# Bata India Ltd. & Anr v. U.P. State Micro & Small Entp. Facilitation Council & Anr

- **Citation:** (2023) 8 ILRA 1133
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2023-05-31
- **Case number:** Writ-C No. 27768 of 2019
- **Bench:** Mahesh Chandra Tripathi, Manjive Shukla
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/bata-india-ltd-anr-v-u-p-state-micro-small-entp-facilitation-council-anr-50510
- **Pages:** 23

## Headnote

Civil Law - Micro, Small and Medium
Enterprises Development Act, 2006 -
Sections 18(3) & 24 - Arbitration and
Conciliation Act, 1996 - Section 80 -
Overriding
Effect
of
MSMED
Act
-
Facilitation
Council's
Jurisdiction
to
Arbitrate - Prohibition under Section 80 -
Applicability

Held: The Micro, Small and Medium Enterprises
Development Act, 2006 (MSMED Act), being a
special legislation, overrides the provisions of
the Arbitration and Conciliation Act, 1996, by
virtue of Section 24. The Facilitation Council,
under Section 18(3) of the MSMED Act, has
absolute discretion to either arbitrate the
dispute itself or refer it to an institution
providing alternate dispute resolution services,
notwithstanding the prohibition under Section
80 of the Arbitration and Conciliation Act, 1996,
which bars a conciliator from acting as an
arbitrator. The Supreme Court's decision in
Gujarat St. Civil Supplies Corporation Ltd. Vs
Ramkrishna Foods Pvt. Ltd. (2022 SCC OnLine
SC 1492) and the Division Bench judgment of
the Allahabad High Court in Writ - C No. 7785 of
2020 affirm that the Facilitation Council, having
acted as a conciliator, is not barred from
arbitrating the dispute under Section 18(3). The
Council's composition as a statutory body with
expert members negates concerns of bias, and
its jurisdiction to arbitrate is not affected by an
independent arbitration agreement between the
parties. The orders of the Facilitation Council
dated 11.6.2019 and 24.7.2019, deciding to
arbitrate the dispute itself, were upheld as legal
and valid. The petitioners' argument that the
dispute should be referred to the Delhi
International Arbitration Centre for its expertise
was rejected, as the Facilitation Council is
equipped with experts to handle such disputes.

Writ petition dismissed.

Case Law Discussed:

## Text

_Characters 0–39,914 of 80,479. This is a partial read: ask again with offset=39914 for what follows._

8 All. Bata India Ltd. & Anr. Vs. U.P. State Micro & Small Entp. Facilitation Council & Anr.
1133
on 14/15.06.2019 towards compounding
fee to save itself from criminal prosecution.
The contention, therefore, has no merit and
is rejected.

32. The petition is dismissed.
----------
(2023) 8 ILRA 1133
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 31.05.2023

BEFORE

THE HON'BLE MAHESH CHANDRA
TRIPATHI, J.
THE HON'BLE MANJIVE SHUKLA, J.

Writ-C No. 27768 of 2019

Bata India Ltd. & Anr. ...Petitioners
Versus
U.P. State Micro & Small Entp. Facilitation
Council & Anr. ...Respondents

Counsel for the Petitioners:
Sri Chandra Bhan Gupta, Sri Neeraj Grover

Counsel for the Respondents:
Sri Ashok Kumar Singh, Sri Ashok Kumar Singh,
Sri Sujeet Kumar, Sri Anil Kumar Mehrotra, Sri
Srijan Mehrotra

Civil Law - Micro, Small and Medium
Enterprises Development Act, 2006 -
Sections 18(3) & 24 - Arbitration and
Conciliation Act, 1996 - Section 80 -
Overriding
Effect
of
MSMED
Act
-
Facilitation
Council's
Jurisdiction
to
Arbitrate - Prohibition under Section 80 -
Applicability

Held: The Micro, Small and Medium Enterprises
Development Act, 2006 (MSMED Act), being a
special legislation, overrides the provisions of
the Arbitration and Conciliation Act, 1996, by
virtue of Section 24. The Facilitation Council,
under Section 18(3) of the MSMED Act, has
absolute discretion to either arbitrate the
dispute itself or refer it to an institution
providing alternate dispute resolution services,
notwithstanding the prohibition under Section
80 of the Arbitration and Conciliation Act, 1996,
which bars a conciliator from acting as an
arbitrator. The Supreme Court's decision in
Gujarat St. Civil Supplies Corporation Ltd. Vs
Ramkrishna Foods Pvt. Ltd. (2022 SCC OnLine
SC 1492) and the Division Bench judgment of
the Allahabad High Court in Writ - C No. 7785 of
2020 affirm that the Facilitation Council, having
acted as a conciliator, is not barred from
arbitrating the dispute under Section 18(3). The
Council's composition as a statutory body with
expert members negates concerns of bias, and
its jurisdiction to arbitrate is not affected by an
independent arbitration agreement between the
parties. The orders of the Facilitation Council
dated 11.6.2019 and 24.7.2019, deciding to
arbitrate the dispute itself, were upheld as legal
and valid. The petitioners' argument that the
dispute should be referred to the Delhi
International Arbitration Centre for its expertise
was rejected, as the Facilitation Council is
equipped with experts to handle such disputes.

