JHARKHAND URJA VIKAS NIGAM LIMITED versus THE STATE OF RAJASTHAN & ORS. on 15 December 2021

1. In this civil appeal, challenge is to the order dismissing the intra-Gcourt appeal preferred by the appellant in D.B. Special Appeal WritNo.1854 of 2017 passed by the High Court of Judicature at Rajasthan,Jaipur Bench, vide judgment and order dated 11.12.2017, confirming theorder of the learned Single Judge in W.P. No.11657 of 2017. In the writpetition, the order dated 06.08.2012 passed by the 2[nd] respondent, i.e., H

Rajasthan Micro & Small Industries Facilitation Council, Jaipur (in short,‘Council’) was questioned.

2. The appellant herein, which is the successor company oferstwhile Jharkhand State Electricity Board, entered into a contract withthe 3[rd] respondent - M/s. Anamika Conductors Ltd., Jaipur, for supply ofACSR Zebra Conductors. Respondent No.3 claiming to be a small scaleindustry, has approached the Rajasthan Micro and Small EnterprisesFacilitation Council, claiming an amount of Rs.74,74,041/- towards theprincipal amount of bills and an amount of Rs.91,59,705.02 paise towardsinterest. On the ground that the appellant has not responded to earliernotices, the Council issued summons dated 18.07.2012 for appearanceof the appellant before the Council on 06.08.2012. Only on the groundthat on 06.08.2012 the appellant has not appeared, the order dated06.08.2012 was passed by the Council directing the appellant to makethe payment to the 3rd respondent, as claimed, within a period of thirtydays from the date of the order.

3. The said order was under challenge before the High Court byway of writ petition in Civil Writ Petition No.11657 of 2017, and samewas dismissed by the learned Single Judge. An intra-court appealpreferred by the appellant was also ended in dismissal. Hence, this appeal.

4. We have heard Sri Anup Kumar, learned Senior StandingCounsel appearing for the appellant; Dr. Manish Singhvi, learned SeniorCounsel appearing for 2[nd] respondent and Sri Kailash Vasdev, learnedSenior Counsel appearing for the 3[rd] respondent. Having heard thecounsel for the parties we have perused the impugned order and othermaterial placed on record.

5. It is mainly contended by learned counsel for the appellant, asthere were some disputes on the supplies made by the 3[rd] respondent,the bill amount due was not paid immediately. It is submitted that only onthe ground that the appellant has not responded in the conciliationproceedings, straightaway the order was passed by the Council withoutgiving proper opportunity. The order impugned in the writ petition waspassed, in utter disregard to the mandatory provision under Section 18 ofthe Micro, Small and Medium Enterprises Development Act, 2006 (forshort ‘MSMED Act’) and the provisions of Arbitration and ConciliationAct, 1996. It is submitted that even after the order passed by the Councilon 06.08.2012, the appellant after inspecting the records, has paid the AB

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Adue amount Rs.63,43,488/- to the 3[rd] respondent. Such amount was paidafter inspecting the records to the 3[rd] respondent, who had received thatamount without any protest. After a period of three years thereafter, 3[rd]respondent has filed Execution Case No.69 of 2016 before the CivilJudge, Ranchi which ultimately ended in dismissal on the ground ofmaintainability. When the said order was challenged by way of writBpetition, said writ petition was subsequently dismissed as withdrawn. Itis submitted that when the conciliation fails, as per Section 18(3) of theMSMED Act, Council has to initiate arbitration proceedings. On failureof conciliation, the Council shall either itself take up the dispute forarbitration or refer to any institution or centre providing alternate disputeCresolution services for such arbitration and the provisions of Arbitrationand Conciliation Act, 1996 shall apply to the dispute, as if the arbitrationwas in pursuance of arbitration agreement referred to under sub-section(1) of Section 7 of Arbitration and Conciliation Act, 1996. It is submittedthat in this case without following the procedure, straightaway the orderimpugned in the writ petition was passed without giving any opportunityDto the appellant to participate in the arbitration proceedings. It is submitted,as the said order was passed in utter disregard to the mandatoryprovisions of Arbitration and Conciliation Act, 1996 the said order is anullity and cannot be termed as an award under provisions of Arbitrationand Conciliation Act, 1996. It is further submitted that as per the termsEof the contract any dispute was subject to jurisdiction of civil courts atRanchi and the 3[rd] respondent having agreed to such terms, hadapproached the Council in the State of Rajasthan. Thus it is submittedthat the order passed by the Council is without jurisdiction and contraryto terms and conditions of the agreement.

F6. Dr. Manish Singhvi, learned senior counsel appearing for the2[nd] respondent, i.e., Rajasthan Micro and Small Enterprises FacilitationCouncil has submitted that there are no grounds to interfere with theimpugned order passed by the High Court. It is submitted that againstthe award passed by the Council on 06.08.2012, it was open to appellant to challenge the same before the competent forum under Section 34(3)Gof the Arbitration and Conciliation Act, within the specified time. It issubmitted that having failed to question the award before the competentforum, the appellant has made a belated attempt by questioning the orderof the Council by way of writ petition, which was rightly dismissed bythe learned Single Judge and confirmed by the Division Bench of theHHigh Court. It is submitted that as the appellant has not responded to the various notices/summons issued by the Council, the Council itself hastaken up the dispute and passed the award.

