WP/8963/2020 of SASAN POWER LTD. Vs MADHYA PRADESH MICRO AND SMALL ENTERPRISE FACILITATION COUNCIL on 31 December 2020

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WP-8963-2020

THE HIGH COURT OF MADHYA PRADESH, PRINCIPAL SEAT ATJABALPUR

O R D E R(31.12.2020)

This petition filed under Article 226 of the Constitution assails the orderdated 17.05.2019 Annexure P/3A, order dated 09.06.2020 (Annexure P/14)and other subsequent order passed by Respondent No.1.

FACTUAL BACKGROUND :-

2. Briefly stated, the petitioner is a Company incorporated under theprovisions of the Companies Act 1956. The petitioner has set up a 3,960 MWUltra Micro Power Project (UMPP) alongwith an Integrated Captive CoalMines to meet the coal requirement of the said UMPP in District Singrauli,Madhya Pradesh. The project is generating and supplying electricity to variousdistribution companies of various States.

3. Respondent No.1 is a statutory body constituted under the provisions ofMicro Small and Medium Enterprises Development Act, 2006 (Act of 2006)and the respondent No.2 is a Company incorporated under the provisions ofCompanies Act. As per petitioner’s case, respondent No.2 is having itsregistered office at Raipur, Chhattisgarh. This Company is primarily involvedin the business of manufacturing and supplying industrial explosives.

4. The petitioner awarded certain rate contracts since November, 2011 till2018 to respondent No.2 for supply of explosives and accessories to carry outblasting activities to extract coal from its captive coal mines which is used forgeneration of electricity at its power plant. The petitioner’s case is that at thetime of registration of respondent as Wander, the petitioner was intimated by itthat respondent No.2 is neither registered as a Micro Small and MediumEnterprises (MSME) nor as a Small Scale Industry (SSI).

5. The respondent No.2 sent a legal notice dated 19.12.2018 Annexure P/1demanding an amount of Rs.9,77,07,857/-. Petitioner was called upon to clear the said amount alongwith penal interest. The petitioner contends that whilesending this legal notice, the respondent No.2 did not inform the petitioner thatit is registered as a small enterprise. Had it been registered under the Act of2006, it would not have agreed for 90 days payment terms and contractualarbitration alongwith other terms of contract with the petitioner.

6. The petitioner, in turn, replied the legal notice on 31.12.2018 AnnexureP/2. The petitioner stated that respondent No.2 had committed fraud in supplyof material.

7. The respondent No.1 sent a notice dated 17.05.2019 to the petitionerintimating him that a Reference Petition under Section 18 of the Act of 2006has been preferred by respondent No.2 for recovery of an outstanding amountof Rs.32,65,71,556/- and Rs.8,28,56,525/- as interest; total amounting toRs.40,94,28,081/-. The allegation of respondent No.2 in his claim submittedbefore respondent No.1 in statutory form was that he had supplied goods(explosives) to petitioner but petitioner has not made the payments.

8. Upon receiving the said notice dated 17.05.2019 from respondent No.1,petitioner entered appearance before respondent No.1 and took preliminaryobjection dated 30.05.2019 Annexure P/4. The petitioner raised objectionregarding jurisdiction of respondent No.1.

PETITIONER’S CONTENTIONS:-

9. Shri Naman Nagrath, learned senior counsel assisted by Shri AlokHoonka, Advocate urged that the respondent No.1 ignoring the fact thatReference Petition was not maintainable, passed the order dated 05.07.2019Annexure P/5 wherein it was held that parties have failed to settle their disputeamicably, therefore, conciliation proceedings are closed and matter is nowreferred for arbitration. The respondent No.1 itself decided to act as anArbitrator. The petitioner again submitted an objection before respondent No.1on 10.07.2019 Annexure P/6 reiterating its stand that Reference Petition was

not maintainable for want of jurisdiction. The Reference deserves to bedismissed under Rule 7 of MP Micro & Small Enterprises Rules, 2017 (Rulesof 2017). The claim of respondent No.2 on merits was also disputed bycontending that it was not covered under Chapter V of the Act of 2006.

10. The petitioner is aggrieved by yet another order dated 05.08.2019Annexure P/7 passed by respondent No.1 whereby said respondent itselfdecided to act as an Arbitrator.

11. Learned senior counsel for the petitioner by placing reliance on Section18 of the Act of 2006 urged that it is a legislation by reference whereby certainprovisions of Arbitration & Conciliation Act, 1996 (Act of 1996) wereincorporated in Section 18 of the Act of 2006. By virtue of such incorporation,Section 80 of the Act of 1996 became part of the Act of 2006. In the teeth ofSection 80(1)(a) of the Act of 1996, the respondent No.1 Council had noauthority, jurisdiction and competence to act as an Arbitrator.

