Judgment Text
1. These two writ petitions involve common questions of facts and law, therefore, they were heard together and are being disposed of by this common judgment.
2. Facts of the case in brief are that the petitioner is a company incorporated under the Companies Act, 1956 and has its registered office at Simplex House 27 Shakespeare Sarani, Kolkata. Respondent No. 1, i.e., Himachal Pradesh Micro and Small Facilitation Council is a Council established by the State Government under Section 20 of the Micro, Small and Medium Enterprises Development Act, 2006 (for short MSMED Act). Respondent No. 2 is also a company incorporated under the Companies Act. It is registered under the MSMED Act read with Rule 4 (6) of the Himachal Pradesh Micro & small Facilitation Rules, 2007. Respondent No. 3 is shareholder and director of the respondent No. 2company.
3. The petitionercompany has been dealing with the private respondents in the usual course of business, who supply materials, i.e., couplers and provide job work to them. The dispute involved in CWP No. 2041/2017 relates to couplers worth Rs.22,52,936/ supplied to the petitionercompany and job work provided to the tune of Rs.12,65,707/, against the orders placed by it adding up to Rs.35,38,833/ alongwith interest to the tune of Rs.21,88,187/, with respondent No.2 claiming total outstanding amount of Rs.57,26,920/ under the MSMED Act. Similarly, dispute in CWP No. 1239/2018 pertains to claim with regard to nonpayment of couplers and job work supplied/provided by respondent No. 2 to the petitioner against the supply order worth Rs.31,46,165/ and Rs.16,53,192/ respectively, along with interest thereon of Rs.88,54,718/ (as on 31.3.2016), thus totaling Rs.1,36,54,075/. Respondents No. 2 and 3 in both the matters made a reference to the Himachal Pradesh Micro and small Facilitation Council, which was constituted by the State Government vide Notification No. IndA (F) 1921/2005 dated 12.10.2007 in exercise of the power conferred upon it under Section 20 of the MSMED Act, for recovery of a sum of Rs.57,26,920/ and Rs. 1,36,54,075/ respectively. Reference was made under the provisions of Section 18 of the MSMED Act. The petitionercompany objected that the reference was not maintainable inasmuch as no part of cause of action arose within the State of Himachal Pradesh. Respondent No. 2 is only having its branch office in Himachal Pradesh, however, purchase orders were issued by the petitionercompany at Kolkata. Thus, the reference stood vitiated due to lack of jurisdiction. The reference was taken up by respondent No. 1Facilitation Council in its 27th Meeting on 18.4.2017 and it was resolved that settlement could not be arrived at between the parties. Since the petitioner company disputed the outstanding amount as alleged by private respondents, hence conciliation proceedings under Section 18 (2) of the MSMED Act failed. All the purchase orders/work order placed by the petitionercompany with respondent No. 2 had an arbitration clause which reads as under:
“In the event of any difference or dispute arising out of or in connection with this work order, the same shall be first amicably settled by mutual dialogue. If the parties fails to settle their differences or dispute arising out of or in connection with this work order (including interpretation of the terms thereof), the same shall be referred to arbitration. The arbitration proceedings shall be conducted by a sole arbitrator to be appointed by the Managing Director of Simplex Infrastructures Limited and the award/decision of such arbitration shall be final and binding upon both the parties. The venue of the arbitration shall be Kolkata. However, you will not stop the work during the pendency of the proceedings/and shall ensure that such work is proceeded uninterruptedly.”
