# GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD v. MAHAKALI FOODS PVT. LTD. (UNIT 2) & ANR

- **Citation:** [2022] 19 S.C.R. 1094
- **Court:** Supreme Court of India
- **Decided:** 2022-10-31
- **Case number:** Civil Appeal No. 8008 of 2022
- **Bench:** Uday Umesh Lalit, Bela M. Trivedi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/gujarat-state-civil-supplies-corporation-ltd-v-mahakali-foods-pvt-ltd-unit-2-anr-36209
- **Pages:** 46

## Headnote

Arbitration and Conciliation Act, 1996 - s.37 - Micro, Small
and Medium Enterprises Development Act, 2006 (MSMED Act) -
Whether the provisions of Chapter-V of the MSMED Act, 2006 would
have an effect overriding the provisions of the Arbitration Act, 1996?
- Held :One of principles of statutory interpretation relevant for
our purpose is contained in the Latin maxim "leges posteriors priores
contrarias abrogant" (the later laws shall abrogate earlier contrary
laws) - Another relevant rule of construction is contained in the
maxim "generalia specialibus non derogant" (General laws do not
prevail over Special laws) - When there is apparent conflict between
two statutes, the provisions of a general statute must yield to those
of a special one - MSMED Act, 2006 being a special law and
Arbitration Act, 1996 being a general law, the provisions of MSMED
Act would have precedence over the Arbitration Act - It is settled
legal position that no agreement entered into between the parties
could be given primacy over the statutory provisions - When the
Special Act i.e., MSMED Act, 2006 has been created for ensuring
timely and smooth payment to the suppliers who are the micro and
small enterprises, and to provide a legal framework for resolving
the dispute with regard to the recovery of dues between the parties
under the Act, also providing an overriding effect to the said law
over any other law for the time being in force, any interpretation in
derogation thereof would frustrate the very object of the Act.
Arbitration and Conciliation Act, 1996 - s.37 - Micro, Small
and Medium Enterprises Development Act, 2006 (MSMED Act) -
Whether any party to a dispute with regard to any amount due under
Section 17 of the MSMED Act, 2006 would be precluded from
making a reference to the Micro and Small Enterprises Facilitation
Council under sub-section (1) of Section 18 of the said Act, if an
independent arbitration agreement existed between the parties as
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contemplated in Section 7 of the Arbitration Act, 1996? Held : That
no party to a dispute covered under Section 17 of the MSMED Act,
2006 would be precluded from making a reference to the Facilitation
Council under Section 18(1) thereof, merely because there is an
arbitration agreement existing between the parties - S 18(1) of the
MSMED Act, 2006 is an enabling provision which gives the party
to a dispute covered under Section 17 thereof, a choice to approach
the Facilitation Council, despite an arbitration agreement existing
between the parties.
Arbitration and Conciliation Act, 1996 - s.37 - Micro, Small
and Medium Enterprises Development Act, 2006 (MSMED Act) -
Whether the Micro and Small Enterprises Facilitation Council, itself
could take up the dispute for arbitration and act as an arbitrator,
when the council itself had conducted the conciliation proceedings
under sub-section (2) of the Section 18 of the MSMED Act, 2006 in
view of the bar contained in Section 80 of the Arbitration Act,1996?
Held : In affirmative - Section 38 of the Arbitration Act, 1996
contains a bar that the Conciliator shall not act as an Arbitrator in
any arbitral proceedings in respect of a dispute that is subject of
conciliation proceedings, the said bar stands superseded by the
provisions contained in Section 18 read with Section 24 of the
MSMED Act, 2006 - The provisions of Arbitration Act, 1996 would
apply to the proceedings conducted by the Facilitation Council only
after the process of conciliation initiated by the council under Section
18(2) fails and the council either itself takes up the dispute for
arbitration or refers to it to any institute or centre for such arbitration
as contemplated under Section 18(3) of the MSMED Act, 2006.
Disposing the appeals, the Court
HELD : 1.1 The first and foremost issue involved in these
appeals is whether the provisions contained in Chapter V of the
MSMED Act, 2006 with regard to the Delayed Payments to Micro
and Small Enterprises would have the precedence over

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SUPREME COURT REPORTS
[2022] 19 S.C.R.
