ORDER
Arun Tandon, J.
1. Heard Sri Navin Sinha, learned Senior Advocate assisted by Sri Syed Ali Murtaza, learned Counsel for the petitioner, Sri. P.N. Saxena, learned Senior Advocate assisted by Sri Uma Nath Pandey, learned Counsel for respondent No. 3, and learned Standing Counsel for the State respondents.
2. Petitioner before this Court is a private small scale industrial unit covered under the provisions of the Micro, Small, and Medium Enterprises Development Act, 2006 (hereinafter referred to as the 'Act, 2006'). Petitioner is engaged in manufacturers of, engineering equipments and is stated to have entered into contract with respondent No. 3, M/s. Jay Pee Enterprises for execution of the certain work contract.
3. There exists a dispute between the petitioner and respondent No. 3 qua nature of the work performed under the aforesaid contract. As a consequence thereto, there is a dispute with regard to payment of money in terms of the contract between the parties. Respondent No. 3, who claims itself to be an Enterprise covered by the provisions of Act, 2006,' filed a claim petition before the Industries Facilitation Council, U.P. at Kanpur (for short 'Council'), which was numbered as Claim Petition No. 09 of 2004, claiming a sum of Rs. 9,99,548/- with interest at the rate of 15%, under the provisions of Delayed Payments to Small Scale and Ancillary Industrial Undertaking Act, 1993 (hereinafter referred to as the 'Act, 1993'). Claim petition was contested by the petitioners and they pleaded a counter claim for sum of Rs. 61,90,000/-. Matter was heard and before orders could be passed, Act, 1993 was repealed and substituted by the provisions of Act, 2006 (Micro, Small and Medium Enterprises Development Act, 2006). Despite the enforcement of the Act, 2006, the Council constituted under Act, 1993 proceeded to make an award in the matter dated 19th June, 2007. Petitioner not being satisfied filed writ petition No. 55675 of 2007 before this Court. The writ petition was allowed vide Judgment and order dated 19th November, 2007 and the award made by the Council dated 19th June, 2007 was set aside with following observations:
Counsel for the parties agree that in such a situation the award may be set aside and the matter may be directed to be heard afresh by respondent No. 2, U.P. State Micro and Small Enterprises Facilitation Council, Kanpur which may consider all the objections of the petitioner including his objection regarding jurisdiction of respondent No. 2 and the counter claim filed by the petitioner. Parties would be permitted to raise all contentions and objections available to them under the law before the respondent No. 2.
In view of the aforesaid position, this writ petition is allowed. The award dated 19-6-2007 passed by the respondent. No. 2 is set aside. The respondent No. 2 shall try to decide the case expeditiously and if possible within a period of four months from the date a certified copy of this order is filed before it by either of the parties.
4. The matter was thereafter heard by the Council constituted under Act, 2006 and an award has been made on 4th December, 2008 in favour of respondent No. 3, wherein a total sum of Rs. 16,81,860/- (principal amount Rs. 8,46,387/- plus interest Rs. 8,35,473/-) till the date of award along with future Interest in accordance with the Act on the principal amount till the entire amount with interest is liquidated. A sum of Rs. 15,000/- has also been provided as the cost of the case. It is against this award that the present writ petition has been filed.
5. Learned Counsel for the parties agree that the writ petition may be decided finally at this stage of the proceedings without calling for any further affidavits, in view of the fact that only legal issues have been raised in the present writ petition and no factual controversy is to be examined. Accordingly with the consent of the parties the matter has been heard today by the Court.
6. The award of the Council dated 4th December, 2008 is being questioned before this Court basically on the ground that under the impugned award it has been recorded that the counter claim set up by the petitioner cannot be examined in view of the fact that the arbitration as referred was conferred to the subject matter of recovery of the amount due to the respondent No. 3 i.e. M/s. J.P. Enterprises covered by the provisions of Act, 2006 and no other issue except claim of such Enterprises can be examined by the Arbitrators.