4. The petitionercompany therefore, invoked arbitration clause incorporated in the purchase orders/work orders as the dispute arose in connection with the execution of the work orders. Invoking the aforesaid arbitration clause in the work orders, the petitionercompany appointed Hon’ble Mr. Justice I.P. Vashishth (Retired) as a sole arbitrator to adjudicate upon the disputes in both the matters. Hon’ble Mr. Justice I.P. Vashishth (Retired), however on 3.5.2017, expressed his inability to act as an arbitrator due to preoccupation and showed his inability to adjudicate the disputes within the time frame as envisaged under Section 29 A (1) of the Arbitration and Conciliation Act, 1996 (for short ‘Arbitration Act’). Thereafter the petitionercompany in respect of disputes pertaining to CWP No. 2041/2017 appointed Mr. Rudraman Bhattacharya, Advocate as arbitrator to adjudicate the disputes about most of the purchase/work orders pertaining to CWP No. 2041/2017, between the parties and served a copy of the said letter on private respondents. On 5.6.217, Mr. Rudraman Bhattacharya, Advocate accepted his appointment as arbitrtor and fixed first sitting of arbitration before him on 17.7.2017. By another letter dated 11.5.2017, the petitioner appointed Mr. Subhankar Nag as sole arbitrator by invoking the arbitration clause in respect of the disputes arising out of another batch of purchase order/work orders peraining to CWP No. 2041/2017. Mr. Subhankar Nag, Advocate, by his letter dated 22.6.2017, accepted his appointment and fixed first sitting of arbitration before him on 20.7.2017. In respect of disputes pertaining to CWP No. 1239 of 2018, since Hon’ble Mr. Justice I.P. Vashishth (Retd.) had declined to enter into the arbitration proceedings, the petitionercompany appointed Mr. Saptarshi Basu as the sole arbitrator to adjudicate the disputes between the parties.
5. Respondent No. 1Facilitation Council vide its order dated 6.5.2017 referred the disputes arising out of CWP No. 2041/2017 to arbitration and appointed Mr. Ravinder Prakash Verma, District and sessions Judge (Retd.) as the sole arbitrator to adjudicate the disputes between the parties. Such reference dated 6.5.2017 was received by the petitionercompany on 8.5.2017. In regard to disputes pertaining to CWP No. 1239/2018, the respondent No.1Facilitation Council, vide order dated 6.5.2017 appointed Mr. J.S. Mahanatan, District and Sessions Judge (Retd.) to adjudicate the disputes between the parties. On receipt of such orders of reference, the petitionercompany vide letter dated 22.5.2017 informed the respondents as well as the arbitrators appointed by respondent No. 1 not to proceed with the adjudication on the ground that the petitionercompany had prior to the date of the order of reference, invoked the arbitration clause under the purchase orders/work orders and referred the disputes to arbitration. According to the petitionercompany, it was under the reasonable belief that the arbitrators appointed by the respondent No.1Facilitation Council have dropped the proceedings as no further communication was received from them. The respondentcompany however invoked the jurisdiction of Micro and Small Facilitation Councilrespondent No.1 under Section 18 of the MSMED Act on the basis of which the facilitation Council passed the order on 6.5.2017 impugned in both the writ petitions.
6. Mr. Subhash Sharma, learned counsel for the petitioner argued that when the petitionercompany had already invoked the arbitration clause of the purchase order prior in point of time, in accordance with the Arbitration Act, it was not open to the respondents/suppliers to subsequently invoke Section 18 of the MSMED Act and submit their claim before the Facilitation Council. Therefore, reference of disputes in both the matters to Mr. Ravinder Prakash Verma, and Mr. J.S. Mahantan, retired District and Sessions Judges, was bad in law and not accepted by the petitionercompany. On receipt of order dated 6.5.2017 petitionercompany sent such reply to the Chairman of the Facilitation Council and Mr. Ravinder Prakash Verma, District and Sessions Judge (Retd.) and Mr. J.S. Mahantan, also District and Sessions Judge (Retd.). On receipt of notice from the arbitrators nominated by the Facilitation Council, petitioner company sent communication to both the arbitrators informing them that since it had already invoked the arbitration clause prior to the respondents/supplier approaching the Facilitation Council, the Council ought to withdraw/recall its order dated 6.5.2017 and that they may not proceed with the arbitration proceedings. Mr. Ravinder Prakash Verma, however, vide communication dated 23.5.2017 called upon the parties to appear before him for 19.5.2017 and 23.5.2017 for filing statement of claim by the supplier which has been filed and the petitioner company was called upon to file written statement, if any, to the claim of the supplier on or before 5.6.2013, failing which, ex parte proceeding was ordered to be taken. The petitionercompany vide letter dated 6.5.2017, addressed to Mr. Ravinder Prakash Verma, District and Sessions Judge (Retd.) reiterated its earlier stand that since it has already invoked the arbitration clause between the parties, the Facilitation Council had no authority to appoint another arbitrator and therefore, the arbitrator so appointed ought not to proceed with the matter after being made aware of the appointment of an independent arbitrator by the petitioner company. Similar reply was sent to another arbitrator Mr. J.S. Mahantan. However, both arbitrators chose to proceed with the arbitration proceedings in violation and/or contrary to the 3position of law as laid down by the Bombay High Court in Steel Authority of India Ltd & Anr. Vs. Micro & Small Enterprises Facilitation Council & Anr. reported in AIR 2012 Bombay 178.