12. The respondent No.2 in its application itself stated that its Udyog AdharNumber is CG 14B0008056 (Annexure-P/8) which indicates that it is acompany based and registered at Chhattisgarh. The respondent No.2 submittedanother Udyog Adhar Memorandum (UAM) only on 30.01.2019 after expiryof all the contracts pursuant to which the respondent No.2 supplied explosivesto petitioner for a period between November, 2011 to March, 2018. Duringthis period, all the contracts, bills etc. were generated and issued in the name ofSpecial Blast Limited based at Chhattisgarh. No work was ever given in thename of the Unit located at Signrauli (M.P.), which is part and parcel ofrespondent No.2 and Singrauli Unit was not a separate legal entity. Therespondent No.2 misled the Authorities and fraudulently got itself registered asa small unit.

13. Reference is also made to the balance sheet of respondent No.2 for theyear 2017-18 in the head of investment on ‘plant and machinery’ as on

31.03.2018 which is to the tune of Rs.16,16,94,429/-, which is above thespecified amount i.e. Rs.5 crores for manufacturing sector for classifying as a‘small enterprise’ as provided under Section 7 of the Act of 2006. The GazetteNotification dated 29.09.2006 (Annexure-P/9) is relied upon for this purpose.

14. In the 30[th] Annual Report 2017-18 (Annexure-P/11), the respondentNo.2 mentioned with heading ‘breakup of fixed assets of Note -9’ whichmakes it clear that investment in ‘plant and machinery’ was to the tunementioned hereinabove.

15. The respondent No.1 took up reference petition for hearing on30.10.2019 and after hearing the parties, closed the matter to decide thequestion of maintainability of reference. The Bench of Council on 3.10.2019was consisting of Chairman – Mr. Ashok Shah and Members – Mr. D.C.Shahu, Ms. Ananya Viswas. The petitioner contends that after a period ofmore than seven months from the date reference petition was reserved fororder on the issue of maintainability, the respondent No.1 on 30.05.2020informed the petitioner that the matter is now listed on 09.06.2020 andproceedings will be conducted through video conferencing. Petitioner wasexpecting that the issue of preliminary objection raised by the petitioner will bedecided. In between, there was change in Officers/Members of the Counciland, therefore, the matter will be re-heard by the Council. On 09.06.2020, thepreliminary objection raised by the petitioner was rejected. Soon before thaton 06.06.2020, the respondent No.1 suo motu sought a report from GeneralManager, District Industrial Centre (DIC) Singrauli. The DIC bycommunication dated 07.06.2020 informed that Unit of respondent-companywas found to be functional. The respondent No.1 further held that therespondent No.2 has sent its Udyog Adhar Number as MP 11 B0013174 whichwas found to be registered in Signrauli (M.P.). The Council opined that as perthe balance sheet of respondent No.2 for the year 2018, the investment on

‘plant and machinery’ was Rs.1,83,99,841/- and, therefore, the Unit fallswithin the definition of ‘MSME’.

16. On the basis of aforesaid factual backdrop, the petitioner assailed theimpugned orders by contending : -

(i) The Council has miserably failed to examine the application/reference of respondent No.2 at the preliminary stage. As per sub-rule (5), (6) & (9) of Rule 7 of the Rules of 2017, the Council oughtto have examined whether (a) the reference is pregnant with UAMnumber, (b) the applicant is located in the same State and (c)Council has jurisdiction to entertain the reference. In absence ofUAM of MP, the reference was not maintainable.

(ii) The respondent No.2 is not a ‘supplier’ and was not entitledto file a reference under Section 18 of the Act of 2006. Thedefinition of ‘supplier’ under the previous Act of 1993 hasundergone sea change if examined on the anvil of Section 2(n) ofMSME Act, 2006. ‘Supplier’ is a unit which has filed amemorandum with the authority referred to in sub-section (1) ofSection 8. Thus, it is a mandatory pre-requisite for an enterpriseclassified as micro/small unit to have an UAM issued by theauthorities under the territorial jurisdiction of concern MSMECouncil. The UAM must be with the supplier before entering thecontract. UAM of Madhya Pradesh was obtained in January, 2019and for this reason alone, reference should have been rejected.

(iii) There is a clear difference between ‘enterprise’ and ‘supplier’under the Act of 2006. Section 7 provides classification of‘enterprise’ on the basis of amount of investment in ‘plant andmachinery’ whereas Section 8 is in two parts, namely, (a) those

intending to establish and (b) already established beforecommencement of the Act of 2006. The respondent No.2 based itsapplication/contract on the basis of a SSI Registration of 2004.Under proviso (a) and (b) of Section 8(1), the respondent No.2 haddiscretion to file memorandum within 180 days of commencementof the Act if it wanted to avail the benefits of a supplier. Only uponfiling a memorandum, a micro or small enterprise acquires thestatus of a ‘supplier’. All the suppliers under the MSME Act areeither micro or small enterprise but all such enterprises need not be‘suppliers’ having chosen not to file a memorandum at theirdiscretion. Micro, small and medium enterprises acquire such statusas per their investment in plant and machinery are entitled tobenefit and measures of promotions under Chapter IV wherein thebenefits like credit facilities, procurement reference policy, grantsby government etc. were made available to such ‘enterprises’. Inorder to avail the benefit of adjudication through Council, it is onlya ‘supplier’ which can invoke Chapter IV dealing with recovery ofamount due to a supplier and reference at the behest of a supplier.Chapter V deals with recovery and reference through Council andreference is confined to a ‘supplier’. This remedy is not providedto an ‘enterprise’. The respondent No.2 may be an ‘enterprise’having SSI Registration of 2004 but definitely not a ‘supplier’ toinvoke jurisdiction of Council under Chapter V aforesaid.

