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2017 (9) TMI 2004 - HC - Indian LawsReference of the disputes to Delhi International Arbitration Centre (DIAC) for initiating arbitration proceedings - Resolution of disputes between BHEL and respondent No. 2 (DRIPLEX) by conciliation not possible - disputing parties had also entered into an arbitration agreement - whether MSEFC could (u/Section 18 (3) of The Micro, Small and Medium Enterprises Development Act, 2006) refer the disputes for arbitration under the aegis of DIAC, considering that the disputing parties had also entered into an arbitration agreement? HELD THAT:- It is at once clear that the provision of Section 18(3) of The Micro, Small and Medium Enterprises Development Act, 2006, do not leave any scope for a non-institutional arbitration. In terms of Section 18 (3) of the Act, it is necessary that the arbitration be conducted under aegis of an institution -either by MSEFC or under the aegis of any "Institution or Centre providing alternate dispute resolution services for such arbitration". It is apparent from the plain reading of clause 30 (1) of arbitration agreement, that the DRIPLEX and BHEL had agreed to refer disputes to an arbitrator appointed by BHEL and this in material variance with the provisions of Section 18(3) of the Act. In this view, the contention that there is no conflict between the arbitration agreement and Section 18(3) of the Act, is not persuasive. The arbitration clause under the GCC provides for an arbitration by an arbitrator to be appointed by BHEL, which is repugnant to an institutional arbitration - Section 24 of the Act contains an non-obstante provision and, expressly provides that the provisions of Section 15 to 23 of the Act will have an overriding effect. Thus, the provisions of Section 18(3) of the Act cannot be diluted and must be given effect to notwithstanding anything inconsistent, including the arbitration agreement in terms of section 7 of the A&C Act. In BHEL v. State of U.P. & others [2014 (2) TMI 1420 - ALLAHABAD HIGH COURT], a Division Bench of the Allahabad High Court had considered the case where the agreement between the disputing parties contained an arbitration clause, however, the MSEFC had decided to arbitrate the disputes under Section 18(3) of the Act. BHEL was also the petitioner in that case and, had approached the Court seeking that the proceedings before Uttar Pradesh State Micro and Small Enterprises Facilitation Council be set aside and the said Council be directed to decide BHEL's objection under Section 8 of the A & C Act - The Punjab and Haryana High Court in The Chief Administrative, COFMOW [2015 (1) TMI 1493 - PUNJAB AND HARYANA HIGH COURT]] had rejected the contention that provisions of Section 18 (3) of the Act for referring the disputes to arbitration would apply only where there was no arbitration agreement between the parties. BHEL had proceeded on the basis that if the conciliation proceedings failed, the disputes would be referred to arbitration under the Act and, thus, they cannot be permitted to assail the orders passed by MSEFC under Section 18(3) of the Act. It was not BHEL's case, as is apparent from its replies filed before MSRFC, that reference to arbitration would necessarily have to be as per the agreement between the parties and not under the Act. Thus, they cannot be permitted to agitate this issue in these proceedings. The petitions are dismissed with costs quantified at ₹ 25,000/- in each case.
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