Steel Authority of India Ltd. v. Jharkhand Micro and Small Enterprises Facilitation Council, MSEFC Through Its Secretary
2024-09-24
NARENDRA KUMAR VYAS
body2024
DigiLaw.ai
ORDER : Narendra Kumar Vyas, J. 1. The petitioners have filed this writ petition under Article 226 of the Constitution of India for quashing the proceedings initiated by respondent No. 2 under the Micro, Small and Medium Enterprises Development Act, 2006 (for short “the MSMED Act, 2006”) before respondent No. 1 by which he has claimed for payment of extended balance of Rs. 2,47,10,093.63 plus accrued interest against contract dated 14.10.2016 towards enabling work of Coke Ovens Battery under rebuilding of Coke Ovens Battery 7 & 8 in Coke Ovens & Coal Chemical Department at Bhilai Steel Plant. 2. The brief facts as reflected from records are that work order was issued in favour of respondent No. 2 and as per the contract agreement, there is arbitration Clause in Article 9 of the work agreement. The Clause 9.1 of the Article clearly provides that any dispute differences, whatsoever arising between the parties out of or relating to the construction, meaning, scope, operation or effect of the contract shall be settled between the employers and contractors amicably and if they are not able to settle it will be settled through conciliation and if conciliation is failed through arbitration. This Clause further provides that arbitration Clause is to be invoked by the parties to the contract only on failure of conciliation proceeding to amicably settle the issue. The Clause further provides that the arbitration shall be governed in accordance with the provisions of Arbitration and Conciliation Act, 1996 (for short “the Act, 1996”). Accordingly, respondent No. 2 has sent a letter dated 27.01.2020 requesting the petitioner company for invoking the arbitration Clause as per Article 9 of the said agreement. It is case of the petitioner that the petitioner on 10.07.2021 has sent a letter to respondent No. 2 to depute their team for cost estimate for penalizing foreclosure and also to obtain no dues clearance from Industrial Relation Department but before appointment of arbitrator or settling the dispute, respondent No. 2 has moved an application before respondent No. 1 on 20.10.2021 wherein he has claimed Rs.90,09,600/- as due to supplier from buyer and the buyer i.e. the petitioner company has failed to make payment to the supplier within 45 days from the date of acceptance or the date of deemed acceptance as per provisions of Section 15 of the MSMED Act, 2006.
Accordingly, respondent No. 1 issued notice to the petitioner on 18.05.2022. This notice as well as initiation of proceedings have been assailed by the petitioner in this writ petition. 3. Respondent No. 2 has filed its return raising objection about maintainability of the writ petition before this Court firstly contending that the petitioner has challenged the proceeding initiated by the Jharkhand Facilitation Council situated at Jharkhand, under Article 226 & 227 of the Constitution of India. As such, the territorial jurisdiction would be of Hon'ble Jharkhand High Court and not Hon'ble Chhattisgarh High Court, as such the writ petition deserves to be dismissed on the count of territorial jurisdiction of this Court. Secondly, It has been submitted that the petitioner has already participated in the proceedings initiated by the Jharkhand Facilitation Council and has not taken any objection, as such as per principle of approbate and reprobate, the writ petition is not maintainable. Thirdly, he would submit that in view of the law laid down by Hon’ble the Supreme Court, the proceeding before respondent No. 1 is maintainable as respondent No. 2 is a registered unit under the MSMED Act, 2006 and would pray for vacating the interim order dated 26.08.2022 and dismissal of the writ petition. 4. I have heard learned counsel for the parties and perused the documents placed on record with utmost satisfaction. 5. From the above-stated factual matrix and extensive submissions made by both the counsels, the point emerged for determination of this Court, is:- “Whether against the proceedings initiated by the Council constituted under the MSMED Act, 2006 the writ petition under Article 226 of the Constitution of India is maintainable before this Court.” 6.
5. From the above-stated factual matrix and extensive submissions made by both the counsels, the point emerged for determination of this Court, is:- “Whether against the proceedings initiated by the Council constituted under the MSMED Act, 2006 the writ petition under Article 226 of the Constitution of India is maintainable before this Court.” 6. To appreciate the submission and the point of determination, it is expedient for this Court to extract relevant provisions of the MSMED Act, 2006 which reads as under:- “Section 2(d)- “buyer” means whoever buys any goods or receives any services from a supplier for consideration; Section 2(g)- “medium enterprise” means an enterprise classified as such under sub-Clause (iii) of Clause (a) or sub-Clause (iii) of Clause (b) of sub-section (1) of section 7; Section (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; Section 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. Section 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.
