TMI Blog2021 (6) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... all Enterprises Facilitation Council shall take up the dispute for arbitration Under Section 18(3) of the 2006 Act or it may refer to institution or centre to provide alternate dispute resolution services and provisions of Arbitration and Conciliation Act 1996 are made applicable as if there was an agreement between the parties Under Sub-section (1) of Section 7 of the 1996 Act. In view of the express provision applying the provisions of the Limitation Act, 1963 to arbitrations as per Section 43 of the Arbitration and Conciliation Act, 1996, the High Court has rightly relied on the judgment in the case of Andhra Pradesh Power Coordination Committee (2016) 3 SCC 468 and held that Limitation Act, 1963 is applicable to the arbitration proceedings Under Section 18(3) of the 2006 Act - no further elaboration is necessary on this issue and it is held that the provisions of Limitation Act, 1963 will apply to the arbitrations covered by Section 18(3) of the 2006 Act. Maintainability of counter claim in the arbitration proceedings initiated as per Section 18(3) of the 2006 Act - HELD THAT:- From a reading of Section 18(3) of the 2006 Act it is clear that when the conciliation initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned the incomplete work having made deficient and defective supplies in the month of February/March 2015 - Further, as it is also not in dispute that there is an agreement for arbitration between the parties for resolution of disputes pursuant to their contract, as such, the High Court has rightly allowed the application filed by the Respondent Under Section 11(6) of the 1996 Act. Appeal dismissed. - CIVIL APPEAL NOS.1570-1578 OF 2021 with CIVIL APPEAL NOS.1620-1622 OF 2021 - - - Dated:- 29-6-2021 - Ashok Bhushan and R. Subhash Reddy, JJ. For Appellant - John Mathew, AOR, Karthik S.D., P.B. Suresh, Advs., Vipin Nair, AOR, Karthik Jayashankar, Arindam Ghosh and Anshuman Bahadur, Advs. JUDGMENT In view of the common issues which arise for consideration, these appeals are heard together and disposed of by this common judgment. 2. Civil Appeal Nos. 1570-1578 of 2021 are filed, aggrieved by the common judgment dated 11.08.2017 passed in Arbitration Appeal Nos. 69, 70, 72, 73, 77, 78, 79, 80 and 81 of 2014. By the aforesaid judgment, High Court has allowed the Arbitration Appeals filed by the Respondent No. 1-Kerala State Road Transport Corporation, by setting as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Kerala at Ernakulam. The issues, which were formulated in paragraph 5 of the judgment and answered by the High Court, read as under: (a) Whether the Limitation Act, 1963 applies to arbitration proceedings held under the IDPASC and MSMED Acts? (b) Which is the starting point of limitation to raise claim for the 10% unpaid purchase price? (c) Whether counter claim is entertainable in the arbitration proceedings held pursuant to the provisions of the IDPASC and MSMED Acts? 5. In the impugned judgment, the High Court, while considering the submissions of the parties and by referring to various provisions of the Arbitration and Conciliation Act, 1996 and the provisions of the Limitation Act, 1963, has answered the issue of limitation and held that Limitation Act, 1963 is applicable to the proceedings under the 1996 Act arising out of MSMED Act. While answering the third question with regard to maintainability of counter claim, the High Court has held that in view of Section 23(2A) of the 1996 Act, the 'counter claim' and 'set off' are maintainable. While holding that counter claim is maintainable, the High Court has agreed with the view taken by the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cilitation 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 1996 Act. 9. 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, has allowed the application and appointed Mr. Justice K. Gnanaprakasam, former Judge of Madras High Court as 2nd arbitrator. 10. When the said order is challenged before this Court, by order dated 29.01.2018, while issuing notice this Court has ordered the Special Leave Petition be tagged with S.L.P.(C) Nos. 33745-33753 of 2017 (C.A. Nos. 1570-1578 of 2021). 11. In S.L.P.(C) Nos. 33745-33753 of 2017 (C.A. Nos. 1570-1578 of 2021), vide order dated 25.01.2018, this Court issued notice limited to the issue as to whether the counter claim of the Respondent could be entertained by the Arbitral Tribunal. 12. We have heard Sri V. Giri, learned Senior Counsel appearing for the Appellants and Ms. Aishwarya Bhati, learned Additional Solicitor Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of Prime Lending Rate charged by the State Bank of India. There was also a mechanism for recovery and created Industry Facilitation Council, as primary body and appellate authority was notified Under Section 7 of the said Act. Under Section 10 of the said Act, Act 32 of 1993 was given overriding effect. 