Electrosteel Steels Limited, Bokaro v. State of Jharkhand through Secretary
2020-03-05
DEEPAK ROSHAN, H.C.MISHRA
body2020
DigiLaw.ai
JUDGMENT : As the common question of law is involved in all these writ applications, they have been heard together and are being disposed of by this common Judgment. 2. Heard learned counsel for the petitioners, learned Additional Advocate General for the State, as also the learned counsel for the private respondent in W.P.C No.3699 of 2015. The private respondents in other writ applications have also been noticed and the notices have been validly served on them, but no one appeared for the private respondents in the other three writ applications, in spite of repeated calls. 3. In W.P.(C). No.3699 of 2015, the petitioners have challenged the Award passed by the Jharkhand Micro, Small & Medium Enterprises Facilitation Council (hereinafter referred to as the 'Council') communicated under memo No. 1954 dated 20.07.2015, whereas in other writ applications, the notices dated 31.1.2017 and 15.03.2017 issued by the Council to the petitioner have been challenged by the petitioner, on the sole ground that the constitution of the Council in the State of Jharkhand, was done in contravention of Section 21 of the MSMED Act. 4. According to the petitioner's case, the Council was constituted under Rule 4 of the Jharkhand Micro, Small & Medium Enterprises Facilitation Council Rules, 2007, (hereinafter referred to as the 2007 Rules'), which was not in consonance with Section 21 of the Micro, Small & Medium Enterprises Development Act, 2006 (hereinafter referred to as the 'MSMED Act'). The contention of the petitioner is that Rule 4 of the 2007 Rules, which prescribes the constitution of the Council to be consisting of not less than five members and not more than nine members, is ultra vires Section 21 of the MSMED Act, which provides that Council shall consist of not less than three members but not more than five members. 5. In order to appreciate the challenge to the constitution of the Council, the relevant provisions of the MSMED Act and 2007 Rules are required to be looked into. Section 21 of the MSMED Act reads as follows:- "21. Composition of Micro and Small Enterprises Facilitation Council.
5. In order to appreciate the challenge to the constitution of the Council, the relevant provisions of the MSMED Act and 2007 Rules are required to be looked into. Section 21 of the MSMED Act reads as follows:- "21. Composition of Micro and Small Enterprises Facilitation Council. - (1) the Micro and Small Enterprises Facilitation Council shall consist of not less than three but not more than five members to be appointed from amongst 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. ********* " Rule 4 of the Jharkhand Micro, Small & Medium Enterprises Facilitation Council Rules, 2007 reads as follows:- ^^4- lw{e ,oa y?kq m|e lqxehdj.k ifj"kn dh lajpuk% ¼1½ lw{e ,oa y?kq m|e lqxehdj.k ifj"kn esa lnL;ksa dh la[;k ik¡p ls de ugha gksxh ijUrq ukS ls vf/kd ugha gksxh] ftudh fu;qfDr fuEukafdr Jsf.k;ksa ls dh tk;sxh ;Fkk% ¼2½ m|ksx funs'kd] pkgs ftl uke ls vfHkfgr gks] ;k jkT; ljdkj ds foHkkx esa ,sls funs'kd ds Lrj ls vU;qu Lrj dk dksbZ inkf/kdkjh ftls y?kq m|ksx ;k] ;Fkk fLFkfr] lw{e y?kq ,oa e/;e Lrj m|e ij iz'kklfud fu;a=.k gks] ,oa ¼3½ jkT; esa lw{e ;k y?kq m|ksx ;k m|eksa ds laxBu ds ,d ;k vf/kd inkf/kdkjh (Office bearer) ;k izfrfuf/k] ¼4½ lw{e ;k y?kq m|eksa dks _.k nsusokys cSadksa ,oa foŸkh; laLFkkvksa ds ,d ;k vf/kd izfrfuf/k ;k ¼5½ ,d ;k vf/kd O;fDr ftUgsa m|ksx] foRr] fof/k] O;kikj ;k okf.kT; ds {ks= esa fo'ks"k Kku gksA ¼v½ mi/kkjk ¼1½ ds mica/k ¼1½ ds vUrxZr fu;qDr O;fDr lw{e ,oa y?kq m|e lqxehdj.k ifj"kn ds v/;{k gksaxsA^^ 6.