[2022] 19 S.C.R. 1094
1094
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD.
v.
MAHAKALI FOODS PVT. LTD. (UNIT 2) & ANR.
(Civil Appeal No. 8008 of 2022)
OCTOBER 31, 2022
[UDAY UMESH LALIT, CJI AND BELA M. TRIVEDI, J.]
Arbitration and Conciliation Act, 1996 - s.37 - Micro, Small
and Medium Enterprises Development Act, 2006 (MSMED Act) -
Whether the provisions of Chapter-V of the MSMED Act, 2006 would
have an effect overriding the provisions of the Arbitration Act, 1996?
- Held :One of principles of statutory interpretation relevant for
our purpose is contained in the Latin maxim "leges posteriors priores
contrarias abrogant" (the later laws shall abrogate earlier contrary
laws) - Another relevant rule of construction is contained in the
maxim "generalia specialibus non derogant" (General laws do not
prevail over Special laws) - When there is apparent conflict between
two statutes, the provisions of a general statute must yield to those
of a special one - MSMED Act, 2006 being a special law and
Arbitration Act, 1996 being a general law, the provisions of MSMED
Act would have precedence over the Arbitration Act - It is settled
legal position that no agreement entered into between the parties
could be given primacy over the statutory provisions - When the
Special Act i.e., MSMED Act, 2006 has been created for ensuring
timely and smooth payment to the suppliers who are the micro and
small enterprises, and to provide a legal framework for resolving
the dispute with regard to the recovery of dues between the parties
under the Act, also providing an overriding effect to the said law
over any other law for the time being in force, any interpretation in
derogation thereof would frustrate the very object of the Act.
Arbitration and Conciliation Act, 1996 - s.37 - Micro, Small
and Medium Enterprises Development Act, 2006 (MSMED Act) -
Whether any party to a dispute with regard to any amount due under
Section 17 of the MSMED Act, 2006 would be precluded from
making a reference to the Micro and Small Enterprises Facilitation
Council under sub-section (1) of Section 18 of the said Act, if an
independent arbitration agreement existed between the parties as
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contemplated in Section 7 of the Arbitration Act, 1996? Held : That
no party to a dispute covered under Section 17 of the MSMED Act,
2006 would be precluded from making a reference to the Facilitation
Council under Section 18(1) thereof, merely because there is an
arbitration agreement existing between the parties - S 18(1) of the
MSMED Act, 2006 is an enabling provision which gives the party
to a dispute covered under Section 17 thereof, a choice to approach
the Facilitation Council, despite an arbitration agreement existing
between the parties.
Arbitration and Conciliation Act, 1996 - s.37 - Micro, Small
and Medium Enterprises Development Act, 2006 (MSMED Act) -
Whether the Micro and Small Enterprises Facilitation Council, itself
could take up the dispute for arbitration and act as an arbitrator,
when the council itself had conducted the conciliation proceedings
under sub-section (2) of the Section 18 of the MSMED Act, 2006 in
view of the bar contained in Section 80 of the Arbitration Act,1996?
Held : In affirmative - Section 38 of the Arbitration Act, 1996
contains a bar that the Conciliator shall not act as an Arbitrator in
any arbitral proceedings in respect of a dispute that is subject of
conciliation proceedings, the said bar stands superseded by the
provisions contained in Section 18 read with Section 24 of the
MSMED Act, 2006 - The provisions of Arbitration Act, 1996 would
apply to the proceedings conducted by the Facilitation Council only
after the process of conciliation initiated by the council under Section
18(2) fails and the council either itself takes up the dispute for
arbitration or refers to it to any institute or centre for such arbitration
as contemplated under Section 18(3) of the MSMED Act, 2006.
Disposing the appeals, the Court
HELD : 1.1 The first and foremost issue involved in these
appeals is whether the provisions contained in Chapter V of the
MSMED Act, 2006 with regard to the Delayed Payments to Micro
and Small Enterprises would have the precedence over the
provisions contained in the Arbitration Act, 1996, more
particularly when the parties by execution of an independent
agreement as contemplated in Section 7 of the Arbitration Act
had agreed to submit to arbitration the disputes arising between
them? In other words, whether the provisions contained in
Chapter V of the MSMED Act, 2006 would have an effect
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD. (UNIT 2)
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SUPREME COURT REPORTS
[2022] 19 S.C.R.
overriding the provisions contained in the Arbitration Act, 1996?
