WP/369/2020 of JABALPUR TREASURE ISLAND PVT. LTD. Vs STATE OF M.P. THROUGH DEPARTMENT OF MICRO SMALL AND MEDIUM ENTERPRISES on 30 December 2021

O R D E R

(Case was heard on 30.11.2021)

Post for

30.12.2021

(SUBODH ABHYANKAR)

JUDGE

3WP No.369/2020High Court of Madhya Pradesh, JabalpurBench at IndoreWrit Petition No.369/2020(Jabalpur Treasure Island Pvt. Ltd.Office No.68, 2[nd] Floor, Juhu Supreme Shopping Centre,Gulmohar Cross Road No.9, Juhu, Mumbai 400 049 (M.S)Abhitap Kumar Jain s/o Shri Santosh Kumar Jain,Age 47 years, Occupation - Service, R/o 9-A, Brajeshwari Main,Bangali Squire, Indore - 452 001 (MP)Narayan Khandelwal s/o Shri Kanhaiya Lal KhandelwalAge 50 years, Occupation - Service, R/o 1303, Scheme No.114,Part-I, Indore - 452 001 (MP)Yogesh Goswami s/o Late Shri R.M. Goswami,Age - 53 years, Occupation - Service,R/o - 201, Vaibhav Apartment, Scheme No.54,Amitesh Nagar, Indore - 452 012 (MP)VersusThe State of Madhya Pradesh Through Principal Secretary,Department of Micro Small & Medium Enterprises,Mantralaya, Vallabh Bhawan, Bhopal (MP)Madhya Pradesh Micro & Small Industry Facilitation Council,Address - Industrial Secretariat, Vindhyachal Bhawan, BhopalSanfield India Limited Through Director,Mahesh Rajwani s/o Shri Mangdumal Rajwani,Age 61 years, Occupation - Business,Address - 31-A, D, Sector,Industrial Area, Govindpura, Bhopal (MP)The Collector, Indore (MP)The Tahsildar Tahsil Kanadia,District Indore MP)

* * * * *

Shri Vishal Baheti, learned counsel for the petitioners.Shri Sameer Verma, learned Panel Lawyer for respondents No.1, 4 and 5 /State of Madhya Pradesh.Shri Yogesh Bhatnagar, learned counsel for respondent No.3 / SanfieldIndia Limited.

* * * * *

O R D E R

(Passed on this 30[th] day of December, 2021)

Heard on IA No.10005/2021, an application on behalf of the respondent No.3 (Sanfield India Limited) for dismissal of the instantwrit petition for want of jurisdiction and also on availability ofefficacious alternative remedy.

2. In brief, the facts giving rise to the present petition are that thepetitioner and respondent No.3 entered into a business transactionswith effect from 08.02.2011, regarding supply of constructionmaterial. Subsequently, a dispute arose between the parties andrespondent No.3 filed an application under Section 18 of the MicroSmall & Medium Enterprises Development Act, 2006 (herein afterreferred to as “the Act”) for adjudication of the dispute (vide claimstatement dated 17.04.2015 Annexure P/5) before the MadhyaPradesh Micro & Small Industry Facilitation Council, Bhopal (MP),respondent No.2 (herein after referred to as “the FacilitationCouncil”).

3. In the aforesaid proceedings, the Facilitation Council vide itsaward dated 27.12.2017 (Annexure P/7) directed the petitioners topay a sum of Rs.33,78,745/- (rupees thirty three lakh seventy eightthousand seven hundred forty five only) along with penal interest ofRs.23,07,729 (rupees twenty three lakh seven thousand sevenhundred twenty nine only) as on 15.04.2015, as well as additionalinterest till the payment is made.

4. The said award dated 27.12.2017 is assailed before this Courton the ground that the Facilitation Council, although entered intoconciliation proceedings, as provided under Section 18 of the Act,failed to give further notice to the petitioners, after coming to aconclusion that the conciliation proceedings have failed and as per

the petitioners, immediately after holding that the conciliationproceedings have failed, the Facilitation Council decided to concludethe proceedings on the same day holding that the matter can bedecided on its merits; and passed the final award.

5. The aforesaid interlocutory application IA No.10005/2021, hasbeen filed by the respondent No.3 on the ground that against anaward passed under Section 18 (3) of the Act, the remedy underSection 34 of the Arbitration and Concilliation Act, 1996 is availablewhich is to be filed before the appropriate District Court ofcompetent jurisdiction, along with 75% of the awarded amount, as aprecondition and only to circumvent the aforesaid precondition ofdepositing the 75% of the awarded amount, this petition has beenfiled and on this ground only, the present petition is liable to bedismissed.

6. A reply to the aforesaid application has also been filed by thepetitioners assailing that in the present case, the Facilitation Councilhas erred in not issuing notice to the petitioners, after holding thatthe conciliation proceedings are not successful as provided underSection 18 of the Act which is against the principles of naturaljustice, hence the petition is maintainable.

7. Learned counsel for the petitioners has pressed upon sub-section (3) of Section 18 of the Act which provides that if theconciliation proceedings initiated by the Facilitation Council are not

successful and stand terminated without any settlement between theparties, the Council shall either itself take up the dispute forarbitration or refer it to any institution; and in such proceedings, theprovisions of Arbitration & Conciliation Act, 1996 shall apply, as ifthe dispute is in respect of the arbitration agreement itself.