Placing Rule 4(1) of the 2007 Rules and Section 21 of the MSMED Act, learned counsel for the petitioner has submitted that Section 21 of the MSMED Act clearly provides that the Council shall consist of not less than three but not more than five members, but Rule 4(1) of the 2007 Rules provided that the Council shall consist of not less than five and not more than nine members, and in fact, in the State of Jharkhand the Council was also constituted with nine members, which passed the impugned Award and also issued the impugned notices in these writ applications, which are thus, absolutely illegal and void ab initio, and cannot be sustained in the eyes of law, as Rule 4 of the 2007 Rules is ultra vires Section 21 of the MSMED Act and accordingly, any action of such illegally constituted Council shall be void ab initio. 7. It is an admitted fact that 2007 Rules have since been repealed and replaced by Jharkhand Micro, Small & Medium Enterprises Facilitation Council Rules, 2017 (hereinafter referred to as the 2017 Rules'), and Rule 4 thereof is now in consonance with Section 21 of the MSMED Act, providing that the Council shall consist of not more than five members from the different categories enumerated under the 2017 Rules, which now reads as follows:- ^^4- lw{e] y?kq ,o e/;e m|e fodkl vf/kfu;e] 2006 dh /kkjk 2 ,oa /kkjk 21 ¼1½ ds vUrxZr lw{e ,oa y?kq m|e lqxehdj.k ifj"kn dh lajpuk% ¼d½ lw{e ,oa y?kq m|e lqxehdj.k ifj"kn esa vf/kdre lnL;ksa dh la[;k&5 ¼ik¡p½ gksxh] tks fuEu izdkj gksxh% ¼1½ funs'kd] m|ksx ;k jkT; ljdkj }kjk vf/kfu;e dh /kkjk 21 ¼1½ ¼1½ ds vUrxZr ukfer inkf/kdkjhA ¼2½ leUo;d (Co-ordinator) jkT; Lrjh; cSadlZ lfefrA ¼3½ izfrfuf/k lw{e@y?kq m|e la?k] >kj[k.M] jk¡phA ¼4½ fof/kd fo'ks"kKA ¼v½ foHkkx&funs'kky; }kjk fu;qDr ijke'khZZ ds :i esa pkVZM ,dkmUVsaV@dkWLV ,dkmUVsaVA ********^^ 8. Learned counsel for the petitioner has submitted that the petitioners have moved this Court directly under Article 226 of the Constitution of India, in view of the fact that the impugned Award / Notices are void ab initio, for the fact that they have been passed / issued by a Council which was not competent under the Act to function. 9.
9. Learned counsel submitted that even the de facto doctrine shall not come in the way to support the Award passed and the notices issued by the Council which was not competent under the Act to function, inasmuch as, Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Arbitration Act'), provides the grounds for setting aside the Arbitral Award, and one of the grounds mentioned under Clause (v) of Section 34 (2) of the Arbitration Act for setting aside the award, is that the composition of the arbitral tribunal or the arbitral procedure was not in consonance with the agreement of the parties. It is not in dispute that the Council while doing arbitration, exercises the power under the Arbitration Act, in view of Section 18 (3) of the MSMED Act, which reads as follows :- "18. Reference to Micro and Small Enterprises Facilitation Council. - (1) -------------------. (2) -------------------. (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 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 disputes as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that Act. ********* " 10. In support of his contention that in view of the fact that the constitution of the Council was against the provisions of the MSMED Act, the Award passed and the notices issued by the Council shall not be protected by the defacto doctrine, learned counsel for the petitioner has placed reliance upon a decision of the Court of Appeal (England and Wales), in Sumukan Ltd. Vs. Commonwealth Secretariat, reported in (2008) Bus LR 858, wherein where, the claimant had complained that the arbitral tribunal lacked substantive jurisdiction because it had not been properly constituted, the Court of Appeal had posed a question - "Does the de facto concept apply ?" And the answer given by Waller LJ., was - "I do not think it does in the arbitration context." Sedley LJ., answered the question in the following terms :- "50.