(iv) Udyog Adhar Number must be available with the supplier onthe date of contract is another limb of argument. To bolster thiscontention, 2018 SCC OnLine Bombay 4542, (Scigen BiopharmaPvt. Ltd. vs. Jagtap Horticulatuer Pvt. Ltd.) is relied upon.

(v) Second UAM from MP does not make the reference asmaintainable. The UAM obtained from MP cannot have anyretrospective effect. The supplier can file reference only when on the date of entering into contract, as well as on the date of filing ofreference, he was having an UAM of concerned State.

(vi) The contention of respondent No.2 that the Companyexisting prior to commencement of the Act of 2006 is not includedin the definition of ‘supplier’ under Section 2(n)(iii) is devoid ofsubstance. Similarly, the argument of respondent No.2 that SSIUnit existing prior to 2006 were not required to file memorandumunder Clause 12 of notification (Annexure-P/16) is baseless.Section 2(n)(iii) specifically deals with a Company ‘selling goods’produced by micro or small enterprises so as to be included in thedefinition of ‘supplier’. Respondent No.2 itself is not amanufacturer/producer and is not a company ‘selling goods’produced by some other micro or small enterprises. Section 2(n)(iii) does not help the respondent No.2.

(vii) The Council is barred from acting as an Arbitrator underSection 80 of Arbitration & Conciliation Act. By virtue of Section18(2) of the Act of 2006, the provisions of Sections 65 to 81 of theAct of 1996 became part of the Act of 2006.

As per Section 80 of the Act of 1996, the Council cannot actas an Arbitrator in respect of a dispute, which is subject matter ofconciliation proceeding. MSME Council having undertaken theproceeding of conciliation and after having recorded its failure inthe order sheet, cannot act as an Arbitrator and proceed ahead in thematter.

Under Section 18(3), the dispute has to be referred to anyother institution or centre providing Alternative Dispute ResolutionService. Reliance is placed on Bombay High Court judgment in thecases of Gujarat State Petronet Ltd. Vs. Micro and SmallEnterprises Facilitation Council, 2018 SCC OnLine SC 3147 andMazgaon Dock Ltd Vs. MSME Council, 2018 SCC OnLine Bom.

11003 and on the judgment of Karnataka High Court passed in WPNo.9485/2017 (M/s Pal Mohan Electronics Pvt. Ltd. vs. TheSecretary Department of Small Scale Industries).

(viii) The balance sheet of respondent No.2 (Annexure-R/2) showsthat Rs.16.16 crores were invested in the head of ‘plant andmachinery’. Hence, respondent No.2 is not a small enterprise underthe Act of 2006.

(ix) This petition is very much maintainable because there is aninherent lack of jurisdiction of the Council. The petitioner cannotbe compelled to go through the cumbersome alternative redressalmechanism. Reliance is placed on 1998 (8) SCC 1 (WhirlpoolCorporation Vs. Registrar of Trade marks), 2019 SCC OnLine SC1602 (Deep Industries Vs. ONGC), AIR 1962 SC 1999 (HiralalPatni Vs. Kali Nath), 2005 (7) SCC 791 (Harshad Chimanlal Vs.DLF), 2019 SCC OnLine Gujarat 2474 (Easun Reyrolle LimitedVs. Nik San Engineer Co. Ltd.).

STAND OF RESPONDENT NO.2:-

17. Shri Sanjay Agrawal, learned counsel for the respondent No.2 on theother hand urged that the respondent No.2 is registered as SSI Unit in DistrictSingrauli (Annexure-R/1) in the year 2004. Factory of respondent No.2 issituated at Singrauli (M.P.), but UAM of Chhattisgarh was issued based onoffice address of Raipur (Chhattisgarh). Subsequently, the office address ofrespondent No.2 was shifted to factory site and accordingly earlier UAM wascancelled and fresh UAM of MP No.11B0013174 was issued. The DICSingrauli in its report dated 07.06.2020 opined that Unit is functional andexisting at Singrauli within the territorial jurisdiction of respondent No.1. It isstrenuously contended that having SSI Registration or UAM is not amandatory condition for filing a reference.

18. The petitioner did not raise objection regarding the maintainability ofreference under Section 18 before the Council. The petitioner agreed forresolution of dispute amicably. When efforts to amicably settle the disputefailed, Facilitation Council in its order dated 05.07.2019 recorded such failureand posted the matter for arbitral proceeding. There is no error in suchprocedure adopted by the Council. Moreso, when conciliation proceeding didnot take place with the intervention of Facilitation Council. The parties hadtried to resolve their dispute amicably but since efforts went in vain, the partiesgave information of such failure to the Council.

