M/S. SILPI INDUSTRIES ETC. versus KERALA STATE ROAD TRANSPORT CORPORATION & ANR. ETC. on 29 June 2021

[2021] 3 S.C.R. 1044

SUPREME COURT REPORTS

[2021] 3 S.C.R.

AM/S. SILPI INDUSTRIES ETC.

v.

KERALA STATE ROAD TRANSPORT CORPORATION& ANR. ETC.

(Civil Appeal Nos. 1570-1578 of 2021)

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JUNE 29, 2021

[ASHOK BHUSHAN AND R. SUBHASH REDDY, JJ.]

Limitation Act, 1963: Applicability to proceedings under ACAct, 1996 arising out of MSMED Act, 2006 – Held: Limitation ActCis applicable to arbitration covered by s.18(3) of the MSMED Act,2006 – Arbitration and Conciliation Act, 1996 – Micro, Small andMedium Enterprises Development Act, 2006 – s.18(3).

Micro, Small and Medium Enterprises Development Act, 2006:s.18(3) – Maintainability of counter claim in arbitration proceedingsDinitiated as per s.18(3) of MSMED Act – Held: In view of s.23(2A)of AC Act, 1996, counter claim/set off is maintainable – Arbitrationand Conciliation Act, 1996 – s.23(2A).

Dismissing the appeals, the Court

EHELD: 1.1 The Micro, Small and Medium EnterprisesDevelopment Act, 2006 was enacted to provide, for facilitatingthe promotion and development and enhancing thecompetitiveness of micro, small and medium enterprises and formatters connected therewith or incidental thereto. By bringingthe aforesaid Act (Act 27 of 2006) w.e.f. 16[th] June 2006, the earlierFAct, namely, Interest on Delayed Payments to Small Scale andAncillary Industrial Undertakings Act, 1993 was repealed by virtueof Section 32 of the 2006 Act. [Para 16][1056-F-G]

1.2 From the Statement of Objects and Reasons of boththe above legislations, it is clear that the earlier legislation, i.e.,GAct No.32 of 1993 was confined only with regard to delayedpayments to small scale and ancillary industrial undertakings butby subsequent enactment of 2006, a comprehensive legislationwas brought covering the micro, small and medium enterprises.[Para 17][1057-F-G]

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1.3 As per Section 15 of the 2006 Act, where suppliersupplies any goods or renders any services to any buyer, thebuyer shall make payment on or before the agreed date betweenthe parties in writing or where there is no agreement, before theappointed day. Section 16 deals with date from which and rate ofinterest payable in the event of not making the payment. Therecovery mechanism for the amount due is covered by Sections17 and 18 of the said Act. If any party has a dispute with regard toamount due under Section 17, a reference is required to be madeto the Micro and Small Enterprises Facilitation Council. On suchreference, the Council is empowered to conduct conciliation inthe matter or seek assistance of any institution or centre providingalternate dispute resolution services by making a reference tosuch institution for conducting conciliation. If the conciliation isnot successful, as contemplated under Section 18(2) of the saidAct, same stands terminated under Section 18(3) of the said Act.Thereafter, the Council shall either itself take up the dispute forarbitration or refer it to any institution or centre providingalternate dispute resolution services for such arbitration and theprovisions of Arbitration and Conciliation Act, 1996 are madeapplicable as if the arbitration was in pursuance of arbitrationagreement between the parties, under sub-section (1) of Section7 of the 1996 Act. Applicability of Limitation Act, 1963 to thearbitrations is covered by Section 43 of the 1996 Act. [Para18][1065-E-H; 1066-A-B]

Andhra Pradesh Power Coordination Committee & Ors.v. Lanco Kondapalli Power Ltd. & Ors. (2016) 3 SCC468 : [2015] 12 SCR 447 – affirmed.

1.4 A reading of Section 43 itself makes it clear that theLimitation Act, 1963 shall apply to the arbitrations, as it appliesto proceedings in court. When the settlement with regard to adispute between the parties is not arrived at under Section 18 ofthe 2006 Act, necessarily, the Micro and Small EnterprisesFacilitation Council shall take up the dispute for arbitration underSection 18(3) of the 2006 Act or it may refer to institution orcentre to provide alternate dispute resolution services andprovisions of Arbitration and Conciliation Act 1996 are madeapplicable as if there was an agreement between the parties under AB

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Asub-section (1) of Section 7 of the 1996 Act. In view of the expressprovision applying the provisions of the Limitation Act, 1963 toarbitrations as per Section 43 of the Arbitration and ConciliationAct, 1996. the High Court has rightly relied on the judgment inthe case of Andhra Pradesh Power Coordination Committee andheld that Limitation Act, 1963 is applicable to the arbitrationBproceedings under Section 18(3) of the 2006 Act. The provisionsof Limitation Act, 1963 will apply to the arbitrations covered bySection 18(3) of the 2006 Act. [Para 18][1066-C-F]

2.1 The other issue is with regard to maintainability ofcounter claim in the arbitration proceedings initiated as perCSection 18(3) of the 2006 Act. Reading of Section 18(3) of the2006 Act show that when the conciliation initiated under sub-section (2) of Section 18 of the said Act is not successful, theCouncil shall either itself take up the dispute for arbitration orrefer to any institution for arbitration. Further Section 18(3) ofDthe said Act also makes it clear that the provisions of 1996 Actare made applicable as if there is an agreement between theparties under sub-section (1) of Section 7 of the 1996 Act. Section23 of the 1996 Act deals with the statement of claim and defence.Section 23(2A), which gives a right to respondent to submit acounter claim or plead set-off with regard to claims within theEscope of the arbitration agreement, is brought into Statute byAmending Act 3 of 2016. The Statement of Objects and Reasonsof the Amending Act, is also enacted to provide for speedy disposalof cases relating to arbitration with least court intervention.Clause 11 of the Bill, by which sub-section (2A) was proposed toFbe inserted, states that sub-section (2A) was intended to give anopportunity to the respondent, in support of his case, to submitcounter-claim or a set-off if such counter-claim or set-off falls withinthe scope of arbitration agreement. When Section 18(3) makesit clear that in the event of failure by the Council under Section18(2) if proceedings are initiated under Section 18(3) of the 1996GAct, the provisions of 1996 Act are not only made applicable butspecific mention is made to the effect as if the arbitration was inpursuance to an arbitration agreement referred to in sub-section(1) of Section 7 of the 1996 Act. When there is a provision forfiling counter-claim and set-off which is expressly inserted inH

Section 23 of the 1996 Act, there is no reason for curtailing theright of the respondent for making counter-claim or set-off inproceedings before the Facilitation Council. [Paras 19, 20][1066-G-H; 1068-G-H; 1069-A-D]

2.2 It is also further to be noted that if the counter-claimmade by the buyer in the proceedings arising out of claims madeby the seller is not allowed, it may lead to parallel proceedingsbefore the various fora. On one hand, in view of beneficiallegislation, seller may approach the Facilitation Council for claims,in the event of failure of payment by the buyer under provisionsof 2006 Act, at the same time, if there is no separate agreementbetween the parties for any arbitration in a given case, buyermay approach the civil court for making claims against the seller,or else if there is an agreement between the parties for arbitrationin the event of dispute between the parties, parties may seekappointment of arbitrator. At the same time if the seller is coveredby definition under micro, small and medium enterprises, sellermay approach the Facilitation Council for making claims underthe provisions of Micro, Small and Medium EnterprisesDevelopment Act, 2006. In such event, it may result in conflictingfindings, by various forums. [Para 21][1069-E-G]

