GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. versus MAHAKALI FOODS PVT. LTD. (UNIT 2) & ANR
[2022] 19 S.C.R. 1094, Supreme Court of India, 2022
Outcome: Disposed off
Segment: Ratio
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[2022] 19 S.C.R. 1094
1094
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD.
v.
MAHAKALI FOODS PVT. LTD. (UNIT 2) & ANR.
(Civil Appeal No. 8008 of 2022)
OCTOBER 31, 2022
[UDAY UMESH LALIT, CJI AND BELA M. TRIVEDI, J.]
Arbitration and Conciliation Act, 1996 – s.37 – Micro, Small
and Medium Enterprises Development Act, 2006 (MSMED Act) –
Whether the provisions of Chapter-V of the MSMED Act, 2006 would
have an effect overriding the provisions of the Arbitration Act, 1996?
– Held :One of principles of statutory interpretation relevant for
our purpose is contained in the Latin maxim “leges posteriors priores
contrarias abrogant” (the later laws shall abrogate earlier contrary
laws) – Another relevant rule of construction is contained in the
maxim “generalia specialibus non derogant” (General laws do not
prevail over Special laws) – When there is apparent conflict between
two statutes, the provisions of a general statute must yield to those
of a special one – MSMED Act, 2006 being a special law and
Arbitration Act, 1996 being a general law, the provisions of MSMED
Act would have precedence over the Arbitration Act – It is settled
legal position that no agreement entered into between the parties
could be given primacy over the statutory provisions – When the
Special Act i.e., MSMED Act, 2006 has been created for ensuring
timely and smooth payment to the suppliers who are the micro and
small enterprises, and to provide a legal
framework for resolving
the dispute with regard to the recovery of dues between the parties
under the Act, also providing an overriding effect to the said law
over any other law for the time being in force, any interpretation in
derogation thereof would frustrate the very object of the Act.
Arbitration and Conciliation Act, 1996 – s.37 – Micro, Small
and Medium Enterprises Development Act, 2006 (MSMED Act) –
Whether any party to a dispute with regard to any amount due under
Section 17 of the MSMED Act, 2006 would be precluded from
making a reference to the Micro and Small Enterprises Facilitation
Council under sub-section (1) of Section 18 of the said Act, if an
independent arbitration agreement existed between the parties as
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contemplated in Section 7 of the Arbitration Act, 1996? Held : That
no party to a dispute covered under Section 17 of the MSMED Act,
2006 would be precluded from making a reference to the Facilitation
Council under Section 18(1) thereof, merely because there is an
arbitration agreement existing between the parties – S 18(1) of the
MSMED Act, 2006 is an enabling provision which gives the party
to a dispute covered under Section 17 thereof, a choice to approach
the Facilitation Council, despite an arbitration agreement existing
between the parties.
Arbitration and Conciliation Act, 1996 – s.37 – Micro, Small
and Medium Enterprises Development Act, 2006 (MSMED Act) –
Whether the Micro and Small Enterprises Facilitation Council, itself
could take up the dispute for arbitration and act as an arbitrator,
when the council itself had conducted the conciliation proceedings
under sub-section (2) of the Section 18 of the MSMED Act, 2006 in
view of the bar contained in Section 80 of the Arbitration Act,1996?
Held : In affirmative – Section 38 of the Arbitration Act, 1996
contains a bar that the Conciliator shall not act as an Arbitrator in
any arbitral proceedings in respect of a dispute that is subject of
conciliation proceedings, the said bar stands superseded by the
provisions contained in Section 18 read with Section 24 of the
MSMED Act, 2006 – The provisions of Arbitration Act, 1996 would
apply to the proceedings conducted by the Facilitation Council only
after
the process of conciliation initiated by the council under Section
18(2) fails and the council either itself takes up the dispute for
arbitration or refers to it to any institute or centre for such arbitration
as contemplated under Section 18(3) of the MSMED Act, 2006.
Disposing the appeals, the Court
HELD : 1.1 The first and foremost issue involved in these
appeals is whether the provisions contained in Chapter V of the
MSMED Act, 2006 with regard to the Delayed Payments to Micro
and Small Enterprises would have the precedence over the
provisions contained in the Arbitration Act, 1996, more
particularly when the parties by execution of an independent
agreement as contemplated in Section 7 of the Arbitration Act
had agreed to submit to arbitration the disputes arising between
them? In other words, whether the provisions contained in
Chapter V of the MSMED Act, 2006 would have an effect
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
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overriding the provisions contained in the Arbitration Act, 1996?
[Para 16][1120-G; 1121-A-B]
1.2 One of principles of statutory interpretation relevant
for our purpose is contained in the Latin maxim “leges posteriors
priores contrarias abrogant” (the later laws shall abrogate earlier
contrary laws). Another relevant rule of construction is contained
in the maxim “generalia specialibus non derogant” (General laws
do not prevail over Special laws). When there is apparent conflict
between two statutes, the provisions of a general statute must
yield to those of a special one. [Para 18][1121-E]
1.3 Having regard to the purpose, intention and objects as
also the scheme of the MSMED Act, 2006 and having regard to
the unambiguous expressions used in Chapter-V thereof,
following salient features emerge:
i.
Chapter-V is “party-specific”, in as much as the party
i.e. the ‘Buyer’ and the ‘Supplier’ as defined in
Sections 2(d) and 2(n) respectively are covered under
the said Chapter.
ii.
A specific provision is made fastening a liability on
the buyer to make payment of the dues to the supplier
in respect of the goods supplied or services rendered
to the buyer, as also a liability to pay compound interest
at three times of the bank rate notified by the Reserve
Bank, if the buyer fails to make payment within the
prescribed time limit. The said liability to pay
compound interest is irrespective of any agreement
between the
parties or of any law for the time being
in force.
iii.
A dedicated statutory forum i.e., Micro and Small
Enterprises Facilitation Council is provided to enable
any party to a dispute with regard to any amount due
under Section 17, to make reference to such Council.
iv.
A specific procedure has been prescribed to be
followed by the Facilitation Council after the reference
is made to it by any party to the dispute.
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v.
The Facilitation Council or the centres providing
alternative dispute resolution services have been
conferred with the jurisdiction to act as an Arbitrator
or Conciliator under Section 18(4), notwithstanding
anything contained in any law for the time being in
force, in a dispute between the supplier located within
its jurisdiction.
vi.
The provisions of Arbitration Act, 1996 has been made
applicable to the dispute only after the Conciliation
initiated under sub-section (2) does not succeed and
stands terminated without any settlement between the
parties.
vii.
s.18(4)(1) starting with non obstante clauses have an
effect overriding the other laws for the time being in
force.
viii.
As per Section 24, the provisions of Sections 15 to
23 have an effect notwithstanding anything
inconsistent therewith contained in any other law for
the time being in force. [Para 23][1123-F-H; 1124-
A-F]
1.4 Thus, the Arbitration Act, 1996 in general governs the
law of Arbitration and Conciliation, whereas the MSMED Act,
2006 governs specific nature of disputes arising between specific
categories of persons, to be resolved by following a specific
process through a specific forum. Ergo, the MSMED Act, 2006
being a special law and Arbitration Act, 1996 being a general law,
the provisions of MSMED Act would have precedence over or
prevail over the Arbitration Act, 1996. [Para 25][1125-D]
1.5 There cannot be any disagreement to the proposition
of law laid down in various
decisions of this Court, relied upon by
the learned counsel for the buyers that the Court has to read the
agreement as it is and cannot rewrite or create a new one, and
that the parties to an arbitration agreement have an autonomy to
decide not only on the procedural law to be followed but also on
the substantive law, however, it is equally settled legal position
that no agreement entered into between the parties could be
given primacy over the statutory provisions. When the Special
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Act i.e., MSMED Act, 2006 has been created for ensuring timely
and smooth payment to the suppliers who are the micro and small
enterprises, and to provide a legal framework for resolving the
dispute with regard to the recovery of dues between the parties
under the Act, also providing an overriding effect to the said law
over any other law for the time being in force, any interpretation
in derogation thereof would frustrate the very object of the Act.
The submission therefore that an independent arbitration
agreement entered into between the parties under the Arbitration
Act, 1996 would prevail over the statutory provisions of MSMED
Act, 2006 cannot countenanced. As such, sub-section (1) of Section
18 of the MSMED Act, 2006 is an enabling provision which gives
the party to a dispute covered under Section 17 thereof, a choice
to approach the Facilitation Council, despite an arbitration
agreement existing between the parties. Absence of the word
‘agreement’ in the said provision could neither be construed as
casus omissus in the statute nor be construed as a preclusion
against the party to a dispute covered under Section 17 to
approach the Facilitation Council, on the ground that there is an
arbitration agreement existing between the parties. In fact, it is
a substantial right created in favour of the party under the said
provision. It is therefore held that no party to a dispute covered
under Section 17 of the MSMED
Act, 2006 would be precluded
from making a reference to the Facilitation Council under Section
18(1) thereof, merely because there is an arbitration agreement
existing between the parties. [Para 28][1127-B-G]
1.6 The aforesaid legal position also dispels the arguments
advanced on behalf of the counsel for the buyers that the
Facilitation Council having acted as a Conciliator under Section
18(2) of the MSMED Act, 2006 itself cannot take up the dispute
for arbitration and act as an Arbitrator. Though it is true that
Section 38 of the Arbitration Act, 1996 contains a bar that the
Conciliator shall not act as an Arbitrator in any arbitral
proceedings in respect of a dispute that is subject of conciliation
proceedings, the said bar stands superseded by the provisions
contained in Section 18 read with Section 24 of the MSMED Act,
2006. As held earlier, the provisions contained in Chapter-V of
the MSMED Act, 2006 have an effect overriding the provisions
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of the Arbitration Act, 1996. The provisions of Arbitration Act,
1996 would apply to the proceedings conducted by the Facilitation
Council only after the process of conciliation initiated by the
council under Section 18(2) fails and the council either itself takes
up the dispute for arbitration or refers to it to any institute or
centre for such arbitration as contemplated under Section 18(3)
of the MSMED Act, 2006. [Para 29][1127-H; 1128-A-C]
1.7 When the Facilitation Council or the institution or the
centre acts as an Arbitrator, it shall have all powers to decide the
disputes referred to it as if such arbitration was in pursuance of
the arbitration agreement referred to in sub- section (1) of Section
7 of the Arbitration Act, 1996 and then all the trappings of the
Arbitration Act, 1996 would apply to such arbitration. It is
needless to say that such Facilitation Council/institution/centre
acting as an arbitral tribunal would also be competent to rule on
its own jurisdiction like any other arbitral tribunal appointed under
the Arbitration Act, 1996 would have, as contemplated in Section
16 thereof. [Para 30][1128-D-E]
1.8 The upshot of the above is that:
i.
