India Glycols Limited And Another Vs Micro And Small Enterprises Facilitation Council (Supreme Court of India)
The Supreme Court granted leave and considered an appeal arising from proceedings initiated by the second respondent, M/s S R Technologies (Unit II), before the Micro and Small Enterprises Facilitation Council, Medchal–Malkajgiri under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). The Facilitation Council, by its award dated 28.10.2021, allowed the claim for the principal amount of Rs. 40,29,862 and awarded interest with monthly rests at three times the prevailing bank rate under Section 16 of the MSMED Act from the appointed day until final payment.
The appellant challenged the award by filing a writ petition under Articles 226 and 227 of the Constitution before the High Court of Telangana. By judgment dated 14.09.2022, the learned Single Judge allowed the writ petition and set aside the award on the ground that the claim was barred by limitation. In appeal, the Division Bench, by judgment dated 21.03.2023, reversed the decision of the Single Judge and held that the writ petition was not maintainable in view of the specific statutory remedies available under the MSMED Act and the Arbitration and Conciliation Act, 1996. The Division Bench observed that the appellant ought to have challenged the award by invoking Section 34 of the Arbitration and Conciliation Act, 1996 and that the writ petition should not have been entertained. Although it held the writ petition to be not maintainable, the Division Bench also considered the issue of limitation and concluded, following Gujarat State Civil Supplies Corporation Limited vs Mahakali Foods Private Limited (Unit 2) and Another, that the claim was time-barred.
Before the Supreme Court, the Court examined the statutory framework under Sections 18 and 19 of the MSMED Act. It noted that Section 18 provides for reference of disputes to the Facilitation Council, conciliation proceedings, and, upon failure of conciliation, arbitration by the Council or by an institution or centre providing alternative dispute resolution services. Section 18(3) further provides that the Arbitration and Conciliation Act, 1996 applies to such arbitration as if it were conducted pursuant to an arbitration agreement under Section 7(1) of that Act. The Court also examined Section 19 of the MSMED Act, which stipulates that an application for setting aside an award of the Facilitation Council cannot be entertained unless the appellant, other than the supplier, deposits seventy-five per cent of the amount awarded. The Court observed that Section 19 imposes an additional statutory condition to secure the interests of enterprises covered by the MSMED Act.
The Supreme Court referred to Gujarat State Civil Supplies Corporation Limited vs Mahakali Foods Private Limited (Unit 2) and Another, wherein it had been held that proceedings before the Facilitation Council acting as an arbitrator under Section 18(3) of the MSMED Act are governed by the Arbitration and Conciliation Act, 1996. The Court observed that the appellant had failed to avail the statutory remedy under Section 34 of the Arbitration and Conciliation Act and had instead sought to bypass the statutory mechanism by invoking the writ jurisdiction under Articles 226 and 227 of the Constitution. The Court held that such recourse was impermissible.
The appellant contended that the Facilitation Council’s view that the Limitation Act, 1963 had no application was perverse and that this justified exercise of writ jurisdiction. The Supreme Court rejected the submission, holding that Section 18 of the MSMED Act provides a statutory remedy against an award under the Arbitration and Conciliation Act, 1996, subject to compliance with the pre-deposit requirement under Section 19. The Court held that entertaining a writ petition to avoid compliance with the statutory requirement of pre-deposit would defeat the object and purpose of the special legislation enacted by Parliament.
The Court affirmed the Division Bench’s conclusion that the writ petition challenging the award of the Facilitation Council was not maintainable. It further held that, after arriving at that conclusion, it was unnecessary for the High Court to examine the merits of the dispute, including the issue of limitation, arising from the award of the Facilitation Council.
The appellant further requested that, if proceedings were initiated under Section 34 of the Arbitration and Conciliation Act, 1996, they should be directed to be disposed of expeditiously. The Supreme Court declined to issue any such direction, observing that having found the remedy adopted by the appellant to be misconceived, it was unnecessary to make any observation regarding future proceedings. The Court clarified that, if the appellant were to institute proceedings under Section 34, it would be open to the second respondent to raise all objections available in law. The appeal was accordingly disposed of, and pending applications, if any, also stood disposed of.
Cases Discussed
- Gujarat State Civil Supplies Corporation Limited vs Mahakali Foods Private Limited (Unit 2) and Another (Supreme Court), (2023) 6 SCC 401
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Leave granted.
2. The second respondent, M/s S R Technologies (Unit II), which is governed by the provisions of the Micro Small and Medium Enterprises Development Act 20061, filed a claim before the Micro and Small Enterprises Facilitation Council, Medchal – Malkajgiri.
3. On 28 October 2021, the Facilitation Council decreed the claim in the principal sum of Rs 40,29,862, on which interest with monthly rests at three times the bank rate prevailing as on the date of the award was granted under Section 16 from the appointed day till final payment.
4. The award of the Facilitation Council was challenged in a petition under Articles 226/227 of the Constitution. By a judgment and order dated 14 September 2022, a Single Judge of the High Court of Telangana allowed the writ petition and set aside the award on the ground that the claim was barred by limitation.