Section 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 (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 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. Section 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.” 7. Learned counsel for the petitioner would submit that alternative remedy is no bar to entertain the writ petition by this Court as there is no disputed fact involved in this case, as such, he would pray for hearing the writ petition on merit.
Learned counsel for the petitioner would submit that alternative remedy is no bar to entertain the writ petition by this Court as there is no disputed fact involved in this case, as such, he would pray for hearing the writ petition on merit. To substantiate his submission, he has referred to the judgment rendered by Hon’ble the Supreme Court in case of Whirlpool Corporation Vs Registrar of Trademarks, Mumbai and others reported in (1998) 8 SCC 1 , Godrej Sara Lee Ltd. Vs Excise and Taxation Officer-cum-Assessing reported in 2023 SCC Online SC 95, Kalpraj Dharamshi & another Vs. Kotak Investment Advisors Ltd. & another reported in (2021) 10 SCC 401 . It has also been contended that Article 9 of the contract agreement dated 14.10.2016 provides a dispute resolution process i.e. through arbitration. As such he would submit that respondent No. 1 lacks jurisdiction for the dispute under the contract's arbitration Clause (Article 9 and Clause 6 of the agreement), which stipulates that disputes should be settled through arbitration, not through the Council. He would further submit that the said contract was executed on 14.10.2016 in Bhilai, Chhattisgarh, within the court's jurisdiction, the petitioner company is also located at Chhattisgarh, therefore, the petition is maintainable before this Court. Learned counsel for the petitioner would submit that from the records annexed with the writ petition, it is quite vivid that the contract was extended multiple times by mutual agreement and respondent No. 2 requested foreclosure but due to Covid-19, the decision was delayed and on 04.02.2021, the petitioner approved de-scoping the remaining work to facilitate the foreclosure, despite this the respondent failed to finalize the settlement and also failed to provide cost estimate for finalizing the contract foreclosure. He would further submit that respondent No. 2 has not completed the work which has caused dispute between them. It has also been contended that without analyzing the facts with regard to the delay caused by respondent No. 2 enhancing the cost of the project, the claim raised by respondent No. 2 is not sustainable before respondent No. 1. Lastly he would submit that the petitioner may be granted liberty to raise all the issues before respondent No. 1 including jurisdictional issue and maintainability of the proceedings before the Council. 8.
Lastly he would submit that the petitioner may be granted liberty to raise all the issues before respondent No. 1 including jurisdictional issue and maintainability of the proceedings before the Council. 8. The aforesaid submission made by learned counsel for the petitioners was vehemently objected by the learned counsel for respondent No. 2 and would submit that the proceedings are at the initial stage where the petitioner can very well take all his defence before the Facilitation Council, as such the writ petition is not maintainable and would pray for dismissal of the writ petition. 9. The submissions made by the petitioners are disputed facts which can be very well ascertained after considering the documents and material placed on record by the MSMED Council. As such, the writ petition for deciding the lis between the parties where disputed facts are involved, the writ court should not normally entertain by the writ court where the contract executed between the parties is not statutory contract and purely commercial contract as held by Hon’ble the Supreme Court in case of Radha Krishan Industries Vs. State of Himachal Pradesh & others reported in (2021) 6 SCC 771 wherein it has been held as under:- “27. Principles of law which emerge are that: (i) The power under Article 226 of the Constitution to issue writs can be exercised not only for the enforcement of fundamental rights, but for any other purpose as well; (ii) The High Court has the discretion not to entertain a writ petition.
Principles of law which emerge are that: (i) The power under Article 226 of the Constitution to issue writs can be exercised not only for the enforcement of fundamental rights, but for any other purpose as well; (ii) The High Court has the discretion not to entertain a writ petition. One of the restrictions placed on the power of the High Court is where an effective alternate remedy is available to the aggrieved person; (2003) 2 SCC 107 PART C (iii) Exceptions to the rule of alternate remedy arise where (a) the writ petition has been filed for the enforcement of a fundamental right protected by Part III of the Constitution; (b) there has been a violation of the principles of natural justice; (c) the order or proceedings are wholly without jurisdiction; or (d) the vires of a legislation is challenged; (iv) An alternate remedy by itself does not divest the High Court of its powers under Article 226 of the Constitution in an appropriate case though ordinarily, a writ petition should not be entertained when an efficacious alternate remedy is provided by law; (v) When a right is created by a statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution. This rule of exhaustion of statutory remedies is a rule of policy, convenience and discretion; and (vi) In cases where there are disputed questions of fact, the High Court may decide to decline jurisdiction in a writ petition. However, if the High Court is objectively of the view that the nature of the controversy requires the exercise of its writ jurisdiction, such a view would not readily be interfered with. 28. These principles have been consistently upheld by this Court in Seth Chand Ratan v. Pandit Durga Prasad, Babubhai Muljibhai Patel v. Nandlal Khodidas Barot and Rajasthan SEB v. Union of India, among other decisions.” 10.