Chapter-V of the MSMED Act, 2006 would override
the provisions of the Arbitration Act, 1996.
ii.
No party to a dispute with regard to any amount due
under Section 17 of the MSMED Act, 2006 would be
precluded from making a reference to the Micro and
Small Enterprises Facilitation Council, though an
independent arbitration agreement exists between the
parties.
iii.
The Facilitation Council, which had initiated the
Conciliation proceedings under Section 18(2) of the
MSMED Act, 2006 would be entitled to act as an
arbitrator despite the bar contained in Section 80 of
the Arbitration Act.
iv.
The proceedings before the Facilitation Council/
institute/centre acting as an arbitrator/arbitration
tribunal under Section 18(3) of MSMED Act, 2006
would be governed by the Arbitration Act, 1996.
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v.
The Facilitation Council/institute/centre acting as an
arbitral tribunal by virtue of Section 18(3) of the
MSMED Act, 2006 would be competent to rule on its
own jurisdiction as also the other issues in view of
Section 16 of the Arbitration Act, 1996.
vi.
A party who was not the ‘supplier’ as per the definition
contained in Section 2(n) of the MSMED Act, 2006
on the date of entering into contract cannot seek any
benefit as the ‘supplier’ under the MSMED Act, 2006.
If any registration is obtained subsequently the same
would have an effect prospectively and would apply
to the supply of goods and rendering services
subsequent to the registration. [Para 34][1130-B-G]
SBP & Company v. Patel Engineering Ltd (2005) 8 SCC
618 : [2005] 4 Suppl. SCR 688; Shiv Shakti Cooperative
Housing Society, Nagpur vs. Swaraaj Developers and
Others (2003) 6 SCC 659 : [2003] 3 SCR 762; Bharat
Aluminum Company v. Kaiser Aluminum Technical
Services (2012) 9 SCC 648; Antrix Corporaton Limited
v. Devas Multimedia Private Limited (2014) 11 SCC
560 : [2013] 6 SCR 453; Amazon.com NV Investment
Holdings LLC. v. Future Retail Limited and other (2022)
1 SCC 209; Orissa State Financial Corporation v.
Narsinghch. Nayak and Others (2003) 10 SCC 261;
Shin Satellite Public Co. Ltd. v. Jain Studios Ltd. (2006)
2 SCC 628 : [2006] 1 SCR 933; Silpi Industries etc. v.
Kerala State Road Transport Corporation and Anr 2021
SCC Online SC 439; Secur Industries
Ltd. v. Godrej &
Boyce Mfg. Co. Ltd. And Anr (2004) 3 SCC 447 : [2004]
2 SCR 705; Solidaire India Ltd. v. Fairgrowth Financial
Services Ltd. & Ors (2001) 3 SCC 71 : [2001] 1 SCR
932; Maruti Udyog Ltd. v. Ram Lal & Ors (2005) 2
SCC 638 : [2005] 1 SCR 790; Union of India v.
Prabhakaran Vijaya Kumar and Ors (2008) 9 SCC 517;
Regional Provident Fund Commr. v. Hoogly Mills Co.
Ltd. (2012) 2 SCC 489 : [2012] 1 SCR 363;
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Commissioner of Income Tax, Patiala v. Shahzada Nand
& Sons AIR 1966 SC 1342 : [1966] 3 SCR 379;
Kaushalya Rani v. Gopal Singh AIR 1964 SC 260 :
[1964] 4 SCR 982; K. Prabhakaran v. P. Jayarajan
(2005) 1 SCC 754 : [2005] 1 SCR 296 - Referred to.
Case Law Reference
[2005] 4 Suppl. SCR 688
referred to
Para3
[2003] 3 SCR 762
referred to
Para 13
[2013] 6 SCR 453
referred to
Para 13
[2006] 1 SCR 933
referred to
Para 13
[2004] 2 SCR 705
referred to
Para 14
[2001] 1 SCR 932
referred to
Para 14
[2005] 1 SCR 790
referred to
Para 14
[2012] 1 SCR 363
referred to
Para 15
[1966] 3 SCR 379
referred to
Para 17
[1964] 4 SCR 982
referred to
Para 19
[2005] 1 SCR 296
referred to
Para 26
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8008
of 2022.
From the Judgment and Order dated 13.11.2019 of the High Court
of Gujarat at Ahmedabad in R/First Appeal No.3613 of 2019.
With
Civil Appeal Nos. 127 of 2018, 6167 of 2013, 8009, 8010, 8011,
8012 of 2022.
Tushar Mehta, SG, Balbir Singh, ASG, Nakul Dewan, Ranjit Kumar,
Vinay Navare, G. Umapathy, Atul Yeshwant Chitale, Maninder Singh,
Sr. Advs., Prashant Singh, Ms. Liz Mathew, Kanu Agrawal, Pratap
Venugopal, Annam Venkatesh, Amrish Kumar, Ms. Aastha Mehta,
Bhargav Pandya, Ms. Deepanwita Priyanka, Ms. Anushree Prashit
Kapadia, Sambit Nanda, Ms. Anushka Shah, Ms. Priyanka Rathi, Ms.
Ms. Smriti Kalra, Muddam Thirupathi Reddy, Vijay K. Singh, Ms. Vijaya
Singh, Abhishek Singh, Pravartak Pathak, Ms. Gwen Karthika, Ms. Abha
GUJARAT STATE
CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2)
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R. Sharma, Anup Jain, Udit Gupta, Akshay Goel, M/s. Udit Kishan and
Associates, Ms. Tanvi Kakar, Ms. Prathmesh Kamat, Ms. Suchitra Atul
Chitale, Sunil Kumar Jain, Ms. Rashika Swarup, Manish Kumar Saran,
Satya Prakash Sharan, Aspi Kapadia, Ms. Nidhi Mohan Parashar, Vikrant
Kumar, Sachin Patil, Rahul Chitnis, Aaditya A. Pande, Geo Joseph, Ms.
Shwetal Shepal, Amit Meharia, Ms. Tannishtha Singh, Abinash Agarwal,
M/s. Meharia & Company, Satyajit A. Desai, Satya Kam Sharma,
Siddharth Gautam, Himanshu Sharma, Ms. Anagha S. Desai, Gaurav
Kejriwal, Pankaj Singhal, Pawas Agarwal, Arjun Aggarwal, Ms. Asha
Gopalan Nair, Ms. Nivedita Nair, Arun Gopalan Nair, Advs. for the
appearing parties.
The Judgment of the Court was delivered by
BELA M. TRIVEDI, J.
1. Leave to appeal is granted in SLP(C) No. 12884/2020, SLP(C)
No. 31227/2018, SLP(C) No. 7375/2020, SLP(C) No. 2135/2021 and
SLP(C) No. 6166/2021.
2. All these seven appeals though factually different, involve certain
common questions of law and therefore were heard together.
3. The broad outline of the impugned orders in each appeal may
be stated as under:
(I)
C.A. No…… of 2022 (@ SLP (C) No. 12884/2020)
The appellant Gujarat State Civil Supplies Corporation
Ltd. (Original Petitioner), has challenged the Order dated
13.11.2019 passed by the Gujarat High Court in the First
Appeal No. 3613/2019, whereby the High Court has
dismissed the said appeal filed by the appellant under
Section
37 of the Arbitration and Conciliation Act, 1996 (Hereinafter
referred to as “the Arbitration Act, 1996”). In the said First
Appeal, the appellant had challenged the Order dated
20.08.2018 passed by the Commercial Court, Ahmedabad
in Commercial Civil Misc. Application No. 54/2016 filed
under Section 34 of the Arbitration Act read with Section
19 of the Micro, Small and Medium Enterprises
Development Act, 2006 (hereinafter referred to as “the
MSMED Act, 2006”), whereby the commercial court had
confirmed the award made by the Madhya Pradesh Micro
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and Small Enterprises Facilitation Council, Bhopal in
Reference No. NSEFC 442/2012, holding that the provisions
of MSMED Act, 2006 had an effect overriding the provisions
of the Arbitration Act and that the Facilitation Council at
Bhopal had the jurisdiction to adjudicate upon the disputes
between the parties.
(II)
C.A. No. 127/2018
The appellant M/s. Ramkrishna Electricals Ltd.
(Original Respondent No. 2) has challenged the Order dated
27.06.2017 passed by theHigh Court of Judicature at
Bombay, Nagpur Bench, Nagpur, in W.P. No. 4435/2011,
whereby the High Court has allowed the said petition, holding
that the Micro, Small Enterprises Facilitation Council,
Nagpur, did not have the jurisdiction to decide the Original
Application No. 24/2010 filed by the appellant herein. In
the impugned order, the High Court followed its earlier
decision in case Steel Authority Vs. MSE Facilitation
Council1, in which it was held that the Facilitation Council
would not be entitled to proceed under the provisions of
Section 18(3) of MSMED Act, 2006 when there is an
independent arbitration agreement between the parties.
(III) C.A. No. 6167/2013
The appellant M/s. Vidarbha Ceramics Pvt. Ltd.
(Original Respondent No. 2) has challenged the Order dated
27.08.2010 passed by the High Court of Judicature at
Bombay, Nagpur Bench, Nagpur, in W.P. No. 2145/2010
(AIR 2012 Bom. 178) whereby the High Court has allowed
the said petition holding that the Facilitation Council,
Nagpur,was not
entitled to proceed under Section 18(3) of
the MSMED Act, 2006 in view of an arbitration agreement
executed between the parties.
(IV) C.A. …… of 2022 (@ SLP (C) No. 31227/2018)
The appellant Gujarat State Petronet Ltd. (Original
Petitioner) has challenged the Order dated 06.08.2018
passed by the High Court of Judicature at Bombay, in W.P.
1 AIR 2012 Bom. 178
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
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No. 5459/2015, whereby the High Court disposed of the
Writ Petition by holding that despite independent arbitration
agreement between the parties, the respondent Facilitation
Council, Thane had the jurisdiction to entertain the reference
made by the Respondent No. 1 Krunal Engineering Works
(Original RespondentNo. 3) under Section 18 of the
MSMED Act, 2006, however the High Court held that the
respondent Facilitation Council itself having conducted the
conciliation proceedings, could not have taken up the
disputes for arbitration in view of Section 80 of the
Arbitration Act, 1996. The High Court directed the
Facilitation Council to refer the disputes between the parties
to any institution or centre providing alternative dispute
resolution services for arbitration.
(V)
C.A. …… of 2022 (@ SLP (C) No. 7375/2020)
The appellant Bharat Electronics Ltd. & Anr.