19. Shri Agrawal further pointed out that petitioner filed another applicationon 10.07.2019 (Annexure-P/6) for dismissal of reference but no objectionregarding jurisdiction of the Council was taken. Yet another objection dated28.10.2019 was rejected after hearing both the parties through videoconferencing. There is no procedural impropriety in the procedure adopted bythe Council. Emphasis is laid on the order sheet dated 28.10.2019 in respect ofcontention that although a Member of the Council was changed before thisdate of hearing, the fact remains that parties were given rehearing throughvideo conference before the new body. Thus, argument of Shri Nagrath that atthe time of hearing Bench was consisting of different Members whereas it wasdecided by different set of Members is factually incorrect.

20. At this interlocutory stage, when main reference is pending, the petitionis not maintainable is the next contention of learned counsel for the respondentNo.2. If final award goes against the petitioner, they may assail it underSection 34 of the Act of 1996. In view of 2003 (6) SCC 564 (FoodCorporation of India Vs. Indian Council of Arbitration and others), ArbitralTribunal needs to decide the question relating to scope, meaning purport andeffect of arbitration clause between the parties. The whole attempt is tominimize the interference by Superior Courts. Same view is taken in 2005

SCC OnLine Jhar 66 (State of Jharkhand Vs. M/s Himachal ConstructionCo. Pvt. Ltd.) by the High Court. In 2005 (8) SCC 618 (SBP & Company Vs.Patel Engineering Ltd.), the Apex Court disapproved the practice adopted bysome High Courts permitting to challenge the interlocutory orders passed bythe Tribunal in a proceeding filed under Article 227 of the Constitution. Theonly course open to the petitioner is to assail the outcome of the reference inappropriate proceedings, namely Section 34/37 of the Act of 1996. The ratiodecidendi of said cases is followed in 2014 (7) SCC 255 (Lalit Kumar Vs.Sanghavi) and 2019 SCC OnLine SC 1154 (Sterling Industries Vs. JaiPrakash Association), 2017 (2) MPLJ 77 (Ellora Papaer Mills Ltd. Vs. Stateof M.P. and others).

21. Further more, Shri Agrawal contended that a conjoint reading of Section2(e), 2(m) and Section 7(a)(ii) of the Act of 2006 shows that respondent No.2falls within the ambit of ‘Small Enterprise’. ‘Enterprise’ and ‘Supplier’ has noserious distinction as per Act of 2006 which could have deprived therespondent No.2 to file the instant reference. By taking this Court to thelanguage employed in Section 8 of the Act of 2006, it is urged that the lawmakers cautiously used the expression ‘intend to establish’. The filing ofmemorandum by the small enterprise is discretionary. The only requirementmust be ‘located’ within the jurisdiction of Council. Reference is also made toSection 18(3) and (4) of the Act of 2006. The respondent No.2 is a scheduledindustry as per First Schedule (Item 19) to the Industries (Development andRegulation) Act, 1951.

22. In support of the aforesaid contention, Shri Agrawal placed reliance onthe judgments of Food Corporation of India vs. Indian Council ofArbitration and others, (2003) 6 SCC 564, State of Jharkhand vs. M/sHimachal Construction Co. Pvt. Ltd., 2005 SCC OnLine Jhar 66,Lalitkumar vs. Sanghavi vs. Dharamdas V. Sanghavi and others, (2014) 7SCC 255, Sterling Industries vs. Jayprakash Associates Ltd. and others,

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2019 SCC OnLine SC 1154, Ellora Paper Mills Ltd. vs. State of M.P. andothers, 2017 (2) MPLJ 77,Shivhare Road Lines, Gwalior vs. ContainerCorporation of India Ltd., Noida and another, 2017 (3) MPLJ 600, M/sRamky Infrastructure Private Limited vs. Micro and Small EnterprisesFacilitation Council and another (WP(c) No.5004/2017 & CMNo.21615/2017 of Delhi High Court), M/s Equipment Conductor & CableLtd., New Delhi vs. Transmission Corporation of Andhra Pradesh Ltd.(Award dated 21.06.2010 passed by HMSEFC), The Indur DistrictCooperative vs. M/s Microplex (India) (WP No.35872/2012 of AndhraPradesh High Court), Punjab State Power Corporation Ltd. vs. Emta CoalLtd. and another (SLP(C)No.8482/2020) and Deep Industries Limited vs. Oiland Natural Gas Corporation Limited and another, 2019 SCC OnLine SC1602.

23. Lastly, Shri Agrawal placed reliance on the relevant balance-sheet (page61) which shows that in the head of plant & machinery, amount ofRs.1,83,99,841/- is shown which is well within the prescribed limit for treatingthe respondent No.2 as a small enterprise. The total balance as on 31.03.2018as per this balance-sheet is Rs.2,06,80,168/-. This amount is duly certified bya Chartered Accountant by its certificate dated 12.11.2019.

