the other party. (3) At any stageof the conciliation proceedings, the conciliator may request a partyto submit to him such additional information as he deemsFappropriate. Explanation.—In this section and all the followingsections of this Part, the term “conciliator” applies to a soleconciliator, two or three conciliators, as the case may be.

66. Conciliator not bound by certain enactments.—The conciliatoris not bound by the Code of Civil Procedure, 1908 (5 of 1908)orGthe Indian Evidence Act, 1872 (1 of 1872).

67. Role of conciliator.—(1) The conciliator shall assist the partiesin an independent and impartial manner in their attempt to reachan amicable settlement of their dispute. (2) The conciliator shallbe guided by principles of objectivity, fairness and justice, giving H

consideration to, among other things, the rights and obligations ofthe parties, the usages of the trade concerned and thecircumstances surrounding the dispute, including any previousbusiness practices between the parties. (3) The conciliator mayconduct the conciliation proceedings in such a manner as heconsiders appropriate, taking into account the circumstances ofthe case, the wishes the parties may express, including any requestby a party that the conciliator hear oral statements, and the needfor a speedy settlement of the dispute. (4) The conciliator may, atany stage of the conciliation proceedings, make proposals for asettlement of the dispute. Such proposals need not be in writingand need not be accompanied by a statement of the reasonstherefor.

68. Administrative assistance.—In order to facilitate the conductof the conciliation proceedings, the parties, or the conciliator withthe consent of the parties, may arrange for administrative assistanceby a suitable institution or person.

69. Communication between conciliator and parties.—(1) Theconciliator may invite the parties to meet him or may communicatewith them orally or in writing. He may meet or communicate withthe parties together or with each of them separately. (2) Unlessthe parties have agreed upon the place where meetings with theconciliator are to be held, such place shall be determined by theconciliator, after consultation with the parties, having regard tothe circumstances of the conciliation proceedings.

70. Disclosure of information.—When the conciliator receivesfactual information concerning the dispute from a party, he shalldisclose the substance of that information to the other party inorder that the other party may have the opportunity to presentany explanation which he considers appropriate: Provided thatwhen a party gives any information to the conciliator subject to aspecific condition that it be kept confidential, the conciliator shallnot disclose that information to the other party.

71. Co-operation of parties with conciliator.—The parties shall ingood faith co-operate with the conciliator and, in particular, shallendeavour to comply with requests by the conciliator to submitwritten materials, provide evidence and attend meetings.

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72. Suggestions by parties for settlement of dispute.—Each partymay, on his own initiative or at the invitation of the conciliator,submit to the conciliator suggestions for the settlement of thedispute.

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73. Settlement agreement.—(1) When it appears to the conciliatorthat there exist elements of a settlement which may be acceptableto the parties, he shall formulate the terms of a possible settlementand submit them to the parties for their observations. Afterreceiving the observations of the parties, the conciliator mayreformulate the terms of a possible settlement in the light of suchobservations. (2) If the parties reach agreement on a settlementof the dispute, they may draw up and sign a written settlementagreement. If requested by the parties, the conciliator may drawup, or assist the parties in drawing up, the settlement agreement.(3) When the parties sign the settlement agreement, it shall befinal and binding on the parties and persons claiming under themrespectively. (4) The conciliator shall authenticate the settlementagreement and furnish a copy thereof to each of the parties.

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74. Status and effect of settlement agreement.—The settlementagreement shall have the same status and effect as if it is anarbitral award on agreed terms on the substance of the disputerendered by an arbitral tribunal under section 30.

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75. Confidentiality.—Notwithstanding anything contained in anyother law for the time being in force, the conciliator and the partiesshall keep confidential all matters relating to the conciliationproceedings. Confidentiality shall extend also to the settlementFagreement, except where its disclosure is necessary for purposesof implementation and enforcement.

76. Termination of conciliation proceedings.—The conciliationproceedings shall be terminated— (a) by the signing of thesettlement agreement by the parties, on the date of the agreement;Gor (b) by a written declaration of the conciliator, after consultationwith the parties, to the effect that further efforts at conciliationare no longer justified, on the date of the declaration; or (c) by awritten declaration of the parties addressed to the conciliator tothe effect that the conciliation proceedings are terminated, on thedate of the declaration; or (d) by a written declaration of a partyHto the other party and the conciliator, if appointed, to the effect that the conciliation proceedings are terminated, on the date ofthe declaration.