8. In support of his contention, Shri Vishal Baheti, learnedcounsel for the petitioners has also relied upon a decision renderedby the Bombay High Court in the case of Gujarat State Petronet Limited, Gujaratv. Micro and Small Enterprises Facilitation

Council, Thane and othersreported as AIR 2018 Bombay 265(paras 17, 18, 19, 21 and 23) wherein also in similar circumstances,where after the conciliation proceedings stood terminated and theFacilitation Council went on to arbitrate the matter, the BombayHigh Court has emphatically quashed the proceedings, holding thatafter conciliation proceedings failed before the Facilitation Council,it did not have the jurisdiction to decide the dispute, as providedunder Section 80 of the Arbitration & Conciliation Act, 1996.

Similar finding has also been given in another decision ofPatna High Court in the case of Reliance CommunicationsLimited, Patna (Bihar)v. State of Bihar & othersreported as AIR2018 Patna 186 (paras 22 and 24).

In addition, Shri Baheti has also submitted that the petitionerswere also not given any opportunity to present their case as soon

after the conciliation proceedings came to an end, the matter wasfixed for passing of the final order and thus, there is a clear violationof principles of natural justice.

9. In reply, Shri Yogesh Bhatnagar, learned counsel forrespondent No.3 has submitted that the decision rendered by thePatna High Court has already been reversed by the Division Benchof Patna High Court in case of Best Towers Private Limited v.Reliance Communications Limited reported as (2019) AIR(Patna) 85.

Shri Bhatnagar has also relied upon the following judgments: - Bhaven Construction through Authorized Signatory PremjibhaiK. Shahv. Executive Engineer Sardar Sarovar Narmada NigamLimited and anotherreported as (2021) 1 CTC 450 = (2021) 1 JT9 = (2021) 1 SCALE 327; Goodyear India Limitedv. Norton Intech Rubbers (P) Limitedand anotherreported as (2012) 2 CTC 829 = (2012) 6 SCC 345; Decision rendered by the Supreme Court dated 29.06.2021, in thecase of M/s. Silpi Industries etc.v. Kerala State Road TransportCorporation and another etc.in Civil Appeal No.1570-1578 of2021 and M/s. Khyaati Engineering v. Prodigy Hydro PowerPrivate Limitedin Civil Appeal No.1620-1622 of 2021; TBED (India) Transformer Private Limited v. U.P. Micro andSmall Enterprises and anotherreported as (2020) 4 ADJ 681 =

(2020) 3 AllLJ 243 = (2020) 3 AllWC 2220 = (2020) 142 ALR 617= (2020) 149 RD 826; M/s. Cummins Technologies India Private Limited v. Micro andSmall Enterprises Facilitation Council and others reported as(2020) 10 ADJ 611 = (2020) 3 AllWC 2845 = (2020) 143 ALR 71 =(2021) 150 RD 99; Ballarpur Industries Limitedv. Andhra Pradesh Micro, SmallEnterprises Facilitation Council reported as (2014) 5 ALT 502 =(2014) 6 AndhLD 266; and a judgment dated 02.11.2018 of Madhya Pradesh High Court inthe case of Fives Stein India Project Pvt. Ltd. Kolkata v. State ofMP and othersin Writ Petition No.22577 of 2018.

Regarding the objection as to opportunity of hearing, it issubmitted that the petitioner was already represented by a counselwho stopped appearing subsequently hence it cannot be said that noopportunity of hearing was afforded to the petitioner.

It is also submitted by Shri Bhatnagar that even a writ petitioncannot be entertained by this court unless the 75% of the awardedamount is deposited as has been held by the Supreme Court in thecase of Goodyear India Limited (supra).

10. In rebuttal, Shri Baheti has submitted that the Division Benchof Patna High Court has passed the order on the ground that thepetitioner in that case, after filing the petition in the High Court

under Article 226 of the Constitution of India, also filed anapplication under Section 34 of the Arbitration and Conciliation Act,1996 but no intimation was given to the High Court which wasalready seized of the matter, before the final order could be passedby the High Court and thus, it is submitted that the Division Benchhas taken note of the aforesaid supression of facts to reverse theorder passed by the Single Bench.

11. Heard learned counsel for the parties and perused the record.

12. In the considered opinion of this Court, the question that,'whether, after the initiation of the conciliation proceedings by theFacilitation Council, it could also take up the arbitrationproceedings between the parties, and if the answer is yes, 'whetherthe petitioner was prevented from contesting the arbitrationproceedings as no separate notice was served on them of thearbitration proceedings', have already been answered by theDivision Bench of the High Court of Patna as also of the AllahabadHigh Court.