Writ petition dismissed.

Case Law Discussed:

1. Gujarat St. Civil Supplies Corp. Ltd. Vs
Ramkrishna Foods Pvt. Ltd., 2022 SCC OnLine
SC 1492.

2. Gujrat St. Petronet Ltd. Vs Micro and Small
Enterprises Facilitation Council, Writ Petition No.
5459 of 2015 (Bombay High Court, 06.08.2018)
(partly set aside by Supreme Court).

3. Principal Chief Engineer Vs Mani Bhai and
Brothers (Gujarat High Court), affirmed by
Supreme Court in SLP No. 17434/2017.

4. Writ - C No. 7785 of 2020 (Allahabad High
Court, 03.03.2020).

5. Silpi Industries (Supreme Court) - on supplier
registration under MSMED Act.

(Delivered by Hon'ble Manjive Shukla, J.)

1. Heard Mr. Neeraj Grover and Mr.
Chandra Bhan Gupta, learned counsel for
1134 INDIAN LAW REPORTS ALLAHABAD SERIES
the petitioners, Mr. Anil Kumar Mehrotra
assisted by Mr. Srijan Mehrotra, learned
counsel for Respondent No. 2.

2. Petitioners by filing this writ petition
have challenged the order dated 11.6.2019
passed by U.P. State Micro and Small
Enterprises
Facilitation
Council
(hereinafter referred to as the 'Council'),
whereby the decision has been taken that in
view of Section 18(3) of the Micro, Small
and Medium Enterprises Development Act,
2006 (hereinafter referred to as the 'Act of
2006'), the Council itself will arbitrate the
dispute in between the petitioners and
Respondent No.2. Petitioners have also
challenged the order dated 24.7.2019
passed by the Council whereby the
petitioners' representation pursuant to order
dated 2.7.2019 passed by Delhi High Court
in Arbitration Petition No.402/2019, for
referring the arbitration between petitioners
and Respondent No.2 to any institution or
centre
providing
alternate
dispute
resolution services, has been rejected.

Brief facts of the Case

3. Brief facts of the case are that
Petitioner No.1 is a company incorporated
under Indian Companies Act, 1930 and is
India's
largest
retailer
and
leading
manufacturer of footwear and accessories.
Petitioner
No.1
in
addition
to
manufacturing its goods in its own factories
also appoint various manufacturers during
the course of its business for manufacturing
certain goods for its retail sales as well as
for institutional supply including the supply
to various government organizations.

4.

Respondent
No.2
-
AVS
International Private Limited is a company
incorporated under the Companies Act,
1956 and is also manufacturer of footwear.
Petitioner No.1 and Respondent No.2
entered into an agreement on 7.1.2016 for
supply of goods by Respondent No.2 to the
petitioners. The said agreement was valid
for a period of one year and thereafter, a
fresh agreement was entered into in
between Petitioner No.1 and Respondent
No.2 on 10.1.2017 and under the said
agreement Respondent No.2 agreed to
manufacture and supply the footwear to the
petitioners who were having rate contract
with the Government of India to supply the
footwear to Indian Navy. Respondent No.2
in the aforesaid agreement was under
obligation to supply the footwear as per the
terms of the rate contract in between
Petitioner No.1 and Government of India.

5. Petitioners in the writ petition have
pleaded that Respondent No.2 committed
several breaches of the terms of the
manufacturing agreement and the purchase
order regarding timely delivery of goods
and further several issues were raised by
the Indian Navy regarding inferior quality
and defective supply of the footwear
manufactured and supplied by Respondent
No.2. It has been further pleaded in the writ
petition that due to aforesaid reasons Indian
Navy rejected the goods thrice and levied
late delivery penalty which, as per the
agreed terms, was to be borne by
Respondent
No.2
and
as
such,
the
petitioners deducted such charges from the
amount payable to Respondent No.2.

6. Respondent No.2 raised demand
regarding its pending amounts through
various
legal
notices
and
thereafter,
petitioners and Respondent No.2 attempted
to resolve the disputes amicably amongst
themselves.