77. Resort to arbitral or judicial proceedings.—The parties shallnot initiate, during the conciliation proceedings, any arbitral orjudicial proceedings in respect of a dispute that is the subject-matter of the conciliation proceedings except that a party mayinitiate arbitral or judicial proceedings where, in his opinion, suchproceedings are necessary for preserving his rights.

78. Costs.—(1) Upon termination of the conciliation proceedings,the conciliator shall fix the costs of the conciliation and give writtennotice thereof to the parties. (2) For the purpose of sub-section(1), “costs” means reasonable costs relating to— (a) the fee andexpenses of the conciliator and witnesses requested by theconciliator with the consent of the parties; (b) any expert advicerequested by the conciliator with the consent of the parties; (c)any assistance provided pursuant to clause (b) of sub-section (2)of section 64 and section 68. (d) any other expenses incurred inconnection with the conciliation proceedings and the settlementagreement. (3) The costs shall be borne equally by the partiesunless the settlement agreement provides for a differentapportionment. All other expenses incurred by a party shall beborne by that party.

79. Deposits.—(1) The conciliator may direct each party to depositan equal amount as an advance for the costs referred to in sub-section(2) of section 78 which he expects will be incurred. (2)During the course of the conciliation proceedings, the conciliatormay direct supplementary deposits in an equal amount from eachparty. (3) If the required deposits under sub-sections (1) and (2)are not paid in full by both parties within thirty days, the conciliatormay suspend the proceedings or may make a written declarationof termination of the proceedings to the parties, effective on thedate of that declaration. (4) Upon termination of the conciliationproceedings, the conciliator shall render an accounting to the partiesof the deposits received and shall return any unexpended balanceto the parties.

80. Role of conciliator in other proceedings.—Unless otherwiseagreed by the parties,—

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A(a) the conciliator shall not act as an arbitrator or as a representativeor counsel of a party in any arbitral or judicial proceeding in respectof a dispute that is the subject of the conciliation proceedings; (b)the conciliator shall not be presented by the parties as a witness inany arbitral or judicial proceedings.

B81. Admissibility of evidence in other proceedings.—The partiesshall not rely on or introduce as evidence in arbitral or judicialproceedings, whether or not such proceedings relate to the disputethat is the subject of the conciliation proceedings,— (a) viewsexpressed or suggestions made by the other party in respect of apossible settlement of the dispute; (b) admissions made by theCother party in the course of the conciliation proceedings; (c)proposals made by the conciliator; (d) the fact that the other partyhad indicated his willingness to accept a proposal for settlementmade by the conciliator.”

9.2 As per Sub-Section (3) of Section 18 after conciliation failsDunder Sub-Section (2) of Section 18 of the MSMED Act, and conciliationinitiated under sub-section (2) is not successful, conciliation standsterminated without any settlement between the parties, the Council shalleither itself take up the dispute for arbitration or refer it to any institutionor centre providing ADR services for such arbitration and the provisionsEof the Arbitration and Conciliation Act, 1996 shall then apply to the disputeas if the arbitration was in pursuance of an arbitration agreement referredto in sub-section (1) of section 7 of that Act. Therefore only after theprocedure under Sub-Section (2) of Section 18 is followed and theconciliation fails and then and then only the arbitration proceedingscommences and thereafter the provisions of the Arbitration Act shallFthen apply.