24. The Reserve Bank of India (RBI) Memorandum dated 13.07.2017 isrelied upon to contend that a certificate issued by a Chartered Accountantregarding purchase price of plant & machinery is sufficient to satisfy thepurpose of classification under the Act of 2006. Shri Agrawal further contendthat the RBI circular dated 06.12.2010 Annexure 2 makes it clear that the Actof 2006, in the opinion of RBI, does not provide for clubbing of two or moreenterprises. Hence, previous notification on this subject dated 01.01.1993 wasrescinded. Point was clarified by another memorandum by the Office ofDevelopment Commissioner, MSME on 29.09.2015 Annexure A/3. It wasdecided that the investment in plant & machinery of all enterprises under same

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ownership shall be clubbed together while assessing the status of MSME as perthe Act of 2006. This circular stood withdrawn pursuant to another circulardated 03.03.2016 issued by Office of Development Commissioner, MSME. Inview of these circulars, it is clear that the petitioner falls within the ambit ofsmall enterprise.

25. Both the parties filed their written submissions.

26. Parties confined their arguments to the extent indicated hereinabove.

FINDINGS:-

27. I have bestowed my anxious consideration on the rival contentions andperused the record. In view of rival contentions advanced at the bar, broadlyfollowing issues emerged for determination:

(A)Whether respondent No.2 committed any jurisdictionalerror or illegality which warrants interference by this Courtunder Article 226/227 of the Constitution ?

(B)Whether Council committed any error in acting as anArbitrator after failure of conciliation proceedings ?

-Issue (A):

Analysis

28. Before dealing with this issue in sufficient detail, it is apposite tomention that scope of interference under Article 226/227 of the Constitutionis limited. If orders impugned suffer from any patent lack of inherentjurisdiction or suffer from any manifest procedural impropriety or palpableperverseity, interference can be made. Another view is possible, is not aground for interference. This Court is not required to sit in appeal andreweigh/reappreciate the entire material at this stage. In other words, thisCourt is not obliged to act as a bull in a china shop to disturb the finding

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unless the aforesaid litmus test is satisfied (See: Shalini Shyam Shetty &another vs. Rajendra Shankar Patil, (2010) 8 SCC 329).

29. The jurisdiction of Council is called in question by contending thatrespondent No.2 did not have UAD Memo of MP at the time of enteringinto contract This aspect ought to have been examined at the threshhold asmandated in Rule 7 of Rules of 2017. Merely because respondent No.2 is‘located’ in M.P. will not bestow jurisdiction to the Council in M.P.

30. Section 2(e) of the Act of 2006 reads as under:

“(e) ‘enterprise’ means an industrial undertaking or a businessconcern or any other establishment, by whatever name called,engaged in the manufacture or productionof goods, in anymanner, pertaining to any industry specified in the FirstSchedule to the Industries (Development and Regulation) Act,1951 (55 of 1951) or engaged in providing or rendering of anyservice or services.”

Section 7(1)(a) & (ii) of the Act of 2006 reads as under:

“(a) in the case of the enterprises engaged in the manufactureor production of goods pertaining to any industry specified inthe First Schedule to the Industries (Development and Regula-tion) Act, 1951 (65 of 1951),as--(ii) a small enterprise, where the investment in plant andmachinery is more than twenty-five lakh rupeesbut does notexceed five crore rupees.”

31. Indisputably, the registration of respondent No.2 is of 2004 which isprior to the commencement of the Act of 2006. In view of this statutoryprovision, the question raised is whether the Council has committed any patentlack of inherent jurisdiction in entertaining the reference. The jurisdiction ofCouncil can be traced from Section 18 which reads thus :- “18.Reference to Micro and Small Enterprises FacilitationCouncil.-

(1) Notwithstanding anything contained in any other law for thetime being in force, any party to a dispute may, with regard toany amount dueunder section 17, make a reference to the Mi-cro and Small Enterprises Facilitation Council.

(2) On receipt of a reference under sub-section (1), the Councilshall either itselfconduct conciliation in the matter or seek theassistance of any institution or centre providing alternate dis-pute resolution services by making a reference to such an insti-tution or centre, for conducting conciliation and the provisionsof sections 65 to 81 of the Arbitration and Conciliation Act,1996 (26 of 1996) shall apply to such a dispute as if the concili-ation was initiated under Part III of that Act.

(3) Where the conciliation initiated under sub-section (2) is notsuccessfuland stands terminated without any settlement be-tween the parties, the Council shall either itself take up the dis-pute for arbitration or refer to it any institution or centre pro-viding alternate dispute resolution services for such arbitrationand the provisions of the Arbitration and Conciliation Act, 1996

(26 of 1996) shall then apply to the dispute as if the arbitrationwas in pursuance of an arbitration agreement referred to insub-section(1) of section 7 of that Act.

(4) Notwithstanding anything contained in any other law for thetime being in force, the Micro and Small Enterprises Facilita-tion Council or the centre providing alternate dispute resolutionservices shall have jurisdiction to act as an Arbitrator or Con--ciliator under this section in a dispute between the supplier located within its jurisdictionand a buyer located anywhere in In-dia.

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

[Emphasis Supplied]

The Act of 2006 has a scheme designed to provide for facilitating thepromotion, development and enhancement of competitiveness of micro, smalland medium enterprises and for matters connected therewith or incidentalthereto. The said Act, in the considered opinion of this Court is a beneficentlegislation introduced in order to promote the said enterprises. A statute of thisnature must be given liberal and wide construction.