13. So far as the first issue is concerned, i.e., whether, after theinitiation of the conciliation proceedings by the FacilitationCouncil, it could also take up the arbitration proceedings betweenthe parties, this court finds that Section 18 and 19 of the MSME Actprovides for the same which read, as under:- “18. Reference to Micro and Small Enterprises Facilitation

Council.— (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 subsection (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 of1996) shall apply to such a dispute as if the conciliation wasinitiated under 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 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 law for the

time being in force, the Micro and Small Enterprises FacilitationCouncil or the centre providing alternate dispute resolutionservices shall have jurisdiction to act as an Arbitrator orConciliator under this section in a dispute between the supplierlocated 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.—Noapplication for setting aside any decree, award or other ordermade either by the Council itself or by any institution or centreproviding alternate dispute resolution services to which areference is made by the Council, shall be entertained by anycourt unless the appellant (not being a supplier) has depositedwith it seventy-five per centof the amount in terms of the decree,award or, as the case may be, the other order in the mannerdirected by such court: Provided that pending disposal of theapplication to set aside the decree, award or order, the court shallorder that such percentage of the amount deposited shall be paidto the supplier, as it considers reasonable under the circumstancesof the case, subject to such conditions as it deems necessary toimpose.”

Section 34 of the Arbitration & Conciliation Act, 1996 reads, as under: - “34. Application for setting aside arbitral award.— (1)

Recourse to a Court against an arbitral award may be made onlyby an application for setting aside such award in accordance withsub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the Court only if—

(a) the party making the application furnishes proof that—

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law towhich the parties have subjected it or, failing anyindication thereon, under the law for the time being inforce; or which the parties have subjected it or, failing anyindication thereon, under the law for the time being inforce; or

(iii) the party making the application was not given propernotice of the appointment of an arbitrator or of the arbitralproceedings or was otherwise unable to present his case;notice of the appointment of an arbitrator or of the arbitralproceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplatedby or not falling within the terms of the submission toarbitration, or it contains decisions on matters beyond thescope of the submission to arbitration: Provided that, ifthe decisions on matters submitted to arbitration can beseparated from those not so submitted, only that part ofthe arbitral award which contains decisions on matters notsubmitted to arbitration may be set aside; or by or not falling within the terms of the submission toarbitration, or it contains decisions on matters beyond thescope of the submission to arbitration: Provided that, ifthe decisions on matters submitted to arbitration can beseparated from those not so submitted, only that part ofthe arbitral award which contains decisions on matters notsubmitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitralprocedure was not in accordance with the agreement ofthe parties, unless such agreement was in conflict with aprovision of this Part from which the parties cannotderogate, or, failing such agreement, was not inaccordance with this Part; or procedure was not in accordance with the agreement ofthe parties, unless such agreement was in conflict with aprovision of this Part from which the parties cannotderogate, or, failing such agreement, was not inaccordance with this Part; or (b) the Court finds that—

(i) the subject-matter of the dispute is not capable ofsettlement by arbitration under the law for the time beingin force, or settlement by arbitration under the law for the time beingin force, or

(ii) the arbitral award is in conflict with the public policy ofIndia.India.

[Explanation 1.—For the avoidance of any doubt, it isclarified that an award is in conflict with the public policyof India, only if,—

(i) the making of the award was induced or affected byfraud or corruption or was in violation of section 75or section 81; or fraud or corruption or was in violation of section 75or section 81; or

(ii) it is in contravention with the fundamental policy ofIndian law; or Indian law; or

(iii) it is in conflict with the most basic notions ofmorality or justice.morality or justice.

Explanation 2.—For the avoidance of doubt, the test as towhether there is a contravention with the fundamental policy ofIndian law shall not entail a review on the merits of the dispute.] [(2A) An arbitral award arising out of arbitrations other thaninternational commercial arbitrations, may also be set aside bythe Court, if the Court finds that the award is vitiated by patentillegality appearing on the face of the award:

Provided that an award shall not be set aside merely on theground of an erroneous application of the law or by re-appreciation of evidence.]

(3) An application for setting aside may not be made after threemonths have elapsed from the date on which the party makingthat application had received the arbitral award or, if a requesthad been made under section 33, from the date on which that

request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant wasprevented by sufficient cause from making the application withinthe said period of three months it may entertain the applicationwithin a further period of thirty days, but not thereafter. (4) On receipt of an application under sub-section (1), the Courtmay, where it is appropriate and it is so requested by a party,adjourn the proceedings for a period of time determined by it inorder to give the arbitral tribunal an opportunity to resume thearbitral proceedings or to take such other action as in the opinionof arbitral tribunal will eliminate the grounds for setting aside thearbitral award.

(5) An application under this section shall be filed by a party onlyafter issuing a prior notice to the other party and such applicationshall be accompanied by an affidavit by the applicant endorsingcompliance with the said requirement.

(6) An application under this section shall be disposed ofexpeditiously, and in any event, within a period of one year fromthe date on which the notice referred to in sub-section (5) isserved upon the other party.”

14. A harmonious reading of sub-section (2), (3) and (4) clearly reveals that even if the Facilitation council has acted as a Conciliator, it can still act as an Arbitrator as provided u/s.18(4) which starts witha non-obstante clause in the following manner:-

“(4).Notwithstanding anything contained in any other law forthe time being in force, the Micro and Small EnterprisesFacilitation Council or the centre providing alternate disputeresolution services shall have jurisdiction to act as anArbitrator or Conciliator under this section in a dispute betweenthe supplier located within its jurisdiction and a buyer locatedanywhere in India.”