28. These principles have been consistently upheld by this Court in Seth Chand Ratan v. Pandit Durga Prasad, Babubhai Muljibhai Patel v. Nandlal Khodidas Barot and Rajasthan SEB v. Union of India, among other decisions.” 10. Considering the law laid down by Hon’ble the Supreme Court in case of Radha Krishna (supra) and there is disputed fact regarding amount of payment which is arising out of purely contractual dispute between the parties, the submission made by learned senior counsel for the petitioner that the writ petition should be entertained and decided on merit, deserves to be rejected as it is a contractual dispute involving disputed facts between the parties. 11. Now this Court is also examining the maintainability of the writ petition in light of the fact that the proceedings before the Council as per the provisions of the MSMED Act, 2006, is pending. 12. From bare perusal of provisions of the MSMED Act, 2006, it is quite vivid that the MSMEC Council has jurisdiction to decide the dispute between the supplier and buyer regarding non-payment or delayed payment of the supply made by the supplier. Thereafter, if the supplier is aggrieved with the award passed by the Council, the remedy available to him under Section 19 of the MSMED Act, 2006 for setting aside decree award or order before the courts subject to condition of depositing 75% of the amount in terms of decree, award or as the case may be, the other order in the manner directed by such court and the proceedings are at the initial stage where the petitioner has opportunity to raise all his defence before the Council which has to be considered and decided by them and even if award is passed against it, the alternate and efficacious remedy of filing application for setting aside award, is available, as such, the writ petition at this juncture, is not maintainable. The issue with regard to the maintainability of the writ petition by the High Court under the MSMED Act, 2006 has come up for consideration before Hon’ble the Supreme in case of Gujarat State Disaster Management Authority Vs. Aska Equipments Limited reported in (2022) 1 SCC 61 . Again Hon’ble the Supreme Court in case of M/s India Glycols Limited and another Vs.
Aska Equipments Limited reported in (2022) 1 SCC 61 . Again Hon’ble the Supreme Court in case of M/s India Glycols Limited and another Vs. Micro and Small Enterprises Facilitation Council, Medchal-Malkajgiri and Others bearing Civil Appeal No. 7491 of 2023 (decided on 06.11.2023) has considered the provisions of MSEMD Act, 2006 and has held that the writ petition is not maintainable. 13. The further submission made by learned counsel for the petitioner that there is arbitration Clause in the agreement, therefore, the proceeding before the Council is not maintainable, is not being examining by this Court. It is quite vivid that 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. 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. As such, the submission made by the petitioners that in view of arbitration Clause in the agreement between the parties, the proceedings between the Council is not maintainable, deserves to be rejected and accordingly, it is rejected. 14. The issue with regard to maintainability of the proceeding before the Council despite the existence of arbitration Clause in the agreement executed between the parties in view of overriding effect of the provisions of MSMED Act, 2006, has come up for consideration before Hon’ble the Supreme Court in case of Gujarat State Civil Supply Corporation Limited Vs. Mahakali Foods Private Limited (Unit 2) & another reported in (2023) 6 SCC 401 wherein it has been held in paragraph 42 as under:- “42. 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 Industries case (supra) also, this Court had observed Bharat Sewa Sansthan Vs.
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 Industries case (supra) also, this Court had observed Bharat Sewa Sansthan Vs. U.P. Electronics Corporation; AIR 2007 SC 2961 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.” 15. Hon’ble the Supreme Court has also considered the provisions of Section 24 of the MSMED Act, 2006 in case of M/s Silpi Industries Vs. Kerala State Road Transport reported in (2021) 18 SCC 790 wherein it has been held in paragraph 37 to 39 as under:- “37. The 2006 Act contemplates a statutory arbitration when conciliation fails. A party which is covered by the provisions of 2006 Act allows a party to apply to the Council constituted under the Act to first conciliate and then arbitrate on the dispute between it and other parties. There are fundamental differences in the settlement mechanism under the 2006 Act and the 1996 Act. The first difference is, the Council constituted under the 2006 Act to undertake mandatory conciliation before the arbitration which is not so under the 1996 Act. Secondly, in the event of failure of conciliation under the 2006 Act, the Council or C.A.Nos.1570-1578 of 2021 etc. the centre or institution is identified by it for arbitration. The 1996 Act allows resolution of disputes by agreed forum.