7. A specific issue No. 6 was framed by the Council in respect of the counter claim set up by the petitioner and it has been answered under the impugned award as follows:
6. Whether the council has jurisdiction to entertain and decide the counter claim set up by the respondent?
The respondent has claimed Rs. 61,90,000/- by way of counter claim and has also given the particulars & details of the above amount. Micro, Small and Medium Enterprises Development Act 2006 empowers the council to consider and decide the references made under Section 18 of Act, 27/2006 which is evident from chapter V of the said Act, section 17 specifically deals with recovery of amount due to the Micro, Small and Medium Enterprises only. In this reference it is relevant to mention that the Council has been made under the provisions of the Act, 27/2006 for the particular purposes and object and only 'to facilitate the SSI units. What disputes' can be settled by the Council is well defined in the Act itself as mentioned earlier. As argued by the Petitioner council has no jurisdiction to hear the counter claim, counter claim is adjudicated by civil court or other arbitration as per agreement, this council has only jurisdiction to hear and adjudicate the matter regarding payments to the supplies which were made to the buyer as per Section 17 of the Micro, Small and Medium Enterprises Development Act 2006 and not to decide all the dispute between the parties and also stated that no debit notes ever raised by the respondent and on the contrary to it respondent has acknowledged their liability to pay petitioner a sum of Rs. 2,54,259.90 instead of due payment of Rs. 9, 60, 648 along with interest. The above argument has certainly force under the provisions of the Act, The Council has very limited jurisdiction and the Act never empower the Council to consider and decide the counter claim of buyer. Hence the council holds that counter claim set up by the respondent is liable to be rejected.
8. Learned Counselor the petitioner submits that non-consideration of the counter claim of the petitioner-is based on misreading of the provision of Act, 2006, read with the Arbitration and Conciliation Act, 1996, which provides for, set of, being claimed (counterclaim) in arbitral proceedings. It is, therefore, submitted that the impugned award is patently illegal.
9. On behalf of the respondents, a preliminary objection has, been raised on the ground that the petitioner has two alternative remedies (a) by making an application under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act, 1996') for setting aside the abitral award and (b) by way of appeal under Section 37 of Act, 1996 against the order deciding the issue No. 6, which virtually amounts to an order of the Arbitral Tribunal, holding that the counter claim is outside the scope of the dispute and therefore the order is referable to Section 16(3) of Act, 1996 which is appealable under Section 37(2) of Act, 1996.
10. In the alternative, it is contended that since the arbitral proceedings are under the Act of 2006, the scope of arbitration is limited to the dispute, which has been referred as per Section 18 Of Act, 2006 and no other issue beyond the said reference can be examined by the Arbitrator. The authority of the Council is limited to the adjudication of the reference made under Section 18 of Act, 2006. It is therefore, contended that the award made by the Arbitral Council holding that it has no jurisdiction/authority to entertain the counter claim, is based on true and correct reading of Section 18 of Act, 2006.
11. I have considered the submissions made by the learned Counsel for the parties and have gone through the records of the present writ petition.
12. Preliminary issue with regard to the efficacious statutory alternative remedies being available to the petitioner, may be examined first.
13. For appreciating the aforesaid controversy raised between the parties, it is worthwhile to reproduce to Section-18 of Act, 2006 and Sections 16, 34 and 37 of Act, 1996, which read as follows:
Act, 2006.
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 conduction conciliation and the provisions of Sections 65 - 81 of the Arbitration arid 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 arbitrations refer it to any institution or centre, providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1999 (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.
Act. 1996.
34. Application for setting aside arbitral award.--(1) Recourse to a Court against an arbitral award may be made by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if-
(a) the party making the application furnishes proof that--
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing, such agreement, was not in accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation,--Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
37. Appealable orders.--(1) An appeal Shall lie from the following orders (and from no others) to the court authorised by law to hear appeals from original decrees of the Court passing the order, namely:
(a) granting or refusing to grant any measure under Section 9;
(b) setting aside or refusing to set aside an arbitral award under Section 34,
(2) An appeal shall also lie to a court from an order of the arbitral tribunal--
(a) accepting the plea referred to in sub-section (2) or sub-section (3) of Section 16 or
(b) granting or refusing to grant an interim measure under Section 17.
