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2018 DIGILAW 283 (UTT)

Mahvir Transmission Udyog Private Limited v. Paschimanchal Vidyut Vitran Nigam Limited

2018-05-22

SUDHANSHU DHULIA

body2018
JUDGMENT : Sudhanshu Dhulia, J. The appellant before this Court calls itself a small scale enterprise as defined under Section 7 of the Micro, Small and Medium Enterprises Development Act, 2006. The appellant also comes under the definition of “supplier” which is given under Section 2(n) of the said Act and which reads as under: “(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); (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;” 2. According to the appellant, ACSR Weasel conductor was supplied by the appellant to respondent no. 1 as per contract. Thereafter some dispute arose between the parties regarding the interest on delayed payment. Since this amount was not paid and as the appellant claimed to be a small scale enterprise under the Micro, Small and Medium Enterprises Development Act, 2006 (from hereinafter referred to as the ‘Act’), the appellant moved for reference of the matter for conciliation before the Micro and Small Enterprises Facilitation Council. Sections 15 and 16 of the Act are important sections which relate to the payment of interest on the delayed payment and these are reproduced as under: “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 therefore 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. 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. 3. Under the Act, the composition of Council is given under Section 21 which reads as under: “21. Composition of Micro and Small Enterprises Facilitation Council.—(1) The Micro and Small Enterprise Facilitation Council shall consist of not less than three but not more than five members to be appointed from among the following categories, namely:-- (i) Director of Industries, by whatever name called, or any other officer not below the rank of such Director, in the Department of the State Government having administrative control of the small scale industries or, as the case may be, micro, small and medium enterprises; and (ii) one or more office-bearers or representatives of associations of micro or small industry or enterprises in the State; and (iii) one or more representatives of banks and financial institutions lending to micro or small enterprises; or (iv) one or more persons having special knowledge in the field of industry, finance, law, trade or commerce. (2) The person appointed under clause (i) of sub-section (1) shall be the Chairperson of the Micro and Small Enterprises Facilitation Council. (3) The composition of the Micro and Small Enterprises Facilitation Council, the manner of filling vacancies of its members and the procedure to be followed in the discharge of their functions by the members shall be such as may be prescribed by the State Government.” 4. It is an admitted fact that the conciliation between the two parties i.e. the seller and the buyer, i.e. the appellant and the respondent no. 1 before the Council, had failed. Subsequently, the Council took upon itself the task of proceeding with the arbitration which is the next stage. Section 18 of the Act provides as to how arbitration has to proceed once the conciliation between the parties results in a failure. 1 before the Council, had failed. Subsequently, the Council took upon itself the task of proceeding with the arbitration which is the next stage. Section 18 of the Act provides as to how arbitration has to proceed once the conciliation between the parties results in a failure. Sub-section (2) of Section 18 of the Act states that when a matter is referred for conciliation under sub-section (1) of Section 18, 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. 5. In other words, there is a choice with the Council either to initiate the conciliation proceedings itself or to refer the matter to another body. Admittedly, the Council took upon itself the task of conciliation and when the conciliation failed, it proceeded with the arbitration. Sub-section (3) of Section 18 of the Act again visualizes a contingency where again it gives a choice to the Council either to itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration. Section 18 of the Act reads as under:- “Section18. 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 center providing alternate dispute resolution services by making a reference to such an institution or center, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996(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 to it any institution or center 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 center 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.” 6. Admittedly, the Council took upon itself the matter for arbitration. This was done on 11.2.2013 whereby the Council gave a categorical finding that the compromise between the two parties is not possible and therefore the Council itself shall proceed with the arbitration. Thereafter ultimately a decision was taken by the Council on 26.2.2014 by which it gave an award in favour of the present appellant. This award was challenged by the respondent no. 1 under Section 34 of the Arbitration and Conciliation Act, 1996 before the learned District Judge, Dehradun. 7. At this stage, it must be necessary to state that once the matter is taken up for arbitration either by the Council itself or through reference to another body as visualized under sub-section (3) of Section 18 of the Act, the provisions of the Arbitration and Conciliation Act, 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”. 