2.3 The obligations of the buyer to make payment, andaward of interest at three times of the bank rate notified byReserve Bank in the event of delay by the buyer and themechanism for recovery and reference to Micro and SmallEnterprises Facilitation Council and further remedies under the2006 Act for the party aggrieved by the awards, are covered byChapter V of the 2006 Act. The provisions of Section 15 to 23 ofthe Act are given overriding effect notwithstanding anythinginconsistent therewith contained in any other law for the timebeing in force. From the Statement of Objects and Reasons alsoit is clear that it is a beneficial legislation to the small, mediumand micro sector. The Arbitration and Conciliation Act, 1996 is ageneral law whereas the Micro, Small and Medium EnterprisesDevelopment Act, 2006 is a special beneficial legislation whichis intended to benefit micro, small and medium enterprisescovered by the said Act. The Act of 2006 contemplates a statutory A

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Aarbitration when conciliation fails. A party which is covered bythe provisions of 2006 Act allows a party to apply to the Councilconstituted under the Act to first conciliate and then arbitrate onthe dispute between it and other parties. There are fundamentaldifferences in the settlement mechanism under the 2006 Act andthe 1996 Act. The first difference is, the Council constituted underBthe 2006 Act to undertake mandatory conciliation before thearbitration which is not so under the 1996 Act. Secondly, in theevent of failure of conciliation under the 2006 Act, the Council orthe centre or institution is identified by it for arbitration. The1996 Act allows resolution of disputes by agreed forum. The thirdCdifference is that, in the event of award in favour of seller and ifthe same is to be challenged, there is a condition for pre-depositof 75% of the amount awarded. Such is not the case in the 1996Act. When such beneficial provisions are there in the specialenactment, such benefits cannot be denied on the ground thatcounter-claim is not maintainable before the Council. In any case,Dwhenever buyer wish to avoid the jurisdiction of the Council, thebuyer can do on the spacious plea of counter-claim, withoutresponding to the claims of the seller. When the provisions ofSections 15 to 23 are given overriding effect under Section 24 ofthe Act and further the 2006 Act is a beneficial legislation, evenEthe buyer, if any claim is there, can very well subject to thejurisdiction before the Council and make its claim/ counter claimas otherwise it will defeat the very objects of the Act which is abeneficial legislation to micro, small and medium enterprises.Even in cases where there is no agreement for resolution ofdisputes by way of arbitration, if the seller is a party covered byFMicro, Small and Medium Enterprises Development Act, 2006,if such party approaches the Council for resolution of dispute,other party may approach the civil court or any other forum makingclaims on the same issue. If two parallel proceedings are allowed,it may result in conflicting findings. [Para 23][1070-C-H; 1071-GA-D]Edukanti Kistamma (Dead) through LRs. v.S. Venkatareddy (Dead) through LRs. & Ors. (2010) 1SCC 756 : [2009] 16 SCR 47 – relied on.

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2.4 It is clear that out of the two legislations, the provisionsof MSMED Act will prevail, especially when it has overridingprovision under Section 24 thereof. Thus, this court holds thatMSMED Act, being a special Statute, will have an overriding effectvis-à-vis Arbitration and Conciliation Act, 1996, which is a generalAct. Even if there is an agreement between the parties forresolution of disputes by arbitration, if a seller is covered by Micro,Small and Medium Enterprises Development Act, 2006, the sellercan certainly approach the competent authority to make its claim.If any agreement between the parties is there, same is to beignored in view of the statutory obligations and mechanismprovided under the 2006 Act. Further, apart from the provisionunder Section 23(2A) of the 1996 Act, it is to be noticed that ifcounter-claim is not permitted, buyer can get over the legalobligation of compound interest at 3 times of the bank rate andthe “75% pre-deposit” contemplated under Sections 16 and 19of the MSMED Act. On a harmonious construction of Section18(3) of the 2006 Act and Section 7(1) and Section 23(2A) of the1996 Act, counter-claim is maintainable before the statutoryauthorities under MSMED Act. [Paras 23, 24][1071-D-H; 1072-A]

3.1 In C.A.Nos.1620-1622 of 2021, the High Court, whilenegating the plea of the appellant, on the maintainability ofcounter-claim, has allowed the application filed by the respondentunder Section 11(6) of the 1996 Act and appointed the secondarbitrator. Though, counter-claim and set-off is maintainable beforethe statutory authorities under MSMED Act, appellant in thisset of appeals is not entitled for the relief, for the reason that onthe date of supply of goods and services the appellant did nothave the registration by submitting the memorandum as perSection 8 of the Act. The bids were invited on 23.02.2010,appellant submitted its bid on 17.05.2010, respondent awardedcontract to the appellant on 24.09.2010 and the parties signedthe contract documents for supply of material, installation/commissioning of the power plant on 29.07.2011. Thereafter,supplies were made and the appellant has raised first invoice on02.11.2011 for supply contract and also raised the first invoicepursuant to contract for installation on 07.07.2012 and theappellant has raised the last invoice in furtherance of contract forsupply of material, on 29.03.2014. The appellant also claims to AB

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Ahave raised last invoice on 29.03.2015 in furtherance of contractfor installation. It is to be noticed that appellant approached theDistrict Industrial Centre for grant of entrepreneur memorandumonly on 25.03.2015. [Para 25][1072-A-E]

GE T & D India Ltd. v. Reliable Engineering ProjectsBand Marketing (2017) SCC OnLine Del 6978 –distinguished.

3.2 Though the appellant claims the benefit of provisionsunder MSMED Act, on the ground that the appellant was alsosupplying as on the date of making the claim, as provided underCSection 8 of the MSMED Act, but same is not based on anyacceptable material. In the present case, undisputed position isthat the supplies were concluded prior to registration of supplier.To seek the benefit of provisions under MSMED Act, the sellershould have registered under the provisions of the Act, as on thedate of entering into the contract. In any event, for the suppliesDpursuant to the contract made before the registration of the unitunder provisions of the MSMED Act, no benefit can be soughtby such entity, as contemplated under MSMED Act. [Para26][1072-E-F, G-H; 1073-A]

Shanti Conductors Pvt. Ltd. & Anr. Etc. v. Assam StateEElectricity Board & Ors. Etc. (2019) 19 SCC 529 –referred to.