Sub-section (1) of Section 18 is pregnant with an expression “any partyto a dispute may, with regard to any amount due”. The use of words ‘anyparty’ makes it very wide which shows that any effected party “in relation to any amount due” may make a reference to the Council. The restricted viewcanvassed by learned senior counsel Mr. Nagrath which confines this right toonly for a supplier to file a reference is based upon literal reading of sub-section (4) of Section 18. In sub-section (4), the expression used is ‘in adispute between the supplier located within its jurisdiction and buyer’. Thisliteral and narrow interpretation deserves acceptance if said expression is readin isolation and totally divorced from Section 18 (1) and the object and schemeof the Act of 2006. The said Act does not intend to deprive a small enterprisefrom the benefit of filing reference.

The Act of 2006 was brought into force in order to promote and developthe micro, small and medium enterprises. Sub-section (1) of Section 18 permits‘any party’ to a dispute to file a reference with regard to any amount due underSection 17 of the Act of 2006. The conjoint and careful reading of Section 17& 18 of the Act of 2006 shows that ‘any party’ means a party in whose favouramount based on goods supplied or services rendered is due. Thus, ‘any party’is relatable to the said dues and cannot be restricted to a party who has filedmemorandum under Section 8 of the Act of 2006. Section 17 and sub-sectionsof Section 18 must be read harmoniously and must be given wide constructiontaking into account the aim and object of the Act. It cannot be forgotten thatadopting the principle of literal construction of the statute alone, in allcircumstances without examining the context and scheme of the statute, maynot subserve the purpose of the statute. In the words of V.R. Krishna Iyer, J.,such approach would be “to see the skin and miss the soul”. Whereas, “thejudicial key to construction is the composite perception of Deha and Dehi ofthe provision.” (See: Board of Mining Examination vs. Ramjee (1977) 2SCC 256). This principle was followed by Supreme Court in (2013) 3 SCC 489(Ajay Maken vs. Adesh Kumar Gupta vs. Another).Thus, text and contextboth are equally important.

In other words, the interpretation of a statute depends on the text and thecontext. The textual interpretation must match the contextual. First it must beascertained as to why the statute was enacted. Keeping in mind this aspect thestatute should be read as whole, in its context and scheme, to discover what SAN

each section, each clause, each phrase and each word is meant and designed tosay as to fit into the scheme of the entire act (See: (1987) 1 SCC 424, [RBI vs.Peerless General Finance & Investment Company Ltd.]). Section 18 of theAct of 2006 is a remedial provision. The general principle in construing aremedial statute the Courts ought to give to it “the widest operation which itslanguage will permit. They have only to see that the particular case is withinthe mischief to be remedied and falls within the language of the enactment.”The words of such a statute must be so construed as “to give the most completeremedy which the phraseology will permit,” so as “to secure that the reliefcontemplated by the statute shall not be denied to the class intended to berelieved.” (See: Principles of Statutory Interpretation, 12[th] Edition 2010 Page-870, by Justice G.P. Singh).

32. Applying the said acid test in the present matter, in my view the Act of2006 provides a forum of making reference under Section 18 to 'any party' inrelation to any amount due. Scheme of the Act does not preclude an enterprisefrom a redressel forum merely because said enterprise has not filedmemorandum under Section 8 of the said Act. I find support in my view fromthe judgment of Andhra Pradesh High Court in the following case- The IndurDistrict Cooperative vs. M/s Microplex (India)(Supra), wherein it was opinedas under:

“It would be anomalous to interpret the definition to mean thatfor a micro or small enterprise to be a supplier, it mustmandatorily file a memorandum under Section 8(1), but anycompany, co-operative society, trust or body, which either sellsgoods or renders services of a micro or small enterprise, wouldautomatically qualify as a supplier, irrespective of whether or notsuch micro or small enterprise has itself filed a memorandumunder Section 8(1) Giventhe totality of the definition and thescheme and import of the enactment, this Court is inclined toaccept the submission of Sri Ashok Anand Kumar, learnedcounsel, that the phrase which has filed a memorandum with theauthority in Section 2(n) is only qualifying and does not curtailthe scope of the definition.

Therefore, filing of a memorandum under Section 8(1) of the Actof 2006 is not a condition precedent for a micro or small enterprise, which otherwise satisfies such description under theAct of 2006, to be included within the ambit of a supplier asdefined under Section 2(n). The first respondent company in eachof these cases would therefore qualify as a supplier under the saiddefinition and their claims before the Council did not standinvalidated on this ground.”

[Emphasis Supplied]

It was further held that:

“As long as these companies were suppliers within the meaning ofSection 2(n) of the Act of 2006 and were located within thejurisdiction of the Council, as required by Section 18(4), theCouncil had jurisdiction to deal with their claims. In this regardit is relevant to note that what is required is only that they arelocated within the jurisdiction of the Council and not that theyshould be registered or have their registered office within suchjurisdiction.”