7. Respondent No.2 is a registered
Micro, Small and Medium Enterprise and
8 All. Bata India Ltd. & Anr. Vs. U.P. State Micro & Small Entp. Facilitation Council & Anr.
1135
as such, the provisions of the Act of 2006
are applicable to it.

8. Respondent No.2, in the aforesaid
circumstances, approached to U.P. State
Micro and Small Enterprises Facilitation
Council at Kanpur Nagar by filing Claim
Petition No.58 of 2019. The Council while
entertaining the aforesaid claim petition
issued conciliation notice to petitioners in
exercise of its powers under Section 18(2)
of the Act of 2006 for joining conciliation
proceedings on 21.5.2019. Petitioners'
representative and the representative of
Respondent
No.2
appeared
in
the
conciliation proceedings before the Council
on 21.5.2019 and the Council was apprised
that parties themselves are negotiating for a
settlement and for that reason the Council
granted one month's time to the parties to
conclude negotiations. However, the parties
could not arrive at the settlement and
petitioners
decided
to
terminate
the
conciliation proceedings as per Section
76(4) of Arbitration and Conciliation Act,
1996 (hereinafter referred to as the 'Act of
1996).

9. Since there was provision for
arbitration
under
Clause
25
of
the
agreement
entered
into
in
between
Petitioner No.1 and Respondent No.2, as
such petitioners filed the petition under
Section 11(6) of the Act of 1996 before
Delhi High Court for appointment of
Arbitrator.
Petitioners
also
informed
regarding
termination
of
conciliation
proceedings with Respondent No.1 to the
Council in aforementioned Claim Petition
No.58 of 2019. The Council again issued a
notice on 6.6.2019 to the parties for
conciliation proceedings on 11.6.2019.
Petitioners'
authorized
representative
attended the proceedings on 11.6.2019
before the Council and apprised the
Council that petitioners have already
approached Delhi High Court for reference
of the dispute between petitioners and
Respondent
No.2
for
institutional
arbitration through the Delhi International
Arbitration Centre under the aegis of Delhi
High Court and further requested the
Council
to
formally
terminate
the
conciliation proceedings pending before it.
The Council passed an order dated
11.6.2019
whereby
exercising
powers
under Section 18(3) of the Act of 2006 the
Council itself decided to arbitrate the
dispute
in
between
petitioners
and
Respondent No.2.

10. Petitioners, in the aforesaid
circumstances, again approached to Delhi
High Court by filing I.A. No.8574 of 2019
in Arbitration Petition No.402 of 2019. The
Vacation Bench of Delhi High Court issued
notice
to
Respondent
No.2
on
the
application and fixed the date for hearing in
the matter on 24.6.2019. While the
aforesaid I.A. was pending adjudication
before the Delhi High Court, petitioners
filed a representation on 19.6.2019 before
the Council requesting therein to withdraw
its proposal of entertaining arbitration issue
through itself and refer to the parties for
institutional arbitration through "Delhi
International
Arbitration
Centre",
an
alternate dispute resolution arbitration
centre set up under the aegis of Delhi High
Court.

11. The Delhi High Court heard the
aforesaid I.A. No. 8574 of 2019 filed in
Arbitration Petition No.402 of 2019 and
passed an order on 2.7.2019. The order
dated 2.7.2019 is reproduced as under:-

"I.A. 8572/2019 (exemption)

1. Exemption allowed subject to all
just exceptions.
1136 INDIAN LAW REPORTS ALLAHABAD SERIES

ARB.P. 402/2019

2. Learned counsels for the parties
have been heard at considerable length. By
way of the present petition, the Petitioner
prays that the parties may be referred for
arbitration under the aegis of Delhi
International Arbitration and Conciliation
Centre. Learned counsel for the Petitioner
has raised several grievances and inter alia
impugns the order dated 11th June, 2019,
passed by the U.P. Micro Small Enterprises
Facilitation Council whereby it has entered
upon reference in terms of Section 18(3) of
the Micro Small and Medium Enterprises
Act, 2006. Learned Counsel for the
Petitioner
contends
that
since
the
facilitation council acted as Conciliator, it
is now impermissible for them to assume
the role of the Arbitral tribunal. At the
outset,
the
learnedcounsel
for
the
Respondent opposes the present petition on
the ground of maintainability. However on
instruction from her client she states that
Respondent has no objection, in case, the
matter is referred to any institution or
centre
providing
alternate
dispute
resolution services for such arbitration.
However, she further contends that this
decision should be left open to be
considered by the Facilitation Council.