[Para 16][1120-G; 1121-A-B]
1.2 One of principles of statutory interpretation relevant
for our purpose is contained in the Latin maxim "leges posteriors
priores contrarias abrogant" (the later laws shall abrogate earlier
contrary laws). Another relevant rule of construction is contained
in the maxim "generalia specialibus non derogant" (General laws
do not prevail over Special laws). When there is apparent conflict
between two statutes, the provisions of a general statute must
yield to those of a special one. [Para 18][1121-E]
1.3 Having regard to the purpose, intention and objects as
also the scheme of the MSMED Act, 2006 and having regard to
the unambiguous expressions used in Chapter-V thereof,
following salient features emerge:
i.
Chapter-V is "party-specific", in as much as the party
i.e. the 'Buyer' and the 'Supplier' as defined in
Sections 2(d) and 2(n) respectively are covered under
the said Chapter.
ii.
A specific provision is made fastening a liability on
the buyer to make payment of the dues to the supplier
in respect of the goods supplied or services rendered
to the buyer, as also a liability to pay compound interest
at three times of the bank rate notified by the Reserve
Bank, if the buyer fails to make payment within the
prescribed time limit. The said liability to pay
compound interest is irrespective of any agreement
between the parties or of any law for the time being
in force.
iii.
A dedicated statutory forum i.e., Micro and Small
Enterprises Facilitation Council is provided to enable
any party to a dispute with regard to any amount due
under Section 17, to make reference to such Council.
iv.
A specific procedure has been prescribed to be
followed by the Facilitation Council after the reference
is made to it by any party to the dispute.
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v.
The Facilitation Council or the centres providing
alternative dispute resolution services have been
conferred with the jurisdiction to act as an Arbitrator
or Conciliator under Section 18(4), notwithstanding
anything contained in any law for the time being in
force, in a dispute between the supplier located within
its jurisdiction.
vi.
The provisions of Arbitration Act, 1996 has been made
applicable to the dispute only after the Conciliation
initiated under sub-section (2) does not succeed and
stands terminated without any settlement between the
parties.
vii.
s.18(4)(1) starting with non obstante clauses have an
effect overriding the other laws for the time being in
force.
viii.
As per Section 24, the provisions of Sections 15 to
23 have an effect notwithstanding anything
inconsistent therewith contained in any other law for
the time being in force. [Para 23][1123-F-H; 1124A-F]
1.4 Thus, the Arbitration Act, 1996 in general governs the
law of Arbitration and Conciliation, whereas the MSMED Act,
2006 governs specific nature of disputes arising between specific
categories of persons, to be resolved by following a specific
process through a specific forum. Ergo, the MSMED Act, 2006
being a special law and Arbitration Act, 1996 being a general law,
the provisions of MSMED Act would have precedence over or
prevail over the Arbitration Act, 1996. [Para 25][1125-D]
1.5 There cannot be any disagreement to the proposition
of law laid down in various decisions of this Court, relied upon by
the learned counsel for the buyers that the Court has to read the
agreement as it is and cannot rewrite or create a new one, and
that the parties to an arbitration agreement have an autonomy to
decide not only on the procedural law to be followed but also on
the substantive law, however, it is equally settled legal position
that no agreement entered into between the parties could be
given primacy over the statutory provisions. When the Special
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD. (UNIT 2)
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[2022] 19 S.C.R.
Act i.e., MSMED Act, 2006 has been created for ensuring timely
and smooth payment to the suppliers who are the micro and small
enterprises, and to provide a legal framework for resolving the
dispute with regard to the recovery of dues between the parties
under the Act, also providing an overriding effect to the said law
over any other law for the time being in force, any interpretation
in derogation thereof would frustrate the very object of the Act.