7. Mr. Rudraman Bhattacharyya, Advocate, the sole arbitrator appointed by the petitionercompany however, held his sitting on 16.6.2017, ex parte against the respondent company and fixed next sitting on 8.7.2017. The petitioner through their Advocate Abhishek Rai and Associate, Advocates, called upon him to dismiss the claim and informed him that since the Facilitation Council had appointed Mr. Ravinder Prakash Verma, District and Sessions Judge (Retd.) as the sole arbitrator in respect of disputes, which fact was well within the knowledge of the petitioner company, his appointment as an arbitrator was malafide and therefore, it was prayed that he should dismiss the claim submitted by the petitionercompany. Shri Rudraman Bhattacharayya, Advocate however, still proceeded with the further proceedings on 16.6.2017 and fixed 8.7.2017 as the next date.
8. Mr. Ravinder Prakash Verma, District and Sessions Judge (Retd.), the sole arbitrator appointed by the Facilitation Counsel passed the award on 20.6.2017, which is subject matter of CWP No. 2041/2017, for a sum of Rs.57,26,920/. Mr. J.S. Mahantan, District and Sessions Judge (Retd.), appointed by the Facilitation Council as the sole arbitrator passed the award for a total sum amounting to Rs. 1,36,54,075/ which is subject matter of CWP No. 1239/2018. It is against the background of these facts that the petitioner has in these two writ petitions challenged the order dated 6.5.2017 passed by the Facilitation Council by questioning jurisdiction and competence of the said Council. In both these writ petitions, order dated 6.5.2017, passed by the Facilitation Council appointing the arbitrators is under challenge with the prayer that the respondent No.1Facilitation Council may be commanded to withdraw, recall and /or rescind the order dated 6.5.2017 and further all purported proceedings thereunder and/or relating thereto an/or in pursuance thereof an/or arising thereof may be withdrawn and quashed and set aside and respondent No. 1Facilitation Council may be restrained from giving effect to the same. It may be significant to note at this stage that execution of the awards in both the matters has remained stayed pursuant to interim orders passed by this Court.
9. We have heard Mr. Subhash Sharma, Advocate, for the petitioner in both the writ petitions, Mr. Ashok Sharma, learned Advocate General for the respondentsState and Ms. Veena Sharma and Mr. Abhishek Sharma, Advocates, for respondents No. 2 and 3.