(Original Petitioners) have challenged the Order dated
20.01.2020 passed by the High Court of Judicature at
Bombay in W.P. No. 7899/2017, whereby the High Court
has dismissed the said petition along with the W.P. No. 9356/
2018, holding that when the Facilitation Council had
conducted the arbitration proceedings and passed an award
under Section 18(3) of the MSMED Act, 2006 the remedy
of the aggrieved party would be to take recourse to Section
34 of the Arbitration Act. The High Court relied upon the
ratio in case of SBP & Company Vs. Patel Engineering
Ltd.2 which
disapproved the practice of High Courts
entertaining petitions under Article 226/227 of the
Constitution of India challenging the orders passed by the
Arbitration Tribunal.
(VI) C.A. ……of 2022 (@ SLP (C) No. 2135/2021)
The appellant Union of India (Original Appellant) has
challenged the Order dated 23.08.2019 passed by the Delhi
High Court in LPA 42/2019, whereby the High Court while
dismissing the said LPA held that despite the arbitration
clause in the agreement between the parties, if the MSMED
2 (2005) 8 SCC 618.
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Act,2006 is applicable to the party, Facilitation Council would
have the jurisdiction under Section 18(3) to either take up
the matter for arbitration itself or refer the matter for
arbitration to any institution or centre providing alternative
dispute resolution services.
(VII) C.A. …… of 2022 (@ SLP (C) No. 6166/2021)
The appellant JITF Water Infrastructure Ltd. (Original
Petitioner) has challenged the Order dated 24.07.2020
passed by the Gujarat High Court in LPA 1667/2019,
whereby the High Court while dismissing the said LPA and
confirming the order passed by the Single Bench,held that
Respondent No. 2 M/s. Aquafil Polymers Company Pvt.
Ltd. and M/s. Wintech Engineering Pvt. Ltd.being integral
part of the joint venture, any contract signed by the joint
venture would be a contract for the benefit and on behalf
of its constituents/components; and that if one of the
components of the joint venture (in this case M/s Aquafil
Polymers) had filed its memorandum under Section 8 of
the MSMED Act, 2006 it cannot be denied the status of the
supplier, even though joint venture had not filed such
memorandum. The High Court further held that the
respondent no. 2 Aquafil Polymers, who was the supplier
had rightly appliedto the Facilitation Council under Section
18(1) of the MSMED Act, 2006 and that the Facilitation
Council having conducted the Conciliation process and the
same havingfailed, the Facilitation Council had no option
left but to refer it to the
institution or centre providing
alternative dispute resolution services for carrying out the
matter further in accordance with the provisions of
Arbitration Act, 1996.
4. In the background of afore-stated spectrum of cases, following
common questions of law arise for consideration:
(i)
Whether the provisions of Chapter-V of the MSMED Act,
2006 would have an effect overriding the provisions of the
Arbitration Act, 1996?
(ii)
Whether any party to a dispute with regard to any amount
due under Section 17 of the MSMED Act,2006 would be
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2) [BELA M. TRIVEDI, J.]
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precluded from making a reference to the Micro and Small
Enterprises Facilitation Council under sub-section (1) of
Section 18 of the said Act, if an independent arbitration
agreement existed between the parties as contemplated in
Section 7 of the Arbitration Act,1996?
(iii)
Whether the Micro and Small Enterprises Facilitation
Council, itself could take up the dispute for arbitration and
act as an arbitrator, when the council itself had conducted
the conciliation proceedings under sub-section (2) of the
Section 18 of the MSMED Act, 2006 in view ofthe bar
contained in Section 80 of the Arbitration Act,1996?
5. Before adverting to the afore-stated questions of law, beneficial
would be to glance through the legislative history and the objects and
reasons as also the relevant provisions of the MSMED Act, 2006 and of
the Arbitration Act, 1996. So far as the legislative history of MSMED
Act, 2006 is concerned, it appears thatin order to promote and strengthen
the small, tiny and medium scale industrial undertakings, the “Interest on
Delayed Payments to Small Scale and Ancillary Industrial Undertakings
Act, 1993” (hereinafter referred to as “The Delayed Payments Act”)
was enacted by the Parliament. The object of the said enactment was to
provide for and regulate the payment of interest on delayed payments to
the small scale and ancillary industrial undertakings. Though Sections 4
and 5 of the Delayed Payments Act, made the
provisions of the recovery
of amount and computation of compound interest and section 10 thereof
provided for the effect overriding the other laws for the time being in
force, it did not provide for any dispute resolution mechanism through
which a small enterprise could avail of its remedies. The small enterprises,
therefore, had to file a suit or to follow the contractual terms as contained
in the arbitration agreement for the recovery of their dues. The
Government of India, Ministry of Industry, the Department of Small-
Scale Industries and Argo and Rural Industries, realizing the need for
reforms in the then existing policies and to design new policies for the
development of small and medium enterprises constituted “an expert
committee on small enterprises” vide the Order dated 29.12.1995. The
committeerecommended for enacting an Act for the inclusion of stringent
provisions for non-payment of dues to the small-scale industries. This
was followed by the Small and Medium Enterprises Development Bill,
2005 in August, 2005.The said Bill was referred to the Parliamentary
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Standing Committee on Industry, which submitted its 176th report on the
said Bill of 2005.The recommendations of the said committee culminated
into the MSMED Bill, which sought to achieve following amongst other
objects: -
-
to make provisions for ensuring timely and smooth flow of
credit to small and medium enterprises to minimize the
incidence of sickness among and enhancing the
competitiveness of such enterprises, in accordance with the
guidelines or instructions of the Reserve Bank of India;
-
tomake further improvements in the Interest on Delayed
Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993 and making that enactment a part
of the proposed legislation and to repeal that enactment.
6. The MSMED Bill having been passed by both the Houses of
Parliament, received the assent of the President on 16th June, 2006 and
came into the Statute Book as the MSMED Act, 2006, (27 of 2006).The
long title of the Act states that the said Act has been enacted to provide
for facilitating the promotion and development, and enhancing the
competitiveness of micro, small and medium enterprises and for matters
connected therewith or incidental thereto. The Act has been divided into
Six Chapters, and Chapter-V pertains to the ‘Delayed payments to micro
and small enterprises.’
7. Some of the definitions and provisions contained in the MSMED
Act, 2006 being relevant for the purpose of deciding these appeals are
reproduced hereunder: -
“2.Definitions.
—In this Act, unless the context otherwise
requires, —
(a) ….
(b) “appointed day” means the day following immediately after
the expiry of the period of fifteen days from the day of acceptance
or the day of deemed acceptance of any goods or any services by
a buyer from a supplier.
Explanation. —For the purposes of this clause, —
(i) “the day of acceptance” means, —
(a) the day of the actual delivery of goods or the rendering
of services; or
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2) [BELA M. TRIVEDI, J.]
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(b) where any objection is made in writing by the buyer
regarding acceptance of goods or services within fifteen days
from the day of the delivery of goods or the rendering of
services, the day on which such objection is removed by the
supplier;
(ii) “the day of deemed acceptance” means, where no objection
is made in writing by the buyer regarding acceptance of goods
or services within fifteen days from the day of the delivery of
goods or the rendering of services, the day of the actual delivery
of goods or the rendering of services;
(c) …..
(d) “buyer” means whoever buys any goods or receives any
services from a supplier for consideration;
(e) …..
(f) …..
(g) …..
(h) “micro enterprise” means an enterprise classified as such under
sub-clause (i) of clause (a) or sub-clause (i) of clause (b) of sub-
section (1) of section 7;
(i) …..
(j) …..
(k) ….
(l) …..
(m) “small enterprise” means an enterprise classified as such under
sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b) of sub-
section (1) of section 7;
(n) “supplier” means a micro or small enterprise, which has filed
a memorandum with the authority referred to in sub-section (1)
of section 8, and includes, —
(i) the National Small Industries Corporation, being a company,
registered under the Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State
or a Union territory, by whatever name called, being a company
registered under the Companies Act, 1956 (1 of 1956);
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(iii) any company, co-operative society, trust or a body, by
whatever name called, registered or constituted under any law
for the time being in force and engaged in selling goods
produced by micro or small enterprises and rendering services
which are provided by such enterprises;”
Section 8(1) pertaining to the filing of Memorandum of micro,
small and medium enterprises reads as under: -
“(1) Any person who intends to establish, -
(a) a micro or small enterprise, may, at his discretion; or
(b) a medium enterprise engaged in providing or rendering of
services may, at his discretion; or
(c) a medium enterprise engaged in the manufacture or
production of goods pertaining to any industry specified in the
First Schedule to the Industries (Development and Regulation)
Act, 1951 (65 of 1951),
shall file the memorandum of micro, small or, as the case may
be, of medium enterprise with such authority as may be specified
by the State Government under sub-section (4) or the Central
Government under sub-section (3):
Provided that any person who, before the commencement of
this Act, established-
(a) a small-scale industry and obtained a registration certificate,
may, at his discretion; and
(b) an industry engaged in the manufacture or production of
goods pertaining to any industry specified in the First Schedule
to the Industries (Development and Regulation) Act, 1951 (65
of 1951), having investment in plant and machinery of more
than one crore rupees but not
exceeding ten crore rupees and,
in pursuance of the notification of the Government of India in
the erstwhile Ministry of Industry (Department of Industrial
Development) number S.O. 477(E), dated the 25th July, 1991
filed an Industrial Entrepreneur’s Memorandum,shall within
one hundred and eighty days from the commencement of this
Act, file the memorandum, in accordance with the provisions
of this Act.”
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2) [BELA M. TRIVEDI, J.]
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8. Chapter-V of the MSMED Act,2006 pertaining to the
“delayedpayments to micro and small enterprises” contains Sections 15
to 25, out of which Sections 15 to 20 and 24 being relevant are reproduced
herein below:
“15.Liability of buyer to make payment. —Where any supplier
supplies any goods or renders any services to any buyer, the buyer
shall make payment therefor on or before the date agreed upon
between him and the supplier in writing or, where there is no
agreement in this behalf, before the appointed day: Provided that
in no case the period agreed upon between the supplier and the
buyer in writing shall exceed forty-five days from the day of
acceptance or the day of deemed acceptance.
16. Date from which and rate at which interest is payable.—
Where any buyer fails to make payment of the amount to the
supplier, as required under section 15, the buyer shall,
notwithstanding anything contained in any agreement between
the buyer and the supplier or in any law for the time being in
force, be liable to pay compound interest with monthly rests to the
supplier on that amount from the appointed day or, as the case
may be, from the date immediately following the date agreed upon,
at three times of the bank rate notified by the Reserve Bank.
17. Recovery of amount due. —For any goods supplied or
services rendered by the supplier, the buyer shall be liable to pay
the amount with interest thereon as provided under section
16.
18. Reference to Micro and Small Enterprises Facilitation
Council. —
(1) Notwithstanding anything contained in any other law for
the time being in force, any party to a dispute may, with regard
to any amount due under section 17, make a reference to the
Micro and Small Enterprises Facilitation Council.