(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall effect or take away any right to appeal to the Supreme Court.
14. A bare reading of the aforesaid Section 18 of Act, 2006 would demonstrate that if the Conciliation between the parties under Section 18(2) of Act, 2006 fails, the dispute has to be settled between the parties by way of arbitration under Section 18(3) of Act, 2006 by the Council or by way of reference to any institution or centre providing due service for such arbitration and in that circumstances, the provisions of Arbitration and Conciliation Act, 1996 would become applicable. Section 18(3) of Act, 2006 further clarifies that the dispute so referred has to be adjudicated, as if the Arbitration was in pursuance to an arbitration agreement referred to in sub-section (1) of Section 7 of the Act of 1996.
15. For ready reference Section 7(1) of Act, 2006 reads as follows:
7. Arbitration agreement--(1) In this Part, 'arbitration agreement' means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not..
16. The logical consequence of simple reading of Section 18(3) of Act, 2006 in the opinion of the Court is that once the conciliation fails and matter is referred for arbitration, then such proceedings of the arbitration shall be treated to have commenced, as if an arbitration agreement exists between the parties in terms of Section 7(1) of Act, 1996. In respect of arbitration agreement referable to Section 7(1) of Act, 1996, all the provisions of Act, 1996 including the procedure prescribed under Act, 1996 will be become applicable as a whole.
17. It has not been disputed before this Court by the learned Counsel for the parties that in arbitral proceedings, based on arbitration agreement referable to Section 7(1) of Act, 2006, counter claim is permissible to be set up by the defendants for opposing the claim.
18. It is in this legal ground that the issue of efficacious statutory alternative remedies being available to the petitioner may be now considered by this Court for which reference may be had to Section 16 of Act. 1996, which reads as follows:
16. Competence of arbitral tribunal to rule on its jurisdiction.--(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) 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,
(3) A plea that the arbitral, tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be, beyond the scope of its authority is raised during the arbitral proceedings-
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to, in, sub-section (2) or, sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral, award.
(6) A party aggrieved by such an arbitral award may maks an application for setting aside such an arbitral award in accordance with Section 34.
19. A bare reading of Section 16(2)(3) and (5) of Act, 1996 would establish that the arbitrator is required to examine the plea of a matter being outside his jurisdiction and to decide the same before proceeding to make the award. When such order is passed before the award is made, an appeal under Section 37(2) of Act, 1996 has been provided. But in case where the award is made simultaneously while adjudicating upon the issue of a particular matter being outside the scope of the arbitral proceedings, or when the appeal is not filed against the order and final award is made, then the remedy made available to the person aggrieved is under Section 16(6) i.e. by way of an application for setting aside the award as per Section 34 of Act, 1996.
20. What follows from the aforesaid Section is that if an issue with regard to the matter being within or outside the dispute of arbitral proceedings is decided before making of the award by the Arbitrator, then such order to that extent can be challenged under Section 37(2) by way of Appeal by the person aggrieved. But in case the arbitral proceedings are continued even after the issue decided and or the award is made subsequently or simultaneously then the remedy available to the person aggrieved in respect of the aforesaid issue also would be by challenging the award as a whole under Section 34 of Act, 1996. In that circumstance appeal against part of the award, where under particular issue with regard to the jurisdiction of the arbitrator to examine a particular issue, cannot be independently challenged under Section 37 of Act, 1996. Inasmuch as what is contemplated by Section 16(6) is that once is made, all issues decided therein can be challenged by making an application under Section 34 of Act, 1996 as a whole. Therefore, I am of the considered opinion that it is only when during arbitral proceedings, an issue referable to Section 16(2) & (3) of Act, 1996 is decided before making of the award that it can be challenged independently by way of appeal under Section 37 of Act, 1996.
21. In the facts of the present case, it is an admitted position that the award has been made simultaneously, while deciding the issue, qua the counter claim being outside the scope of the arbitral proceedings. Therefore, in the opinion of the Court, no remedy under Section 37 of Act, 1996 is available in the facts of the case.