3.3 There is no acceptable material to show that, supply ofgoods has taken place or any services were rendered, subsequentto registration of appellant as the unit under MSMED Act, 2006.FBy taking recourse to filing memorandum under sub-section (1)of Section 8 of the Act, subsequent to entering into contract andsupply of goods and services, one cannot assume the legal statusof being classified under MSMED Act, 2006, as an enterprise, toclaim the benefit retrospectively from the date on which appellantentered into contract with the respondent. The appellant cannotGbecome micro or small enterprise or supplier, to claim the benefitswithin the meaning of MSMED Act 2006, by submitting amemorandum to obtain registration subsequent to entering intothe contract and supply of goods and services. If any registrationis obtained, same will be prospective and applies for supply of H

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goods and services subsequent to registration but cannot operateretrospectively. Any other interpretation of the provision wouldlead to absurdity and confer unwarranted benefit in favour of aparty not intended by legislation. [Para 26][1073-C-F]

3.4 It is also not in dispute that the appellant approachedthe District Industrial Centre and filed entrepreneur memorandumunder Section 8 of the MSMED Act 2006 only on 25.03.2015 andlater has approached the Council invoking the provisions ofMSMED Act by filing application under Section 18 of the Act. Itis the specific case of the respondent that the appellant hasabandoned the incomplete work having made deficient anddefective supplies in the month of February/March 2015. In thatview of the matter, the appellant is not entitled to invoke theprovisions of Chapter V and seek reference to arbitration underSection 18 of the MSMED Act, 2006. Further, as it is also not indispute that there is an agreement for arbitration between theparties for resolution of disputes pursuant to their contract, assuch, the High Court has rightly allowed the application filed bythe respondent under Section 11(6) of the 1996 Act. [Para17][1073-F-H; 1074-A]

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M/s. B.H.P. Engineers Pvt. Ltd. v. Director, Industries,U.P. (Facilitation Centre), Kanpur & Ors. (2009) SCCOnLine All 565; M/s. Steel Authority of India Ltd. &Anr. v. Micro, Small Enterprise Facilitation Council(2010) SCC OnLine Bom 2208 – referred to.

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Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1570-1578 of 2021.

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From the Judgment and Order dated 11.08.2017 of the High Courtof Kerala at Ernakulam in Arbitration Appeal No. 69, 70, 72, 73, 77, 78,79, 80 and 81 of 2014.

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Civil Appeal Nos. 1620-1622 of 2021.

V. Giri, Ms. Aishwarya Bhati, Basava Prabhu S. Patil, Sr. Advs.,Karthik S.D., John Mathew, Deepak Prakash, Nikhil Balan,Ms. Divyangna Malik, Nitin, Nachiketa Vajpayee, Ms. Prerna Robin,BMs. Jessica Bhardwaj, Abhishek Bhati, P. B. Suresh, Vipin Nair, KarthikJayashankar, Arindam Ghosh, Anshuman Bahadur, V. N. Raghupathy,Advs. for the appearing parties.

The Judgment of the Court was delivered by CR. SUBHASH REDDY, J.

1. In view of the common issues which arise for consideration,these appeals are heard together and disposed of by this commonjudgment.

2. Civil Appeal Nos.1570-1578 of 2021 are filed, aggrieved by theDcommon judgment dated 11.08.2017 passed in Arbitration Appeal Nos.69,70, 72, 73, 77, 78, 79, 80 and 81 of 2014. By the aforesaid judgment,High Court has allowed the Arbitration Appeals filed by the respondentno.1-Kerala State Road Transport Corporation, by setting aside thecommon order dated 05.08.2014 passed in O.P.(Arb.) Nos.258 of 2007etc. and the awards passed by the arbitrator. The High Court hasEremanded the matters to the arbitrator for disposal de novo in the lightof the observations made in the judgment.

3. Civil Appeal Nos.1620-1622 of 2021 are filed, aggrieved by theorder dated 06.09.2017 in O.P.No.617 of 2017, passed by the High Courtof Madras, allowing the Original Petition filed by the respondent underFSection 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafterreferred to as ‘the 1996 Act’) and the orders dated 31.10.2017 and12.12.2017 passed in applications seeking interim directions.

4. Necessary facts in brief in the first batch of appeals referredabove are as under :G

The respondent no.1-Kerala State Road Transport Corporation(for short ‘KSRTC’), invited tenders for supply of thread rubber for tyrerebuilding. The appellants herein who were the claimants before thearbitrator were given purchase orders. As per the terms of the purchaseorder, 90% of the total purchase price was payable to the appellants/H

claimants on supply of materials and the balance 10% was to be paidsubject to final performance report. This was so, since it was the conditionthat the thread rubber supplied by the appellants was to run a minimumnumber of kilometers. When the 10% balance amount was not paid asper the purchase order, the appellants/claimants herein have approachedthe Industrial Facilitation Council [previously constituted under the Intereston Delayed Payments to Small Scale and Ancillary IndustrialUndertakings Act, 1993 (for short, ‘IDPASC Act’)] presently under theMicro and Small Enterprises Facilitation Council constituted under Micro,Small and Medium Enterprises Development Act, 2006 (hereinafterreferred to as ‘the MSMED Act’). The earlier IDPASC Act was replacedby MSMED Act and earlier Act was repealed. As the conciliation failed,the claims made by the appellants herein were referred to arbitrationunder provisions of the 1996 Act. The awards were passed in favour ofthe claimants and such awards were challenged by way of applicationsfor setting aside the same under Section 34 of the 1996 Act. When theirapplications were dismissed, respondents have carried the matter byway of appeals under Section 37 of the 1996 Act before the High Courtof Kerala at Ernakulam. The issues, which were formulated in paragraph5 of the judgment and answered by the High Court, read as under:

“(a) Whether the Limitation Act, 1963 applies to arbitrationproceedings held under the IDPASC and MSMED Acts?

(b) Which is the starting point of limitation to raise claim for the10% unpaid purchase price?

(c) Whether counter claim is entertainable in the arbitrationproceedings held pursuant to the provisions of the IDPASC andMSMED Acts?”

5. In the impugned judgment, the High Court, while consideringthe submissions of the parties and by referring to various provisions ofthe Arbitration and Conciliation Act, 1996 and the provisions of theLimitation Act, 1963, has answered the issue of limitation and held thatLimitation Act, 1963 is applicable to the proceedings under the 1996 Actarising out of MSMED Act. While answering the third question withregard to maintainability of counter claim, the High Court has held thatin view of Section 23(2A) of the 1996 Act, the ‘counter claim’ and ‘setoff’ are maintainable. While holding that counter claim is maintainable,the High Court has agreed with the view taken by the learned Single A

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AJudge of Allahabad High Court in the case of M/s. B.H.P. EngineersPvt. Ltd. v. Director, Industries, U.P. (Facilitation Centre), Kanpur& Ors.[1 ]and the Division Bench judgment of the High Court of Bombayat Nagpur in the case of M/s. Steel Authority of India Ltd. & Anr. v.Micro, Small Enterprise Facilitation Council[2]. Primarily aggrievedby the findings recorded by the High Court on the applicability ofBLimitation Act, 1963 and maintainability of counter claim, the claimantshave filed these appeals on various grounds.

6. Necessary facts in Civil Appeal Nos.1620-1622 of 2021 are asunder :

6. Necessary facts in Civil Appeal Nos.1620-1622 of 2021 are asunder :

CThe appellant and respondent herein have entered into a contractfor supply and installation of hydro-mechanical equipments for 2 x 3MW Baner-II SHP. The parties have signed an agreement on 27.03.2011,containing various clauses. It is the case of the appellant that it hascompletely executed the contract and project was commissioned on27.06.2015. The appellant herein alleging that, though it has fulfilled allDits obligations under the contract, the respondent has refused to makepayments as per the contract, has filed a Claim Petition, before the Microand Small Enterprises Facilitation Council constituted under the provisionsof MSMED Act, on 20.03.2017. The claim was filed in respect of supplyof goods and services rendered to the respondent-company. It is theEcase of the appellant that pursuant to notice issued by Facilitation Council,the respondent appeared before the Council. Thereafter the respondenthas filed O.P.No.617 of 2017 before the High Court of Judicature atMadras. The said application was filed under Section 11(6) of the 1996Act praying for appointment of a second arbitrator to decide upon disputesthat have arisen between the parties pursuant to the breach of termsFand conditions of contract for supply of hydro-mechanical equipments.