15. This issue, i.e., the power of the Facilitation Council to take upthe arbitration proceedings after the failure of conciliationproceedings, is also dealt with by the Supreme Court, in a recentdecision rendered in the case of M/s. Silpi Industries etc.v. KeralaState Road Transport Corporation and another etc. passed in

Civil Appeal No.1570-1578 of 2021 where the primary issue was oflimitation and right of the defendant to counter claim, had had theoccasion to reflect upon the various provisions/scheme of the Actand in paras 18, 20 and 23 the same read as under: -

“18.With regard to first issue, namely, applicability ofLimitation Act, 1963 to the arbitration proceedings initiated underprovisions of Micro, Small and Medium EnterprisesDevelopment Act, 2006, we need to notice certain relevantsections of the Act. As per Section 15 of the said Act, wheresupplier supplies any goods or renders any services to any buyer,the buyer shall make payment on or before the agreed datebetween the parties in writing or where there is no agreement,before the appointed day. Section 16 deals with date from whichand rate of interest payable in the event of not making thepayment. The recovery mechanism for the amount due is coveredby Sections 17 and 18 of the said Act. If any party has a disputewith regard to amount due under Section 17, a reference isrequired to be made to the Micro and Small EnterprisesFacilitation Council. On such reference, the Council isempowered to conduct conciliation in the matter or seekassistance of any institution or centre providing alternate disputeresolution services by making a reference to such institution forconducting conciliation. If the conciliation is not successful, ascontemplated under Section 18(2) of the said Act, same standsterminated under Section 18(3) of the said Act. Thereafter, theCouncil shall either itself take up the dispute for arbitration orrefer it to any institution or centre providing alternate disputeresolution services for such arbitration and the provisions ofArbitration and Conciliation Act, 1996 are made applicable as ifthe arbitration was in pursuance of arbitration agreement betweenthe parties, under sub-section (1) of Section 7 of the 1996 Act.Applicability of Limitation Act, 1963 to the arbitrations iscovered by Section 43 of the 1996 Act. The High Court, whilereferring to above-said provisions and the judgment of this Courtin the case of Andhra Pradesh Power CoordinationCommittee & Ors.v. Lanco Kondapalli Power Ltd. & Ors.(2016) 3 SCC 468 has held that the Limitation Act, 1963 isapplicable to the arbitrations covered by Section 18(3) of the2006 Act. 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 made

applicable as if there was an agreement between the parties undersub-section (1) of Section 7 of the 1996 Act.…..................”

20. From a reading of Section 18(3) of the 2006 Act it is clearthat when the conciliation initiated under sub-section (2) ofSection 18 of the said Act is not successful, the Council shalleither itself take up the dispute for arbitration or refer to anyinstitution for arbitration. Further Section 18(3) of the said Actalso makes it clear that the provisions of 1996 Act are madeapplicable as if there is an agreement between the parties undersub-section (1) of Section 7 of the 1996 Act. Section 23 of the1996 Act deals with the statement of claim and defence. Section23(2A), which gives a right to respondent to submit a counterclaim or plead set-off with regard to claims within the scope ofthe arbitration agreement, is brought into Statute by AmendingAct 3 of 2016. If we look at the Statement of Objects andReasons of the Amending Act, same is also enacted to provide forspeedy disposal of cases relating to arbitration with least courtintervention. Clause 11 of the Bill, by which sub-section (2A)was proposed to be inserted, states that sub-section (2A) wasintended to give an opportunity to the respondent, in support ofhis case, to submit counter-claim or a set-off if such counterclaimor set-off falls within the scope of arbitration agreement. WhenSection 18(3) makes it clear that in the event of failure by theCouncil under Section 18(2) if proceedings are initiated underSection 18(3) of the 1996 Act, the provisions of 1996 Act are notonly made applicable but specific mention is made to the effect asif the arbitration was in pursuance to an arbitration agreementreferred to in sub-section (1) of Section 7 of the 1996 Act. Whenthere is a provision for filing counter-claim and set-off which isexpressly inserted in Section 23 of the 1996 Act, there is noreason for curtailing the right of the respondent for makingcounter-claim or set-off in proceedings before the FacilitationCouncil.

23. The obligations of the buyer to make payment, and awardof interest at three times of the bank rate notified by ReserveBank in the event of delay by the buyer and the mechanism forrecovery and reference to Micro and Small EnterprisesFacilitation Council and further remedies under the 2006 Act forthe party aggrieved by the awards, are covered by Chapter V ofthe 2006 Act. The provisions of Section 15 to 23 of the Act aregiven overriding effect notwithstanding anything inconsistenttherewith contained in any other law for the time being inforce. From the Statement of Objects and Reasons also it isclear that it is a beneficial legislation to the small, mediumand micro sector. The Arbitration and Conciliation Act, 1996is a general law whereas the Micro, Small and MediumEnterprises Development Act, 2006 is a special beneficiallegislation which is intended to benefit micro, small andmedium enterprises covered by the said Act. The Act of 2006contemplates a statutory arbitration when conciliation fails. Aparty which is covered by the provisions of 2006 Act allows aparty to apply to the Council constituted under the Act to firstconciliate and then arbitrate on the dispute between it and