22. The other remedy of making an application under Section 34 of Act, 1996 for setting aside the award need be examined now. It is no doubt true that the Hon'ble Supreme Court has held that if the order of the arbitral council is patently illegal, it will be in violation of public policy and can, therefore, be challenged under Section 34 of Act, 1996. (Reference Oil Natural Gas Corporation Ltd. v. SAW Pipes Ltd. reported in : AIR 2003 SC 2629 and Mcdermott International Inc. v. Burn Standard Co. Ltd. reported in : (2006) 11 SCC 181 : 2006 AIR SCW 3276. Therefore, it can be said that a remedy under the provisions of Act, by way of an application under Section 34 for setting aside the award is available. However, in the facts of the present case the Court Is of the considered opinion that the bar of alternative remedy may not be invoked and this Court may not insist upon the petitioner to exhaust the alternative remedy for the following reasons:
On an earlier occasion, while deciding the Civil Misc. Writ Petition No. 55675 of 2007 in respect of the same dispute, this Court had provided under its Judgment and order dated 19th November, 2007 that counter claim set up by the petitioner be also examined by the Arbitral Council. Despite the aforesaid the Arbitral Council has refused to examine the plea of counter claim set up by the petitioner for the reasons, which have been recorded while deciding issue No. 6 as-quoted above. The Court has to examine as to whether in the facts of the present case under the provisions of Act, 2006 consideration of the counter claim in arbitral proceedings initiated under Section 18(3) will be outside the scope of arbitral proceedings or not. This being purely a legal issue based on interpretation of the provisions of Act, 2006, read with Act, 1996, shall effect large number of similar arbitral proceedings, which are initiated under Section 18 of Act, 2006. A pronouncement on the issue by this Court would be in the interest of justice. Therefore, this Court feels that in this case, the issue of counter claim being within the scope of arbitral proceedings before the Arbitral Council under Section 18 of Act, 2006 need to be settled by this Court instead of insisting upon the petitioner to approach the Authority under Section 34 of Act, 1996. Such legal issues need to be settled by the Hon'ble High Court of the State at the earliest possible instead of permitting it to be agitated before authorities below and thereafter being re-examined by this Court, inasmuch as it is in the interest of the parties that the litigation be shortened.
23. In view of the aforesaid, I proceed to examine the issue on merits and I hold that exhaustion of statutory remedy in the facts of the present case may not be insisted upon.
24. This Court now proceeds to examine the issue on merit. As already noticed herein above, from the simple reading of Section 18(3) of Act, 2006, it is apparently clear that arbitral proceedings commence after conciliation has failed, and it is to be treated as they are in pursuance to an arbitration agreement between the parties as per sub-section (1) of Section 7 of the Act, 1996. Provisions of Act, 1996 will therefore, apply as a whole including the provisions for counter claim. What logically follows is that arbitral proceeding in respect of a dispute, referred to in sub-section (3) of Section 18 by virtue of Section 7(1) of the Act, 1996 would be tried and decided as if a reference made under the provisions of Act, 1996. Since the counter claim can be pleaded by respondent in an arbitral proceedings under Act, 1996, it follows that in arbitral proceedings made under Section 18 of Act, 2006, such counter claim can also be set up before the Arbitral Council by the respondent.
25. In view of the aforesaid, the finding recorded in respect of issue No. 6 by the Arbitral Council impugned in the present writ petition cannot be legally sustained as it is based on non-consideration of the specific language of Section 18(3) of Act, 2006 read with Section 7(1) of Act, 1996. As a consequence thereto the award challenged in the present writ petition dated 4th December, 2008 also cannot be legally sustained. The award dated 4th December, 2008 is hereby quashed and the matter is remanded to the Arbitral Council for decision afresh after considering the counter claim set up by the petitioner.
26. It is made clear that this Court has not examined the merits of the counter claim set up the petitioner in any manner and it is for the Arbitral Council to examine the same on merits having due regard to the objections, which may be raised in respect thereto by the claimant. Proceedings before the Arbitral Council, after remand may be completed in light of the observations made above, at the earliest possible, preferably, within four months from the date a certified copy of this order is filed before it.
27. The writ petition is allowed subject to the observations made above.