7. The said application filed by the respondent herein, is opposedby the appellant mainly on the ground that it has already moved theMicro and Small Enterprises Facilitation Council for resolution of disputes,as such, the respondent as well participate in the proceedings before theGCouncil, prayed for dismissal of application filed under Section 11(6) ofthe 1996 Act.

8. Before the High Court, it was the case of the respondent thatthe Facilitation Council has been constituted primarily to deal with the1 2009 SCC OnLine All 565H2 2010 SCC OnLine Bom 2208

disputes that are raised by the supplier and does not envisage the layingof counter claim by other party to a contract, as such it can seekappointment of arbitrator under Section 11(6) of the 1996 Act.

9. The High Court, while considering the definition of ‘supplier’under Section 2(n) of MSMED Act and also by placing reliance on Section17 and 18 of MSMED Act, has allowed the application and appointedMr. Justice K. Gnanaprakasam, former Judge of Madras High Court as2nd arbitrator.

10. When the said order is challenged before this Court, by orderdated 29.01.2018, while issuing notice this Court has ordered the SpecialLeave Petition be tagged with S.L.P.(C)Nos.33745-33753 of 2017(C.A.Nos.1570-1578 of 2021).

11. In S.L.P.(C)Nos.33745-33753 of 2017 (C.A.Nos.1570-1578of 2021), vide order dated 25.01.2018, this Court issued notice limited tothe issue as to whether the counter claim of the respondent could beentertained by the Arbitral Tribunal.

12. We have heard Sri V. Giri, learned senior counsel appearingfor the appellants and Ms. Aishwarya Bhati, learned Additional SolicitorGeneral appearing for the Kerala State Road Transport Corporation inCivil Appeal Nos.1570-1578 of 2021 and Sri P.B. Suresh, learned counselappearing for the appellant and Sri Basava Prabhu Patil, learned seniorcounsel appearing for the respondent, in Civil Appeal Nos.1620-1622 of2021.

13. Having regard to contentions of the parties, only two issuesarise for consideration before this Court, namely :

(i) Whether the provisions of Indian Limitation Act, 1963 isapplicable to arbitration proceedings initiated under Section 18(3)of Micro, Small and Medium Enterprises Development Act, 2006?; and

(ii) Whether, counter claim is maintainable in such arbitrationproceedings ?

14. Before we deal with the above issues, we need to refer certainbackground aspects of the Micro, Small and Medium EnterprisesDevelopment Act, 2006 and the earlier Act, namely, Interest on DelayedPayments to Small Scale and Ancillary Industrial Undertakings Act, 1993which was repealed by virtue of Section 32 of the MSMED Act.

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A15. The Act 32 of 1993 was an outcome pursuant to a policystatement on small scale industries made by the Government inParliament. It was felt that, inadequate working capital in small scale oran ancillary industrial undertaking causes serious and endemic problemsaffecting the health of such undertaking. The Small Scale IndustriesBoard, which was an apex advisory body on policies relating to smallBscale industrial units with representatives from all the States,governmental bodies and industrial sector was also of the same view.Therefore, it was felt that prompt payments of money by buyers shouldbe statutorily ensured and mandatory provisions for payment of intereston outstanding money, in case of default, should be made. The “appointedCday”, as defined under Section 2(b) of the said Act, means – the dayfollowing immediately after the expiry of the period of thirty days fromthe day of acceptance or the day of deemed acceptance of any goods orany services by a buyer from a supplier. Therefore, a liability to makepayment by the buyer was made under Section 3 of the said Actmandating that buyer shall make payment before the agreed date by theDparties, where there is no agreement, before the appointed day. In caseof failure to make payment by the buyer within the stipulated time as perSection 3, buyer was made to pay interest at one and a half time ofPrime Lending Rate charged by the State Bank of India. There wasalso a mechanism for recovery and created Industry Facilitation Council,Eas primary body and appellate authority was notified under Section 7 ofthe said Act. Under Section 10 of the said Act, Act 32 of 1993 was givenoverriding effect.

16. The Micro, Small and Medium Enterprises Development Act,2006 was enacted to provide, for facilitating the promotion andFdevelopment and enhancing the competitiveness of micro, small andmedium enterprises and for matters connected therewith or incidentalthereto. By bringing the aforesaid Act (Act 27 of 2006) w.e.f. 16[th] June2006, the earlier Act, namely, Interest on Delayed Payments to SmallScale and Ancillary Industrial Undertakings Act, 1993 was repealed byvirtue of Section 32 of the 2006 Act. Prior to the enforcement of Act 32Gof 1993, the small scale industry was defined only by notification underSection 11B of the Industries (Development and Regulation) Act, 1951.As per Section 29B of the said Act, notifications were being issuednotifying reservation of items for exclusive manufacture in small scaleindustry sector. Except the above said two provisions, as there was noHlegal framework for the small scale industry, and by noticing that the

small scale industry is the dynamic and vibrant sector of the country’seconomy, it was felt to bring a comprehensive Central enactment toprovide appropriate legal framework for the sector to facilitate its growthand development. It is also clear from the Statement of Objects andReasons of the Act, that the need which was felt to extend policy supportfor small scale sector so that they are enabled to grow into medium onesand to adopt better and higher levels of technology and achieve higherproductivity to remain competitive in fast globalization period. It wasalso noticed that medium industry or enterprise was not defined by anylaw. From the Statement of Objects and Reasons, it is clear that the saidAct was enacted to provide statutory definitions to ‘small enterprise’and ‘medium enterprise’; to provide for establishment of National Smalland Medium Enterprises Board; provide for classification of small andmedium enterprises on the basis of investment in plant and machinery;empower the Central Government to notify programmes, guidelines forenhancing the competitiveness of small and medium enterprises; to makeprovisions for ensuring timely and smooth flow of credit to small andmedium enterprises to minimize the incidence of sickness; empower theCentral and State Governments to notify preference policies in respectof procurement of goods and services; empowering the CentralGovernment to create a Fund or Funds for facilitating promotion anddevelopment and enhancement of the competitiveness of small enterprisesand medium enterprises; to make further improvements in the Intereston Delayed Payments to Small Scale and Ancillary IndustrialUndertakings Act, 1993 and to make that enactment a part of theproposed legislation and to repeal the enactment, etc.

17. From the Statement of Objects and Reasons of both the abovelegislations, it is clear that the earlier legislation, i.e., Act No.32 of 1993was confined only with regard to delayed payments to small scale andancillary industrial undertakings but by subsequent enactment of 2006, acomprehensive legislation was brought covering the micro, small andmedium enterprises. Under the new Act, there is a provision forestablishment of Board by the Central Government, namely, NationalBoard for Micro, Small and Medium Enterprises. The ‘enterprises’ wereclassified under Chapter III of the 2006 Act into micro, small and mediumenterprises. Liability of buyer and the mechanism in the event of defaultis by various provisions under Chapter V of the Act. Sections 5 to 19which are relevant for the purpose of disposal of these cases read asunder :

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“5. Functions of Board.—The Board shall, subject to the generaldirections of the Central Government, perform all or any of thefollowing functions, namely:—

(a) examine the factors affecting the promotion anddevelopment of micro, small and medium enterprises and reviewthe policies and programmes of the Central Government in regardto facilitating the promotion and development and enhancing thecompetitiveness of such enterprises and the impact thereof onsuch enterprises; (b) make recommendations on matters referred to in clause(a) or on any other matter referred to it by the Central Governmentwhich, in the opinion of that Government, is necessary or expedientfor facilitating the promotion and development and enhancing thecompetitiveness of the micro, small and medium enterprises; and

(c) advise the Central Government on the use of the Fundor Funds constituted under section 12.