(2) On receipt of a reference under sub-section (1), the Council
shall either itself conduct conciliation in the matter or seek the
assistance of any institution or centre providing alternate dispute
resolution services by making a reference to such an institution
or centre, for conducting conciliation and the provisions of
sections 65 to 81 of the Arbitration and Conciliation Act, 1996
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(26 of 1996) shall apply to such a dispute as if the conciliation
was initiated under Part III of that Act.
(3) Where the conciliation initiated under sub-section (2) is not
successful and stands terminated without any settlement
between the parties, the Council shall either itself take up the
dispute for arbitration or refer it to any institution or centre
providing alternate dispute resolution services for such
arbitration and the provisions of the Arbitration and Conciliation
Act, 1996 (26 of 1996) shall then apply to the dispute as if the
arbitration was in pursuance 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
Facilitation Council or the centre providing alternate dispute
resolution services shall have jurisdiction to act as an Arbitrator
or Conciliator under this section in a dispute between the supplier
located within its jurisdiction and a buyer located anywhere in
India.
(5) Every reference made under this section shall be decided
within a period of ninety days from the date of making such a
reference.
19. Application for setting aside decree, award or order —
No application for setting aside any decree, award or other order
made either by the Council itself or by any institution or centre
providing alternate dispute resolution services to which a reference
is made by the Council, shall be
entertained by any court unless
the appellant (not being a supplier) has deposited with it seventy-
five per cent. of the amount in terms of the decree, award or, as
the case may be, the other order in the manner directed by such
court: Provided that pending disposal of the application to set aside
the decree, award or order, the court shall order that such
percentage of the amount deposited shall be paid to the supplier,
as it considers reasonable under the circumstances of the case,
subject to such conditions as it deems necessary to impose.
20. Establishment of Micro and Small Enterprises
Facilitation Council. —The State Government shall, by
notification, establish one or more Micro and Small Enterprises
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2) [BELA M. TRIVEDI, J.]
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Facilitation Councils, at such places, exercising such jurisdiction
and for such areas, as may be specified in the notification.
21….
22…….
23……
24. Overriding effect. —The provisions of sections 15 to 23
shall have effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force.”
9. So far as the Arbitration Act, 1996 is concerned, its Bill, taking
into account the United Nations Commission on International Trade Law
(UNCITRAL) Model Law and Rules,sought to achieve following
amongst other objects: -
-
to comprehensively cover international and commercial
arbitration and conciliation as also domestic arbitration and
conciliation;
-
to permit an arbitral tribunal to use mediation, conciliation
or other procedures during the arbitral proceedings to
encourage settlement of disputes;
-
to provide that a settlement agreement reached by the parties
as a result of conciliation proceedings will have the same
status and effect as an arbitral award on agreed terms on
the substance of the dispute rendered by an arbitral tribunal.
10. The Arbitration and Conciliation Bill having been passed by
both the Houses of Parliament received the assent of the President on
16th Aug. 1996, and came on the Statute Book as the Arbitration and
Conciliation Act, 1996 (26 of 1996). It came into force on 22.08.1996.
As per the long title of the Act, the said Act was enacted to consolidate
and amend
the law relating to domestic arbitration, international
commercial arbitration and enforcement of foreign arbitral awards as
also to define the law relating to conciliation, and for matters connected
therewith and incidental thereto. The Act has been divided into five parts.
Part-I pertains to Arbitration, Part-IA to Arbitration Council of India,
Part-II to Enforcement of certain Foreign Awards, Part-III to Conciliation
and Part-IV pertains to Supplementary Provisions.
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11. Some of the relevant provisions of the Act are reproduced
hereunder for ready reference: -
Section 2(1)(b) defines “arbitration agreement” to mean an
agreement referred to in Section 7.
Section 2(4) reads as under:
“(4) This Part except sub-section (1) of section 40, sections 41
and 43 shall apply to every arbitration under any other enactment
for the time being in force, as if the arbitration were pursuant to
an arbitration agreement and as if that other enactment were an
arbitration agreement, except in so far as the provisions of this
Part are inconsistent with that other enactment or with any rules
made thereunder.”
Section 7 reads as under:
“7. Arbitration agreement. —
(1) In this Part, “arbitration agreement” means an agreement
by the parties to submit to arbitration all or certain disputes
which have arisen or which may arise between them in respect
of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration
clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means
of telecommunication including communication through
electronic means which provide a record of the agreement;
or
(c) an exchange of statements of claim and defence in which
the existence of the
agreement is alleged by one party and
not denied by the other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the
contract is in writing and the reference is such as to make that
arbitration clause part of the contract.”
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2) [BELA M. TRIVEDI, J.]
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[2022] 19 S.C.R.
Section 8(1) pertaining to the power of the judicial authority to
refer parties to arbitration where there is an arbitration agreement,
reads as under:
“8. Power to refer parties to arbitration where there is an
arbitration agreement. —
(1) A judicial authority, before which an action is brought in a
matter which is the subject of an arbitration agreement shall, if
a party to the arbitration agreement or any person claiming
through or under him, so applies not later than the date of
submitting his first statement on the substance of the dispute,
then, notwithstanding any judgment, decree or order of the
Supreme Court or any Court, refer the parties to arbitration
unless it finds that prima facie no valid arbitration agreement
exists.”
Chapter-IV pertains to the jurisdiction of arbitral tribunals.
Sections 16thereof reads as under:
“16. Competence of arbitral tribunal to rule on its
jurisdiction.
(1) The arbitral tribunal may rule on its own jurisdiction, including
ruling on any objections with respect to the existence or validity
of the arbitration agreement, and for that purpose, —
(a) an arbitration clause which forms part of a contract shall
be treated as an agreement independent of the other terms of
the contract; and
(b) a decision by the arbitral tribunal that the contract is null
and void shall not entail ipso jure the invalidity of the arbitration
clause.
(2) A plea that the arbitral tribunal does not have
jurisdiction shall
be raised not later than the submission of the statement of defence;
however, a party shall not be precluded from raising such a plea
merely because that he has appointed, or participated in the
appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its
authority shall be raised as soon as the matter alleged to be beyond
the scope of its authority is raised during the arbitral proceedings.
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(4) The arbitral tribunal may, in either of the cases referred to in
sub-section (2) or sub-section (3), admit a later plea if it considers
the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-
section (2) or sub-section (3) and, where the arbitral tribunal takes
a decision rejecting the plea, continue with the arbitral proceedings
and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an
application for setting aside such an arbitral award in accordance
with section 34.”
Section 21 pertaining to the commencement of arbitral
proceedings reads as under:
“21. Commencement of arbitral proceedings. —Unless
otherwise agreed by the parties, the arbitral proceedings in respect
of a particular dispute commence on the date on which a request
for that dispute to be referred to arbitration is received by the
respondent.”
Section 42 pertaining to the jurisdiction of the courts reads as
under:
“42. Jurisdiction. —Notwithstanding anything contained
elsewhere in this Part or in any other law for the time being in
force, where with respect to an arbitration agreement any
application under this Part has been made in a Court, that Court
alone shall have jurisdiction over the arbitral proceedings and all
subsequent applications arising out of that agreement and the
arbitral proceedings shall be made in that Court and in no other
Court.”
Section 43 pertaining to the Limitations reads as under:
“43.
Limitations. —(1) The Limitation Act, 1963 (36 of 1963),
shall apply to arbitrations as it applies to proceedings in Court.
(2) For the purposes of this section and the Limitation Act, 1963
(36 of 1963), an arbitration shall be deemed to have commenced
on the date referred in section 21.
(3) Where an arbitration agreement to submit future disputes to
arbitration provides that any claim to which the agreement applies
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2) [BELA M. TRIVEDI, J.]
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shall be barred unless some step to commence arbitral proceedings
is taken within a time fixed by the agreement, and a dispute arises
to which the agreement applies, the Court, if it is of opinion that in
the circumstances of the case undue hardship would otherwise
be caused, and notwithstanding that the time so fixed has expired,
may on such terms, if any, as the justice of the case may require,
extend the time for such period as it thinks proper.
(4) Where the Court orders that an arbitral award be set aside,
the period between the commencement of the arbitration and the
date of the order of the Court shall be excluded in computing the
time prescribed by the Limitation Act, 1963 (36 of 1963), for the
commencement of the proceedings (including arbitration) with
respect to the dispute so submitted.”
12. The learned counsels appearing for the parties had made their
submissions at length on various issues involved in their respective
appeals. Since some of the appeals are filed by the Suppliers and some
by the Buyers, for the sake of convenience, the learned counsels shall
be referred to as the counsels for the Suppliers and the counsels for the
Buyers instead of the counsels for the Appellants or theRespondents.
Their respective submissions may be summarized as under.
13. The learned counsels for the Buyers submitted as under:
(i)
The non obstante portion of Section 18 of the MSMED
Act,2006 does not include
‘agreement’ as expressly done
in Section 16 of the said Act and therefore Section 18 cannot
take precedence over an arbitration agreement executed
between the parties.
(ii)
The intention of the legislature not to supersede the contracts
between the parties is clear, when the term “shall” in Section
16 is replaced with the term “may” in Section 18.
(iii)
Section 18(1) and 18(4) have anon obstante clause,
whereas Section 18(2), 18(3) and 18(5) do not have such
non obstante clause. Therefore, Section 18(1) only gives
an option to any party to a dispute, and does not compel the
party to make a reference to the Facilitation Council.
Similarly, Section 18(4) confers jurisdiction upon the
Facilitation Council to act as an arbitrator or the conciliator
in a dispute between the supplier located within its
jurisdiction and a buyer located anywhere in India.
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(iv)
As per the well settled principle of law, the Courts cannot
supply casus omissus i.e., omission in a statute cannot be
supplied by construction. In this regard, reliance is placed on
the decision in case of Shiv Shakti Cooperative Housing
Society, Nagpur vs. Swaraaj Developers and Others3.
(v)
Section 18 of MSMED Act,2006 does not grant any
substantive right to the supplier and it is merely a procedure/
mechanism available to him under the Act to make reference
with regard to the dispute to the Facilitation Council. The
said remedy would be available only when there is no clause
in the contract providing for the resolution of dispute by
way of arbitration under the Arbitration Act, 1996.
(vi)
Sections 15, 16 and 17, though are substantive in nature,
Section 18 is procedural, providing for an option to go to the
Facilitation Council for the recovery of dues under Section
17.
(vii)
Commercial contracts must be construed with care, since
it not only affects the party’s autonomy but also the country’s
economy. The parties to an arbitration agreement have the
autonomy to decide not only on the procedural law to be
followed but also the substantive law. In this regard, reliance
is placed on various decisions of this Court in case of Bharat
Aluminum Company Vs. Kaiser Aluminum Technical
Services4 & Antrix Corporaton Limited Vs. Devas
Multimedia Private Limited5 and Amazon.com NV
Investment Holdings LLC. Vs. Future Retail Limited
and others6.