Sri Kailash Vasdev, learned senior counsel appearing for therespondent no.3 has submitted that though the supplies were made asper the terms of the contract, the appellant has delayed the paymentwhich necessitated the 3[rd] respondent to approach the Council. Thoughseveral notices were issued by the Council, appellant has not respondedto the same and lastly by issuing summons on 18.07.2012 the Councilhas passed the award on 06.08.2012 by recording a finding that appellantis guilty of delay in paying the amounts due to the 3[rd] respondent. It issubmitted that even after the award, a notice was issued to the appellant,instead to comply the award only an amount of Rs.63,43,488/- was paid.Thereafter as the awarded amount was not paid, the 3[rd] respondent hasfiled execution case before the civil court at Ranchi, same was questionedby the appellant by way of writ petition which was subsequently dismissedas withdrawn. It is submitted that Civil Judge at Ranchi has dismissedthe execution case on the ground that it was not maintainable due to lackof territorial jurisdiction, since award was passed on 06.08.2012 at Jaipur.It is submitted that after a gap of nearly 9 months C.W.P. No.6885 of2016 was filed by the appellant. It is submitted that the MSMED Act isa beneficial legislation to the small and medium enterprises. Though properopportunity was given, the appellant has not responded to the same beforethe Council and there are no grounds to interfere with the impugnedorder passed by the High Court. It is submitted that when the award ispassed by the Council it is open to challenge under Section 34 of theArbitration and Conciliation Act, 1996 within the specified period andhaving failed to question the award belated attempt is made by filing writpetition before the High Court. Learned senior counsel placed relianceon a judgment of this Court in the case of Rajkumar Shivhare v. Asst.Director, Directorate of Enforcement & Anr.[1] in support of hissubmissions and further submitted that appellant has partly complied theaward by paying an amount of Rs.63,43,488/-, as such it is not open tochallenge the same at this point of time.

7. In the writ petition the appellant has challenged the order/awarddated 06.08.2012 passed by the 2[nd] respondent-Council constituted underprovisions of MSMED Act. The 3[rd] respondent has approached theCouncil seeking directions against the appellant for payment of delayed 1 (2010) 4 SCC 772

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Abill amount along with interest under provisions of MSMED Act.Immediately after filing application by initiating conciliation proceedings,Council has issued notices and as the appellant has not appeared summonswere issued to the appellant on 18.07.2012 for appearance on 06.08.2012.The relevant portion of the summons dated 18.07.2012 issued by theCouncil reads as under :B

“Now, therefore, notice is hereby given to you to appear in personor through authorized representative before the Council on 6[th]August, 2012 at 3.30 P.M. or on such day as may be fixed bythe Council to submit in support of the claim/dispute and you aredirected to produce on that day all the documents upon which youCintend to rely in support of your defense.

Take note that in default of your response within the periodmentioned above, the dispute shall stand terminated. Otherwisethe dispute shall be heard and reconciled with a view to thesettlement of dispute and in case settlement is not arrived at, theDCouncil shall either itself act as an arbitrator for final settlementof dispute or refer it to an institute for such settlement as perprovisions of the Act.”

8. Only on the ground that even after receipt of summons theappellant has not appeared the Council has passed order/award onE06.08.2012. As per Section 18(3) of the MSMED Act, if conciliation isnot successful, the said proceedings stand terminated and thereafterCouncil is empowered to take up the dispute for arbitration on its own orrefer to any other institution. The said Section itself makes it clear thatwhen the arbitration is initiated all the provisions of the Arbitration andFConciliation Act, 1996 will apply, as if arbitration was in pursuance of anarbitration agreement referred under sub-section (1) of Section 7 of thesaid Act.

Section 18 of the MSMED Act reads as under :

“18. Reference to Micro and Small Enterprises FacilitationGCouncil.-

(1) Notwithstanding anything contained in any other law for thetime being in force, any party to a dispute may, with regard to anyamount due under section 17, make a reference to the Micro andSmall Enterprises Facilitation Council.H

JHARKHAND URJA VIKAS NIGAM LIMITED v. THE STATEOF RAJASTHAN & ORS. [R. SUBHASH REDDY, J.]

(2) On receipt of a reference under sub-section (1), the Councilshall either itself conduct conciliation in the matter or seek theassistance 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) is notsuccessful and stands terminated without any settlement betweenthe parties, the Council shall either itself take up the dispute forarbitration or refer it to any institution or centre providing alternatedispute resolution services for such arbitration and the provisionsof the Arbitration and Conciliation Act, 1996 (26 of 1996) shallthen apply to the dispute as if the arbitration was in pursuance ofan arbitration agreement referred to in sub-section (1) of section7 of that Act.