—6. Powers and functions of Member-Secretary of Board.Subject to other provisions of this Act, the Member-Secretary ofthe Board shall exercise such powers and perform such functionsas may be prescribed.

7. Classification of enterprises.—(1) Notwithstanding anythingcontained in section 11B of the Industries (Development andRegulation) Act, 1951 (65 of 1951), the Central Government may,for the purposes of this Act, by notification and having regard tothe provisions of sub-sections (4) and (5), classify any class orclasses of enterprises, whether proprietorship, Hindu undividedfamily, association of persons, co-operative society, partnershipfirm, company or undertaking, by whatever name called,—

(a) in the case of the enterprises engaged in the manufactureor production of goods pertaining to any industry specified in theFirst Schedule to the Industries (Development and Regulation)Act, 1951 (65 of 1951), as—

(i) a micro enterprise, where the investment in plant andmachinery does not exceed twenty five lakh rupees; M/S. SILPI INDUSTRIES ETC. v. KERALA STATE ROADTRANSPORT CORPORATION [R. SUBHASH REDDY, J.]

(ii) a small enterprise, where the investment in plant andmachinery is more than twenty-five lakh rupees but does notexceed five crore rupees; or

(iii) a medium enterprise, where the investment in plant andmachinery is more than five crore rupees but does not exceed tencrore rupees; (b) in the case of the enterprises engaged in providing orrendering of services, as—

(i) a micro enterprise, where the investment in equipmentdoes not exceed ten lakh rupees;

(ii) a small enterprise, where the investment in equipmentis more than ten lakh rupees but does not exceed two crore rupees;or

(iii) a medium enterprise, where the investment in equipmentis more than two crore rupees but does not exceed five crorerupees.

Explanation 1.—For the removal of doubts, it is herebyclarified that in calculating the investment in plant and machinery,the cost of pollution control, research and development, industrialsafety devices and such other items as may be specified, bynotification, shall be excluded.

Explanation 2.—It is clarified that the provisions of section29B of the Industries (Development and Regulation) Act, 1951(65 of 1951), shall be applicable to the enterprises specified insub-clauses (i) and (ii) of clause (a) of sub-section (1) of thissection.

(2) The Central Government shall, by notification, constitutean Advisory Committee consisting of the following members,namely:—

(a) the Secretary to the Government of India in the Ministryor Department of the Central Government having administrativecontrol of the small and medium enterprises who shall be theChairperson, ex officio; A

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(b) not more than five officers of the Central Governmentpossessing necessary expertise in matters relating to micro, smalland medium enterprises, members, ex officio;

(c) not more than three representatives of the StateGovernments, members, ex officio; and (d) one representative each of the associations of micro,small and medium enterprises, members, ex officio.

(3) The Member-Secretary of the Board shall also be theex officio Member-Secretary of the Advisory Committee.

(4) The Central Government shall, prior to classifying anyclass or classes of enterprises under sub-section (1), obtain therecommendations of the Advisory Committee.

(5) The Advisory Committee shall examine the mattersreferred to it by the Board in connection with any subject referredto in section 5 and furnish its recommendations to the Board.

(6) The Central Government may seek the advice of theAdvisory Committee on any of the matters specified in section 9,10, 11, 12 or 14 of Chapter IV.

(7) The State Government may seek advice of the AdvisoryCommittee on any of the matters specified in the rules made undersection 30.

(8) The Advisory Committee shall, after considering thefollowing matters, communicate its recommendations or adviceto the Central Government or, as the case may be, StateGovernment or the Board, namely:—

(a) the level of employment in a class or classes ofenterprises; (b) the level of investments in plant and machinery orequipment in a class or classes of enterprises; 8

(c) the need of higher investment in plant and machinery orequipment for technological upgradation, employment generationand enhanced competitiveness of the class or classes ofenterprises; (d) the possibility of promoting and diffusingentrepreneurship in micro, small or medium enterprises; and (e) the international standards for classification of smalland medium enterprises.

(9) Notwithstanding anything contained in section 11B ofthe Industries (Development and Regulation) Act, 1951 (65 of1951) and clause (h) of section 2 of the Khadi and Village IndustriesCommission Act, 1956 (61 of 1956), the Central Government may,while classifying any class or classes of enterprises under sub-section (1), vary, from time to time, the criterion of investmentand also consider criteria or standards in respect of employmentor turnover of the enterprises and include in such classificationthe micro or tiny enterprises or the village enterprises, as part ofsmall enterprises.

—8. Memorandum of micro, small and medium enterprises.(1) Any person who intends to establish,—

(a) a micro or small enterprise, may, at his discretion; or (b) a medium enterprise engaged in providing or renderingof services may, at his discretion; or

(c) a medium enterprise engaged in the manufacture orproduction of goods pertaining to any industry specified in theFirst Schedule to the Industries (Development and Regulation)Act, 1951 (65 of 1951), shall file the memorandum of micro, small or, as the case may be,of medium enterprise with such authority as may be specified bythe State Government under sub-section (4) or the CentralGovernment under sub-section (3):

Provided that any person who, before the commencementof this Act, established—

(a) a small scale industry and obtained a registrationcertificate, may, at his discretion; and (b) an industry engaged in the manufacture or productionof goods pertaining to any industry specified in the First Scheduleto the Industries (Development and Regulation) Act, 1951 (65 of1951), having investment in plant and machinery of more than A

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one crore rupees but not exceeding ten crore rupees and, inpursuance of the notification of the Government of India in theerstwhile Ministry of Industry (Department of IndustrialDevelopment) number S.O. 477(E), dated the 25th July, 1991 filedan Industrial Entrepreneur’s Memorandum, shall within one hundred and eighty days from the commencementof this Act, file the memorandum, in accordance with theprovisions of this Act.

(2) The form of the memorandum, the procedure of its filingand other matters incidental thereto shall be such as may be notifiedby the Central Government after obtaining the recommendationsof the Advisory Committee in this behalf.

(3) The authority with which the memorandum shall be filedby a medium enterprise shall be such as may be specified, bynotification, by the Central Government.

(4) The State Government shall, by notification, specify theauthority with which a micro or small enterprise may file thememorandum.

(5) The authorities specified under sub-sections (3) and (4)shall follow, for the purposes of this section, the procedure notifiedby the Central Government under sub-section (2).

9. Measures for promotion and development.—The CentralGovernment may, from time to time, for the purposes of facilitatingthe promotion and development and enhancing the competitivenessof micro, small and medium enterprises, particularly of the microand small enterprises, by way of development of skill in theemployees, management and entrepreneurs, provisioning fortechnological upgradation, marketing assistance or infrastructurefacilities and cluster development of such enterprises with a viewto strengthening backward and forward linkages, specify, bynotification, such programmes, guidelines or instructions, as it maydeem fit.

