$-14 * IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision:
24. h July, 2018 + O.M.P. (T) (COMM.) 5/2018 & IA7472018 INDIAN RAILWAY WELFARE ORGANISATION ........ Petitioner
Through: Mr.A.K.Tewari, Mr.Vikramaditya Singh, Advs. versus CREATIVE CONSORTIUM ..... Respondent Through: Ms.Gurkamal Hora Arora, Ms.S.Jain, Advs. CORAM: HON'BLE MR. JUSTICE NAVIN CHAWLA NAVIN CHAWLA, J.
(Oral) 1. This petition has been filed by the petitioner under Section 15 read with Section 14(2) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) seeking a declaration that the Arbitrator appointed by the Haryana Micro and Small Enterprises Facilitation Council vide letter dated 16.08.2017 is ‘de jure’ unable to perform his functions and for appointment of the Arbitral Tribunal in terms of the Arbitration Agreement between the parties contained in the Agreement dated 30th April, 2008 executed between the parties. By way of the said Agreement, the petitioner had appointed the respondent as an Architect for the proposed Rail Nagar Group Housing Project on Rectangle No.23 and 27, Village Raipur, Sector- OMP(T)(COMM.)5/2018 Page 1 10, Sonepat, Haryana.
2. The Arbitration Agreement is in Clause 12 of the above Agreement and is reproduced hereinbelow:-
"“12.0 ARBITRATION121 In the event of any dispute in interpretation of terms of the agreement, or difference of opinion between the parties hereto, arising out of or in connection with this agreement either party shall give notice in writing of the existence of such question, dispute or difference and the same shall be referred to the adjudication of an arbitrator who will be appointed by the Managing Director, IRWO. The award of the Arbitrator shall be final and binding on both the parties. The venue of all such arbitration shall be at Delhi. 12.2 Any dispute arising out of this contract will be in the Jurisdiction of Delhi courts.” 3. Disputes having arisen between the parties, the respondent approached the Haryana Micro and Small Enterprises Facilitation Council under The Micro, Small and Medium Enterprises Development Act, 2006(hereinafter referred to as the ‘MSMED Act’).
4. The Facilitation Council started conciliation proceedings under Section 18(2) of the MSMED Act, however, the same failed and by a subsequent order dated 16th August, 2017, the Facilitation Council, rejecting the objections of the petitioner, decided to refer the disputes between the parties to the empanelled Arbitrator. The Facilitation Council, thereafter appointed Mr.R.P.Bhasin, Former District and Sessions Judge as the Sole Arbitrator for adjudicating the disputes that have arisen between the parties. OMP(T)(COMM.)5/2018 Page 2 5. The petitioner has filed the present petition challenging the appointment of the Arbitrator by the Facilitation Council on the ground that in terms of the Arbitration Agreement between the parties, the power to appoint an Arbitrator has been conferred on the Managing Director of the petitioner and, therefore, the Facilitation Council could not have appointed an Arbitrator in terms of the Act.
6. Before considering the above submission of the counsel for the petitioner, it would be relevant to take note of certain provisions of the MSMED Act which are reproduced hereinbelow:-
"“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 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 provisions of OMP(T)(COMM.)5/2018 Page 3 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.” xxxxxxxx 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. In terms of Section 18(3) of the MSMED Act, upon failure of the Conciliation proceedings, it is the Council which shall either itself take up the dispute for arbitration or refer the same to any institution or centre providing Alternate Dispute Resolution Services for such arbitration. Sub-section 4 of Section 18 further provides that ‘notwithstanding anything contained in any other law for the time being in force’, it is the Facilitation Council or the centre providing Alternate Dispute Resolution Services, which shall have jurisdiction to act as an Arbitrator under the said Section in a dispute between a supplier located within the jurisdiction of such Council and a buyer located anywhere in India. Section 24 further provides for an overriding effect of the provisions of Sections 15 to 23 of the MSMED Act, to take effect notwithstanding anything inconsistent therewith, contained in any other law for the time being in force.
8. MSMED Act, being a Special Act and especially in light of OMP(T)(COMM.)5/2018 Page 4 sections 18(4) and 24 of the Act, would prevail over the general statute, which is the Arbitration and Conciliation Act, 1996. In any case, the appointment procedure contained in the Arbitration Agreement between the parties cannot override the statutory mandate as contained in Section 18(3) of the MSMED Act which provides that only the Council or a Centre providing Alternate Dispute Resolution Services appointed by the Council shall act as an Arbitrator.