I respectfully agree with Waller I.J. that there is no room in the arbitration field for the common law doctrine which in some circumstances validates the acts of an apparent and reputed judge. 51. The de facto doctrine is an escape from the ordinary consequences of a defective or non-existent judicial appointment, adopted by the common law in the interests of legal certainty. -----------." Sir Anthony Clarke MR, agreeing with both Waller and Sedley LJ., answered the question in the following terms :- "61. -----------------. In my opinion, it follows that, subject to section 73 of the 1996 Act, the panel lacked substantive jurisdiction. Before turning to section 73 I should add that I agree with both Waller and Sedley LJ that, for the reasons they give, there is no room for the concept of the de-facto arbitrator in the context of a private arbitration like this." 11. Placing reliance on this decision, learned counsel for the petitioner submitted that in the present cases also, in view of Section 34(2)(v) of the Arbitration Act, there being an express provision for setting aside the arbitral award if the composition of the arbitral tribunal was not proper, the impugned Award communicated to the petitioner under memo No. 1954 dated 20.07.2015 and the notices dated 31.01.2017 and 15.03.2017 cannot be sustained in the eyes of law, on this score alone and without looking into their merits. 12. Learned Additional Advocate General appearing for the State, on the other hand, has opposed the prayer and has taken the preliminary objection to the maintainability of these writ applications, submitting that in view of Section 34 of the Arbitration Act, there is an alternative remedy provided to the petitioners to move before the Commercial Court to challenge the Award and accordingly, the writ applications are not maintainable. 13. It is also submitted by the learned AAG that the 2007 Rules have since been repealed and have been substituted by the 2017 Rules framed in the year 2017, and Rule 4 in the 2017 Rules is now in consonance with Section 21 of the MSMED Act. Learned AAG, thus, submits that now, there is no question to challenge the validity or vires of the 2007 Rules, since the Rules themselves have been repealed by the State Government. Accordingly, the writ applications are not maintainable even on this score. 14.
Learned AAG, thus, submits that now, there is no question to challenge the validity or vires of the 2007 Rules, since the Rules themselves have been repealed by the State Government. Accordingly, the writ applications are not maintainable even on this score. 14. Learned AAG has also submitted that even otherwise, the impugned Award or the notices cannot be challenged being void ab initio, inasmuch as, there were nine members of the Council, and the minimum requirement of the number of members as provided under Section 21 of the MSMED Act is already fulfilled. 15. In support of his contention, learned Additional Advocate General has placed reliance upon the decision of the Hon'ble Apex Court in Power Machines India Ltd. Vs. State of Madhya Pradesh & Ors., reported in (2017) 7 SCC 323 , wherein the law has been laid down as follows:- "15. -----------. The objective of the Act is to provide protection to the micro, small and medium enterprises and to facilitate their development. In order to carry out the objective of the Act, speedy recovery mechanism has been provided under Rule 5 of the Rules by providing that the amount awarded in an arbitral award can be recovered as arrears of land revenue. No doubt that Rule 5 is inconsistent with the provisions contained in Section 36(1) of the 1996 Act which provides recovery mechanism under Order 21 CPC as a decree, but, in the matter of providing such remedies, it is open to legislate different remedies which may be inconsistent. It is a question of electing a remedy. Election of a remedy for recovery of the amount would depend upon the choice of the award-holder. Both the provisions i.e. Section 36 of the 1996 Act as well as Rule 5 of the 2006 Rules intend to recover the amount though by different procedures. Intendment of provisions is same. There is no question of any prejudice being caused to the judgment-debtor."(Emphasis supplied). 16. Placing reliance on this decision, learned AAG has submitted that even in the present case also, no difference was going to be made, nor any prejudice is caused to the writ petitioner even if the Award was passed by nine members of the Council, though the MSMED Act provided the maximum number to be five.
16. Placing reliance on this decision, learned AAG has submitted that even in the present case also, no difference was going to be made, nor any prejudice is caused to the writ petitioner even if the Award was passed by nine members of the Council, though the MSMED Act provided the maximum number to be five. Learned AAG accordingly, submitted that there is no scope of challenge of the impugned Award on the ground that the constitution of the Council was in teeth of Section 21 of the MSMED Act and accordingly, the only remedy left to the petitioner was to challenge the Award before the Commercial Court, under Section 34 of the Arbitration Act. According to learned AAG, there is no scope to challenge the notices at this stage, as the challenge to the validity or vires of the 2007 Rules, is no more available to the petitioner, as the 2007 Rules have already been repealed, and no prejudice is caused to the petitioner only by issuing the notices. 17. Learned Additional Advocate General has also placed reliance on a decision of the Hon'ble Single Judge of this Court in M/s. G.P.T. Infraprojects Limited & Ors. Vs. State of Jharkhand & Ors., (W.P.(C). No. 06 of 2014, decided on 03.03.2016) wherein, it was held that even the question relating to the composition of the arbitral tribunal or failure to follow arbitral procedure are specifically available for challenge under Section 34 of the Arbitration Act, and in view of Section 18(3) of the MSMED Act, since the provisions of the Arbitration Act apply to the dispute as if the arbitration was in pursuance of an arbitration agreement, there was no reason as to why the petitioners should not have availed the statutory remedy available under Section 34 of the Arbitration Act, and the Writ Court had not entertained the writ application. 18. Learned Additional Advocate General has also invited our attention towards Section 5 of the Arbitration and Conciliation Act, 1996, which reads as follows : "5. Extent of judicial intervention. - Notwithstanding anything contained in any other law for the time being in force, in matters governed by this part, no judicial authority shall intervene except where so provided in this Part." 19. Learned Additional Advocate General accordingly, concluded that these writ applications are not at all maintainable. 20.