3. At this juncture, learned counsel for
the Petitioner informs the court that, his
client has made a representation dated
19th June, 2019, wherein inter alia, a
request has been made to refer the matter
for arbitration to an institution. This
representation is presently pending. He
says that though in the said representation
a request has been made for referring the
matter to Delhi International Arbitration
and Conciliation Centre, however, his
clients would have no objection in case, the
arbitration is carried out under the aegis of
any other institution or centre providing
alternate dispute resolution services. Thus,
both the counsels without prejudice to the
rights and contentions agree that the
facilitation council may make a decision
for referring the matter to an institution.

4. Accordingly, in view of the
statements made by both the counsels,
before hearing the matter any further, it is
considered appropriate to direct the
Facilitation
Council
to
decide
the
representation dated 19th June, 2019 for
referring the parties to arbitration under
any institution or centre. The decision shall
be conveyed to this court within two weeks
from today. The centre while deciding the
representation shall take into consideration
the stand of the parties as noted above.

5. List on 26th July, 2019.

6. Registry is directed to send a copy
of this order to U.P. Micro Small
Enterprises Facilitation Council.

7. Copy of this order be given dasti."

12. Thereafter, the Council pursuant to
the aforesaid order dated 2.7.2019 heard the
matter pending before it and ultimately
rejected the representation of the petitioners
for referring the dispute for arbitration to an
institution
providing
alternate
dispute
resolution services and further affirmed its
earlier decision dated 11.6.2019 and thereby
Council itself proceeded to arbitrate the
dispute. Later on, Arbitration Petition No.402
of 2019 was heard and decided by Delhi
High Court vide judgment and order dated
9.8.2019. The Delhi High Court vide
aforesaid judgment and order dated 9.8.2019
rejected the prayer of the petitioners for
referring the dispute to the Arbitrator as per
arbitration clause contained in the agreement,
exercising its powers under Section 11(6) of
the Act of 1996.

Submissions On Behalf Of The
Petitioners
8 All. Bata India Ltd. & Anr. Vs. U.P. State Micro & Small Entp. Facilitation Council & Anr.
1137

13.

Learned
counsel
for
the
petitioners has submitted that Clause 25 of
the agreement entered into by the parties
categorically provides for mechanism of
arbitration in respect of disputes arising out
of the said agreement. Clause 25 of the
agreement is reproduced as under:-

25. Governing Laws and Arbitration:

In case of any dispute between the
Parties, the Parties shall attempt to resolve
the dispute amicably and the aggrieved
Party shall send a notice to the other Party
requesting to settle the dispute amicably. If
the Parties are unable to resolve such
dispute within 15 days as of the initial
communication
as
stated
above,
the
aggrieved Party may refer the matter to
arbitration under the provisions of the
Arbitration and Conciliation Act, 1996, to
be decided by a sole arbitrator appointed
by BIL. The venue of the Arbitration
proceedings shall be at Delhi. The
proceedings and the award shall be in
English and the arbitrator's decision shall
be final and conclusive. The parties shall
bear the arbitration expenses in equal
proportion.

The courts of Delhi shall have
exclusive jurisdiction regarding any issue
arising out of the arbitration process above
and with respect to interim relief, all in
accordance with the Arbitration and
Conciliation Act, 1996.

This Agreement shall be governed by
and interpreted in accordance with the
laws of India with specific territorial
jurisdiction of Delhi Courts.

Each party hereto shall be bound by
the award rendered by the arbitrators."

14.

Learned
counsel
for
the
petitioners has further submitted that since
there was a dispute between the petitioners
and Respondent No.2 and as per the
agreement the said dispute was to be
resolved by referring the matter to an
Arbitrator as per clause 25 of the
agreement, therefore the petitioners filed
Arbitration Petition No.402 of 2019 before
Delhi High Court and a prayer was made
that an institutional arbitrator providing
alternate dispute resolution services may be
given the responsibility to arbitrate the
dispute in question.

15.

Learned
counsel
for
the
petitioners has also submitted that the
dispute in question involves adjudication of
complicated technical issues and therefore,
Delhi
International
Arbitration
Centre
under the aegis of Delhi High Court would
be a best institution to arbitrate the dispute
between the petitioners and Respondent
No.2.

16.

Learned
counsel
for
the
petitioners has invited attention of this
Court towards the provisions of Section 18
of
the
Micro,
Small
and
Medium
Enterprises Development Act, 2006. For
ready reference, Section 18 of the Act of
2006 is extracted as under:-

"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
1138 INDIAN LAW REPORTS ALLAHABAD SERIES
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 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 subsection (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."

17.