The submission therefore that an independent arbitration
agreement entered into between the parties under the Arbitration
Act, 1996 would prevail over the statutory provisions of MSMED
Act, 2006 cannot countenanced. As such, sub-section (1) of Section
18 of the MSMED Act, 2006 is an enabling provision which gives
the party to a dispute covered under Section 17 thereof, a choice
to approach the Facilitation Council, despite an arbitration
agreement existing between the parties. Absence of the word
'agreement' in the said provision could neither be construed as
casus omissus in the statute nor be construed as a preclusion
against the party to a dispute covered under Section 17 to
approach the Facilitation Council, on the ground that there is an
arbitration agreement existing between the parties. In fact, it is
a substantial right created in favour of the party under the said
provision. It is therefore held that no party to a dispute covered
under Section 17 of the MSMED Act, 2006 would be precluded
from making a reference to the Facilitation Council under Section
18(1) thereof, merely because there is an arbitration agreement
existing between the parties. [Para 28][1127-B-G]
1.6 The aforesaid legal position also dispels the arguments
advanced on behalf of the counsel for the buyers that the
Facilitation Council having acted as a Conciliator under Section
18(2) of the MSMED Act, 2006 itself cannot take up the dispute
for arbitration and act as an Arbitrator. Though it is true that
Section 38 of the Arbitration Act, 1996 contains a bar that the
Conciliator shall not act as an Arbitrator in any arbitral
proceedings in respect of a dispute that is subject of conciliation
proceedings, the said bar stands superseded by the provisions
contained in Section 18 read with Section 24 of the MSMED Act,
2006. As held earlier, the provisions contained in Chapter-V of
the MSMED Act, 2006 have an effect overriding the provisions
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of the Arbitration Act, 1996. The provisions of Arbitration Act,
1996 would apply to the proceedings conducted by the Facilitation
Council only after the process of conciliation initiated by the
council under Section 18(2) fails and the council either itself takes
up the dispute for arbitration or refers to it to any institute or
centre for such arbitration as contemplated under Section 18(3)
of the MSMED Act, 2006. [Para 29][1127-H; 1128-A-C]
1.7 When the Facilitation Council or the institution or the
centre acts as an Arbitrator, it shall have all powers to decide the
disputes referred to it as if such arbitration was in pursuance of
the arbitration agreement referred to in sub- section (1) of Section
7 of the Arbitration Act, 1996 and then all the trappings of the
Arbitration Act, 1996 would apply to such arbitration. It is
needless to say that such Facilitation Council/institution/centre
acting as an arbitral tribunal would also be competent to rule on
its own jurisdiction like any other arbitral tribunal appointed under
the Arbitration Act, 1996 would have, as contemplated in Section
16 thereof. [Para 30][1128-D-E]
1.8 The upshot of the above is that:
i.
Chapter-V of the MSMED Act, 2006 would override
the provisions of the Arbitration Act, 1996.
ii.
No party to a dispute with regard to any amount due
under Section 17 of the MSMED Act, 2006 would be
precluded from making a reference to the Micro and
Small Enterprises Facilitation Council, though an
independent arbitration agreement exists between the
parties.
iii.
The Facilitation Council, which had initiated the
Conciliation proceedings under Section 18(2) of the
MSMED Act, 2006 would be entitled to act as an
arbitrator despite the bar contained in Section 80 of
the Arbitration Act.
iv.
The proceedings before the Facilitation Council/
institute/centre acting as an arbitrator/arbitration
tribunal under Section 18(3) of MSMED Act, 2006
would be governed by the Arbitration Act, 1996.
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
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[2022] 19 S.C.R.
v.
The Facilitation Council/institute/centre acting as an
arbitral tribunal by virtue of Section 18(3) of the
MSMED Act, 2006 would be competent to rule on its
own jurisdiction as also the other issues in view of
Section 16 of the Arbitration Act, 1996.
vi.
A party who was not the 'supplier' as per the definition
contained in Section 2(n) of the MSMED Act, 2006
on the date of entering into contract cannot seek any
benefit as the 'supplier' under the MSMED Act, 2006.