10. Mr. Subhash Sharma, learned counsel for the petitionercompany argued that order dated 6.5.2017 passed by the Facilitation Council appointing retired District and Sessions Judges as sole arbitrators in both the cases is wholly without jurisdiction because by that time, the petitioner had already invoked the arbitration clause and appointed separate arbitrators in both the matters. It is argued that after seeing the order dated 6.5.2017, appointing two retired District Judges as the arbitrators in two separate claims, the petitionercompany vide letter dated 22.5.2017, had duly informed both of them that since it has already invoked the arbitration clause and appointed the arbitrators who have entered the arbitral proceedings, the arbitrators appointed by the Facilitation Council had no jurisdiction inasmuch as they should not proceed with the arbitral proceedings. The petitionercompany was under the reasonable belief that on receipt of said communication the arbitrators so appointed by the Facilitation Council would have dropped the proceedings, particularly because no communication was thereafter received from them by the petitioner. But the petitionercompany was shocked and surprised to receive copy of the award dated 21.8.2017, subject matter of CWP No. 1239/2018 and copy of the award dated 20.6.2017, subject matter of CWP No. 2041/2017, whereby the total claim of the respondent company has been accepted without there being any evidence in support thereof. It is argued that the Facilitation Council could not proceed on the same subject on which the arbitrators had already been appointed by the petitionercompany invoking independent arbitration clause in the purchase orders at an earlier point of time.
11. Reference is made to the arbitration clause which inter alia provides that “if any difference arises or arising out in connection with this work order, the same shall be first amicably settled by mutual dialogue and if the party fails to settle their differences or dispute arising out of or in in connection with this work order (including interpretation of the terms thereof), the same shall be referred to arbitration.” No doubt, the petitioner company had appeared before the Facilitation Council but it was only at the initial stage to facilitate the efforts of the Conciliation as envisaged under the arbitration clause between the parties. It is contended that the petitionercompany did not dispute the continuation of the proceedings before the Facilitation Council only to the limited extent of facilitating the amicable settlement between the parties by mutual consent. Therefore, its appearance before the Facilitation Council should not be taken as a waiver on its part as submission to the jurisdiction of the Facilitation Council. Even while appearing before the Council, the petitioner duly informed the Facilitation Council of the arbitrators already appointed by it at an earlier point of time. The learned counsel for the petitioner heavily relied on the judgment of the Bombay High Court in Steel Authority of India Ltd, supra in which it was held that there is no provision in the MSMED Act, which negates or renders an arbitration agreement entered into between the parties ineffective. It was held therein that Section 24 of the Act, which is enacted to give an overriding effect to the provisions of Sections 15 to 23 including Section 18, would not have the effect of negating an arbitration agreement since that section overrides only such things that are inconsistent with Sections 15 to 23 including Section 18 notwithstanding anything contained in any other law for the time being in force. Section 18(3) of the Act in terms provides that the provisions of the Arbitration and Conciliation Act, 1996 shall thus apply to the disputes as if in an arbitration in pursuance of arbitration agreement referred to in Section 7(1) of the Arbitration and Conciliation Act, 1996. This is precisely the procedure under which all arbitration agreements are dealt with. The Bombay High Court thus held that it cannot be said that only because Section 18 provides for a forum of arbitration an independent arbitration agreement entered into between the parties will cease to have effect. There is no question of an independent arbitration agreement ceasing to have any effect because the overriding clause only overrides things inconsistent therewith and there is no inconsistency between an arbitration conducted by the Council under Section 18 and arbitration conducted under an individual clause since both are governed by the provision of the Arbitration Act, 1996.
12. Learned counsel for the petitioner further submitted that in view of the above position of law, the awards passed by the arbitrators appointed by the Facilitation Council are liable to be set aside because the petitionercompany in both the writ petitions has challenged basic order making reference to the arbitration dated 6.5.2017, with an ancillary prayer that all proceedings thereunder and /or in pursuance thereof and/or arising thereof should also be quashed and set aside. It is therefore, argued that the fact that the award has itself not been challenged, would not be a lacuna in the writ petitions especially because the prayer clause in the writ petition is broadly worded so as to challenge every subsequent order, including the award passed by the arbitrators. Learned counsel for the petitioner has, in support of his arguments relied on judgment of the Supreme Court in Jharkhand Urja Vikas Nigam Limited vs. The State of Rajasthan and others (Civil Appeal No. 2899 of 2021) decided on 15.12.2021 and argued that in that case also, the order making reference as well as the award passed by the Facilitation Council were set aide by the Supreme Court.