other parties. There are fundamental differences in thesettlement mechanism under the 2006 Act and the 1996 Act.The first difference is, the Council constituted under the 2006Act to undertake mandatory conciliation before thearbitration which is not so under the 1996 Act. Secondly, inthe event of failure of conciliation under the 2006 Act, theCouncil or C.A.Nos.1570-1578 of 2021 etc. 35 the centre orinstitution is identified by it for arbitration. The 1996 Actallows resolution of disputes by agreed forum. The thirddifference is that, in the event of award in favour of seller andif the same is to be challenged, there is a condition forpredeposit of 75% of the amount awarded. Such is not thecase in the 1996 Act.When such beneficial provisions are therein the special enactment, such benefits cannot be denied on theground that counter-claim is not maintainable before the Council.In any case, whenever buyer wish to avoid the jurisdiction of theCouncil, the buyer can do on the spacious plea of counter-claim,without responding to the claims of the seller. When theprovisions of Sections 15 to 23 are given overriding effect underSection 24 of the Act and further the 2006 Act is a beneficiallegislation, we are of the view that even the buyer, if any claim isthere, can very well subject to the jurisdiction before the Counciland make its claim/ counter claim as otherwise it will defeat thevery objects of the Act which is a beneficial legislation to micro,”small and medium enterprises.…...................................

(emphasis supplied)

16. The Division Bench of Allahabad high Court wherein the same issue was involved, in the case of M/s. CumminsTechnologies India Private Limited v. Micro and SmallEnterprises Facilitation Council and Others (supra) has in Paras 29, 59, 61 and 62 held as under: - “29. Section 24 says that Sections 15 to 23 shall have effectnotwithstanding anything contained in any other law for thetime being in force and this provision is also of utmostimportance in this petition, hence reproduced as under:- "S.24. Overriding effect - The provisions of sections 15 to23 shall have effect notwithstanding anything inconsistenttherewith contained in any other law for the time being inforce."

(Emphasis added)

***********************

59. Karnataka High Court in fact followed the judgment ofBombay High Court in Gujarat State Petronet Ltd. Vs. Microand Small Enterprises Facilitation Council and others (supra)and Gujarat High Court in Principal Chief Engineer Vs. M/s.

-Manibhai and Brothers (supra). We find that in para15, learnedSingle Judge has observed that Section 80 of Act, 1996incorporates a salutary principle that a 'Conciliator' cannot actalso as an Arbitrator and this salutary principle cannot bewhittled down or excluded by inferring a contrary intent in theprovisions of Section 18(3) and applying Section 24.Unfortunately, when we enquired, are not shown any suchalleged salutary principle which could have been given anoverriding effect over express statutory provision providingotherwise. Further, we also find that Section 18(4) has beencompletely overlooked and no reason has been given byreferring to Section 18(4) as to why MASEF Council cannot actas Arbitrator, when a specific declaration has been made that itshall have jurisdiction to act an Arbitrator. For application ofSection 18(4) to that extent, there is no such condition provided.In our view, therefore, aforesaid Single Judge judgment will nothelp petitioners and we record our respectful disagreementwith the aforesaid authority of the learned Single Judge ofKarnataka High Court.”

“61. There is one more aspect. Normally an Arbitral Tribunalconsists of sole Arbitrator or two Arbitrators with or without anUmpire. In such a case, there may be an element of personalprejudice or bias on the part of such persons constitutingArbitral Tribunal, if one of them or all of them have also actedas Conciliator. However, that is not the position in respect of aReference made under Section 18 (1) of MSMED Act, 2006since MASEF Council is a statutory body. Section 21 ofMSMED Act, 2006 provides that such Conciliator shall havemembers not less than three but not more than five. Thecomposition of Council is also given in Section 21(1) (i) to (iv)and it includes Director of Industries or any other officer notbelow the rank of such Director, in the Department of StateGovernment; Office Bearer or Representatives of Association ofMicro or Small Industries or Enterprises; Representatives ofBanks and Financial Institutions lending to micro or smallenterprises. The persons mentioned in Clause (iv) of Section21(1) may be brought in Council in the alternative ofRepresentative of Banks and financial institutions lending toMicro and Small Enterprises, if it is found necessary to includepersons having special knowledge in the field of industry,finance, law, trade or commerce. Director is Chairperson ofMASEF Council. Therefore, the statutory body like MASEFCouncil does not suffer the element of personal prejudice orbias as is available in the case of individual persons constitutingArbitral Tribunal. It may be that persons constituting MASEFCouncil at the time of conciliation may not be the same whenthe said Conciliator took up the matter for arbitration.Therefore, central idea beyond the embargo created by Section80(1) available in case of individuals constituting ArbitralTribunal is absent in the matter covered by Section 18 ofMSMED Act, 2006 since here, the Council, which is permittedto act as Conciliator as well as Arbitrator is a statutory body

having not less than there persons but upto five persons and,therefore, the element of personal bias, prejudice is absent insuch a case.”

“62. Even otherwise, as we have already discussed, Section 80itself permits an otherwise agreement between the parties.Meaning thereby the embargo that Conciliator shall not beArbitral Tribunal is not absolute. That being so, the mandatoryand overriding effect contained in Section 18(3) and 18(4) andSection 24 of MSMED Act, 2006 cannot be whittled down byreferring to a salutary principle though, in our view, no suchsalutary principle having force of law to the extent that a-legislative provision must be read as subserving is recognizedor available.”