(4) Notwithstanding anything contained in any other law for thetime being in force, the Micro and Small Enterprises FacilitationCouncil or the centre providing alternate dispute resolution servicesshall have jurisdiction to act as an Arbitrator or Conciliator underthis section in a dispute between the supplier located within itsjurisdiction and a buyer located anywhere in India.

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

9. From a reading of Section 18(2) and 18(3) of the MSMED Actit is clear that the Council is obliged to conduct conciliation for which theprovisions of Sections 65 to 81 of the Arbitration and Conciliation Act,1996 would apply, as if the conciliation was initiated under Part III of thesaid Act. Under Section 18(3), when conciliation fails and standsterminated, the dispute between the parties can be resolved by arbitration.The Council is empowered either to take up arbitration on its own or torefer the arbitration proceedings to any institution as specified in the saidSection. It is open to the Council to arbitrate and pass an award, afterfollowing the procedure under the relevant provisions of the Arbitrationand Conciliation Act, 1996, particularly Sections 20, 23, 24, 25.

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A10. Thereis a fundamental difference between conciliation andarbitration. In conciliation the conciliator assists the parties to arrive atan amicable settlement, in an impartial and independent manner. Inarbitration, the Arbitral Tribunal/ arbitrator adjudicates the disputesbetween the parties. The claim has to be proved before the arbitrator, ifnecessary, by adducing evidence, even though the rules of the CivilBProcedure Code or the Indian Evidence Act may not apply. Unlessotherwise agreed, oral hearings are to be held.

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11. If the appellant had not submitted its reply at the conciliationstage, and failed to appear, the Facilitation Council could, at best, haverecorded the failure of conciliation and proceeded to initiate arbitrationCproceedings in accordance with the relevant provisions of the Arbitrationand Conciliation Act, 1996, to adjudicate the dispute and make an award.Proceedings for conciliation and arbitration cannot be clubbed.

12. In this case only on the ground that the appellant had notappeared in the proceedings for conciliation, on the very first date ofDappearance, that is, 06.08.2012, an order was passed directing theappellant and/or its predecessor/Jharkhand State Electricity Board topay Rs.78,74,041/- towards the principal claim and Rs.91,59,705/- oddtowards interest. As it is clear from the records of the impugnedproceedings that the Facilitation Council did not initiate arbitrationEproceedings in accordance with the relevant provisions of the Arbitrationand Conciliation Act, 1996.

13. The order dated 06.08.2012 is a nullity and runs contrary notonly to the provisions of MSMED Act but contrary to various mandatoryprovisions of Arbitration and Conciliation Act, 1996. The order datedF06.08.2012 is patently illegal. There is no arbitral award in the eye oflaw. It is true that under the scheme of the Arbitration and ConciliationAct, 1996 an arbitral award can only be questioned by way of applicationunder Section 34 of the Arbitration and Conciliation Act, 1996. At thesame time when an order is passed without recourse to arbitration andin utter disregard to the provisions of Arbitration and Conciliation Act,G1996, Section 34 of the said Act will not apply. We cannot reject thisappeal only on the ground that appellant has not availed the remedyunder Section 34 of the Arbitration and Conciliation Act, 1996. Thesubmission of the learned senior counsel appearing for the 3[rd] respondentthat there was delay and laches in filing writ petition also cannot beHaccepted. After 06.08.2012 order, the appellant after verification of the records has paid an amount of Rs.64,43,488/- on 22.01.2013 and thesaid amount was received by the 3[rd] respondent without any protest.Three years thereafter it made an attempt to execute the order inExecution Case No.69 of 2016 before the Civil Judge, Ranchi, whichultimately ended in dismissal for want of territorial jurisdiction, vide orderdated 31.01.2017. Thereafter S.B.Civil Writ Petition No.11657 of 2017was filed questioning the order dated 06.08.2012 before the RajasthanHigh Court. In that view of the matter it cannot be said that there wasabnormal delay and laches on the part of the appellant in approachingthe High Court. As much as the 3[rd] respondent has already received anamount of Rs.63,43,488/- paid by the appellant, without any protest anddemur, it cannot be said that the appellant lost its right to question theorder dated 06.08.2012. Though the learned counsel appearing for therespondents have placed reliance on certain judgments to support theircase, but as the order of 06.08.2012 was passed contrary to Section18(3) of the MSMED Act and the mandatory provisions of the Arbitrationand Conciliation Act, 1996, we are of the view that such judgmentswould not render any assistance to support their case.

14. For the aforesaid reasons, this civil appeal is allowed, theimpugned judgment and order is set aside. Consequently, the order/awarddated 06.08.2012 passed by the 2[nd] respondent stand quashed. However,it is open to the 2[nd] respondent-Council to either take up the dispute forarbitration on its own or refer the same to any institution or centreproviding alternate dispute resolution services, for resolution of disputebetween the parties. It is needless to observe that for such arbitration,the Council shall follow the provisions of Arbitration and ConciliationAct, 1996 before passing any award. As we have not gone into merits ofthe claim made by 3[rd] respondent, it is open for the arbitral tribunal, todecide the matter on its own merits.

Devika Gujral

Appeal allowed.

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