13. Ms. Veena Sharma, the learned counsel for the respondents opposed the writ petition and submitted that the writ petition against any order that may be passed by the Arbitral Tribunal is not maintainable. The only remedy available with the petitionercompany, particularly when the award has already been passed in both the matters, is to file objections against the award under Section 34 of the Arbitration Act and thereafter, if objections are dismissed, to challenge the said order in appeal before the High Court under section 37 of the Arbitration Act. The learned counsel in support of her argument relied upon the judgment of the Supreme Court in Bhaven Construction through Authorized Signatory Premjibhai K. Shah versus Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and another reported in 2021 (1) Scale 327, and the Division Bench of the Madhya Pradesh High Court in M.P. Road Development Corporation versus The Ministry of road, Transport and Highways (MORT and H) and another WP No. 11783/2021 decided on 3.9.2021.
14. We have given our anxious consideration to the rival submissions, perused the material on record and have gone through the judgments cited by the learned counsel for the parties.
15. The contention of the learned counsel for the petitioner company placing reliance on the judgment of Bombay High Court in Steel Authority of India Ltd. case supra that since a separate arbitration agreement was entered into between the parties, independent of the provisions of the MSMED Act and that the petitionercompany had informed that the arbitration clause had been invoked earlier in point of time and that it had appointed arbitrator in both the matters, who had entered into the arbitral proceedings, the proceedings under the MSMED Act would be barred in so far as the appointment of the arbitrators by the Facilitation Council is concerned, is noted to be rejected for the reasons to be recorded hereinafter. The Division Bench of the Bombay High Court in Steel Authority of India, supra, held that there is no provision in the Act, which negates or renders an arbitration agreement entered into between the parties ineffective, because Section 24 of the Act, which is enacted to give an overriding effect to the provisions of Sections 15 to 23 including section 18, (which provides for forum for resolution of the dispute under the Act) would not have the effect of negating an arbitration agreement since that section overrides only such things that are inconsistent with Sections 15 to 23 including Section 18 notwithstanding anything contained in any other law for the time being in force. Section 18(3) of the Act in terms provides that where conciliation before the Council is not successful, the Council may itself take the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution and that the provisions of the Arbitration and Conciliation Act, 1996 shall thus apply to the disputes as an arbitration in pursuance of arbitration agreement referred to in Section 7(1) of the Arbitration and Conciliation Act, 1996. Bombay High Court therefore, held that it cannot be said that only because Section 18 provides for a forum of arbitration, an independent arbitration agreement entered into between the parties will cease to have effect. It was held that there is no question of an independent arbitration agreement ceasing to have any effect because the overriding clause only overrides things inconsistent therewith and there is no inconsistency between an arbitration conducted by the Council under Section 18 and arbitration conducted under an individual clause since both are governed by the provision of the Arbitration Act, 1996.
16. With great respect, the above analogy adopted by the Bombay High Court fails to answer the question whether two parallel proceedings can go on simultaneously and in our considered view, they cannot. The very fact that in the present case, there were two parallel proceedings, the arbitral proceedings commenced by the arbitrator unilaterally appointed by the petitioner and another arbitral proceedings conducted by the arbitrator appointed by the Facilitation Council certainly give rise to a situation when there could be conflict of opinion between the two and this is where Section 24 of the 1996 Act comes into play. Since Section 24 has given over riding effect to the provisions of Sections 15 to 23 including Section 18. Obviously, arbitration proceedings conducted by the arbitrator appointed by the Facilitation Council shall have precedence over the arbitration proceedings conducted by the arbitrator unilaterally appointed by the petitioner, which it could not, even otherwise appoint in view of the law enunciated by the Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Pvt. Ltd. 2019 SCC OnLine SC 1517.