9. In Paper and Board Convertors vs. U.P. State Micro and Small Enterprises, MANU/UP/1087/2014, the Allahabad High Court, upon considering the provisions of MSMED Act has held as under:-
"“9. Certain salient aspects of Section 18 would merit emphasis, Sub-section (1) of Section 18 provides for a reference to the Micro and Small Enterprises Facilitation Council notwithstanding anything contained in any other law for the time being in force, by any party to a dispute, with regard to any amount due under Section 17. Consequently, what Section 18(1) does, is to stipulate a statutory reference to the Facilitation Council for the resolution of disputes. Under sub- Section (2), on receipt of a reference, the Council shall either conduct a conciliation in the matter itself or seek assistance of any institution or centre providing alternate dispute resolution services. Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 are to apply to such a dispute. Sub-section (3) provides for the consequences if the conciliation is not successful. Once the conciliation proceeding is terminated without any settlement, the Council has one of two courses of action open. The Council may either itself take up the dispute for arbitration or refer the dispute to an institution or centre providing alternate dispute resolution services for such arbitration. Thereupon the provisions of the Arbitration and Conciliation Act, 1996 apply as if the arbitration was in accordance with the provisions of Section 7(1) of the Act of 1996. Sub-section (3) of Section 18, therefore, contains a OMP(T)(COMM.)5/2018 Page 5 statutory reference to arbitration. This is not dependent on the existence of an arbitration agreement in the contract between the parties.
10. Under sub-section (4) of Section 18, this position is made abundantly clear because it stipulates that notwithstanding anything contained in any other law for the time being in force, the Facilitation Council or the Centre providing alternate dispute resolution service shall have jurisdiction to act as an arbitrator or Conciliator under this section in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India.
11. The petitioner invoked the provisions of the 2006 Act by filing a reference to the Facilitation Council on 3 October 2011. There was undoubtedly a dispute between the petitioner and the respondents in regard to the claim of the petitioner arising out of non payment of its bills. The respondents appointed a sole arbitrator on 5 October 2011 after the petitioner had invoked the intervention of the Facilitation Council on 3 October 2011 under Section 18 of the 2006 Act. Once the jurisdiction of the Facilitation Council has been validly invoked, the Council has exclusive jurisdiction to enter upon conciliation in the first instance and after conciliation has ended in failure, to refer the parties to arbitration. The Facilitation Council could either have conducted the arbitration itself or could have referred the parties to a centre or institution providing alternate dispute resolution services. The Facilitation Council was clearly in error in entertaining the objection filed by the respondents and referring the petitioner to the sole arbitrator so designated by the respondents.
12. The non-obstante provision contained in sub-section (1) of Section 18 and again in sub-section (4) of Section 18 operates to ensure that it is a Facilitation Council which has jurisdiction to act as an arbitrator or Conciliator in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India. The Facilitation Council had only one of the two courses of action open to it : either to conduct an arbitration itself or to refer the parties to a centre or institution providing alternate dispute resolution services stipulated in OMP(T)(COMM.)5/2018 Page 6 sub-section (3) of Section 18.” 10. I am in full agreement with the view expressed by the Allahabad High Court. Once the provisions of the MSMED Act have been invoked by the respondent, which it was entitled to do, it is only the Facilitation Council or a centre or institution providing Alternate Dispute Resolution Services nominated by the Facilitation Council, which can act as an Arbitrator for adjudicating the disputes that have arisen between the parties. The Facilitation Council having nominated the Arbitrator for the conduct of the arbitration proceedings itself, has acted in accordance with the mandate of the MSMED Act and such appointment cannot be challenged by taking recourse to the provisions of Section 14 of the Act.
11. This Court has also considered the provisions of the MSMED Act in GE T&D India Ltd. vs. Reliable Engineering Projects & Marketing (2017) 238 DLT79and has held that the MSMED Act, to the extent it provides for a special forum for adjudication of the disputes involving a ‘supplier’ registered thereunder, overrides the Arbitration and Conciliation Act, 1996; the parties by a private contract cannot make the provisions of MSMED Act inapplicable to themselves.
12. Reliance of the counsel for the petitioner on the judgment of the Bombay High Court in M/s Steel Authority of India Ltd. & Anr. vs. Micro, Small Enterprise Facilitation Council AIR2012Bom 178 is ill-founded. The Bombay High Court in the said judgment was answering a submission made before it that where there is an OMP(T)(COMM.)5/2018 Page 7 independent arbitration agreement in existence between the parties, the Council had no jurisdiction under Section 18 of the Act either to conduct conciliation or to enter upon the reference for the purpose of arbitration. It was held that as under Section 18(3) of the Act, the arbitration conducted by the Facilitation Council or by an institution or centre providing Alternate Dispute Resolution Services is also to be held under the provisions of the Arbitration and Conciliation Act, 1996, there was nothing inconsistent between the two Acts as far as the conduct of arbitration is concerned. The Bombay High Court was not considering an issue as to whether appointment of an Arbitrator by the Facilitation Council in exercise of its power under Section 18(3) of the Act would be null and void.
13. In view of the above, I find no merit in the present petition and the same is accordingly dismissed with no order as to costs. The Interim Order dated 17.01.2018 stands vacated. JULY24 2018 RN NAVIN CHAWLA, J.
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