10. Credit facilities.—The policies and practices in respect ofcredit to the micro, small and medium enterprises shall beprogressive and such as may be specified in the guidelines orinstructions issued by the Reserve Bank, from time to time, to ensure timely and smooth flow of credit to such enterprises,minimise the incidence of sickness among and enhance thecompetitiveness of such enterprises.

11. Procurement preference policy.—For facilitating promotionand development of micro and small enterprises, the CentralGovernment or the State Government may, by order notify fromtime to time, preference policies in respect of procurement ofgoods and services, produced and provided by micro and smallenterprises, by its Ministries or departments, as the case may be,or its aided institutions and public sector enterprises.

12. Funds.—There shall be constituted, by notification, one ormore Funds to be called by such name as may be specified in thenotification and there shall be credited thereto any grants madeby the Central Government under section 13.

13. Grants by Central Government.—The Central Governmentmay, after due appropriation made by Parliament by law in thisbehalf, credit to the Fund or Funds by way of grants for thepurposes of this Act, such sums of money as that Governmentmay consider necessary to provide.

14. Administration and utilisation of Fund or Funds.—(1)The Central Government shall have the power to administer theFund or Funds in such manner as may be prescribed. (2) TheFund or Funds shall be utilised exclusively for the measuresspecified in sub-section (1) of section 9. (3) The CentralGovernment shall be responsible for the coordination and ensuringtimely utilisation and release of sums in accordance with suchcriteria as may be prescribed.

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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supplier, 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.

17. Recovery of amount due.—For any goods supplied orservices rendered by the supplier, the buyer shall be liable to paythe amount with interest thereon as provided under section 16. 10

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 tothe Micro and Small Enterprises Facilitation Council.

(2) On receipt of a reference under sub-section (1), theCouncil shall either itself conduct conciliation in the matter or seekthe assistance of any institution or centre providing alternate disputeresolution services by making a reference to such an institution orcentre, for conducting conciliation and the provisions of sections65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996)shall apply to such a dispute as if the conciliation was initiatedunder Part III of that Act.

(3) Where the conciliation initiated under sub-section (2) isnot successful and stands terminated without any settlementbetween the parties, the Council shall either itself take up thedispute for arbitration or refer it to any institution or centre providingalternate 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 contained in any other lawfor the time being in force, the Micro and Small EnterprisesFacilitation Council or the centre providing alternate disputeresolution services shall have jurisdiction to act as an Arbitratoror Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere inIndia.

(5) Every reference made under this section shall be decidedwithin a period of ninety days from the date of making such areference.

—19. Application for setting aside decree, award or order.No application 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.”

18. With regard to first issue, namely, applicability of LimitationAct, 1963 to the arbitration proceedings initiated under provisions ofMicro, Small and Medium Enterprises Development Act, 2006, we needto notice certain relevant sections of the Act. As per Section 15 of thesaid Act, where supplier supplies any goods or renders any services toany buyer, the buyer shall make payment on or before the agreed datebetween the parties in writing or where there is no agreement, beforethe appointed day. Section 16 deals with date from which and rate ofinterest payable in the event of not making the payment. The recoverymechanism for the amount due is covered by Sections 17 and 18 of thesaid Act. If any party has a dispute with regard to amount due underSection 17, a reference is required to be made to the Micro and SmallEnterprises Facilitation Council. On such reference, the Council isempowered to conduct conciliation in the matter or seek assistance ofany institution or centre providing alternate dispute resolution servicesby making a reference to such institution for conducting conciliation. Ifthe conciliation is not successful, as contemplated under Section 18(2)of the said Act, same stands terminated under Section 18(3) of the said A

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AAct. Thereafter, the Council shall either itself take up the dispute forarbitration or refer it to any institution or centre providing alternate disputeresolution services for such arbitration and the provisions of Arbitrationand Conciliation Act, 1996 are made applicable as if the arbitration wasin pursuance of arbitration agreement between the parties, under sub-section (1) of Section 7 of the 1996 Act. Applicability of Limitation Act,B1963 to the arbitrations is covered by Section 43 of the 1996 Act. TheHigh Court, while referring to abovesaid provisions and the judgment ofthis Court in the case of Andhra Pradesh Power CoordinationCommittee & Ors. v. Lanco Kondapalli Power Ltd. & Ors.[3] hasheld that the Limitation Act, 1963 is applicable to the arbitrations coveredCby Section 18(3) of the 2006 Act. A reading of Section 43 itself makes itclear that the Limitation Act, 1963 shall apply to the arbitrations, as itapplies to proceedings in court. When the settlement with regard to adispute between the parties is not arrived at under Section 18 of the2006 Act, necessarily, the Micro and Small Enterprises FacilitationCouncil shall take up the dispute for arbitration under Section 18(3) ofDthe 2006 Act or it may refer to institution or centre to provide alternatedispute resolution services and provisions of Arbitration and ConciliationAct 1996 are made applicable as if there was an agreement betweenthe parties under sub-section (1) of Section 7 of the 1996 Act. In viewof the express provision applying the provisions of the Limitation Act,E1963 to arbitrations as per Section 43 of the Arbitration and ConciliationAct, 1996, we are of the view that the High Court has rightly relied onthe judgment in the case of Andhra Pradesh Power CoordinationCommittee[3] and held that Limitation Act, 1963 is applicable to thearbitration proceedings under Section 18(3) of the 2006 Act. Thus, weare of the view that no further elaboration is necessary on this issue andFwe hold that the provisions of Limitation Act, 1963 will apply to thearbitrations covered by Section 18(3) of the 2006 Act. We make it clearthat as the judgment of the High Court is an order of remand, we neednot enter into the controversy whether the claims/counter claims arewithin time or not. We keep it open to the primary authority to go intoGsuch issues and record its own findings on merits.

19. The other issue is with regard to maintainability of counterclaim in the arbitration proceedings initiated as per Section 18(3) of the2006 Act. It is true that recovery amount under Section 17 of the said H3 (2016) 3 SCC 468

Act is only with reference to the amounts claimed by the supplier underSection 16 of the said Act. But coming to Section 18 of the said Act, thewords used are, ‘any party to a dispute’ for making a reference to Microand Small Enterprises Facilitation Council under Section 18 of the Act.To decide the issue of maintainability we refer to the first batch of appeals,which are filed aggrieved by the judgment of the High Court of Kerala.The appellants are suppliers of thread rubber for tyre rebuilding to therespondent-KSRTC. They were given purchase orders by theCorporation and they were paid 90% of the total price and 10% was tobe paid based on the final performance report. Whereas it is the case ofthe appellants that they are entitled for balance amount of 10%, samewas withheld illegally, on the other hand it is the case of the Corporationthat as the performance of the supplies were not in accordance with thecontractual terms, as such, the appellants are not entitled for any amountand in some of the matters counter claims were made by the Corporationagainst the appellants. Sri V. Giri, learned senior counsel appearing forthe appellants in first batch of appeals has mainly contended that acomprehensive reading of the various provisions under Chapter V of the2006 Act, makes it clear that the conciliation and arbitration, is referableto the claims of the supplier only. It is submitted that 2006 Act is abeneficial legislation to the micro and small enterprises, as such, scopeof the Act cannot be expanded by allowing counter claims by buyer. It issubmitted that the object of 2006 Act is solely intended to protect themicro and small enterprises, if counter claims are allowed it amounts toexpanding the scope of the enactment. On the other hand it is submittedby Ms. Aishwarya Bhati, learned Addl. Solicitor General appearing forthe respondent-Corporation and Sri P.B. Suresh, learned counselappearing for the appellant in Civil Appeal arising out of C.A.Nos.1620-1622 of 2021 that the MSMED Act which is a beneficial legislation to“unpaid seller” cannot be rendered otiose, and the authorities constitutedunder the Act cannot be denied its jurisdiction to entertain the claims, atthe instance of buyer on the mere plea of counter claim. It is submittedthat only on such ground that Facilitation Council is denied its jurisdiction,the various benefits conferred under the Act to the sellers will be denied.It is submitted that in every case to deny the benefits conferred underthe Statute, the seller cannot be deprived of such benefits on the pleathat counter claim is not maintainable before the authorities constitutedunder 2006 Act. By referring to Section 16 of the Act, it is submitted thatwhere any buyer fails to make payment of the amounts to the supplier, AB