(emphasis supplied)

17. Similarly, the Division Bench of Patna High Court, in the case of Best Towers Private Limited v. Reliance Communications Limited(supra), in which an appeal was preferred against the orderdated 19[th] June, 2018 passed by Single Bench in a petition having thesame title on which heavy reliance is also placed by the learnedcounsel for the petitioner, it has been held in paras 15, 20, 26 and 27, as under: -

“15.It is urged that the provisions of Section 18 (3) of the 2006Act have an overriding effect and, therefore, there is a statutoryrequirement and obligation on the part of the Facilitation Councilto enter upon arbitration as if the said proceedings are inpursuance of an agreement referred to under Section 7 of the 1996Act. It is submitted that in view of this express arrangement underthe 2006 Act, which is a special Act, the Facilitation Council waswell within its authority to enter upon arbitration and deliver anAward. The same, therefore, could have been appropriatelychallenged through proceedings under Section 34 of the 1996 Act,that was actually done by the respondent petitioner, and the writpetition ought not to have been entertained as there was no lack ofjurisdiction on the part of the Facilitation Council. Learnedcounsel for the appellant has relied on the judgment of a learnedSingle Judge of the Delhi High Court in the case of GE T&DIndia Limited. Vs. Reliable Engineering Projects and Marketing[O.M.P. (COMM) 76/2016], decided on 15th February, 2017 tocontend Patna High Court LPA No.1035 of 2018 dt.14-02-2019that the 2006 Act is a special Act and has invited the attention of

the Court to Paragraphs 38 and 39 of the said judgment which isextracted herein under:- "38. In the present case, therefore, the Court is satisfied that theMSMED Act to the extent it provides for a special forum foradjudication of the disputes involving a 'supplier' registeredthereunder, overrides the Act i.e., the Arbitration andConciliation Act, 1996. The following observations in SnehadeepStructures Pvt. Ltd. V Maharashtra Small Scale IndustriesDevelopment Corporation Ltd. (supra) which deal with thestatute of 1993 proceeding the MSMED Act equally applies tothe MSMED Act:MSMED Act to the extent it provides for a special forum foradjudication of the disputes involving a 'supplier' registeredthereunder, overrides the Act i.e., the Arbitration andConciliation Act, 1996. The following observations in SnehadeepStructures Pvt. Ltd. V Maharashtra Small Scale IndustriesDevelopment Corporation Ltd. (supra) which deal with thestatute of 1993 proceeding the MSMED Act equally applies tothe MSMED Act:

"47. The requirement of pre-deposit of interest is introduced as adisincentive to prevent dilatory tactics employed by the buyersagainst whom the small-scale industry might have procured inaward, just as in cases of a decree or order. Presumably, thelegislative intent behind Section 7 was to target buyers, who onlywith the end of pushing off the ultimate event of payment to thesmall-scale industry undertaking, institute challenges against theaward/decree/order passed against them. Such buyers cannot beallowed to challenge arbitral awards indiscriminately, especiallywhen the section requires predeposit of 75% interest even whenappeal is preferred against an award, as distinguished from anorder or decree."

39. Likewise, in Edukanti Kistamma (Dead) through LRs. v. S.Venkatareddy (dead) through LRs. (supra), the Supreme Courtexplained that a special statute would be preferred over a generalone where it is beneficial. It was explained that the purport andobject of the Act must be given its full effect by applying theprinciples of "purposive construction." The question whether thedispute resolution mechanism under Section 18 of the MSMEDAct overrides the arbitration clause under the contract has to beanswered in the affirmative. As was explained in WamanShriniwas Kini v. Ratilal Bhagwandas & Co. (supra) anagreement contrary to a statutory provision that prohibits itwould be unenforceable."Venkatareddy (dead) through LRs. (supra), the Supreme Courtexplained that a special statute would be preferred over a generalone where it is beneficial. It was explained that the purport andobject of the Act must be given its full effect by applying theprinciples of "purposive construction." The question whether thedispute resolution mechanism under Section 18 of the MSMEDAct overrides the arbitration clause under the contract has to beanswered in the affirmative. As was explained in WamanShriniwas Kini v. Ratilal Bhagwandas & Co. (supra) anagreement contrary to a statutory provision that prohibits itwould be unenforceable."

*********************

20. We may at the outset undertake a comparative study of theprovisions of the MSMED Act, 2006 and the Arbitration andConciliation Act, 1996. To begin with the object and reasons forenacting the 2006 Act was to clearly protect the development ofMicro, Small and Medium Enterprises and to extend support tothem to enable them to grow and adopt higher levels and higherproductivity to remain competitive in a fast globalization era. It isfor this reason, a single legal framework was required to facilitatethe promotion and development of such industries. The statementof objects and reasons in Clause 2(d)(h) clearly recites that theprocedure also envisages to make further improvements in respectof delayed payments. In this background, the appellant before usis a supplier within the meaning of Section 2 (n) of the 2006 Actand the respondent- petitioner is a buyer within the meaning ofSection 2 (d) of the Act. To facilitate the resolution of disputesrelating to delayed payments, Chapter-5 was incorporated in the