17. The question involved in the present case is no longerres integra following the recent judgment of the Supreme Court in Silpi Industries etc. versus Kerala State road Transport Corporation and another (2021) SCC OnLine SC 439. In that case, the Kerala State Road Transport Corporation (for short KSRTC) invited tenders for supply of thread rubber for tyres rebuilding. The appellants before the Supreme Court, who were the claimants before the arbitrator, were given purchase orders. As per the terms of the purchase order, 90% of the total purchase price was payable to the appellants/claimants on supply of materials and the balance 10% was to be paid subject to final performance report. This was so, since it was the condition that the thread rubber supplied by the appellants was to run a minimum number of kilometers. When the 10% balance amount was not paid as per the purchase order, the appellants/claimants approached the Industrial Facilitation Council [previously constituted under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (for short, 'IDPASC Act')] presently under the Micro and Small Enterprises Facilitation Council constituted under Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as 'the MSMED Act'). The earlier IDPASC Act was replaced by MSMED Act and earlier Act was repealed. As the conciliation failed, the claims made by the appellants herein were referred to arbitration under provisions of the Arbitration Act. The awards were passed in favour of the claimants and such awards were challenged by way of applications for setting aside the same under Section 34 of the Arbitration Act. The said application filed by the respondent before the Supreme Court was opposed by the appellant mainly on the ground that it has already moved the Micro and Small Enterprises Facilitation Council for resolution of disputes, as such, the respondent as well participated in the proceedings before the Council, prayed for dismissal of application filed under Section 11(6) of the Arbitration Act. Before the High Court, the case of the respondent was that the Facilitation Council has been constituted primarily to deal with the disputes that are raised by the supplier and does not envisage the laying of counter claim by other party to a contract, as such it can seek appointment of arbitrator under Section 11(6) of the Arbitration Act. The High Court, while considering the definition of 'supplier' under Section 2(n) of MSMED Act and also by placing reliance on Section 17 and 18 of MSMED Act, allowed the application and appointed the 2nd arbitrator.
18. It was against the backdrop of above mentioned facts that the Supreme Court held that Section 23 (2A) of the Arbitration Act inserted by amendment gives rights to the respondents to submit counter claim and plead set off with regard to arbitration agreement that would be applicable in view of Section 18 (3) of the MSMED Act which clearly provides that where the conciliation initiated under subSection (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 subsection (1) of section 7 of that Act. The Supreme Court held that if the counterclaim made by the buyer in the proceedings arising out of claims made by the seller is not allowed, it may lead to parallel proceedings before the various fora. On one hand, in view of beneficial legislation, seller may approach the Facilitation Council for claims, in the event of failure of payment by the buyer under provisions of MSMED Act, at the same time, if there is no separate agreement between the parties for any arbitration in a given case, buyer may approach the civil court for making claims against the seller, or else if there is an agreement between the parties for arbitration in the event of dispute between the parties, parties may seek appointment of arbitrator. At the same time if the seller is covered by definition under micro, small and medium enterprises, seller may approach the Facilitation Council for making claims under the provisions of MSMED Act. In such event, it may result in conflicting findings, by various Foras.