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Aas required under Section 15, the buyer shall, notwithstanding anythingcontained in any agreement between the buyer and the supplier or inany law for the time being in force, be liable to pay compound interestwith monthly rests to the supplier on that amount from the appointed dayor, as the case may be, from the date agreed upon, at three times of thebank rate notified by the Reserve Bank. By further referring to SectionB19 of the Act it is submitted that when an application is filed for settingaside decree, award or order same shall not be entertained by any courtunless the appellant (not being a supplier), has deposited with it 75% ofthe amount in terms of the decree or award. The said benefits areconferred, in view of the beneficial objects of the Act, to the sellers. It isCsubmitted that if the jurisdiction of the Council is ousted on the groundthat counter claim cannot be entertained, buyer can easily get over thelegal obligations of payment of compound interest and pre-deposit of75% of the awarded amount in the event of challenge to the same, asreferred above. Thus, it is submitted that the counter claim is maintainable before the authorities constituted under 2006 Act. Further, it is submittedDthat when the conciliation is failed, for further proceedings, provisions ofthe Arbitration and Conciliation Act, 1996 are made applicable as if thereis an agreement between the parties under sub-section (1) of Section 7of the 1996 Act, as such there is no reason for not allowing counterclaim by the buyer. A specific reference is made to Section 23(2A) ofEthe 1996 Act. Learned senior counsel Sri Basava Prabhu S. Patil,appearing for the respondent in C.A.Nos.1620-1622 of 2021 hassubmitted that no claim or counter claim under Section 18 is contemplatedor permissible. It is submitted that the expression ‘any party’ occurringin Section 18 is referable to supplier alone. Thus, it is submitted that inabsence of jurisdiction, no counter claim can be entertained. Further it isFsubmitted that in any event as the supply of goods and services weremade much prior to filing of memorandum by the appellant, the appellantcannot make any claim before the authority constituted under MSMEDAct.

20. From a reading of Section 18(3) of the 2006 Act it is clear thatGwhen the conciliation initiated under sub-section (2) of Section 18 of thesaid Act is not successful, the Council shall either itself take up thedispute for arbitration or refer to any institution for arbitration. FurtherSection 18(3) of the said Act also makes it clear that the provisions of1996 Act are made applicable as if there is an agreement between theHparties under sub-section (1) of Section 7 of the 1996 Act. Section 23 of

the 1996 Act deals with the statement of claim and defence. Section23(2A), which gives a right to respondent to submit a counter claim orplead set-off with regard to claims within the scope of the arbitrationagreement, is brought into Statute by Amending Act 3 of 2016. If welook at the Statement of Objects and Reasons of the Amending Act,same is also enacted to provide for speedy disposal of cases relating toarbitration with least court intervention. Clause 11 of the Bill, by whichsub-section (2A) was proposed to be inserted, states that sub-section(2A) was intended to give an opportunity to the respondent, in support ofhis case, to submit counter-claim or a set-off if such counter-claim orset-off falls within the scope of arbitration agreement. When Section18(3) makes it clear that in the event of failure by the Council underSection 18(2) if proceedings are initiated under Section 18(3) of the1996 Act, the provisions of 1996 Act are not only made applicable butspecific mention is made to the effect as if the arbitration was in pursuanceto an arbitration agreement referred to in sub-section (1) of Section 7 ofthe 1996 Act. When there is a provision for filing counter-claim and set-off which is expressly inserted in Section 23 of the 1996 Act, there is noreason for curtailing the right of the respondent for making counter-claim or set-off in proceedings before the Facilitation Council.

21. It is also further to be noted that if we do not allow the counter-claim made by the buyer in the proceedings arising out of claims madeby the seller, it may lead to parallel proceedings before the various fora.On one hand, in view of beneficial legislation, seller may approach theFacilitation Council for claims, in the event of failure of payment by thebuyer under provisions of 2006 Act, at the same time, if there is noseparate agreement between the parties for any arbitration in a givencase, buyer may approach the civil court for making claims against theseller, or else if there is an agreement between the parties for arbitrationin the event of dispute between the parties, parties may seek appointmentof arbitrator. At the same time if the seller is covered by definition undermicro, small and medium enterprises, seller may approach the FacilitationCouncil for making claims under the provisions of Micro, Small andMedium Enterprises Development Act, 2006. In such event, it may resultin conflicting findings, by various forums.

22. In second set of cases it is clear that when the seller approachedthe Facilitation Council making certain claims against the buyer, buyerafter his appearance, has approached the High Court under Section 11(6)

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Aof the 1996 Act for appointment of arbitrator on the ground that there isan agreement between the parties for arbitration. Though it was pleadedbefore the High Court by the appellant that it has already approachedthe Facilitation Council and proceedings are pending, the respondent aswell contest the proceedings and also lay its counter-claim, the HighCourt has rejected such plea on the ground that the 2006 Act primarilyBdeals with the claims of the seller only. The High Court has held that asthe buyer cannot make counter-claim, the proceedings cannot beproceeded with before the Council under 2006 Act and accordinglyordered by appointing second arbitrator.

23. The obligations of the buyer to make payment, and award ofCinterest at three times of the bank rate notified by Reserve Bank in theevent of delay by the buyer and the mechanism for recovery andreference to Micro and Small Enterprises Facilitation Council and furtherremedies under the 2006 Act for the party aggrieved by the awards, arecovered by Chapter V of the 2006 Act. The provisions of Section 15 toD23 of the Act are given overriding effect notwithstanding anythinginconsistent therewith contained in any other law for the time being inforce. From the Statement of Objects and Reasons also it is clear that itis a beneficial legislation to the small, medium and micro sector. TheArbitration and Conciliation Act, 1996 is a general law whereas the Micro,Small and Medium Enterprises Development Act, 2006 is a specialEbeneficial legislation which is intended to benefit micro, small and mediumenterprises covered by the said Act. The Act of 2006 contemplates astatutory arbitration when conciliation fails. A party which is covered bythe provisions of 2006 Act allows a party to apply to the Councilconstituted under the Act to first conciliate and then arbitrate on theFdispute between it and other parties. There are fundamental differencesin the settlement mechanism under the 2006 Act and the 1996 Act. Thefirst difference is, the Council constituted under the 2006 Act to undertakemandatory conciliation before the arbitration which is not so under the1996 Act. Secondly, in the event of failure of conciliation under the 2006