Extent of judicial intervention. - Notwithstanding anything contained in any other law for the time being in force, in matters governed by this part, no judicial authority shall intervene except where so provided in this Part." 19. Learned Additional Advocate General accordingly, concluded that these writ applications are not at all maintainable. 20. Learned counsel for the respondent No.4 in W.P.C. No.3699 of 2015, has also more or less adopted the arguments of the learned AAG, and has further augmented his arguments, drawing our attention towards the decision of the Constitution Bench of the Hon'ble Apex Court in SBP & Co. Vs. Patel Engineering Ltd. & Anr., reported in (2005) 8 SCC 618 , wherein the majority view of the Constitution Bench of the Hon'ble Apex Court, laid down the law as follows:- "45. It is seen that some High Courts have proceeded on the basis that any order passed by an Arbitral Tribunal during arbitration, would be capable of being challenged under Article 226 or 227 of the Constitution. We see no warrant for such an approach. Section 37 makes certain orders of the Arbitral Tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating its grievances against the award including any in-between orders that might have been passed by the Arbitral Tribunal acting under Section 16 of the Act. The party aggrieved by any order of the Arbitral Tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The Arbitral Tribunal is, after all, a creature of a contract between the parties, the arbitration agreement, even though, if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the Arbitral Tribunal. It will still be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the Arbitral Tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution. Such an intervention by the High Courts is not permissible. ********* 47. We, therefore, sum up our conclusions as follows: (i) to (v) -----------------.
Such an intervention by the High Courts is not permissible. ********* 47. We, therefore, sum up our conclusions as follows: (i) to (v) -----------------. (vi) Once the matter reaches the Arbitral Tribunal or the sole arbitrator, the High Court would not interfere with the orders passed by the arbitrator or the Arbitral Tribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of Section 37 of the Act or in terms of Section 34 of the Act. ********* " 21. Learned counsel for the private respondent has also placed reliance upon the decision of one unreported decision of the Hon'ble Apex Court in M/s Sterling Industries Vs. Jayprakash Associates Ltd. & Ors., (Civil Appeal Nos. 7117-7118 of 2017, decided on 10th July 2019), wherein relying upon the decision in the SBP & Co.'s case (supra) , the law has been reiterated by the Hon'ble Apex Court. 22. In reply, learned counsel for the petitioner has placed reliance upon the decision of the Hon'ble Apex Court in Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai &Ors., reported in (1998) 8 SCC 1 , laying down the law as follows :- "15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. --------------------." (Emphasis supplied). 23. Learned counsel for the petitioner has also placed reliance upon the decision of the Hon'ble Apex Court in State of Tripura Vs.
--------------------." (Emphasis supplied). 23. Learned counsel for the petitioner has also placed reliance upon the decision of the Hon'ble Apex Court in State of Tripura Vs. Manoranjan Chakraborty & Ors., reported in (2001) 10 SCC 740 , wherein the law has been reiterated by the Hon'ble Apex Court, holding that if gross injustice is done and it can be shown that for good reason the Court should interfere, then notwithstanding the alternative remedy which may be available by way of an appeal, the Writ Court can in an appropriate case exercise its jurisdiction to do substantive justice. Learned counsel for the petitioner accordingly, reiterated his submission that in view of the fact that the constitution of the Council was itself ultra-vires Section 21 of the MSMED Act, the alternative remedy cannot be taken as a bar for filing the present writ applications, as in such a case, the merits of the impugned action need not be looked into. 24. Having heard the learned counsels for the parties and upon going through the record, we find that Section 21 of the MSMED Act is clear and unambiguous in its terms, when it says that the Micro and Small Enterprises Facilitation Council shall consist of not less than three but not more than five members, to be appointed amongst the categories detailed under that section. There is no scope of any inclusion of more members in the Council as per Section 21 of the Act. Rule 4 of the 2007 Rules was in clear contravention of Section 21 of the MSMED Act, when it provided for the constitution of the Council with not less than five and not more than nine members in the Council, and in fact, pursuant to the said Rule, the Council was even constituted by the State Government with nine members. Clearly the constitution of the said Council was in accordance with Rule 4 of the 2007 Rules, whereas in clear contravention of Section 21 of the MSMED Act.