Learned
counsel
for
the
petitioners has vehemently argued that
Section 18(2) of the Act of 2006 provides
that the Council on receipt of a reference
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 in the said
conciliation proceedings the provisions of
Sections 65 to 81 of the Arbitration and
Conciliation Act, 1996 will be applicable.
Learned counsel for the petitioners has
further argued that no doubt Section 18(3)
of the Act of 2006, in case of failure of
conciliation proceedings, gives power to
the Council either itself take up the dispute
for arbitration or to refer it to any
institution or centre providing alternate
dispute resolution services but since
conciliation proceedings initiated by the
Council under Section 18(2) of the Act of
2006 failed and since the Council itself was
Conciliator, therefore in view of the
prohibition contained in Section 80 of the
Act of 1996, the Council itself could not
have taken up to arbitrate the disptue
between the parties. For ready reference,
Section 80 of the Act of 1996 is extracted
as under:-

"80. Role of conciliator in other
proceedings.-Unless otherwise agreed by
the parties,-

(a) the conciliator shall not act as an
arbitrator or as a representative or counsel
of a party in any arbitral or judicial
proceeding in respect of a dispute that is
the subject of the conciliation proceedings;

(b) the conciliator shall not be
presented by the parties as a witness in any
arbitral or judicial proceedings."

18.

Learned
counsel
for
the
petitioners has empathetically argued that
Section 18(2) of the Act of 2006
categorically provides that Sections 65 to
81 of the Act of 1996 will apply in the
conciliation proceedings before the Council
and therefore, the categorical prohibition
imposed under Section 80 of the Act of
1996 that the Conciliator cannot be an
Arbitrator, will be applicable in the case in
question and thereby the Council could not
have taken to itself to arbitrate the dispute
8 All. Bata India Ltd. & Anr. Vs. U.P. State Micro & Small Entp. Facilitation Council & Anr.
1139
between the petitioners and Respondent
No.2.

19.

Learned
counsel
for
the
petitioners has relied upon a judgment
dated 6.8.2018 rendered by the Division
Bench of High Court of Bombay in Writ
Petition No.5459 of 2015, Gujrat State
Petronet Ltd. vs. Micro and Small
Enterprises Facilitation Council and
others. Learned counsel for the petitioners
has submitted that the aforesaid judgment
squarely covers the issues in question and
the Division Bench of the High Court of
Bombay in the aforesaid judgment has
categorically held that Section 18(2) of the
Act of 2006 categorically provides that
Section 80 of the Act of 1996 will be
applicable and where the Council itself was
Conciliator and in the event of conciliation
proceedings
having
been
failed,
the
Council itself cannot take up to arbitrate the
dispute between the parties. Relevant
portion of the judgment dated 6.8.2018 is
extracted as under:-

19. A plain reading of sub-sections (2)
and (3) of Section 18 of the MSMED Act
makes it clear that is is obligatory for the
Council
to
conduct
conciliation
proceedings either by itself or seek
assistance of any institute or centre
providing alternative dispute resolution
services. The provisions ofSections 65
to81of the Arbitration Act 1996 are made
applicable to conciliation proceedings. In
the event, the conciliation proceedings are
unsuccessful and stand terminated, the
Council can either itself take up the dispute
for arbitration or refer it to any institution
or
centre
proving
alternate
dispute
resolution services for such arbitration.
The provisions ofArbitration Act1996, in its
entirety, are made applicable as if the
arbitration was in pursuance of the
arbitration agreement referred to in subsection(1) ofSection 7of the Arbitration Act,
1996.

20. It is thus evident that sub-section
(2) and sub-section (3) of the MSMED Act
vests jurisdiction in the Council to act as
conciliator as well as arbitrator. The
question is in view of the provisions
ofSection 80of the Arbitration Act 1996, the
Council
which
has
conducted
the
conciliation proceedings is prohibited from
acting as arbitrator. As stated earlier,
certain provisions ofArbitration Act1996
includingSection 80are specifically made
applicable to conciliation proceedings
contemplated by Section 18(2) of the
MSMED
Act.
Whereas
provisions
ofArbitration Act1996, in its entirety, are
made applicable to the arbitration and
conciliation proceedings contemplated by
sub-section (3) of Section 18 of the
MSMED Act.
21. A harmonious reading of these
provisions clearly indicate thatSection 80of
the Arbitration Act, 1996 is applicable to
conciliation
as
well
as
arbitration
proceedings under sub-sections (2) and (3)
of Section 18 of the MSMED Act.Section
80of the Arbitration Act, 1996 reads thus :

"80. Role of conciliator in other
proceedings

Unless otherwise agreed by the parties
-

(a) the conciliator shall not act as an
arbitrator or as a representative or counsel
of a party in any arbitral or judicial
proceeding in respect of a dispute that is
the subject of the conciliation proceedings;
and

(b) the conciliator shall not be
presented by the parties as a witness in any
arbitral or judicial proceedings.