Act, the Council or the centre or institution is identified by it for arbitration.GThe 1996 Act allows resolution of disputes by agreed forum. The thirddifference is that, in the event of award in favour of seller and if thesame is to be challenged, there is a condition for pre-deposit of 75% ofthe amount awarded. Such is not the case in the 1996 Act. When suchbeneficial provisions are there in the special enactment, such benefitsHcannot be denied on the ground that counter-claim is not maintainable

before the Council. In any case, whenever buyer wish to avoid thejurisdiction of the Council, the buyer can do on the spacious plea ofcounter-claim, without responding to the claims of the seller. When theprovisions of Sections 15 to 23 are given overriding effect under Section24 of the Act and further the 2006 Act is a beneficial legislation, we areof the view that even the buyer, if any claim is there, can very wellsubject to the jurisdiction before the Council and make its claim/ counterclaim as otherwise it will defeat the very objects of the Act which is abeneficial legislation to micro, small and medium enterprises. Even incases where there is no agreement for resolution of disputes by way ofarbitration, if the seller is a party covered by Micro, Small and MediumEnterprises Development Act, 2006, if such party approaches the Councilfor resolution of dispute, other party may approach the civil court or anyother forum making claims on the same issue. If two parallel proceedingsare allowed, it may result in conflicting findings. At this stage, it is relevantto notice the judgment of this Court in the case of Edukanti Kistamma(Dead) through LRs. v. S. Venkatareddy (Dead) through LRs. &Ors.[4] where this Court has held that a special Statute would be preferredover general one where it is beneficial one. It was explained that thepurport and object of the Act must be given its full effect by applying theprinciples of purposive construction. Thus, it is clear that out of the twolegislations, the provisions of MSMED Act will prevail, especially whenit has overriding provision under Section 24 thereof. Thus, we hold thatMSMED Act, being a special Statute, will have an overriding effect vis-à-vis Arbitration and Conciliation Act, 1996, which is a general Act.Even if there is an agreement between the parties for resolution ofdisputes by arbitration, if a seller is covered by Micro, Small and MediumEnterprises Development Act, 2006, the seller can certainly approachthe competent authority to make its claim. If any agreement betweenthe parties is there, same is to be ignored in view of the statutory obligationsand mechanism provided under the 2006 Act. Further, apart from theprovision under Section 23(2A) of the 1996 Act, it is to be noticed that ifcounter-claim is not permitted, buyer can get over the legal obligation ofcompound interest at 3 times of the bank rate and the “75% pre-deposit”contemplated under Sections 16 and 19 of the MSMED Act.

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Athe 1996 Act, we are of the view that counter-claim is maintainablebefore the statutory authorities under MSMED Act.

25. In C.A.Nos.1620-1622 of 2021, the High Court, while negatingthe plea of the appellant, on the maintainability of counter-claim, hasallowed the application filed by the respondent under Section 11(6) ofBthe 1996 Act and appointed the second arbitrator. Though, we are of theview that counter-claim and set-off is maintainable before the statutoryauthorities under MSMED Act, appellant in this set of appeals is notentitled for the relief, for the reason that on the date of supply of goodsand services the appellant did not have the registration by submitting thememorandum as per Section 8 of the Act. The bids were invited onC23.02.2010, appellant submitted its bid on 17.05.2010, respondent awardedcontract to the appellant on 24.09.2010 and the parties signed the contractdocuments for supply of material, installation/commissioning of the powerplant on 29.07.2011. Thereafter, supplies were made and the appellanthas raised first invoice on 02.11.2011 for supply contract and also raisedDthe first invoice pursuant to contract for installation on 07.07.2012 andthe appellant has raised the last invoice in furtherance of contract forsupply of material, on 29.03.2014. The appellant also claims to haveraised last invoice on 29.03.2015 in furtherance of contract for installation.It is to be noticed that appellant approached the District Industrial Centrefor grant of entrepreneur memorandum only on 25.03.2015.E

26. Though the appellant claims the benefit of provisions underMSMED Act, on the ground that the appellant was also supplying as onthe date of making the claim, as provided under Section 8 of the MSMEDAct, but same is not based on any acceptable material. The appellant, insupport of its case placed reliance on a judgment of the Delhi HighFCourt in the case of GE T&D India Ltd. v. Reliable EngineeringProjects and Marketing[5], but the said case is clearly distinguishableon facts as much as in the said case, the supplies continued even afterregistration of entity under Section 8 of the Act. In the present case,undisputed position is that the supplies were concluded prior to registrationGof supplier. The said judgment of Delhi High Court relied on by theappellant also would not render any assistance in support of the case ofthe appellant. In our view, to seek the benefit of provisions under MSMEDAct, the seller should have registered under the provisions of the Act, ason the date of entering into the contract. In any event, for the supplies

pursuant to the contract made before the registration of the unit underprovisions of the MSMED Act, no benefit can be sought by such entity,as contemplated under MSMED Act. While interpreting the provisionsof Interest on Delayed Payments to Small Scale and Ancillary IndustrialUndertakings Act, 1993, this Court, in the judgment in the case of ShantiConductors Pvt. Ltd. & Anr. etc. v. Assam State Electricity Board& Ors. etc.[6] has held that date of supply of goods/services can betaken as the relevant date, as opposed to date on which contract forsupply was entered, for applicability of the aforesaid Act. Even applyingthe said ratio also, the appellant is not entitled to seek the benefit of theAct. There is no acceptable material to show that, supply of goods hastaken place or any services were rendered, subsequent to registration ofappellant as the unit under MSMED Act, 2006. By taking recourse tofiling memorandum under sub-section (1) of Section 8 of the Act,subsequent to entering into contract and supply of goods and services,one cannot assume the legal status of being classified under MSMEDAct, 2006, as an enterprise, to claim the benefit retrospectively from thedate on which appellant entered into contract with the respondent. Theappellant cannot become micro or small enterprise or supplier, to claimthe benefits within the meaning of MSMED Act 2006, by submitting amemorandum to obtain registration subsequent to entering into the contractand supply of goods and services. If any registration is obtained, samewill be prospective and applies for supply of goods and servicessubsequent to registration but cannot operate retrospectively. Any otherinterpretation of the provision would lead to absurdity and conferunwarranted benefit in favour of a party not intended by legislation.

27. It is also not in dispute that the appellant approached the DistrictIndustrial Centre and filed entrepreneur memorandum under Section 8of the MSMED Act 2006 only on 25.03.2015 and later has approachedthe Council invoking the provisions of MSMED Act by filing applicationunder Section 18 of the Act. It is the specific case of the respondent thatthe appellant has abandoned the incomplete work having made deficientand defective supplies in the month of February/March 2015. In thatview of the matter, we are of the firm view that the appellant is notentitled to invoke the provisions of Chapter V and seek reference toarbitration under Section 18 of the MSMED Act, 2006. Further, as it isalso not in dispute that there is an agreement for arbitration between theparties for resolution of disputes pursuant to their contract, as such, we A

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Aare of the view that the High Court has rightly allowed the applicationfiled by the respondent under Section 11(6) of the 1996 Act.

28. For the aforesaid reasons, these Civil Appeals are dismissedwith no order as to costs.

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