Secondly, in the event of failure of conciliation under the 2006 Act, the Council or C.A.Nos.1570-1578 of 2021 etc. the centre or institution is identified by it for arbitration. The 1996 Act allows resolution of disputes by agreed forum. The third difference is that, in the event of award in favour of seller and if the same is to be challenged, there is a condition for pre-deposit of 75% of the amount awarded. Such is not the case in the 1996 Act. When such beneficial provisions are there in the special enactment, such benefits cannot be denied on the ground that counter-claim is not maintainable before the Council. In any case, whenever buyer wish to avoid the jurisdiction of the Council, the buyer can do on the spacious plea of counter-claim, without responding to the claims of the seller. When the provisions of Sections 15 to 23 are given overriding effect under Section 24 of the Act and further the 2006 Act is a beneficial legislation, we are of the view that even the buyer, if any claim is there, can very well subject to the jurisdiction before the Council and make its claim/ counter claim as otherwise it will defeat the very objects of the Act which is a beneficial legislation to micro, small and medium enterprises. Even in cases where there is no agreement for resolution of disputes by way of arbitration, if the seller is a party covered by Micro, Small and Medium Enterprises C.A.Nos.1570-1578 of 2021 etc. Development Act, 2006, if such party approaches the Council for resolution of dispute, other party may approach the civil court or any other forum making claims on the same issue. If two parallel proceedings are allowed, it may result in conflicting findings. 38. At this stage, it is relevant to notice the judgment of this Court in the case of Edukanti Kistamma (Dead) through LRs. v. S. Venkatareddy (Dead) through LRs. & Ors. where this Court has held that a special Statute would be preferred over general one where it is beneficial one. It was explained that the purport and object of the Act must be given its full effect by applying the principles of purposive construction. 39. Thus, it is clear that out of the two legislations, the provisions of MSMED Act will prevail, especially when it has overriding provision under Section 24 thereof.
It was explained that the purport and object of the Act must be given its full effect by applying the principles of purposive construction. 39. Thus, it is clear that out of the two legislations, the provisions of MSMED Act will prevail, especially when it has overriding provision under Section 24 thereof. Thus, we hold that MSMED Act, being a special Statute, will have an overriding effect vis-à-vis Arbitration and Conciliation Act, 1996, which is a general Act. Even if there is an agreement between the parties for resolution of disputes by arbitration, if a seller is covered by Micro, Small and Medium Enterprises Development Act, 2006, the seller can certainly (2010) 1 SCC 756 C.A.Nos.1570-1578 of 2021 etc. approach the competent authority to make its claim. If any agreement between the parties is there, same is to be ignored in view of the statutory obligations and mechanism provided under the 2006 Act. Further, apart from the provision under Section 23(2A) of the 1996 Act, it is to be noticed that if counter-claim is not permitted, buyer can get over the legal obligation of compound interest at 3 times of the bank rate and the "75% pre-deposit" contemplated under Sections 16 and 19 of the MSMED Act.” 16. From bare perusal of above stated provision and the law laid down by Hon’ble the Supreme Court, it is quite vivid that the MSMED Act, 2006 have precedence over the Act, 1996 and private agreement cannot override the statutory provision of the MSMED Act, 2006. As such, the submission made by the counsel for the petitioners that in view of the arbitration Clause in the agreement, the proceeding before the Council is not maintainable, is rejected. 17. The further submission of learned counsel for respondent No. 2 is that the writ petition is not maintainable before this Court as the proceedings are pending before the Facilitation Council Jharkhand. Since this Court is not considering the rival submissions of the parties on merit, it will not be justifiable for this Court to examine the jurisdiction issue which can be ascertained by examining the facts of the case and this issue is left open and will be decided in appropriate case. 18. Considering the above-stated factual and legal submissions and also considering the law laid down by Hon’ble the Supreme Court, the writ petition before this Court is not maintainable.
18. Considering the above-stated factual and legal submissions and also considering the law laid down by Hon’ble the Supreme Court, the writ petition before this Court is not maintainable. Since the proceedings are pending before the Council, the petitioner shall be at liberty to raise all his permissible defence as per the provisions of law. 19. With the aforesaid observations and directions, the instant writ petition is disposed of. 20. The interim order passed by this Court on 26.08.2022 is vacated.