[Emphasis Supplied]

33. In view of this judgment, in the considered opinion of this Court, theCouncil has taken a plausible view. In other words, if the view taken by theCouncil matches with the view taken by the Andhra Pradesh High Court, by nostretch of imagination, the said view can be treated as a view not plausible atall. Such a plausibe view cannot be subject matter of challenge under Article226/227 of the Constitution.

34. The ‘plant & machinery’ head contains an amount of Rs.2,06,80,168/-which is within prescribed limit (which does not exceed Rs.5.00 crore) as perSection 7(1)(a)(ii) of the Act of 2006. The balacne sheet is duly certified by aChartared Accountant.

35. True it is that the matter was heard by the Council on the question ofjurisdiction and it was reserved for orders. However, the matter was reheard on09.06.2020 through Video Conferencing whereby both the objections ofpetitioner Annexure P/6 and Annexure P/10 were decided by the Council.Although the constitution of Council has undergone a change after the matterwas reserved for order and before the impugned orders were passed. However, after such change had taken place in the constitution of Council, the partieswere duly heard on 09.06.2020. Thus, the argument of petitioner that referencewas heard by one set of Members and decided by another is factually incorrectand does not require any interference.

36. The Courts in catena of judgments opined that in arbitration matters andmatters of this nature, the interference of Courts should be minimal atinterlocutory stage. In Food Corporation of India Vs. Indian Council ofArbitration and others(Supra), the Apex Court opined as under:

“Adverting to Section 16 of the 1996 Act the Constitution Benchalso held that questions relating to the improper constitution ofArbitral Tribunal or its want of jurisdictionor objections withrespect to the existence or validity of the arbitration agreementare matters which should be canvassed before the ArbitralTribunal itself which has been specifically empowered to rule onsuch issues and on its own jurisdiction, as well. Unfortunately,the High Court in this case seems to have proceeded to adopt anadjudicatory role and returned a verdict recording reasons as tothe very existence or otherwise of the agreement as well as thetenability and legalityor otherwise of making a reference to anarbitrator.”

[Emphasis Supplied]

This judgment was followed by Jharkhand High Court in the case ofState of Jharkhand Vs. M/s Himachal Construction Co. Pvt. Ltd.(Supra). Inthe case of Lalitkumar vs. Sanghavi vs. Dharamdas V. Sanghavi andothers(Supra), the Apex Court placed reliance on its judgment of sevenJudges’ Bench in the case of SBP & Company vs. Patel Engineering Ltd.(Supra) wherein Apex Court disapproved the stand adopted by various HighCourts against the interlocutory orders passed by Arbitral Tribunal. This ratioof SBP & Company Ltd. (Supra) is followed in the case of Sterling IndustriesVs. Jai Prakash Association(Supra). The same view is followed by this Courtin the cases of Ellora Papaer Mills Ltd. Vs. State of M.P. and others(Supra)and Shivhare Road Lines, Gwalior vs. Container Corporation of India Ltd.,Noida and another(Supra).

37. In a recent order passed in Punjab State Power Corporation Ltd. vs.Emta Coal Ltd. and another(Supra), the Supreme Court opined that inabsence of any patent lack of inherent jurisdiction as explained in the case ofDeep Industries Vs. ONGC(Supra), interference under Article 226/227 of theConstitution is not proper.

38. As analysed above, I am unable to hold that the Council committed anypatent lack of inherent jurisdiction which warrants interference at this stage inexercise of power under Article 226/227 of the Constitution.

Issue (B):

39. On one factual aspect, the petitioner and the respondent No.2 had takena diametrically opposite stand before this Court. The aspect was whether theconciliation was conducted by the Council itself or it was conducted by anyother independent person. In order to separate the wheat from the chaff, thisCourt issued direction to the Council to furnish information in this regard. Inturn, by communication dated 09.11.2020, the Council informed that theconciliation proceedings were conducted by Council itself. The GovernmentMember, Shri C.K. Minj was appointed as Conciliator.

40. The argument of petitioner was that as per Section 18(3) of the Act of2006 since conciliation was conducted by the Council, it was no more open tothe Council to undertake the exercise of arbitration. The petitioner placedreliance on various judgments on this aspect. True it is that Bombay HighCourt in the case of Gujarat State Petronet Ltd. (supra) has taken this view,which was followed in the case of Mazgaon Dock Ltd. (supra). The sameview is taken by Karnataka High Court in the case of M/s. Pal MohanElectronics Pvt. Ltd. (supra).