22. A plain reading ofSection 80makes
it clear that the conciliator cannot act as
an arbitrator or his representative or
1140 INDIAN LAW REPORTS ALLAHABAD SERIES
counsel of a party in any arbitral or
judicial proceedings in respect of a dispute.
It is thus evident that the MSEFC cannot
act as conciliator as well as arbitrator, or
it may choose to refer the dispute to any
centre or institution providing alternate
dispute resolution services for the parties
to conciliation or arbitration. However,
once the MSEFC acts as conciliator, in
view of provisions ofSection 80, it is
prohibited from acting as arbitrator.

23. Admittedly, in the present case,
respondent No.1 conducted the conciliation
proceedings between the petitioner and
respondent No.3 and by the impugned
order, terminated the same as being
unsuccessful. What is surprising is that
respondent
No.1
-
MSEFC,
having
conciliated the dispute between the parties
and
conciliation
proceedings
being
unsuccessful and terminated, the MSEFC
itself initiated to arbitrate the dispute
between the same parties. In our view,
respondent No.1-MSEFC itself, could not
have initiated arbitration proceedings
between the petitioner and respondent
No.3. In terms of the provisions of subsection (3) of Section 18 the MSMED Act,
respondent No.1 - MSEFC ought to have
referred the dispute between the petitioner
and respondent No.3 to any institution or
centre
providing
alternate
dispute
resolution services for arbitration. The
impugned order, so far as it relates to
authorising respondent No.1 - MSEFC to
initiate
arbitration
proceedings/arbitral
dispute cannot be sustained and the same
deserves to be quashed and set-aside.

24. We, accordingly, dispose of the
petition by passing the following order :

1.
We
hold
that
the
despite
independent arbitration agreement between
the
petitioner
and
respondent
No.3,
respondent No.1 - MSEFC has jurisdiction
to entertain reference made by respondent
No.3 under Section 18 of the MSMED Act.

2. Clause 2 of the operative part of the
impugned order i.e."Arbitration proceeding
be initiated U/s 18(3) of MSMED Act 2006
and that this council shall act as an
Arbitrator Tribunal" is quashed and setaside and respondent No.1 - MSEFC is
directed to refer the dispute between the
petitioner and respondent No.3 to any
institution or centre providing alternate
dispute resolution services for arbitration.
Respondent No.1 - MSEFC Shubhada S
Kadam 23/24 wp 5459.15.doc shall take
necessary steps as expeditiously as possible
and, in any case, within a period of four
weeks from the date of receipt of this order.

3. Rule is, accordingly, made absolute
in the above terms."

20.

Learned
counsel
for
the
petitioners has also argued that the Micro,
Small and Medium Enterprises Council is
not well equipped to arbitrate the dispute
between petitioners and Respondent No.2
whereas Delhi International Arbitration
Centre under the aegis of Delhi High Court
is well equipped to carry out the quality
arbitration proceedings and thereby has
submitted that even if the discretion was
with the Council either itself to arbitrate the
dispute or to refer it to an institution
dealing with alternate dispute resolution
services, it was in the fitness of things that
Council ought to have referred the matter to
an institution.

21.

Learned
counsel
for
the
petitioners
has
thus
concluded
his
arguments
and
has prayed
that
the
petitioners' writ petition deserves to be
allowed by this Court in the light of the
aforesaid
judgment
and
order
dated
6.8.2018 passed by the Division Bench of
the High Court of Bombay in Writ Petition
8 All. Bata India Ltd. & Anr. Vs. U.P. State Micro & Small Entp. Facilitation Council & Anr.
1141
No.5459 of 2015 and thereby to quash the
impugned orders dated 24.7.2019 and
11.6.2019 passed by the Council.

Submissions
On
Behalf
Of
Respondent No.2

22. Learned counsel appearing for
Respondent No.2 has submitted that
Arbitration Petition No.402 of 2019 filed
by the petitioners before Delhi High Court
was dismissed vide judgment and order
dated 9.8.2019 but the petitioners without
disclosing and annexing the copy of the
aforesaid judgement has filed the writ
petition before this Court challenging
therein the orders passed by the Council
whereas
the
Delhi
High
Court
has
considered the provisions of the Act of
2006 as well as the Act of 1996 and has
rejected the petition filed by the petitioners
vide judgment and order dated 9.8.2019.
Relevant portion of the aforesaid judgment
and order dated 9.8.2019 is extracted as
under:-

"20. However, the difference of
opinion and contrasting views of various
High Courts does not affect or impede this
Court to decide the present petition. In so
far as the jurisdiction of the MSME
Council, under Section 18 of the MSME Act
is concerned, there cannot be any doubt
that in all the decisions referred above, the
Courts have consistently held that the
provisions of the MSME Act are applicable
dehors the arbitration clause. In this
regard it is relevant to note the decision of
the Gujrat High Court in Principal Chief
Engineer v Mani Bhai and Brothers,
wherein the Court held:

"6.1. It cannot be disputed that the Act
2006, is aSpecial Actand as perSection
24of
the
Act,
2006,
the
provisions
ofsections
15to23shall
have
effect
notwithstanding
anything
inconsistent
therewith contained in any other law for
the time being in force.