(viii) The
courts have to read the agreement as it is and cannot
rewrite or create a new one. In this regard, reliance is placed
in case of Orissa State Financial Corporation vs.
Narsingh ch. Nayak and Others7 and Shin Satellite
Public Co. Ltd. Vs. Jain Studios Ltd.8
3 (2003) 6 SCC 659
4 (2012) 9 SCC 648
5 (2014) 11 SCC 560
6 (2022) 1 SCC 209
7 (2003) 10 SCC 261
8 (2006) 2 SCC 628
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2) [BELA M. TRIVEDI, J.]
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(ix)
The doctrine of election is inbuilt in the concept of approbate
and reprobate. One cannot take advantage of one part while
rejecting the rest. A party cannot be allowed to have the
benefit of an instrument, while questioning it at the same
time.
(x)
Both the Acts of 1996 and 2006 are special laws and operate
in different fields. Therefore, where the agreement between
the parties (one of which is micro or small enterprise) is
silent about the mode of dispute resolution, then only the
recourse to the provisions of Section 18 can be said to be
valid. However, when the contract itself mentions about
the dispute to be resolved through arbitration, then there is
no occasion for invoking the provisions of MSMED Act,
2006.
(xi)
The Facilitation Council cannot act as a conciliator and as
an arbitrator over the same dispute, in view of the bar
contained in Section 80 of the Arbitration Act, 1996.
(xii)
Section 18 of 2006 Act does not override the contract
entered into between the parties providing for referring the
dispute to the arbitrator under the Arbitration Act, 1996.
The reliance placed by the counsels for the Suppliers on
the decision of this Court in Silpi Industries etc. vs. Kerala
State Road Transport Corporation and Anr.9 is misplaced
as the observations made in the said decision with regard
to the issue of effect of MSMED Act over the Arbitration
Act, were per incuriam.
14. The learned counsels for
theSuppliers made the following
submissions: -
(i)
The avowed object and purpose of Section 18 is to create a
cost effective and expeditious dispute resolution mechanism
for the recovery of an unpaid dues of a supplier under
Section 17. Section 18 is not subject to a contract or an
agreement to the contrary between the parties. It gives the
parties a right to have their disputes adjudicated by
approaching the Facilitation Council, even if there is a
9 2021 SCC Online SC 439
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contractual provision setting out the manner by which the
parties had to resolve their disputes.
(ii)
Section 18 is consistent with Section 2(4) of the Arbitration
Act, 1996 inasmuch as Section 18(3) deems the reference
to statutory arbitration as the arbitration agreement for the
purposes of Section 7(1) of the Arbitration Act, 1996and
therefore, once availed, the reference under Section 18
would override any agreement including arbitration
agreement between the parties. The observations made in
M/s. Silpi Industries (supra) clinches the issue that the
MSMED Act,2006 being the special legislation to protect
the MSME’s by setting out the statutory mechanism for
the payment of interest on delayed payments, the said Act
would override the provisions of the Arbitration Act 1996,
which is a general legislation.
(iii)
In view of the specific mandate under Section 24 of the
MSMED Act 2006, the provisions of Sections 15 to 23 would
have an effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in
force.
(iv)
Section 18 of the MSMED Act,2006 provides the party a
statutory right to approach the council, and such right cannot
be obliterated on account of an arbitration agreement entered
into between the parties.
(v)
Section 18(3) of the MSMED Act,2006 creates a deeming
fiction consistent with Section 2(4) of the Arbitration Act,
and sets out that if conciliation is not successful and parties
move to arbitration, the
provisions of the Arbitration Act
shall then apply to the dispute as if the arbitration was in
pursuance of an arbitration agreement referred to in sub-
section (1) of Section 7 of the Act. Hence, once the
mechanism under Section 18 is triggered, then it would
override any agreement between the parties to arbitrate.
In this regard, reliance is placed on the decision of this Court
in case of Secur Industries Ltd. Vs. Godrej & Boyce
Mfg. Co. Ltd. And Anr10.
10 (2004) 3 SCC 447.
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2) [BELA M. TRIVEDI, J.]
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(vi)
The MSMED Act,2006 being a special statute ought to
prevail over the Arbitration Act, 1996 which is a general
statute. Even if, the Arbitration Act is also treated as a
special statute, the MSMED Act,2006 would still prevail,
since a special statute enacted subsequently in time prevails
in case of any conflict. In this regard, reliance is placed in
case of Solidaire India Ltd. Vs. Fairgrowth Financial
Services Ltd. & Ors11 and Maruti Udyog Ltd. Vs. Ram
Lal & Ors12.
15. The learned counsel appearing for the MSE Facilitation Council
in support of the submissions made by the learned counsels for the
Suppliers, made further following submissions: -
(i)
Sections 15 to 19 of the MSMED Act, 2006 are interlinked
and dependent on each other, which prescribe a special
scheme under the Act. A cumulative effect of the said
provisions would clearly override an arbitration agreement
independently entered into between the parties.
(ii)
Section 18 is a substantive law and not a procedural law, as
it provides a right and the remedy on the MSE for resolution
of disputes.
(iii)
Beneficial or welfare statutes should be given a liberal and
not a strict interpretation. If the words used in the beneficial
statute are capable of two constructions, the one which is
more in consonance with the object of the Act, and the
interpretation for the benefit of the persons for whom the
Act is made, should be preferred. In this regard, reliance
is
placed on decision of this Court in case of Union of India
Vs. Prabhakaran Vijaya Kumar and Ors13 and in case
of Regional Provident Fund Commr. Vs. Hoogly Mills
Co. Ltd.14.
16. Now, the first and foremost issue involved in these appeals is
whether the provisions contained in Chapter V of the MSMED Act,
2006 with regard to the Delayed Payments to Micro and Small Enterprises
11 (2001) 3 SCC 71
12 (2005) 2 SCC 638
13 (2008) 9 SCC 517
14 (2012) 2 SCC 489
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would have the precedence over the provisions contained in the Arbitration
Act, 1996, more particularly when the parties by execution of an
independent agreement as contemplated in Section 7 of the Arbitration
Act had agreed to submit to arbitration the disputes arising between
them? In other words, whether the provisions contained in Chapter V of
the MSMED Act, 2006 would have an effect overriding the provisions
contained in the Arbitration Act, 1996?
17. It is trite to say that the provisions of the special statute would
override the provisions of the general statute. It is also well settled that
while determining the effect of a statute overriding the other statute, the
purpose and policy underlying the two statutes and the clear intendment
conveyed by the language of the relevant provisions therein would be
the relevant consideration. This Court in Commissioner of Income Tax,
PatialaVs. Shahzada Nand & Sons15 , while stating the fundamental
rule of construction, had observed that the meaning and intention of a
statute must be collected from the plain and unambiguous expression
used therein rather than from any notions which may be entertained by
the court as to what is just and expedient.
18. One of principles of statutory interpretation relevant for our
purpose is contained in the Latin maxim “leges posteriors priores
contrarias abrogant” (the later laws shall abrogate earlier contrary
laws). Another relevant rule of construction is contained in the
maxim
“generalia specialibus non derogant” (General laws do not prevail
over Special laws). When there is apparent conflict between two statutes,
the provisions of a general statute must yield to those of a special one.
19. As observed in Kaushalya Rani Vs. Gopal Singh16, a “Special
Law” means a law enacted for special cases, in special circumstances,
in contradiction to the general rules of law laid down, as applicable
generally to all cases with which the general law deals.
20. Keeping in view the aforestated principles of statutory
interpretations as also the proposition of law laid down by this Court
with regard to the general rules of construction, let us proceed to examine
whether the MSMED Act, 2006 is a special enactment having an effect
overriding the Arbitration Act, 1996 which is perceived to be a general
enactment? As stated earlier, the very object of enacting MSMED Act,
15 AIR 1966 SC 1342
16 AIR 1964 SC 260
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2006 was to facilitate the promotion and development, and enhance the
competitiveness of micro, small and medium enterprises. The Act also
aimed to ensure timely and smooth flow of credit to the micro, small and
medium enterprises, and to minimize the incidence of sickness.One of
the main objects of the Act was to delete the Interest on Delayed
Payments to Small Scale and Ancillary Industry Undertakings Act, 1993,
and to include stringent provisions as also to provide dispute resolution
mechanism for resolving the disputes of non-payment of dues to the
micro and small enterprises. Thus, the seed of MSMED Act, 2006 had
sprouted from the need for a comprehensive legislation to provide an
appropriate legal framework and extend statutory support to the micro
and small enterprises to enable them to develop and grow into medium
ones.
21. Section 15 to 25 contained in Chapter-V of the MSMED Act,
2006 pertain to the ‘delayed payments to micro and small enterprises.’ A
bare perusal of the said provisions contained in Chapter-V shows that a
strict liability is fastened on the buyer to make payment to the supplier
who supplies any goods or renders any services to the buyer, prescribing
the time limit in Section 15. Section 16 further fastens the liability on the
buyer to pay compound interest if any buyer fails to make payment to
the supplier as required under Section 15. Such compound interest is
required to be paid at three
times of the bank rate notified by the Reserve
Bank, notwithstanding contained in any agreement between the buyer
and supplier or in any law for the time being in force. An obligation to
make payment of the amount with interest thereon as provided under
Section 16 has been cast upon the buyer and a right to receive such
payment is conferred on the supplier in Section 17. Thus, Section 17 is
the ignition point of any dispute under MSMED Act, 2006. Section 18
thereof provides for the mechanism to enable the party to the dispute
with regard to any amount due under Section 17, to make a reference to
the Micro and Small Enterprises Facilitation Council.
22. Section 18 starts with a nonobstante clause i.e., ‘notwithstanding
anything contained in any other law for the time being in force’. It means
that the said provision has been enacted with the aim to supersede other
laws for the time being in force. Further a dedicated statutory forum i.e.,
the Micro and Small Enterprises Facilitation Council (As established
under Section 20 of the MSMED Act, 2006), has been provided to which
a reference could be made by any party to the dispute. Sub-section (2)
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of Section 18 empowers the Facilitation Council, on receipt of such
reference made under sub-section (1), to conduct Conciliation in the
matter or seek assistance of any institution or centre providing alternate
dispute resolution services by making a reference to such an institution
or centre, for conducting Conciliation, as contemplated in Section 65 to
81 of the Arbitration Act, 1996. If the conciliation initiated under sub-
section (2) is not successful and stands terminated without any settlement
between the parties, the Council is further empowered under sub-section
(3)to either itselftake up the dispute for arbitration or refer to it any
institution or centre providing alternate dispute resolution services for
such arbitration. The provisions of Arbitration Act, 1996 are then made
applicable to the dispute as if the arbitration was in pursuance of an
arbitration agreement referred to in sub-section (1) of Section 7 of the
Arbitration Act, 1996. Sub-section (4) of Section 18 again starts with a
nonobstante clause i.e., ‘notwithstanding anything contained in any other
law for the time being in force’, and confers jurisdiction upon the
Facilitation Council to act as an arbitrator or a conciliator in a dispute
between the supplier located within its jurisdiction and a buyer located
anywhere in India. Sub-section (5) of Section 18 fixes the time limit of
ninety days to decide such reference. Section 19 prescribes the procedure
to be followed when any
application is made in the court for setting
aside any decree, award or other order made either by the Council itself
or by any institution or centre to which reference is made by the Council.