If any registration is obtained subsequently the same
would have an effect prospectively and would apply
to the supply of goods and rendering services
subsequent to the registration. [Para 34][1130-B-G]
SBP & Company v. Patel Engineering Ltd (2005) 8 SCC
618 : [2005] 4 Suppl. SCR 688; Shiv Shakti Cooperative
Housing Society, Nagpur vs. Swaraaj Developers and
Others (2003) 6 SCC 659 : [2003] 3 SCR 762; Bharat
Aluminum Company v. Kaiser Aluminum Technical
Services (2012) 9 SCC 648; Antrix Corporaton Limited
v. Devas Multimedia Private Limited (2014) 11 SCC
560 : [2013] 6 SCR 453; Amazon.com NV Investment
Holdings LLC. v. Future Retail Limited and other (2022)
1 SCC 209; Orissa State Financial Corporation v.
Narsinghch. Nayak and Others (2003) 10 SCC 261;
Shin Satellite Public Co. Ltd. v. Jain Studios Ltd. (2006)
2 SCC 628 : [2006] 1 SCR 933; Silpi Industries etc. v.
Kerala State Road Transport Corporation and Anr 2021
SCC Online SC 439; Secur Industries Ltd. v. Godrej &
Boyce Mfg. Co. Ltd. And Anr (2004) 3 SCC 447 : [2004]
2 SCR 705; Solidaire India Ltd. v. Fairgrowth Financial
Services Ltd. & Ors (2001) 3 SCC 71 : [2001] 1 SCR
932; Maruti Udyog Ltd. v. Ram Lal & Ors (2005) 2
SCC 638 : [2005] 1 SCR 790; Union of India v.
Prabhakaran Vijaya Kumar and Ors (2008) 9 SCC 517;
Regional Provident Fund Commr. v. Hoogly Mills Co.
Ltd. (2012) 2 SCC 489 : [2012] 1 SCR 363;
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1101
Commissioner of Income Tax, Patiala v. Shahzada Nand
& Sons AIR 1966 SC 1342 : [1966] 3 SCR 379;
Kaushalya Rani v. Gopal Singh AIR 1964 SC 260 :
[1964] 4 SCR 982; K. Prabhakaran v. P. Jayarajan
(2005) 1 SCC 754 : [2005] 1 SCR 296 - Referred to.
Case Law Reference
[2005] 4 Suppl. SCR 688
referred to
Para3
[2003] 3 SCR 762
referred to
Para 13
[2013] 6 SCR 453
referred to
Para 13
[2006] 1 SCR 933
referred to
Para 13
[2004] 2 SCR 705
referred to
Para 14
[2001] 1 SCR 932
referred to
Para 14
[2005] 1 SCR 790
referred to
Para 14
[2012] 1 SCR 363
referred to
Para 15
[1966] 3 SCR 379
referred to
Para 17
[1964] 4 SCR 982
referred to
Para 19
[2005] 1 SCR 296
referred to
Para 26
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8008
of 2022.
From the Judgment and Order dated 13.11.2019 of the High Court
of Gujarat at Ahmedabad in R/First Appeal No.3613 of 2019.
With
Civil Appeal Nos. 127 of 2018, 6167 of 2013, 8009, 8010, 8011,
8012 of 2022.
Tushar Mehta, SG, Balbir Singh, ASG, Nakul Dewan, Ranjit Kumar,
Vinay Navare, G. Umapathy, Atul Yeshwant Chitale, Maninder Singh,
Sr. Advs., Prashant Singh, Ms. Liz Mathew, Kanu Agrawal, Pratap
Venugopal, Annam Venkatesh, Amrish Kumar, Ms. Aastha Mehta,
Bhargav Pandya, Ms. Deepanwita Priyanka, Ms. Anushree Prashit
Kapadia, Sambit Nanda, Ms. Anushka Shah, Ms. Priyanka Rathi, Ms.
Ms. Smriti Kalra, Muddam Thirupathi Reddy, Vijay K. Singh, Ms. Vijaya
Singh, Abhishek Singh, Pravartak Pathak, Ms. Gwen Karthika, Ms. Abha
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD. (UNIT 2)
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R. Sharma, Anup Jain, Udit Gupta, Akshay Goel, M/s. Udit Kishan and
Associates, Ms. Tanvi Kakar, Ms. Prathmesh Kamat, Ms. Suchitra Atul
Chitale, Sunil Kumar Jain, Ms. Rashika Swarup, Manish Kumar Saran,
Satya Prakash Sharan, Aspi Kapadia, Ms. Nidhi Mohan Parashar, Vikrant
Kumar, Sachin Patil, Rahul Chitnis, Aaditya A. Pande, Geo Joseph, Ms.