19. As regards the aspect with which we are concerned in the present case, the Supreme Court in Silpi Industries, suprabserved that when the seller approached the Facilitation Council making certain claims against the buyer, and the buyer after his appearance, approached the High Court under Section 11(6) of the Arbitration Act for appointment of arbitrator on the ground that there is an agreement between the parties for arbitration. Though it was pleaded before the High Court by the appellant that it has already approached the Facilitation Council where the proceedings are pending, the respondent as well contest the proceedings and also lay its counterclaim, the High Court has rejected such plea on the ground that the MSMED Act primarily deals with the claims of the seller only. The High Court held that as the buyer cannot make counterclaim, the proceedings cannot be proceeded with before the Council under MSMED Act and accordingly ordered by appointing second arbitrator. In those facts, the Supreme Court held that the provisions of Sections 15 to 23 of the Act are given overriding effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. From the Statement of Objects and Reasons also it is clear that it is a beneficial legislation to the small, medium and micro sector. The Arbitration and Conciliation Act, 1996 is a general law whereas the Micro, Small and Medium Enterprises Development Act, 2006 is a special beneficial legislation which is intended to benefit micro, small and medium enterprises covered by the said Act. The MSMED Act contemplates a statutory arbitration when conciliation fails. A party, which is covered by the provisions of MSMED 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 MSMED Act and the Arbitration Act. The first difference is, the Council constituted under the MSMED Act to undertake mandatory conciliation before the arbitration which is not so under the Arbitration Act. Secondly, in the event of failure of conciliation under the MSMED Act, the Council or the centre or institution is identified by it for arbitration. The Arbitration 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 predeposit of 75% of the amount awarded. Such is not the case in the Arbitration Act. When such beneficial provisions are there in the special enactment, such benefits cannot be denied on the ground that counterclaim is not maintainable before the Council. In any case, if this was to be allowed whenever buyer wishes to avoid the jurisdiction of the Council, the buyer can do on the spacious plea of counterclaim, without responding to the claims of the seller which it cannot do in view of the provisions of Sections 15 to 23 which are given overriding effect under Section 24 of the Act. The relevant observations in para 23 of the judgment read as under:
“23.The obligations of the buyer to make payment, and award of interest at three times of the bank rate notified by Reserve Bank in the event of delay by the buyer and the mechanism for recovery and reference to Micro and Small Enterprises Facilitation Council and further remedies under the 2006 Act for the party aggrieved by the awards, are covered by Chapter V of the 2006 Act. The provisions of Section 15 to 23 of the Act are given overriding effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. From the Statement of Objects and Reasons also it is clear that it is a beneficial legislation to the small, medium and micro sector. The Arbitration and Conciliation Act, 1996 is a general law whereas the Micro, Small and Medium Enterprises Development Act, 2006 is a special beneficial legislation which is intended to benefit micro, small and medium enterprises covered by the said Act. The Act of 2006 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 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 predeposit 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 counterclaim 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 counterclaim, 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 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. 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., 2010 1 SCC 756 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. 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 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 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 counterclaim is not permitted, buyer can get over the legal obligation of compound interest at 3 times of the bank rate and the "75% predeposit" contemplated under Sections 16 and 19 of the MSMED Act.”
20. The judgment of the Supreme Court in Jharkhand Urja Vikas Nigam Limited, supra, relied by the learned counsel for the petitioner is distinguishable on facts as well as law and does not provide any help to the petitioner. The respondents in that case approached the Rajasthan Micro and Small Enterprises Facilitation Council, claiming an amount of Rs.74,74,041/ towards the principal amount of bills and an amount of Rs.91,59,705.02 paise towards interest. On the ground that the appellant has not responded to earlier notices, the Council issued summons dated 18.07.2012 for appearance of the appellant before the Council on 06.08.2012. Only on the ground that on 06.08.2012 the appellant has not appeared, the order dated 06.08.2012 was passed by the Council directing the appellant to make the payment to the 3rd respondent, as claimed, within a period of thirty days from the date of the order. The Supreme Court held that the order dated 6.8.2012 was nullity and quashed and set aside the same. The Supreme Court held that from a bare perusal of Section 18(2) and 18(3) of the MSMED