Section 24 of the MSMED Act, 2006 states that the provisions of Section
15 to 23 shall have an effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in force.
23. Having regard to the purpose, intention and objects as also the
scheme of the MSMED Act, 2006 and having regard to the unambiguous
expressions used in Chapter-V thereof, following salient featuresemerge:
(i)
Chapter-V is “party-specific”, in as much as the party i.e.
the ‘Buyer’ and the ‘Supplier’ as defined in Sections 2(d)
and 2(n) respectively are covered under the said Chapter.
(ii)
A specific provision is made fasteningaliability on the buyer
to make payment of the dues to the supplier in respect of
the goods supplied or services rendered to the buyer, as
also a liability to pay compound interest at three times of
the bank rate notified by the Reserve Bank, if the buyer
fails to make payment within the prescribed time limit. The
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said liability to pay compound interest is irrespective of any
agreement between the parties or of any law for the time
being in force.
(iii)
A dedicated statutory forum i.e., Micro and Small
Enterprises Facilitation Council is provided to enable any
party to a dispute with regard to any amount due under
Section 17, to make reference to such Council.
(iv)
A specific procedure has been prescribed to be followed
by theFacilitation Council after the reference is made to it
by any party to the dispute.
(v)
The Facilitation Council or the centres providing alternative
dispute resolution services have been conferred with the
jurisdiction to act as an Arbitrator or Conciliator under
Section 18(4), notwithstanding anything contained in any
law for the time being in force, in a dispute between the
supplier located within its jurisdiction.
(vi)
The provisions of Arbitration Act, 1996 has been made
applicable to the dispute only after the Conciliation initiated
under sub-section (2) does not succeed and stands
terminated without any settlement between the parties.
(vii)
Sub-section(1) and sub-section(4) of Section 18 starting with
non obstante clauses have an effect overriding the other
laws for the time being in force.
(viii) As per Section 24, the provisions of Sections 15 to 23 have
an effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force.
24. As against the above
position, if the purpose,objects and scheme
of the Arbitration Act, 1996 are considered, as stated hereinabove, the
said Act was enacted to consolidate and amend the law relating to the
domestic arbitration, international commercial arbitration and enforcement
of foreign arbitral awards and also to define the law relating to
Conciliation. It was enacted taking into account the UNCITRAL Model
Law on international commercial arbitration. The main objectives amongst
others of the said Act were to make provision for an arbitral procedure
which was fair, efficient and capable to meet the needs of the specific
arbitration and to minimize the supervisory role of courts in the arbitral
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process,as also to permit arbitral tribunal to use mediation, conciliation
or other procedures during the arbitral proceedings in the settlement of
disputes etc17. The Arbitration Act, 1996 focuses and covers the law
relating to the Arbitration and Conciliation, providing for the requirements
of the arbitration agreement, composition of arbitral tribunal, conduct of
arbitration proceedings, finality and enforcement of domestic arbitral
awards as well as of certain foreign awards, and covers the law relating
to Conciliation. Having regard to the entire scheme of the Arbitration
Act 1996, it appears that it is a general law relating to the domestic
arbitration, international commercial arbitration and for conciliation. It
does not specify any specific dispute or specific class or category of
persons to which the Act shall apply,as has been specified in the MSMED
Act, 2006.
25. Thus, the Arbitration Act, 1996 in general governs the law of
Arbitration and Conciliation, whereas the MSMED Act, 2006 governs
specific nature of disputes arising between specific categories of persons,
to be resolved by following a specific process through a specific forum.
Ergo, the MSMED Act, 2006 being a special law and Arbitration Act,
1996 being a general law, the provisions of MSMED Act would have
precedence over or prevail over the Arbitration Act, 1996. In Silpi
Inustries case (supra) also, this Court had observed while considering
the issue with regard to the
maintainability and counter claim in arbitration
proceedings initiated as per Section 18(3) of the MSMED Act, 2006 that
the MSMED Act, 2006 being a special legislation to protect MSME’s by
setting out a statutory mechanism for the payment of interest on delayed
payments, the said Act would override the provisions of the Arbitration
Act, 1996 which is a general legislation. Even if the Arbitration Act,
1996 is treated as a special law, then also the MSMED Act, 2006 having
been enacted subsequently in point of time i.e., in 2006, it would have an
overriding effect, more particularly in view of Section 24 of the MSMED
Act, 2006 which specifically gives an effect to the provisions of Section
15 to 23 of the Act over any other law for the time being in force, which
would also include Arbitration Act, 1996.
26. The court also cannot lose sight of the specific non obstante
clauses contained in sub-section (1) and sub-section (4) of Section 18
which have an effect overriding any other law for the time being in
force. When the MSMED Act, 2006 was being enacted in 2006, the
17 Bharat Sewa Sansthan Vs. U.P. Electronics Corporation; AIR 2007 SC 2961.
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
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Legislative was aware of its previously enacted Arbitration Act of 1996,
and therefore, it is presumed that the legislature had consciously made
applicable the provisions of the Arbitration Act, 1996 to the disputes
under the MSMED Act, 2006 at a stage when the Conciliation process
initiated under sub-section (2) of Section 18 of the MSMED Act, 2006
fails and when the Facilitation Council itself takes up the disputes for
arbitration or refers it to any institution or centre for such arbitration. It
is also significant to note that a deeming legal fiction is created in the
Section 18(3) by using the expression ‘as if’ for the purpose of treating
such arbitration as if it was in pursuance of an arbitration agreement
referred to in sub-section (1) of Section 7 of the Arbitration Act, 1996.
As held in K. Prabhakaran v. P. Jayarajan18, a legal fiction
presupposes the existence of the State of facts which may not exist and
then works out the consequences which flow from that state of facts.
Thus, considering the overall purpose, objects and scheme of the MSMED
Act, 2006 and the unambiguous expressions used therein, this court has
no hesitation in holding that the provisions of Chapter-V of the MSMED
Act, 2006 have an effect overriding the provisions of the Arbitration
Act, 1996.
27. The submissions made on behalf of the counsel for the Buyers
that a conscious omission of the word “agreement”in sub-section (1) of
Section
18, which otherwise finds mention in Section 16 of the MSMED
Act, 2006 implies that the arbitration agreement independently entered
into between the parties as contemplated under Section 7 of the
Arbitration Act, 1996 was not intended to be superseded by the provisions
contained under Section 18 of the MSMED Act, 2006 also cannot be
accepted. A private agreement between the parties cannot obliterate
the statutory provisions.Once the statutory mechanism under sub-section
(1) of Section 18 is triggered by any party, it would override any other
agreement independently entered into between the parties, in view of
thenon obstante clauses contained in sub-section(1) and sub-section
(4) of Section 18. The provisions of Sections 15 to 23 have also overriding
effect as contemplated in Section 24 of the MSMED Act, 2006 when
anything inconsistent is contained in any other law for the time being in
force. It cannot be gainsaid that while interpretating a statute, if two
interpretations are possible, the one which enhances the object of the
Act should be preferred than the one which would frustrate the object
18 (2005) 1 SCC 754
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of the Act. If submissionmade by the learned counsel for the buyers that
the party to a dispute covered under the MSMED Act, 2006 cannot
avail the remedy available under Section 18(1) of the MSMED Act,
2006 when an independent arbitration agreement between the parties
exists is accepted, the very purpose of enacting the MSMED Act, 2006
would get frustrated.
28. There cannot be any disagreement to the proposition of law
laid down in various decisions of this Court, relied upon by the learned
counsel for the buyers that the Court has to read the agreement as it is
and cannot rewrite or create a new one, and that the parties to an arbitration
agreement have an autonomy to decide not only on the procedural law
to be followed but also on the substantive law, however, it is equally
settled legal position that no agreement entered into between the parties
could be given primacy over the statutory provisions. When the Special
Act i.e., MSMED Act, 2006 has been created for ensuring timely and
smooth payment to the suppliers who are the micro and small
enterprises,and to provide a legal framework for resolving the dispute
with regard to the recovery of dues between the parties under the Act,
also providingan overriding effect to the said law over any other law for
the time being in force, any interpretation in derogation thereof would
frustrate the very object of the Act. The submission therefore that an
independent arbitration agreement entered into between the
parties under
the Arbitration Act, 1996 would prevail over the statutory provisions of
MSMED Act, 2006 cannot countenanced. As such, sub-section (1) of
Section 18 of the MSMED Act, 2006 is an enabling provision which
gives the party to a dispute covered under Section 17 thereof, a choice
to approach the Facilitation Council, despite an arbitration agreement
existing between the parties. Absence of the word ‘agreement’ in the
said provision could neither be construed as casus omissus in the statute
nor be construed as a preclusion against the party to a dispute covered
under Section 17 to approach the Facilitation Council, on the ground that
there is an arbitration agreement existing between the parties. In fact, it
is a substantial right created in favour of the party under the said
provision.It is therefore held that no party to a dispute covered under
Section 17 of the MSMED Act, 2006 would be precluded from making
a reference to the Facilitation Council under Section 18(1) thereof, merely
because there is an arbitration agreement existing between the parties.
29. The aforesaid legal position also dispels the arguments
advanced on behalf of the counsel for the buyers that the Facilitation
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
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Council having acted as a Conciliator under Section 18(2) of the MSMED
Act, 2006 itself cannot take up the dispute for arbitration and act as an
Arbitrator. Though it is true that Section 80 of the Arbitration Act, 1996
contains a bar that the Conciliator shall not act as an Arbitrator in any
arbitral proceedings in respect of a dispute that is subject of conciliation
proceedings, the said bar stands superseded by the provisions contained
in Section 18 read with Section 24 of the MSMED Act, 2006. As held
earlier, the provisions contained in Chapter-V of the MSMED Act, 2006
have an effect overriding the provisions of the Arbitration Act, 1996.
The provisions of Arbitration Act, 1996 would apply to the proceedings
conducted by the Facilitation Council only after the process of conciliation
initiated by the council under Section 18(2) fails and the council either
itself takes up the dispute for arbitration or refers to it to any institute or
centre for such arbitration as contemplated under Section 18(3) of the
MSMED Act, 2006.