Act fixing a statutory liability on the buyer to make paymentswithin a specified time. Section 16 fixes the liability of paymentof interest and Section 17 empowers the supplier to receivepayments with interest thereon. On a dispute being raised withPatna High Court LPA No.1035 of 2018 dt.14-02-2019 regard todelay in payments or any amount due, a forum named as aFacilitation Council is created under Section 18 of the Act whereany party to a dispute may make a reference to the FacilitationCouncil. Sub-section (2) of Section 18 enjoins upon the Councilto either itself conduct a conciliation or seek the assistance of anyInstitution or Centre providing alternate dispute resolutionservices by making a reference to it. The provisions of Section 65to Section 81 of the Arbitration and Conciliation Act, 1996 are toapply to such a dispute as if the conciliation was under Part-III ofthe 1996 Act. Thus, the first step on the reference of a dispute is toundertaking a conciliation effort by the Council or reference ofsuch conciliation to any Institution or Centre as provided therein.The words "shall apply" in respect of Section 65 to Section 81ofthe 1996 Act, therefore, clearly stipulates that in an effort ofconciliation the same process will be adopted in respect ofconciliation proceedings with a specific bar in Section 80 that theConciliator shall not act as an Arbitrator or as a representative orCounsel of a party in "any arbitral or judicial proceedings inrespect of a dispute that is the subject of conciliationproceedings". Thus, according to Section 80 the Conciliatorcannot act as an Arbitrator. The question raised before us by thePatna High Court LPA No.1035 of 2018 dt.14-02-2019 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, the Councilitself has proceeded to arbitrate which it could not have done interms of Section 80 of the 1996 Act read with Section 18 (2) ofthe 2006 Act. This argument on behalf of the respondentpetitioner has been accepted by the learned Single Judge that hasbeen questioned by the appellant contending that Section 24 of the2006 Act clearly provides that Section 15 to 23 thereof shall haveeffect notwithstanding anything inconsistent therewith containedin any other law for the time being in force.What we find is thatsub-section (2) of Section 18 only refers to conciliation and theprocedure to be followed in terms of Part-III of the 1996 Act tothe extent of Section 65 to Section 81 thereof. Immediately-thereafter, sub section (3) of Section 18 introduces an absolutelynovel procedure allowing the commencement of arbitrationproceedings with a mandate on the Council that in the eventconciliation ends in failure, the Council shall "either itself" takeup the dispute for arbitration or refer it to any Institution or Centreproviding alternate dispute resolution services for such PatnaHigh Court LPA No.1035 of 2018 dt.14-02-2019 arbitration andthe provisions of the 1996 Act "shall then" apply to the disputes asif 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 as

suggested by the learned counsel for the respondent petitionerunder Section 80 of the 1996 Act. It is trite law that the meaningsassigned and the purpose for which an enactment has been madeshould be construed to give full effect to the legislative intent andwe have no doubt in our mind that the provisions of Section 18(3) mandates the institution of arbitration proceedings under the2006 Act itself and it is "then" that the provisions of theArbitration and Conciliation Act, 1996 shall apply. The institution-of arbitration proceedings would be governed by subsection (3)of Section 18 of the 2006 Act which having an overriding effectcannot debar the Facilitation Council from acting as an Arbitratorafter the conciliation efforts have failed under sub-section (2) of-Section 18 of the Act. A combined reading of subsection (2) andsub-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 keeping inview Section 80 of the 1996 Act stands overridden and theFacilitation Patna High Court LPA No.1035 of 2018 dt.14-02-2019 Council can act as an Arbitrator by virtue of the force of the-overriding strength of subsection (3) of Section 18 of the 2006Act over Section 80 of the 1996 Act. The conclusion of thelearned Single Judge that there is a prohibition on the Council toact in a dual capacity is, therefore, contrary to the clear intentionof the legislature and, therefore, the verdict that the FacilitationCouncil lacked inherent jurisdiction does not appear to be acorrect inference. Thus, on a comparative study of the provisionsreferred to herein above, there is no scope for any doubt withregard to the overriding effect of the provisions of the 2006 Actthat empowers the Facilitation Council to act as an Arbitratorupon the failure of conciliation proceedings. The cloud ofsuspicion and doubt about the role of the Facilitation Council,therefore, stands clarified on the basis of the analysis made by usherein above.

26. For all the reasons given herein above, we find that thejudgment of the learned Single Judge cannot be sustained andcosts deserve to be imposed on the respondent petitioner forhaving attempted to delay the proceedings as observed hereinabove.

27. The appeals are accordingly allowed and the impugnedjudgment dated 19th June, 2018 is set aside with cost of Rs.50,000/- (fifty thousand) on the respondent No. 1 petitionerpayable and to be deposited with the Patna High Court LegalServices Committee within one month from today.”

Similar findings have also been recorded by a Division Benchof Allahabad High Court in TBED (India) Transformer PrivateLimitedv.U.P. Micro and Small Enterprises and another(supra).