16. The Micro, Small and Medium Enterprises Development Act, 2006 was enacted to provide, for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. By bringing the aforesaid Act (Act 27 of 2006) w.e.f. 16th June 2006, the earlier Act, namely, Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 was repealed by virtue of Section 32 of the 2006 Act. Prior to the enforcement of Act 32 of 1993, the small scale industry was defined only by notification Under Section 11B of the Industries (Development and Regulation) Act, 1951. As per Section 29B of the said Act, notifications were being issued notifying reservation of items for exclusive manufacture in small scale industry sector. Except the above said two provisions, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Micro, Small and Medium Enterprises. The 'enterprises' were classified under Chapter III of the 2006 Act into micro, small and medium enterprises. Liability of buyer and the mechanism in the event of default is by various provisions under Chapter V of the Act. Sections 5 to 19 which are relevant for the purpose of disposal of these cases read as under: 5. Functions of Board. --The Board shall, subject to the general directions of the Central Government, perform all or any of the following functions, namely: (a) examine the factors affecting the promotion and development of micro, small and medium enterprises and review the policies and programmes of the Central Government in regard to facilitating the promotion and development and enhancing the competitiveness of such enterprises and the impact thereof on such enterprises; (b) make recommendations on matters referred to in Clause (a) or on any other matter referred to it by the Central Government which, in the opinion of that Government, is necessary or expedient for facilitating the promotion and development and enhancing the competitiveness of the micro, small and medium enterprises; and (c) advise the Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sub-section (1) of this section. (2) The Central Government shall, by notification, constitute an Advisory Committee consisting of the following members, namely: (a) the Secretary to the Government of India in the Ministry or Department of the Central Government having administrative control of the small and medium enterprises who shall be the Chairperson, ex officio; (b) not more than five officers of the Central Government possessing necessary expertise in matters relating to micro, small and medium enterprises, members, ex officio; (c) not more than three representatives of the State Governments, members, ex officio; and (d) one representative each of the associations of micro, small and medium enterprises, members, ex officio. (3) The Member-Secretary of the Board shall also be the ex officio Member-Secretary of the Advisory Committee. (4) The Central Government shall, prior to classifying any class or classes of enterprises Under Sub-section (1), obtain the recommendations of the Advisory Committee. (5) The Advisory Committee shall examine the matters referred to it by the Board in connection with any subject referred to in Section 5 and furnish its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Provided that any person who, before the commencement of this Act, established-- (a) a small scale industry and obtained a registration certificate, may, at his discretion; and (b) an industry engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), having investment in plant and machinery of more than one crore rupees but not exceeding ten crore rupees and, in pursuance of the notification of the Government of India in the erstwhile Ministry of Industry (Department of Industrial Development) number S.O. 477(E) dated the 25th July, 1991 filed an Industrial Entrepreneur's Memorandum, shall within one hundred and eighty days from the commencement of this Act, file the memorandum, in accordance with the provisions of this Act. (2) The form of the memorandum, the procedure of its filing and other matters incidental thereto shall be such as may be notified by the Central Government after obtaining the recommendations of the Advisory Committee in this behalf. (3) The authority with which the memorandum shall be filed by a medium enterprise sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary to provide. 14. Administration and utilisation of Fund or Funds .--(1) The Central Government shall have the power to administer the Fund or Funds in such manner as may be prescribed. (2) The Fund or Funds shall be utilised exclusively for the measures specified in Sub-section (1) of Section 9. (3) The Central Government shall be responsible for the coordination and ensuring timely utilisation and release of sums in accordance with such criteria as may be prescribed. 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 therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance. 16. Date from which and rate at which interest is payable .--Where any buyer fails to make payment of the amount to the supplier, as required Under Section 15, the buyer shall, notwithstanding anything contained in any agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng such a reference. 19. Application for setting aside decree, award or order .--No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the Appellant (not being a supplier) has deposited with it seventy-five per cent of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court: Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose. 18. With regard to first issue, namely, applicability of Limitation Act, 1963 to the arbitration proceedings initiated under provisions of Micro, Small and Medium Enterprises Development Act, 2006, we need to notice certain relevant Sections of the Act. As per Section 15 of the said Act, where supplier supplies any goods or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Under Sub-section (1) of Section 7 of the 1996 Act. In view of the express provision applying the provisions of the Limitation Act, 1963 to arbitrations as per Section 43 of the Arbitration and Conciliation Act, 1996, we are of the view that the High Court has rightly relied on the judgment in the case of Andhra Pradesh Power Coordination Committee (2016) 3 SCC 468 and held that Limitation Act, 1963 is applicable to the arbitration proceedings Under Section 18(3) of the 2006 Act. Thus, we are of the view that no further elaboration is necessary on this issue and we hold that the provisions of Limitation Act, 1963 will apply to the arbitrations covered by Section 18(3) of the 2006 Act. We make it clear that as the judgment of the High Court is an order of remand, we need not enter into the controversy whether the claims/counter claims are within time or not. We keep it open to the primary authority to go into such issues and record its own findings on merits. 