Therefore,Section 18of the Act, 2006
would have overriding effect or any other
law
for
the
time
being
in
force
includingArbitration
Act,
1996
and
therefore, if there is any dispute between
the parties governed by the Act, 2006, the
said dispute is required to be resolved only
through
the
procedure
as
provided
underSection 18of the Act, 2006. Thus,
consideringSection 18of the Act, 2006,
after conciliation has failed as perSection
18(2)of the Act, 2006, thereafter as per
sub-Section (3) ofSection 18, 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 provisions of the
Arbitration andConciliation Act, 1996 (26
of 1996) shall then apply to the dispute as if
thearbitration was in pursuance of an
arbitration agreement referred to in subsection (2) ofSection 18of the Council shall
have jurisdiction to take up dispute for
arbitration. Therefore, once the Council
itself is acting as an Arbitrator in that case,
thereafter the Council who acts as an
Arbitrator
has
no
authority
and/or
jurisdiction to entertain the application
underSection 8of the Arbitration Act,
1996.Section 8of the Arbitration Act, 1996
would be applicable in case where any
proceedings
are
pending
before
the
"Judicial Authority". "Judicial Authority" is
not defined in theArbitration Act, 1996.
However, in the case ofSBP & Co. vs Patel
Engineering Ltdand anr., (2005) 8 SCC
618, it is observed by the Hon‟ble Supreme
Court that "Judicial Authority" as such is
1142 INDIAN LAW REPORTS ALLAHABAD SERIES
not defined inSection 2(e)of the Act and
would also, in our opinion include other
courts and may even include a special
Tribunal like the Consumer Fourm. Even in
the case of Morgan Securities and Credit
Pvt Ltd (supra), the Hon‟ble Supreme
Court has observed that in its ordinary
parlance
"Judicial
Authority"
would
comprehend a Court defend under the Act
but also courts which would either be a
Civil Court or other authorities which
perform judicial functions or quasi judicial
functions.

7.0 Identical question came to be
considered by the Division Bench of the
Allahabad High Court in the case of Paper
and Board Convertors (supra). While
interpreting the very provision ofSection
18of the Act, 2006, in para 12, the Division
Bench has observed and held as under:

12.
The
non-obstane
provision
contained in sub-section (1) ofsection
18and again in sub-section (4) ofSection
18operates
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 resolutionservices stipulated in
sub-section (3) ofSection 18.

10. In view of the above and for the
reasons stated above, no error has been
committed by the learned Council in not
entertaining the application underSection 8of
the Arbitration Act, 1996.We see no reason to
interfere with the order passed by the learned
Council. As observed herein above and
considering the sub-section (1) ofSection 18of
the Act, 2006 the Facilitation Council has
jurisdiction to act as Arbitrator and /or
conciliator any dispute between the parties
and that Council had only one of two courses
of action open to it, either to conduct an
arbitration itself or to refer the parties to a
centre or institution providing alternative
dispute
resolution
services
stipulated
inSection 18(3) of the Act, 2006. Therefore,
while dismissing the present appeal, it is
observed that Council shall now act in
accordance with provision of sub-section (3)
ofSection 18and either to conduct an
arbitration itself or refer the parties to a
centre or institution providing alternate
dispute resolution services. With the above
observations, present appeal is dismissed. No
costs. In view of dismissal of the First Appeal,
Civil
Application
stands
dismissed
accordingly."

21. The said decision was challenged
before the Supreme Court inPrincipal Chief
Engineer v. M/s Manibhai & Bro, SLP No.
17434/2017 decided on 5th July 2017 where
the Supreme Court by a speaking order
observed as under:

"We
have
given
our
thoughtful
consideration to the submissions advanced
before us yesterday and today.

We are satisfied, that the interpretation
placed by the High Court onSection 18of the
Micro,
Small
andMedium
Enterprises
Development Act, 2006, in the impugned
order,
with
reference
to
arbitration
proceeding
is
fully
justified
and
in
consonance with the provisions thereof.

Having affirmed the above, we are of
the view, that all other matters dealt with in
the impugned order are not relevant for the
adjudication of the present controversy,
and need not be examined.

The special leave petition is dismissed
in the above terms. Pending applications
stand disposed of."