Clearly the constitution of the said Council was in accordance with Rule 4 of the 2007 Rules, whereas in clear contravention of Section 21 of the MSMED Act. In case, the petitioner is forced to challenge the impugned Award before the Commercial Court, under Section 34 of the Arbitration Act, the only answer that is likely to come from the Commercial Court is that the constitution of the Council was in accordance with the Rules, which was binding on the Commercial Court, and as there is no scope for the Commercial Court to entertain the appeal on the ground that Rule 4 of 2007 Rules was ultra-vires Section 21 of the Act. Accordingly, no effective and efficacious remedy was available to the petitioner before the Commercial Court. Indeed there is no alternative remedy to the petitioner to challenge the notices issued by the Council, as no appeal is provided against the notice issued by the Council, either under the MSMED Act, or under Section 37 of the Arbitration Act. In that view of the matter, we are of the considered view that the arguments of the learned Additional Advocate General and the learned counsel for the private respondent that it was open for the petitioner to challenge the impugned Award before the Commercial Court, though such remedy is available, but it was not effective and efficacious in the sense that the Commercial Court could not look into the virus of the Rules. 25. In Whirlpool Corporation's case (supra), the Hon'ble Apex Courthas placed reliance on its earlier decisions, including the one in Calcutta Discount Co. Ltd. v. ITO, Companies Distt. I, reported in AIR 1961 SC 372 , and has held as follows:- "19. Another Constitution Bench decision in Calcutta Discount Co. Ltd. v. ITO, Companies Distt. I laid down: “Though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts will issue appropriate orders or directions to prevent such consequences. Writ of certiorari and prohibition can issue against the Income Tax Officer acting without jurisdiction under Section 34, Income Tax Act.” 20.
Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts will issue appropriate orders or directions to prevent such consequences. Writ of certiorari and prohibition can issue against the Income Tax Officer acting without jurisdiction under Section 34, Income Tax Act.” 20. Much water has since flown under the bridge, but there has been no corrosive effect on these decisions which, though old, continue to hold the field with the result that law as to the jurisdiction of the High Court in entertaining a writ petition under Article 226 of the Constitution, in spite of the alternative statutory remedies, is not affected, specially in a case where the authority against whom the writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation." (Emphasis supplied). 26. In view of the settled law on the subject, we find that in spite of the specific provision of appeal under Section 34 of the Arbitration Act, these writ applications are quite maintainable, in view of the fact that the impugned Award / notices are challenged on the ground of competency of the Council, constitution of which is ultra-vires Section 21 of the MSMED Act. The fact that Rule 4 of 2017 Rules was ultra-virus the MSMED Act, is not only the contention of the petitioner, rather it is well acknowledged even by the State Government, inasmuch as the State Government realized its mistake and has repealed the 2007 Rules, bringing fresh 2017 Rules, bringing new Rule 4 therein, which is in consonance with Section 21 of the MSMED Act. 27. In that view of the matter, we are of the considered view that these writ applications of the petitioner cannot be thrown away on the ground of availability of the alternative remedy under Section 34 of the Arbitration Act, as the petitioner had no effective and efficacious remedy before the Commercial Court. Accordingly, the impugned Award communicated to the petitioners under Memo No. 1954 dated 20.07.2015, as contained in Annexure-11 to the W.P.C. No.3699 of 2015 and the notices dated 31.01.2017 and 15.03.2017, as contained in Annexures-1 and 2 in the other three writ applications, are hereby, quashed. 28.
Accordingly, the impugned Award communicated to the petitioners under Memo No. 1954 dated 20.07.2015, as contained in Annexure-11 to the W.P.C. No.3699 of 2015 and the notices dated 31.01.2017 and 15.03.2017, as contained in Annexures-1 and 2 in the other three writ applications, are hereby, quashed. 28. The liberty is given to the Council, constituted under the 2017 Rules, to issue fresh notices to the petitioner and also to adjudicate the matter afresh by passing a fresh Award in accordance with law. 29. All these writ applications are accordingly, allowed with the directions as above. The pending Interlocutory Application also stands disposed of.