41. Another set of judgments on which reliance is placed includes thejudgment of Patna High Court in the case of Reliance Communications

SAN

WP-8963-2020

Limited (supra). The High Court distinguished the aspect of jurisdictionbetween: (i) territorial or local jurisdiction; (ii) pecuniary jurisdiction & (iii)jurisdiction over the subject matter. It is opined that if an authority inherentlylacks jurisdiction, the resultant order can be challenged at any stage before ahigher forum. Interestingly, the Division Bench of Madras High Court in thecase of Ved Prakash (supra) considered certain judgments of Bombay HighCourt and opined that constitutionality of Section 18 of the Act of 2006 hasalready been upheld. The proceedings under Section 18 of the Act of 2006 byway of arbitration shall not be conducted by the very same person, who hadacted as Conciliator. The Gujarat High Court in the case of M/s. EasunReyrolle Lmited (supra) opined that as long as a party is a supplier “within themeaning of the Act of 2006 and is located within the jurisdiction of Council”,the Council has jurisdiction to deal with the claim. The Division Bench ofPatna High Court in the case of Best Towers Pvt. Ltd. (supra) has taken adifferent view. The relevant portion reads as under:

“20………… The question raised before us by the learnedcounsel for the respondent petitioner is that if the FacilitationCouncil acts as a Conciliator then the Council cannot act as anArbitrator as in the present case when after having attemptedconciliation proceedings and its termination in failure, theCouncil itself has proceeded to arbitrate which it could not havedone in terms of Section 80 of the 1996 Act read with Section18(2) of the 2006 Act. This argument on behalf of therespondent petitioner has been accepted by the learned SingleJudge that has been questioned by the appellant contending thatSection 24 of the 2006 Act clearly provides that Sections 15 to23 thereof shall have effect notwithstanding anythinginconsistent therewith contained in any other law for the timebeing in force. What we find is that sub-section (2) of Section 18only refers to conciliation and the procedure to be followed interms of Part-III of the 1996 Act to the extent of Section 65 toSection 81 thereof. Immediately thereafter, subsection (3) ofSection 18 introduces an absolutely novel procedureallowingthe commencement of arbitration proceedings with a mandateon the Council that in the event conciliation ends in failure, theCouncil shall “either itself” take up the dispute for arbitrationor refer it to any Institution or Centre providing alternatedispute resolution services for such arbitration and theprovisions of the 1996 Act “shall then” apply to the disputes as

if the arbitration was in pursuance of an agreement. Theoverriding effect given to this provision in terms of Section 24 ofthe 2006 Act, in our opinion, clearly overrides any bar assuggested by the learned counsel for the respondent petitionerunder Section 80 of the 1996 Act. It is trite law that themeanings assigned and the purpose for which an enactment hasbeen made should be construed to give full effect to thelegislative intent and we have no doubt in our mind that theprovisions of Section 18(3) mandates the institution ofarbitration proceedings under the 2006 Act itself and it is“then” that the provisions of the Arbitration and ConciliationAct, 1996 shall apply. The institution of arbitration proceedings-would be governed by subsection (3) of Section 18 of the 2006Act which having an overriding effect cannot debar theFacilitation Council from acting as an Arbitrator after the-conciliation efforts have failed under subsection (2) of Section18 of the Act. A combined reading of sub-section (2) and sub-section (3) of Section 18 of the 2006 Act read with theoverriding effect under Section 24 thereof leaves no room fordoubt that any inconsistency that can possibly be read keepingin view Section 80 of the 1996 Act stands overridden and theFacilitation Council can act as an Arbitrator by virtue of the-force of the overriding strength of subsection (3) of Section 18of the 2006 Act over Section 80 of the 1996 Act. The conclusionof the learned Single Judge that there is a prohibition on theCouncil to act in a dual capacity is, therefore, contrary to theclear intention of the legislature and, therefore, the verdict thatthe Facilitation Council lacked inherent jurisdiction does notappear to be a correct inference. Thus, on a comparative studyof the provisions referred to hereinabove, there is no scope forany doubt with regard to the overriding effect of the provisionsof the 2006 Act that empowers the Facilitation Council to act asan Arbitrator upon the failure of conciliation proceedings. Thecloud of suspicion and doubt about the role of the FacilitationCouncil, therefore, stands clarified on the basis of the analysismade by us hereinabove.”

[Emphasis Supplied]

The different High Courts have taken different views on theinterpretation of Section 18 of the Act of 2006. The Bombay High Court incertain cases opined that the Council cannot act as conciliator as well asarbitrator. The Madras High Court opined that the same person, who has actedas conciliator cannot act as an arbitrator. The Division Bench of Patna HighCourt in Best Towers Pvt. Ltd. (supra) has given a totally different interpretation to Section 18 aforesaid and clarified that the Council can act asan arbitrator upon the failure of conciliation proceedings.

42. At the cost of repetition, it is apposite to mention that if a plausible viewis taken by the Council, it does not warrant interference by this Court. Theimpugned decision taken by the Council is in consonance with the view takenby certain High Courts. Thus, no interference can be made by this Court at thisstage under Article 226/227 of the Constitution. However, it will be open forthe Council to proceed with arbitration proceedings by excluding Shri C.K.Minj as a Member of arbitral body or refer the matter to any other institute orcenter providing alternative dispute resolution service.

43. In view of foregoing analysis, no case is made for interference underArticle 226/227 of the Constitution of India. Thus, with aforesaidobservation, petition is dismissed.

YS/Bwl/S@if

(Sujoy Paul) Judge

Signature Not VerifiedSANDigitally signed by SAIFAN KHANDate: 2020.12.31 10:48:34 IST