30. When the Facilitation Council or the institution or the centre
acts as an Arbitrator, it shall have all powers to decide the disputes
referred to it as if such arbitration was in pursuance of the arbitration
agreement referred to in sub-section (1) of Section 7 of the Arbitration
Act, 1996 and then all the trappings of the Arbitration Act, 1996 would
apply to such arbitration. It is needless
to say that such Facilitation Council/
institution/centre acting as an arbitral tribunal would also be competent
to rule on its own jurisdiction like any other arbitral tribunal appointed
under the Arbitration Act, 1996 would have, as contemplated in Section
16 thereof.
31. One of the submissions made by the Ld. Counsels for the
Buyers was that if the party Supplier was not the “supplier” within the
meaning of Section 2(n) of the MSMED Act, 2006 on the date of the
contract entered into between the parties, it could not have made
reference of dispute to Micro and Small Enterprises Facilitation Council
under Section 18(1) of the MSMED Act, 2006 and in such cases, the
Council would not have the jurisdiction to decide the disputes as an
arbitrator.
32. At this juncture, a very pertinent observations made by this
Court in Silpi Industries case (supra) on this issue are required to be
reproduced: -
“26. …… In our view, to seek the benefit of provisions under
MSMED Act, the seller should have registered under the provisions
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of the Act, as on the date of entering into the contract. In any
event, for the supplies pursuant to the contract made before the
registration of the unit under provisions of the MSMED Act, no
benefit can be sought by such entity, as contemplated under
MSMED Act. While interpreting the provisions of Interest on
Delayed Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993, this Court, in the judgment in the case
of Shanti Conductors Pvt. Ltd. v. Assam State Electricity
Board has held that date of supply of goods/services can be taken
as the relevant date, as opposed to date on which contract for
supply was entered, for applicability of the aforesaid Act. Even
applying the said ratio also, the appellant is not entitled to seek the
benefit of the Act…..
….by taking recourse to filing memorandum under sub-section
(1) of Section 8 of the Act, subsequent to entering into contract
and supply of goods and services, one cannot assume the legal
status of being classified under MSMED Act, 2006, as an
enterprise, to claim the benefit retrospectively from the date on
which appellant entered into contract with the respondent. The
appellant cannot become micro or small enterprise or supplier, to
claim the benefits within the meaning of MSMED Act 2006, by
submitting a memorandum to obtain registration subsequent to
entering into the contract and supply of goods and services. If
any registration is obtained, same will be prospective and applies
for
supply of goods and services subsequent to registration but
cannot operate retrospectively. Any other interpretation of the
provision would lead to absurdity and confer unwarranted benefit
in favour of a party not intended by legislation.”
33. Following the above-stated ratio, it is held that a party who
was not the “supplier” as per Section 2 (n) of the MSMED Act, 2006 on
the date of entering into the contract, could not seek any benefit as a
supplier under the MSMED Act, 2006. A party cannot become a micro
or small enterprise or a supplier to claim the benefit under the MSMED
Act, 2006 by submitting a memorandum to obtain registration subsequent
to entering into the contract and supply of goods or rendering services.
If any registration, is obtained subsequently, the same would have the
effect prospectively and would apply for the supply of goods and rendering
services subsequent to the registration. The same cannot operate
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
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retrospectively. However, such issue being jurisdictional issue, if raised
could also be decided by the Facilitation Council/Institute/Centre acting
as an arbitral tribunal under the MSMED Act, 2006.
34. The upshot of the above is that:
(i)
Chapter-V of the MSMED Act, 2006 would override the
provisions of the Arbitration Act, 1996.
(ii)
No party to a dispute with regard to any amount due under
Section 17 of the MSMED Act, 2006 would be precluded
from making a reference to the Micro and Small Enterprises
Facilitation Council, though an independent arbitration
agreement exists between the parties.
(iii)
The Facilitation Council, which had initiated the Conciliation
proceedings under Section 18(2) of the MSMED Act, 2006
would be entitled to act as an arbitrator despite the bar
contained in Section 80 of the Arbitration Act.
(iv)
The proceedings before the Facilitation Council/institute/
centre acting as an arbitrator/arbitration tribunal under
Section 18(3) of MSMED Act, 2006 would be governed by
the Arbitration Act, 1996.
(v)
The Facilitation Council/institute/centre acting as an arbitral
tribunal by virtue of Section 18(3) of the MSMED Act, 2006
would be competent to rule on its own jurisdiction as also
the other issues in view of Section 16 of the Arbitration
Act, 1996.
(vi)
A party who was not the ‘supplier’ as per the definition
contained in Section 2(n) of the MSMED Act, 2006 on the
date of entering into contract
cannot seek any benefit as
the ‘supplier’ under the MSMED Act, 2006. If any
registration is obtained subsequently the same would have
an effect prospectively and would apply to the supply of
goods and rendering services subsequent to the registration.
35. Though afore-stated discussions and conclusions cover all the
issues involved in the appeals, it would be appropriate to deal with each
of the Appeals individually.
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(I)
C.A. No ……of 2022 (@ SLP(Civil) No. 12884 of
2020)
(i) In this case, the Gujarat State Civil Supplies
Corporation Ltd. had challenged the award made by the
Facilitation Council, Bhopalbefore the Commercial Court,
Ahmedabad, under Section 34 of the Arbitration Act,
1996and the commercial courtvide Order dated 20.08.2018
had confirmed the said award. The appeal being the F.A.
No. 3613/2019 filed by the appellant-Gujarat State Civil
Supplies Corporation under Section 37 of the Arbitration Act,
1996 before the High Court of Gujarat was dismissed by the
High Court vide the impugned Order dated 13.11.2019.
(ii) In the said First Appeal, the appellant had raised the
issue with regard to the jurisdiction of the Facilitation
Council, Bhopal, M.P. to decide the disputes between the
appellant and respondent no. 1- Mahakali Foods Pvt. Ltd.
The High Court following its earlier decision in Principal
Chief Engineer Vs. M/s. Manibhai & Brothers (Sleeper)
& Anr19 held that Section 18 of the MSMED Act, 2006
would have an overriding effect over any other law for the
time being in force including the Arbitration Act, 1996. The
High Court also held that the contention with regard to the
jurisdiction having not been raised at the time of filing
thestatement of defence or reply, the said contention raised
subsequently could not be accepted.
(iii) As already held in the earlier part of this judgement,
the provisions contained in Chapter-V of the MSMED Act,
2006 have an
effect overriding any other law for the time
being in force including the Arbitration Act. We therefore
do not find any infirmity in the impugned order passed by
the High Court.
The appeal stands dismissed accordingly.
(II)
Civil Appeal No. 127 of 2018
(i) This appeal filed by the Maharashtra State Electricity
Distribution Company challenging the impugned order dated
19 AIR 2016 Guj 151
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27.06.2017 passed by the High Court of Judicature at
Bombay, Nagpur Bench, Nagpur in Writ Petition No. 4435
of 2011 also involves the issue as to whether the respondent-
Facilitation Council had the jurisdiction to decide the original
application filed by the present appellant- M/s. Ramkrishna
Electricals Ltd. (the Supplier under the Act) under Section
18(1) of the MSMED Act. The High Court placing reliance
on its earlier decision in the case of M/s. Steel Authority of
India & Anr. vs. MSE Facilitation Council (supra) has
held that the Facilitation Council would not be entitled to
proceed under the provisions of Section 18 of the MSMED
Act, 2006 in view of the independent agreement existing
between the parties.
(ii) The impugned order of the High Court deserves to
be set aside in view of the foregoing conclusion arrived at
by us to the effect that the Facilitation Council shall have
the jurisdiction to proceed with the reference made by the
party in respect of the dispute covered under Section 17 of
the MSMED Act, 2006 despite the existence of an
independent arbitration agreement between the parties.
The appeal stands allowed accordingly.
(III) Civil Appeal No. 6167 of 2013
(i) The present appeal is arising out of the judgment dated
21.08.2010 passed by the Division Bench of Bombay High
Court, Nagpur Bench. In the said case, the present appellant
(original respondent no.2) had supplied certain goods to the
respondent M/s Steel Authority of India under a contract.
However, some disputes arose between the parties, and
therefore the appellant invoked an arbitration clause-22
contained in the agreement and proposed to appoint Justice
C.P. Sen (retired) as the arbitrator to settle the disputes
through arbitration. However, the respondent Steel Authority,
invoking Clause 23 of the General Conditions of Contract
appointed one Mr. S. K. Gulati as an arbitrator. The said
arbitrator issued notices to the parties asking them to submit
their respective claims. M/s Vidarbha Ceramics instead of
filing a statement of claim before the arbitrator, raised
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objection to the arbitration by stating that the matter be
either referred to Justice C.P. Sen (retired) or be referred
to the Micro and Small Enterprise Facilitation Council
established under the MSMED Act, 2006. The respondent
Steel Authority did not agree to the said proposition. The
supplier i.e M/s Vidarbha Ceramics thereafter filed a
reference before the Facilitation Council under Section 18(1)
of the Act. The respondent Steel Authority filed objections
before the Facilitation Council contending that the matter
could not be entertained by it in view of the arbitration
agreement existing between the parties. The respondent
Steel Authority thereafter invoked the jurisdiction of the
High Court by filing the writ petition for restraining the
Council from entertaining the reference. The High Court
vide impugned Order dated 28.08.2010 allowed the said
writ petition by holding that the MSMED Facilitation Council
was not entitled to proceed further under the provisions
contained in Section 18 (3) of the MSMED Act,2006 in
view of an independent arbitration agreement having
entered into between the parties.
(ii) In view of the detailed discussion and conclusions
arrived at by us, hereinabove, holding that Chapter-V of
the MSMED Act, 2006has an overriding effect over the
provisions contained in the Arbitration Act 1996, the
Facilitation Council would be entitled to proceed further
with the reference made by the party (supplier) under Section
18 (1) of the
MSMED Act, 2006 despite an independent
arbitration agreement existing between the parties. As a
consequence, thereof, the impugned order of the High Court
deserves to be set aside and the appeal deserves to be
allowed.The Appeal stands allowed accordingly.
(IV) C.A. …… of 2022 (@ SLP (C) No. 31227 of 2018
(i) In this appeal, the appellant Gujarat State Petronet
Ltd. (original petitioner) has challenged the order dated
06.08.2018 passed by the High Court of Bombay, whereby
the High Court held that the reference made to the
Facilitation Council was maintainable in spite of the
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[2022] 19 S.C.R.
independent arbitration agreement. The High Court also
held that the Facilitation Council having itself conducted
the conciliation proceedings, it could not have decided to
initiate arbitration proceedings under Section 18 (3) of the
MSMED Act, 2006.
(ii) In the instant case, the respondent no.1 i.e., Krunal
Works (original respondent no.3) had invoked Section 18
(1) of the MSMED Act, 2006 by approaching the Micro
and Small Enterprises Facilitation Council. In the said
reference, the appellant GSPL had raised an objection with
regard to the jurisdiction of the Facilitation Council to
entertain the reference in view of an arbitration agreement
existing between the parties. The Facilitation Council had
initiated conciliation proceedings between the parties,
however the same having failed, the Council vide the Order
dated 29.04.2015, decided to take up the dispute for
arbitration. The said order was challenged by the GSPL
before the Bombay High Court.