19. The other issue is with regard to maintainability of counter claim in the arbitration proceedings initiated as per Section 18(3) of the 2006 Act. It is true that recovery amount Under Section 17 of the said Act is onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s conferred under the Act to the sellers will be denied. It is submitted that in every case to deny the benefits conferred under the Statute, the seller cannot be deprived of such benefits on the plea that counter claim is not maintainable before the authorities constituted under 2006 Act. By referring to Section 16 of the Act, it is submitted that where any buyer fails to make payment of the amounts to the supplier, as required Under Section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date agreed upon, at three times of the bank rate notified by the Reserve Bank. By further referring to Section 19 of the Act it is submitted that when an application is filed for setting aside decree, award or order same shall not be entertained by any court unless the Appellant (not being a supplier), has deposited with it 75% of the amount in terms of the decree or award. The said benefits are conferred, in view of the beneficial objects of the Act, to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration with least court intervention. Clause 11 of the Bill, by which Sub-section (2A) was proposed to be inserted, states that Sub-section (2A) was intended to give an opportunity to the Respondent, in support of his case, to submit counter-claim or a set-off if such counterclaim or set-off falls within the scope of arbitration agreement. When Section 18(3) makes it clear that in the event of failure by the Council Under Section 18(2) if proceedings are initiated Under Section 18(3) of the 1996 Act(sic 2006), the provisions of 1996 Act are not only made applicable but specific mention is made to the effect as if the arbitration was in pursuance to an arbitration agreement referred to in Sub-section (1) of Section 7 of the 1996 Act. When there is a provision for filing counter-claim and set-off which is expressly inserted in Section 23 of the 1996 Act, there is no reason for curtailing the right of the Respondent for making counter-claim or set-off in proceedings before the Facilitation Council. 21. It is also further to be noted that if we do not allow the counter-claim made by the buyer in the proceedings arising out of claims made by the seller, it may lead to parallel proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficial 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utory 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. 24. For the aforesaid reasons and on a harmonious construction of Section 18(3) of the 2006 Act and Section 7(1) and Section 23(2A) of the 1996 Act, we are of the view that counter-claim is maintainable before the statutory authorities under MSMED Act. 25. In C.A. Nos. 1620-1622 of 2021, the High Court, while negating the plea of the Appellant, on the maintainability of counter-claim, has allowed the application filed by the Respondent Under Section 11(6) of the 1996 Act and appointed the second arbitrator. Though, we are of the view that counterclaim and set-off is maintainable before the statutory authorities under MSMED Act, Appellant in this set of appeals is not entitled for the relief, for the reason that on the date of supply of goods and services the Appellant did not have the registration by submitting the mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC 529 has held that date of supply of goods/services can be taken as the relevant date, as opposed to date on which contract for supply was entered, for applicability of the aforesaid Act. Even applying the said ratio also, the Appellant is not entitled to seek the benefit of the Act. There is no acceptable material to show that, supply of goods has taken place or any services were rendered, subsequent to registration of Appellant as the unit under MSMED Act, 2006. By taking recourse to filing memorandum Under Sub-section (1) of Section 8 of the Act, subsequent to entering into contract and supply of goods and services, one cannot assume the legal status of being classified under MSMED Act, 2006, as an enterprise, to claim the benefit retrospectively from the date on which Appellant entered into contract with the Respondent. The Appellant cannot become micro or small enterprise or supplier, to claim the benefits within the meaning of MSMED Act 2006, by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods and services. If any registration is obtained, same will be prospective and applies for supply of goods and services subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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