Shwetal Shepal, Amit Meharia, Ms. Tannishtha Singh, Abinash Agarwal,
M/s. Meharia & Company, Satyajit A. Desai, Satya Kam Sharma,
Siddharth Gautam, Himanshu Sharma, Ms. Anagha S. Desai, Gaurav
Kejriwal, Pankaj Singhal, Pawas Agarwal, Arjun Aggarwal, Ms. Asha
Gopalan Nair, Ms. Nivedita Nair, Arun Gopalan Nair, Advs. for the
appearing parties.
The Judgment of the Court was delivered by
BELA M. TRIVEDI, J.
1. Leave to appeal is granted in SLP(C) No. 12884/2020, SLP(C)
No. 31227/2018, SLP(C) No. 7375/2020, SLP(C) No. 2135/2021 and
SLP(C) No. 6166/2021.
2. All these seven appeals though factually different, involve certain
common questions of law and therefore were heard together.
3. The broad outline of the impugned orders in each appeal may
be stated as under:
(I)
C.A. No...... of 2022 (@ SLP (C) No. 12884/2020)
The appellant Gujarat State Civil Supplies Corporation
Ltd. (Original Petitioner), has challenged the Order dated
13.11.2019 passed by the Gujarat High Court in the First
Appeal No. 3613/2019, whereby the High Court has
dismissed the said appeal filed by the appellant under Section
37 of the Arbitration and Conciliation Act, 1996 (Hereinafter
referred to as "the Arbitration Act, 1996"). In the said First
Appeal, the appellant had challenged the Order dated
20.08.2018 passed by the Commercial Court, Ahmedabad
in Commercial Civil Misc. Application No. 54/2016 filed
under Section 34 of the Arbitration Act read with Section
19 of the Micro, Small and Medium Enterprises
Development Act, 2006 (hereinafter referred to as "the
MSMED Act, 2006"), whereby the commercial court had
confirmed the award made by the Madhya Pradesh Micro
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and Small Enterprises Facilitation Council, Bhopal in
Reference No. NSEFC 442/2012, holding that the provisions
of MSMED Act, 2006 had an effect overriding the provisions
of the Arbitration Act and that the Facilitation Council at
Bhopal had the jurisdiction to adjudicate upon the disputes
between the parties.
(II)
C.A. No. 127/2018
The appellant M/s. Ramkrishna Electricals Ltd.
(Original Respondent No. 2) has challenged the Order dated
27.06.2017 passed by theHigh Court of Judicature at
Bombay, Nagpur Bench, Nagpur, in W.P. No. 4435/2011,
whereby the High Court has allowed the said petition, holding
that the Micro, Small Enterprises Facilitation Council,
Nagpur, did not have the jurisdiction to decide the Original
Application No. 24/2010 filed by the appellant herein. In
the impugned order, the High Court followed its earlier
decision in case Steel Authority Vs. MSE Facilitation
Council1, in which it was held that the Facilitation Council
would not be entitled to proceed under the provisions of
Section 18(3) of MSMED Act, 2006 when there is an
independent arbitration agreement between the parties.
(III) C.A. No. 6167/2013
The appellant M/s. Vidarbha Ceramics Pvt. Ltd.
(Original Respondent No. 2) has challenged the Order dated
27.08.2010 passed by the High Court of Judicature at
Bombay, Nagpur Bench, Nagpur, in W.P. No. 2145/2010
(AIR 2012 Bom. 178) whereby the High Court has allowed
the said petition holding that the Facilitation Council,
Nagpur,was not entitled to proceed under Section 18(3) of
the MSMED Act, 2006 in view of an arbitration agreement
executed between the parties.
(IV) C.A. ...... of 2022 (@ SLP (C) No. 31227/2018)
The appellant Gujarat State Petronet Ltd. (Original
Petitioner) has challenged the Order dated 06.08.2018
passed by the High Court of Judicature at Bombay, in W.P.