18. The Supreme Court in the case of Bhaven Constructionthrough Authorized Signatory Premjibhai K. Shah v. ExecutiveEngineer Sardar Sarovar Narmada Nigam Limited and another(supra) has also emphasized that even if the Arbitrator has failed toadjudicate upon its jurisdiction in that case, the remedy lies underSection 34 of the Arbitration & Conciliation Act, 1996 and petitionunder Article 226 / 227 of the Constitution of India would not be maintainable. Paras 25 and 26 of the said decision read, as under: - “25. It must be noted that Section 16 of the Arbitration Act,necessarily mandates that the issue of jurisdiction must be dealtfirst by the tribunal, before the Court examines the same underSection 34. Respondent No. 1 is therefore not left remediless, andhas statutorily been provided a chance of appeal. In DeepIndustries case (supra), this Court observed as follows:

“22. One other feature of this case is of some importance. As statedherein above, on 09.05.2018, a Section 16 application had beendismissed by the learned Arbitrator in which substantially the samecontention which found favour with the High Court was taken up.The drill of Section 16 of the Act is that where a Section 16application is dismissed, no appeal is provided and the challenge tothe Section 16 application being dismissed must await the passing ofa final award at which stage it may be raised under Section 34.” herein above, on 09.05.2018, a Section 16 application had beendismissed by the learned Arbitrator in which substantially the samecontention which found favour with the High Court was taken up.The drill of Section 16 of the Act is that where a Section 16application is dismissed, no appeal is provided and the challenge tothe Section 16 application being dismissed must await the passing ofa final award at which stage it may be raised under Section 34.”

(emphasis supplied)

26. In view of the above reasoning, we are of the consideredopinion that the High Court erred in utilizing its discretionarypower available under Articles 226 and 227 of the Constitutionherein. Thus, the appeal is allowed and the impugned Order of theHigh Court is set aside. There shall be no order as to costs. Beforewe part, we make it clear that Respondent No. 1 herein is atliberty to raise any legally permissible objections regarding thejurisdictional question in the pending Section 34 proceedings.”

(emphasis supplied)

19. On the aforementioned discussion, with due respect to thelearned judge of the Bombay High Court, the decision in the case ofGujarat State Petronet Limited, Gujarat (supra) cannot be reliedupon, as the aforesaid decision does not lay down the lay down the

correct legal preposition in respect of MSME Act, 2006 read with theprovisions of Arbitration & Conciliation Act, 1996 because the sameview taken by the Single Bench of Patna High Court in the case ofReliance Communications Limited v. Best Towers PrivateLimitedhas already been negated by the Division Bench of thePatna High Court in the case of Best Towers Private Limited v.Reliance Communications Limited(supra). Thus, the contentions,as advanced by Shri Baheti, learned counsel for the petitioner, havenot legs to stand and are liable to be rejected.

20. So far as the contention regarding non-service of notice to thepetitioner in respect of commencement of Arbitration proceedingsafter the failure of Conciliation proceedings before the FacilitationCommittee is concerned, it is found that the petitioner wasrepresented by its counsel on 30.05.2015, 08.10.2015 and27.04.2016. On 27.04.2016, a detailed reply was also filed by thepetitioners but as per the request of the parties, to allow them todiscuss if any settlement is possible, they were directed to meet inIndore on 18.05.2016 but no settlement could be arrived at and onthe next date of hearing before the Facilitation Council, i.e., on03.11.2016, the petitioners or their counsel failed to appear beforethe Council and thus, the final award was passed on 27.12.2017. It isapparent that after failing to appear before the Facilitation Council,the petitioner is now claiming that proper opportunity of hearing was

not given to them which is not tenable and is liable to be rejected.This court is of the considered opinion that once a notice is served ona party under s.18 of the MSME Act, it would hold good forConciliation proceedings as also the Arbitration proceedings to betaken up by the Facilitation Council, after the Conciliationproceedings have failed and no separate notice is required to beserved by the Council for initiation of Arbitration proceedings.

21. Another aspect of the matter, of pre-deposit of 75% of theawarded amount as provided u/s.19 of the Act need not engage thiscourt in the light of the aforementioned discussion.

22. Resultantly, this Court finds the present petition to be totallymisconceived and misplaced, as this Court cannot exercise itsjurisdiction under Article 226 / 227 of the Constitution of Indiaagainst the award passed by the Facilitation Council under Section18 the MSME Act.

22. It is also a matter of concern, the manner in which the processof this court has been misused by filing this petition. It is found thatthe impugned award was passed on 27.12.2017 and the demandnotice was issued on 04.05.2019, whereas, the petition has been filedon 06.01.2020 and there is no explanation provided in clause 4 of thepetition. It is also found that the decisions relied upon by the counselfor the petitioners viz. Bombay and Patna High Courts in the case ofGujarat State Petronet Limited, Gujaratv. Micro and Small

Enterprises Facilitation Council, Thane and others (supra) andReliance Communications Limited, Patna (Bihar) v. State of Bihar & others(supra) respectively, already stood reversed by theDivision bench of the Allahabad High Court and the Patna HighCourt, but the counsel has cited the aforesaid decisions rendered bythe single benches in the petition itself by relying upon thejudgments which have already been held to be bad in law by theDivision benches of two High Courts.

23. In view of the same, Writ Petition No.369/2020 being devoidof merits is hereby dismissed with a cost of Rs.1,00,000/- (RupeesOne Lakh) out of which Rs.50,000/- be given to the respondent,whereas Rs.50,000/- to be paid to the COVID Fund in the officeof Zila Balsanrakshan Samiti, District Indore (MP) [Axis BankAccount No.911010007267684 IFSC Code UTIB000053].

IA No.10005/2021; IA No.6066/2021; and IA No.6067/2021,stand disposed of.

Pithawe RC

(Subodh Abhyankar)

Judge

RAMESH CHANDRA PITHWE 2021.12.31 16:48:47 +05'30'