9.3 In light of the aforesaid statutory provisions under the MSMEDAct as well as the Arbitration Act, the order passed by the FacilitationCouncil dated 10.01.2012 which was the subject matter before the HighCourt is required to be tested. From the order passed by the FacilitationGCouncil rejecting/dismissing the reference/application and the stage atwhich such an order was passed we are of the opinion that the FacilitationCouncil has not followed the procedure as was required to be followedunder Section 18 of the MSMED Act read with Sections 65 to 81 of theArbitration Act, as reproduced hereinabove. It is required to be notedHthat at the initial stage the Facilitation Council was performing the duty as a Conciliator for which the provisions of Sections 65 to 81 shall beapplicable. It is true that at the stage of conciliation, the role of theconciliator (Facilitation Council) is to assist the parties to reach anamicable settlement of their dispute as provided under Section 67 of theArbitration Act. At that stage the parties are not required to lead theevidence and at that stage the role of the conciliator is not to adjudicatethe dispute between the parties, but to reach an amicable settlement ofthe dispute between the parties. Once the conciliation fails thereafter asper Sub-Section (3) of Section 18 of the MSMED Act, the arbitrationproceedings commences and the conciliation proceedings standsterminated and thereafter the Facilitation Council shall either itself takeup the dispute for arbitration or refer it to any institution or centre providingADR services for such arbitration and the provisions of the ArbitrationAct shall then apply to the dispute as if the arbitration is in pursuance ofan arbitration agreement referred to Sub-Section (1) of Section 7 of theArbitration Act. At that stage and thereafter the Facilitation Councilshall act as an Arbitrator and the provisions of Arbitration Act shall thenapply to the dispute as if arbitration was in pursuance of an arbitrationagreement referred to Sub-Section (1) of Section 7 of the ArbitrationAct including the appeal under Section 34 to the district court against theaward declared by the Facilitation Council or any institution or centreproviding alternate dispute resolution (ADR) services to whom the disputeis referred for arbitration.

10. In the present case no such procedure has been followed bythe Facilitation Council as required to be followed under Section 18 ofthe MSMED Act. It is to be noted that the proceedings before theFacilitation Council/Conciliator was at the stage of conciliation. It is truethat at the stage of conciliation under Sub-Section (2) of Section 18, theconciliator (Facilitation Council) was not required to permit the partiesto lead the evidence and adjudicate the dispute. At the same time, ifthere was no amicable settlement during the conciliation or under Sub-Section (2) of Section 18 then the arbitration proceedings were requiredto be initiated as provided under Sub-Section (3) of Section 18 whichhave not been initiated in the present case. Therefore, as such, the matteris required to be remitted to the Facilitation Council to follow the procedureunder Section 18 of the MSMED Act by quashing and setting aside theorder dated 10.01.2012 passed by the Facilitation Council as well as theimpugned judgment and order passed by the High Court in writ petitionNo.418 of 2012.

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A11. Now so far as the observations made by the FacilitationCouncil, Chhattisgarh, Raipur in order dated 10.01.2012 that theFacilitation Council has been constituted with limited object and jurisdictionand the council has no jurisdiction to make thorough enquiry and to takeevidence is concerned, the aforesaid cannot be accepted. As per thescheme of the MSMED Act, the Facilitation Council has a dual role toBplay, one as a Conciliator as per Sub-Section (2) of Section 18 andthereafter in case the conciliation is unsuccessful as an Arbitrator as perSub-Section (3) of Section 18. As a Conciliator the role of the Conciliator- Facilitation Council is, as observed hereinabove, to assist the parties inan independent and impartial manner in their attempt to reach an amicableCsettlement of their dispute and at that stage the Facilitation Council is notrequired to adjudicate the dispute. At that stage the Facilitation Councilhas no jurisdiction to make thorough enquiry and take evidence. However,once the conciliation fails and the settlement is not arrived at during theconciliation and thereafter when the arbitration proceedings commencesas per Sub-Section (3) of Section 18, the Council as an arbitrator shallDhave all the powers of the arbitrator as are available under the provisionsof the Arbitration Act. Therefore the Facilitation Council is not right inobserving that the council has no jurisdiction to make thorough enquiryand take evidence and that the council has been constituted with limitedobject and jurisdiction.E

12. In view of the above and for the reasons stated above, theorder passed by the Micro Small and Medium Enterprises FacilitationCouncil, Chhattisgarh, Raipur dated 10.01.2012 in case No.26/MSTFC/2009 as well as the impugned judgment and order passed by the HighCourt in writ petition (c) No.418 of 2012 are hereby quashed and setFaside. Matter is remitted to the Micro Small and Medium EnterprisesFacilitation Council, Chhattisgarh, Raipur to decide case No. 26/MSTFC/2009 afresh in accordance with law and on its own merits after followingthe procedure as required under Section 18 of the MSMED Act and asper the observations made hereinabove. As the dispute is very old, theFacilitation Council is directed to complete the proceedings within a periodGof six months from the date of receipt of this order. There shall be noorder as to costs.

Pending applications, if any stand disposed of.