8. Now, when the matter came up before the learned District Judge under Section 34 of the Arbitration and Conciliation Act, he ought to have considered the matter within the confines of Section 34 of the Arbitration and Conciliation Act, 1996 which is presently applicable in this case. 8. Now, when the matter came up before the learned District Judge under Section 34 of the Arbitration and Conciliation Act, he ought to have considered the matter within the confines of Section 34 of the Arbitration and Conciliation Act, 1996 which is presently applicable in this case. Section 34 gives a very limited scope to the Court in setting aside an award. The grounds which exist in sub-section (2)(a) of Section 34 for setting aside an award are where a party was under incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it, or the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case, or the arbitral award deals with a dispute not contemplated or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, or the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties. Undisputedly, these grounds were not available to the applicant i.e. private respondent no. 1. The only two grounds available to the applicant i.e. private respondent no. 1 were as contained in sub-section (2)(b), which is as follows: “(2) An arbitral award may be set aside by the Court only if— (a)…………… (b) the Court finds that— (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India.” 9. It is nobody’s case that the dispute is not capable of settlement by arbitration under the law for the time being in force under Section 34(2)(b)(i). Therefore, the only ground available to the applicant-private respondent no. 1 is contained under sub-section (2)(b)(ii) of Section 34 of the Arbitration and Conciliation Act, 1996 which is that the arbitral award is in conflict with the public policy of India. Therefore, the only ground available to the applicant-private respondent no. 1 is contained under sub-section (2)(b)(ii) of Section 34 of the Arbitration and Conciliation Act, 1996 which is that the arbitral award is in conflict with the public policy of India. The explanation as it stood prior to 23.10.2015 was as under: “Explanation.--Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.” 10. Learned District Judge, however, has come to a conclusion that the award was against public policy for two reasons. First is that the conciliator could not have been the arbitrator in this matter. In order to arrive at this logic, learned District Judge has relied upon Section 80 of the Arbitration and Conciliation Act, 1996 which reads as under: “80. Role of conciliator in other proceedings.—Unless otherwise agreed by the parties,— (a) the conciliator shall not act as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceeding in respect of a dispute that is the subject of the conciliation proceedings; (b) the conciliator shall not be presented by the parties as a witness in any arbitral or judicial proceedings.” 11. Undoubtedly, Section 80 falls in Part III of the Arbitration and Conciliation Act, 1996 under the heading “Conciliation” which is applicable to both international and domestic arbitrations. However, what was not considered by the learned District Judge was that the case, in the first instance, was referred for conciliation under a special Act i.e. the Micro, Small and Medium Enterprises Development Act, 2006. Section 24 of the said Act has an overriding effect which reads as under: “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.” 12. In any case, even Section 80 of the Arbitration and Conciliation Act, 1996 does not totally bar the conciliator to become the arbitrator because even there certain contingency is provided where if it is agreed between the parties, the conciliator can become the arbitrator. 13. In any case, even Section 80 of the Arbitration and Conciliation Act, 1996 does not totally bar the conciliator to become the arbitrator because even there certain contingency is provided where if it is agreed between the parties, the conciliator can become the arbitrator. 13. Be that as it may, the fact of the matter is that here the “special” would override the “general”, something which is absolutely fundamental and goes to the root of the matter, which has not been considered by the learned District Judge. His reasoning therefore that the conciliation and arbitration were to be done by different persons or bodies is totally against the law and the statute with which we are presently concerned i.e. the Micro, Small and Medium Enterprises Development Act, 2006. When the statute itself allows this, then how can that be against “public policy”! 14. The reasoning of the learned District Judge that there were four arbitrators in the matter and they were the same persons who had acted as the conciliators and arbitrators, the award is bad is again not a correct conclusion. When the statute gives the power to the conciliator to become the arbitrator, it was totally unnecessary for the learned District Judge to have given any finding on this aspect, as his findings are clearly in violation of the statutory provisions itself. Though normally, as is provided under Section 10 of the Arbitration and Conciliation Act, the number of arbitrators cannot be in even number, but under the special Act, the composition of Micro and Small Enterprises Facilitation Council is provided in sub-section (1) of Section 21, according to which the Council shall consist of not less than three but not more than five members. In the present case, there were admittedly four conciliators, which is well within the law and there is no anomaly on this aspect. 15. The second ground taken by the Court below for setting aside the award is that against the terms of the contract, arbitral tribunal has also awarded interest on the delayed payment. This is again a wrong determination by the Court below inasmuch as there are records which were available with the arbitrators and which showed that in the contract between the appellant and the Paschimanchal Vidyut Vitran Nigam Ltd., the liability to pay interest was also accepted by the Paschimanchal Vidyut Vitran Nigam Ltd. 16. This is again a wrong determination by the Court below inasmuch as there are records which were available with the arbitrators and which showed that in the contract between the appellant and the Paschimanchal Vidyut Vitran Nigam Ltd., the liability to pay interest was also accepted by the Paschimanchal Vidyut Vitran Nigam Ltd. 16. In view of the above, I find that the learned District Judge has gone totally beyond his jurisdiction given to him under Section 34 of the Arbitrator and Conciliation Act, 1996 on a reasoning which was not available to him and therefore the impugned judgment and order dated 31.3.2016 is liable to be set aside. Consequently, the appeal succeeds and the impugned judgment and order is hereby set aside.