(iii) In our view, both the issues have been elaborately
discussed and concluded hereinabove by holding that the
reference to Facilitation Council by a party to a dispute
with regard to any money due under Section 17 would be
maintainable despite an independent arbitration agreement
existing between the parties and that the Facilitation Council
could also take up the dispute for arbitration and act as an
arbitrator as contemplated under Section 18 (3) of the
MSMED Act,
2006 despite the bar contained in Section 80
of the Arbitration Act 1996.
(iv) The impugned order passed by the High Court,
therefore to the extent it records the finding that the
Facilitation Council could not have decided to initiate
arbitration proceedings by itself under Section 18 (3) of the
MSMED Act, 2006 deserves to be set aside and is
accordingly set aside.
(v) The arbitration proceedings before the Facilitation
Council shall be proceeded further as per the Arbitration
Act, 1996. The Appeal stands disposed of accordingly.
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(V)
C.A. …… of 2022 (@ SLP (C) No. 7375 of 2020)
(i) The appeal is directed against the judgment and order
dated 20.01.2020 passed by the High Court of Judicature
at Bombay, whereby the High Court dismissed the writ
petitions filed by the appellants (original writ petitioners)
holding that the party aggrieved by the order passed by the
Arbitral tribunal has to challenge the same in accordance
with the provisions of the Arbitration Act, 1996.In the said
case, the present respondent no.1 IBEX Integrated Business
Express Private Limited (original respondent no.1– supplier)
had approached the Facilitation Council for the recovery of
its dues against the appellants. The appellants appeared
before the Council and raised a preliminary objection with
regard to the maintainability of the reference on the ground
that there was an arbitration clause contained in the
agreement executed between the parties.
(ii) The said preliminary objection was rejected by the
Facilitation Council vide the Order dated 20.12.2014. The
Council thereafter proceeded further with the reference in
which the appellants filed their reply on merits to the claim
made by the respondent IBEX, and the Facilitation Council
eventually passed an award on 31.03.2017, allowing the
said reference filed by the IBEX. Being aggrieved by the
said award as well as the earlier order dated 20.12.2014
passed by the Facilitation Council, the appellants approached
the High Court by filing two writ petitions.
The High Court
dismissed both the petitions vide the impugned order holding
that when the Facilitation Council had conducted the
arbitration proceedings and passed an award, the remedy
of the party aggrieved would be to take recourse to Section
34 of the Arbitration Act, 1996.
(iii) As held earlier, the proceedings before the Facilitation
Council/institute/centre acting as an arbitrator are governed
by the Arbitration Act, 1996 and therefore any order passed
or award made by such council/institute/centre has to be
challenged as per the Arbitration Act. The Appeal therefore
deserves to be dismissed and is dismissed.
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2) [BELA M. TRIVEDI, J.]
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SUPREME COURT REPORTS
[2022] 19 S.C.R.
(VI) C.A. No…… of 2022(@ SLP (C) No. 2135 of 2021)
(i) The appeal filed by the Union of India is directed
against the judgment and order dated 23.08.2019 passed
by the HighCourt of Delhi at New Delhi in L.P.A. No. 42
of 2019. So far as the facts of the appeal are concerned –
the appellant and the respondent had entered into an
agreement for Annual Maintenance Contract for all
equipment’s at all UTS, PRS and UTS-cum-PRS locations
and all equipment at the location under the control of Chief
Commercial Manager (CCM)/Passenger Marketing (PM)/
Eastern Railways. When the dispute arose between the
parties, the respondent instead of invoking an arbitration
clause containing the agreement, approached the Micro and
Small Enterprises Facilitation Council under Section 18 of
the MSMED Act, 2006. The conciliation process having
failed, the Facilitation Council in exercise of the powers
conferred under Section 18(3) of the MSMED Act, 2006
referred the dispute between the parties to the Delhi
International Arbitration Centre. The appellant challenged
the said order by filing the Writ Petition being Writ Petition
No. 2273 of 2018 before the Delhi High Court on the ground
that the said order was without any jurisdiction, and even
otherwise the respondent was not registered as the Micro
and Small Enterprises under the MSMED Act, 2006 at the
material point of time and, therefore, the respondent being
not the supplier under the MSMED
Act, 2006 the provisions
of the said Act were not applicable. The Single Bench of the
Delhi High Court dismissed the said petition holding that by
virtue of the provisions contained in Section 24 of the MSMED
Act, 2006 the provisions of the said Act would have the effect
notwithstanding anything inconsistent in any other law or
instrument and, therefore, the provisions of Section 18(3) of
the MSMED Act, 2006would be applicable notwithstanding
the arbitration agreement in terms of Section 7 of the
Arbitration Act, 1996. Being aggrieved by the said order, the
appellant had preferred the appeal before the Division Bench
of the Delhi High Court, which by the impugned order dated
23.08.2019 dismissed the same. The aggrieved appellant
has preferred the appeal before this Court.
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(ii) In view of the conclusions arrived at by us in the
earlier part of the judgment, it is held that the High Court
has rightly held that despite an arbitration clause in the
agreement between the parties, if MSMED Act,2006 is
applicable to them, the Facilitation Council has the power,
jurisdiction and authority under Section 18(3) to either take
up the matter for arbitration itself or refer the matter for
arbitration to any institution or centre providing alternative
dispute resolution services, once the conciliation proceedings
before the Facilitation Council fails. As held earlier, the
Facilitation Council or the Institution or Centre to whom
the disputes have been referred under Section 18(3) of the
MSMED Act, 2006 would be an Arbitral Tribunal for
deciding the disputes as if such arbitration was in pursuance
of the arbitration agreement referred to under Section 7(1)
of the Arbitration Act, 1996 and accordingly would have
the jurisdiction to rule on its own jurisdiction. In that view
of the matter, the present appeal deserves to be dismissed
and is, accordingly, dismissed.
(VII) C.A. No…… of 2022 (@ SLP(C) No. 6166 of 2021)
(i) The appeal arises out of the judgment and order dated
24.07.2020 passed by the Division Bench of the Gujarat
High Court in L.P.A. No. 1667 of 2019, whereby the Division
Bench while dismissing the L.P.A held that the Respondent
No. 2- M/s. Aquafil Polymers Company Pvt. Ltd. – Supplier
had rightly applied under Section 18(1)
of the MSMED Act,
2006 to theRespondent No. 1- MSME Commissionerate-
Facilitation Council, and on the conciliation process having
failed, the Facilitation Council had no option left but to refer
the disputes between the parties to the Respondent No. 3-
Gujarat Chambers of Commerce and Industry.
(ii) Broadly stated the facts of the case are that the
appellant- JITF Water Infrastructure Limited was an
Infrastructure Company which had entered into the
agreement with the joint venture consisting of theRespondent
No. 2 – M/s. Aquafil Polymers Company Private Limited
and one Wintech Engineering Pvt. Ltd. in respect of an
order issued in favour of the appellant under Guwahati
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2) [BELA M. TRIVEDI, J.]
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SUPREME COURT REPORTS
[2022] 19 S.C.R.
Water Supply Project. The joint venture did not perform its
work as per the agreement and, therefore, the appellant
terminated the Contract by Notice dated 08.01.2018. In view
of the Arbitration Clause contained in the agreement, the
joint venture vide letter dated 08.02.2018 proposed the name
of a retired Supreme Court Judge for being appointed as
the Sole Arbitrator to adjudicate upon the disputes between
the parties. In response to the said letter, the appellant vide
the letter dated 14.02.2018 replied that as per the relevant
clause of Arbitration, only the appellant had right to appoint
the Arbitrator and such right was not available to the joint
venture. Accordingly, the appellant appointed another retired
Supreme Court Judge as the Sole Arbitrator. The said
Arbitrator appointed by the appellant directed the parties to
appear for preliminary hearing, and at that stage, the
respondent no. 2,i.e., the constituent of the joint venture
filed an application before Respondent No. 1- Facilitation
Council invoking the provisions of the MSMED Act,2006.
The Respondent No. 1- Facilitation Council undertook the
process of conciliation, however, same having failed, the
Respondent No. 1 referred the disputes to Respondent No.
3- Gujarat Chambers of Commerce and Industry in exercise
of the powers conferred under Section 18(3) of the MSMED
Act, 2006 vide order dated 30.06.2018. The said order came
to be challenged by the
appellant by filing a writ petition
before the Gujarat High Court. The Single Bench vide its
order dated 09.09.2019 dismissed the said writ petition. The
aggrieved appellant preferred the L.P.A. which also came
to be dismissed by the Division Bench vide order dated
24.07.2020 against which the present appeal has been filed.
(iii) The issues raised and the submissions made by the
learned counsel appearing for the appellant with regard to
the overriding effect of the MSMED Act, 2006 over the
Arbitration Act, 1996 jurisdiction of Facilitation Council, the
parties autonomy to enter into an agreement qua the
statutory provisions, the issue of caususomissus etc. have
been discussed and decided hereinabove which need not
be reiterated or repeated. Accordingly, it is held that the
reference made to the Facilitation Council wouldbe
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maintainable in spite of an independent arbitration
agreement existing between the parties to whom the
MSMED Act, 2006 is applicable, and such Council would
be entitled to proceed under sub-section (2) of Section 18
of the MSMED Act, 2006 as also to act as an Arbitrator or
to refer the disputes to the institution or Centre as
contemplated under Section 18(3) of the MSMED Act,
2006. As held earlier, such Facilitation Council/Institute/
Centre acting as an Arbitral Tribunal would have the
jurisdiction to rule over on its own jurisdiction as per Section
16 of the Arbitration Act, 1996. In that view of the matter,
the present appeal also deserves to be dismissed and is,
accordingly, dismissed.
36. In the aforesaid premises,
(I)
C.A. No………of 2022 (@ SLP(c) No. 12884 of
2020) is dismissed,
(II)
C.A.No. 127 of 2018 is allowed,
(III)
C.A. No. 6167 of 2013 is allowed,
(IV)
C.A. No……...of 2022 (@ SLP(c) No. 31227 of
2018) is disposed of,
(V)
C.A. No……...of 2022 (@ SLP(c)No. 7375 of
2020) is dismissed,
(VI)
C.A. No……...of 2022 (@ SLP(c)No. 2135 of
2021) is dismissed and
(VII)
C.A. No……...of 2022 (@ SLP(c)No. 6166 of
2021) is dismissed.
Ankit Gyan
Appeals disposed of.
(Assisted by : Priyanshu Agarwal, LCRA)
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD.  (UNIT 2) [BELA M. TRIVEDI, J.]