Act, it is clear that the Council is obliged to conduct conciliation for which the provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 would apply, as if the conciliation was initiated under Part III of the said Act. Under Section 18(3), when conciliation fails and stands terminated, the dispute between the parties can be resolved by arbitration. The Council is empowered either to take up arbitration on its own or to refer the arbitration proceedings to any institution as specified in the said Section. It is open to the Council to arbitrate and pass an award, after following the procedure under the relevant provisions of the Arbitration and Conciliation Act, 1996, particularly Sections 20, 23, 24, 25. The Supreme Court further held that there is a fundamental difference between conciliation and arbitration. In conciliation, the conciliator assists the parties to arrive at an amicable settlement, in an impartial and independent manner. In arbitration, the Arbitral Tribunal/ arbitrator adjudicates the disputes between the parties. Further, if the appellant had not submitted its reply at the conciliation stage, and failed to appear, the Facilitation Council, at best, could have recorded the failure of conciliation and proceeded to initiate arbitration proceedings in accordance with the relevant provisions of the Arbitration and Conciliation Act, 1996, to adjudicate the dispute and make an award. The Facilitation Council in that case, however, has passed the order/award dated 6.8.2012 directing the Jharkhand State Electricity Board to pay the amount claimed by the respondents/suppliers which clearly shows that it did not initiate arbitration proceedings in accordance with the relevant provisions of the Arbitration and Conciliation Act, 1996. The order dated 6.8.2012 was thus held to be nulli
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ty being not only contrary to the to the provisions of Rajasthan Micro and Small Enterprises Facilitation Council Act but contrary to various mandatory provisions of Arbitration and Conciliation Act, 1996. Such are not the facts of the present case. The judgment in Jharkhand Urja Vikas Nigam Limited, supra, cited by the learned counsel for the petitioner is distinguishable on facts and ratio thereof does not apply to the present matters. 21. The judgments cited by the learned counsel for respondents in Bhavan construction case supra and Madhya Pradesh High Court authored by one of us (Justice Mohammad Rafiq, Chief Justice), may not be applicable to the facts of the present case because what is under challenge in both the present petitions is not an interlocutory or interim order passed by the Arbitral Tribunal but the order dated 6.5.2017 by which the Facilitation Council appointed the sole arbitrator in each of the cases. Therefore, it is basically the order passed by the Facilitation Council making reference of arbitration to the arbitrator appointed by it under Section 18 (3), which is under challenge and not any interlocutory order passed by the Arbitral Tribunal which was the issue before the Supreme Court in Bhaven construction case and Division Bench of the Madhya Pradesh High Court in both of which reliance was placed on an earlier judgment of the Supreme Court in M/s Deep Industries Ltd vs. Oil and Natural Gas Corporation Ltd. (2019) SCC OnLIne SC 1602. in which it was held that Arbitration Act is a self contained code dealing with every aspect of arbitration. The legislative policy in consolidating all the laws relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards is aimed at ensuring not only speedy disposal of arbitration cases but also timely execution of the awards. Section 16(2) of the Arbitration Act stipulates that 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. Subsection (5) of Section 16 provides that the Arbitral Tribunal shall decide on a plea referred to in sub Section (2) or subSection (3) and, where the Arbitral Tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. The language employed by the Parliament in this subSection thus makes its intention clear that once if the Arbitral Tribunal takes a decision to reject the plea, it shall continue with the arbitral proceedings and make an arbitral award. It cannot however be said for this that the aggrieved party has been left remediless against the rejection of its objection as to the jurisdiction of the arbitral tribunal. The only thing is that its remedy has been deferred till the stage of Section 34 of the Arbitration Act arises as is evident from sub Section (6) of Section 16 of the Arbitration Act, which inter alia provides that the parties aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34. This is also evident from section 37 (2) of the Arbitration Act which, vide its subClause (a), while providing for an appeal to a Court from an order of the Arbitral Tribunal accepting the plea referred to in subSection (2) or subSection (3) of Section 16, purposely does not provide for an appeal against an order of the Arbitral Tribunal rejecting the plea referred to in sub Section (2) or subSection (3) of Section 16 rejecting such objections. 22. In view of the above discussion, both the writ petitions fail and are hereby dismissed, with however liberty to the petitioner to avail their remedy against the award passed by the Arbitrator in accordance with the provisions of Section 34 and Section 37 of the Arbitration Act in accordance with law. With the dismissal of writ petitions, the interim orders passed therein also stand vacated. There shall be no order as to costs. 23. Pending miscellaneous applications, if any, shall also stand disposed of.