22. Since the decision of the Gujrat
High Court has been affirmed by the
Supreme Court, I have no hesitation to hold
8 All. Bata India Ltd. & Anr. Vs. U.P. State Micro & Small Entp. Facilitation Council & Anr.
1143
that Section 18 of the MSME Act, would
override the provisions of the arbitration
clause agreed to between the parties and
consequently the arbitration proceedings
before the Council are in accordance with
law. Petitioner‟s contention qua the bar
under Section 80 of the A&C Act, is subject
matter of different views of the High
Courts,
referred
above.
However,
notwithstanding the conflicting views on
this issue, the Court cannot grant the relief
sought in the present proceedings. The
provisions of Section 11(6) of the A&C Act
would
be
attracted
only
under
the
situations which are enumerated under the
said provision, which reads as under:

"(6) Where, under an appointment
procedure agreed upon by the parties,--

(a) a party fails to act as required
under that procedure; or

(b) the parties, or the two appointed
arbitrators, fail to reach an agreement
expected of them under that procedure; or

(c) a person, including an institution,
fails to perform any function entrusted to
him or it under that procedure,a party may
request 1[the Supreme Court or, as the
case may be, the High Court or any person
or institution designated by such Court] to
take the necessary measure, unless the
agreement on the appointment procedure
provides other means for securing the
appointment."

23. Petitioner is unable to show as to
how any of the aforesaid sub-clauses can
be invoked in the present case. Thus, the
petition is not maintainable. There is also
merit in the submission of the Respondent
that the facts of the case as noted above do
not indicate that the Council has indeed
performed the role of a Conciliator. No
doubt the Conciliation proceedings were
initiated and the Petitioner joined the
conciliation process, but that was only to
request the Council to defer its decision
since
the
parties
were
negotiating
settlement. Thereafter, the Council was
informed that the settlement had not
fructified and notice of termination of the
Conciliation process was sent. Thus, the
Council
never
actively
acted
as
a
Conciliator between the parties.
24. Be that as it may, underSection 11(6) of
the A&C Act, I would not have the
jurisdiction to test the legality of the
decision dated 24 th July, 2019, passed by
the Council. The Petitioner would have to
avail its remedies under the relevant
provisions of the A&C Act to challenge the
jurisdiction of the Arbitral Tribunal. I do
not find any merit in the present petition
and
same
is
dismissed.
Pending
applications if any are disposed of.

O.M.P.(I) (COMM.) 201/2019

25. The present petition inter alia
seeks the following prayers:

"31. In light of the aforesaid facts and
circumstances, it is most respectfully
prayed that this Hon'ble Court may be
pleased to stay the proposed arbitration
proceedings scheduled to be initiated
before the respondent no.2 on 19/5/2019
and restrain the respondent no.2 from
passing any order in the proposed
arbitration
during
the
pendency
of
petitioner's petition undersection 11(6) for
reference of dispute between the parties to
arbitration under the aegis of Delhi
International Arbitration Centre."

26. In view of the decision rendered in
arbitration petition bearing No. ARB.P.
402/2019, there is no ground to grant the
relief sought in the present petition. More
so since the existence of the Arbitration
agreement
is
not
disputed
and
the
arbitration proceedings initiated under the
MSME Act are in accordance with law,
there is no ground or reason to entertain
the present petition and the same is
dismissed.
1144 INDIAN LAW REPORTS ALLAHABAD SERIES

23. Learned counsel appearing for
Respondent No.2 has argued that keeping
in view to provide for facilitating the
promotion and development and enhancing
the competitiveness of micro, small and
medium enterprises and matters connected
therewith
or
incidental
thereto,
the
legislature has enacted the Micro, Small
and Medium Enterprises Development Act,
2006. Section 24 of the aforesaid Act of
2006 categorically gives overriding effect
to Sections 15 to 23 of the Act
notwithstanding
anything
inconsistent
therewith contained in any other law for the
time being in force. Section 24 of the Act
of 2006 is extracted as under:-

"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.

24. In the light of the aforesaid
Section 24 of the Act of 2006, learned
counsel appearing for Respondent No.2 has
vehemently argued that in view of the
provisions made in aforementioned Section
24 thereby giving overriding effect to
Sections 15 to 23 of the Act, the reference
made by Respondent No.2 to the Council
and thereby order passed by the Council to
itself proceed to arbitrate the dispute is well
within the jurisdiction of the Council.

25. Learned counsel appearing for
Respondent No.2 has vehemently argued
that the legislature under Section 18(2) of
the Act has given discretion to the Council
either to proceed to conciliate itself or to
seek assistance of any institution or centre
providing
alternate
dispute
resolution
services and Sections 65 to 81 of the Act of
1996 have been made applicable only in
respect of the procedure to be adopted by
the Conciliator during the conciliation
proceedings.