5. In an appeal by the second respondent, the Division Bench by its judgment dated 21 March 2023, reversed the view of the Single Judge. The Division Bench has come to the conclusion that the writ petition instituted by the appellant was not maintainable in view of the specific remedies which are provided under the special statute. The High Court held that the appellant ought to have taken recourse to the remedy under Section 34 of the Arbitration and Conciliation Act 19962 and having failed to do so, a writ petition could not be entertained. The observations of the High Court are set out in paragraph 38 of the impugned judgment which is extracted below:
“38. Insofar maintainability of the writ petition is concerned, when respondents No.2 and 3 had an adequate, efficacious and alternate remedy under Section 34 of the 1996 Act, learned Single Judge ought not to have entertained the writ petition. While maintainability of a writ petition is one aspect, entertainability is the relevant question. Considering the objective of the MSME Act and the provisions of Sections 15 to 23 thereof, learned Single Judge erred in entertaining the writ petition.
6. Having held that the petition was not maintainable, the High Court has nonetheless inquired into whether the claim was barred by the limitation and has come to the conclusion, following the decision of this Court in Gujarat State Civil Supplies Corporation Limited vs Mahakali Foods Private Limited (Unit 2) and Another3, that the claim was time barred.
7. We have heard Mr Parag P Tripathi, senior counsel appearing on behalf of the appellant and Dr S Muralidhar, senior counsel appearing on behalf of the second respondent.
8. Section 184 of the MSMED Act provides for a reference to the Facilitation Council. Sub-section (2) of Section 18 provides for the conduct of conciliation proceedings. Sub-section (3) empowers the Council to thereafter take up the dispute for arbitration or to refer it to an institution or centre providing for Alternative Dispute Resolution services “for such arbitration”. Sub-section (3) of Section 18 stipulates that the provisions of the Act 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”.
9. Section 19 provides recourse against an award of the Facilitation Council in the following terms:
“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.”
10. In terms of Section 19, an application for setting aside an award of the Facilitation Council cannot be entertained by any court unless the appellant has deposited seventy-five per cent of the amount in terms of the award. In view of the provisions of Section 18(4), where the Facilitation Council proceeds to arbitrate upon a dispute, the provisions of the Act of 1996 are to apply to the dispute as if it is in pursuance of an arbitration agreement under sub-section (1) of Section 7 of that Act. Hence, the remedy which is provided under Section 34 of the Act of 1996 would govern an award of the Facilitation Council. However, there is a super added condition which is imposed by Section 19 of MSMED Act 2006 to the effect that an application for setting aside an award can be entertained only upon the appellant depositing with the Council seventy-five per cent of the amount in terms of the award. Section 19 has been introduced as a measure of security for enterprises for whom a special provision is made in the MSMED Act by Parliament. In view of the provisions of Section 18(4), the appellant had a remedy under Section 34 of the Act of 1996 to challenge the award which it failed to pursue.
11. In the judgment of this Court in Gujarat State Civil Supplies Corporation Limited (supra), a two-Judge Bench of the Court has observed, in the course of drawing its conclusions, that:
“The proceedings before the Facilitation Council/institute/centre acting as an arbitrator/Arbitral Tribunal under Section 18(3) of the MSMED Act 2006 would be governed by the Arbitration Act, 1996.”
12. The appellant failed to avail of the remedy under Section 34. If it were to do so, it would have been required to deposit seventy-five per cent of the decretal amount. This obligation under the statute was sought to be obviated by taking recourse to the jurisdiction under Articles 226/227 of the Constitution. This was clearly impermissible.
13. For the above reasons, we are in agreement with the view of the Division Bench of the High Court that the writ petition which was instituted by the appellant was not maintainable.
14. Mr Parag P Tripathi, senior counsel appearing on behalf of the appellant sought to urge that the view of the Facilitation Council to the effect that the provisions of the Limitation Act 1963 have no application, which has been affirmed by the Division Bench in the impugned judgment, suffers from a perversity, and hence a petition under Article 226 of the Constitution ought to have been entertained. We cannot accept this submission for the simple reason that Section 18 of the MSMED Act 2006 provides for recourse to a statutory remedy for challenging an award under the Act of 1996. However, recourse to the remedy is subject to the discipline of complying with the provisions of Section 19. The entertaining of a petition under Articles 226/227 of the Constitution, in order to obviate compliance with the requirement of pre-deposit under Section 19, would defeat the object and purpose of the special enactment which has been legislated upon by Parliament.
15. For the above reasons, we affirm the decision of the Division Bench by holding that it was justified in coming to the conclusion that the petition under Articles 226/227 of the Constitution instituted by the appellant was not maintainable. Hence, it was unnecessary for the High Court, having come to the conclusion that the petition was not maintainable, to enter upon the merits of the controversy which arose before the Facilitation Council.
16. Mr Parag P Tripathi, senior counsel then submitted that the appellant would move proceedings under Section 34 of the Act of 1996 and this Court may direct that they may be disposed of expeditiously. Having come to the conclusion that the remedy which was adopted by the appellant was thoroughly misconceived, it is not necessary for this Court to make any observation on what course of action should be adopted by the appellant. Were the appellant at this stage to take recourse to the proceedings under Section 34 of the Act of 1996, it would be open to the second respondent to object on all counts which are available in law.
17. For the above reasons, we affirm the impugned judgment of the High Court of Telangana dated 21 March 2023 by affirming the finding that the petition which was instituted by the appellant to challenge the award of the Facilitation Council was not maintainable, in view of the provisions of Section 34 of the Act of 1996.
18. The appeal is accordingly disposed of.
19. Pending applications, if any, stand disposed of.
Notes:
1 “MSMED Act”
2 “Act of 1996”
3 (2023) 6 SCC 401
4 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 it to 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 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.