1 AIR 2012 Bom. 178
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD. (UNIT 2) [BELA M. TRIVEDI, J.]
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No. 5459/2015, whereby the High Court disposed of the
Writ Petition by holding that despite independent arbitration
agreement between the parties, the respondent Facilitation
Council, Thane had the jurisdiction to entertain the reference
made by the Respondent No. 1 Krunal Engineering Works
(Original RespondentNo. 3) under Section 18 of the
MSMED Act, 2006, however the High Court held that the
respondent Facilitation Council itself having conducted the
conciliation proceedings, could not have taken up the
disputes for arbitration in view of Section 80 of the
Arbitration Act, 1996. The High Court directed the
Facilitation Council to refer the disputes between the parties
to any institution or centre providing alternative dispute
resolution services for arbitration.
(V)
C.A. ...... of 2022 (@ SLP (C) No. 7375/2020)
The appellant Bharat Electronics Ltd. & Anr.
(Original Petitioners) have challenged the Order dated
20.01.2020 passed by the High Court of Judicature at
Bombay in W.P. No. 7899/2017, whereby the High Court
has dismissed the said petition along with the W.P. No. 9356/
2018, holding that when the Facilitation Council had
conducted the arbitration proceedings and passed an award
under Section 18(3) of the MSMED Act, 2006 the remedy
of the aggrieved party would be to take recourse to Section
34 of the Arbitration Act. The High Court relied upon the
ratio in case of SBP & Company Vs. Patel Engineering
Ltd.2 which disapproved the practice of High Courts
entertaining petitions under Article 226/227 of the
Constitution of India challenging the orders passed by the
Arbitration Tribunal.
(VI) C.A. ......of 2022 (@ SLP (C) No. 2135/2021)
The appellant Union of India (Original Appellant) has
challenged the Order dated 23.08.2019 passed by the Delhi
High Court in LPA 42/2019, whereby the High Court while
dismissing the said LPA held that despite the arbitration
clause in the agreement between the parties, if the MSMED
2 (2005) 8 SCC 618.
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Act,2006 is applicable to the party, Facilitation Council would
have the jurisdiction under Section 18(3) to either take up
the matter for arbitration itself or refer the matter for
arbitration to any institution or centre providing alternative
dispute resolution services.
(VII) C.A. ...... of 2022 (@ SLP (C) No. 6166/2021)
The appellant JITF Water Infrastructure Ltd. (Original
Petitioner) has challenged the Order dated 24.07.2020
passed by the Gujarat High Court in LPA 1667/2019,
whereby the High Court while dismissing the said LPA and
confirming the order passed by the Single Bench,held that
Respondent No. 2 M/s. Aquafil Polymers Company Pvt.
Ltd. and M/s. Wintech Engineering Pvt. Ltd.being integral
part of the joint venture, any contract signed by the joint
venture would be a contract for the benefit and on behalf
of its constituents/components; and that if one of the
components of the joint venture (in this case M/s Aquafil
Polymers) had filed its memorandum under Section 8 of
the MSMED Act, 2006 it cannot be denied the status of the
supplier, even though joint venture had not filed such
memorandum. The High Court further held that the
respondent no. 2 Aquafil Polymers, who was the supplier
had rightly appliedto the Facilitation Council under Section
18(1) of the MSMED Act, 2006 and that the Facilitation
Council having conducted the Conciliation process and the
same havingfailed, the Facilitation Council had no option
left but to refer it to the institution or centre providing
alternative dispute resolution services for carrying out the
matter further in accordance with the provisions of
Arbitration Act, 1996.
4. In the background of afore-stated spectrum of cases, following
common questions of law arise for consideration:
(i)
Whether the provisions of Chapter-V of the MSMED Act,
2006 would have an effect overriding the provisions of the
Arbitration Act, 1996?
(ii)
Whether any party to a dispute with regard to any amount
due under Section 17 of the MSMED Act,2006 would be
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD. (UNIT 2) [BELA M. TRIVEDI, J.]
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precluded from making a reference to the Micro and Small
Enterprises Facilitation Council under sub-section (1) of
Section 18 of the said Act, if an independent arbitration
agreement existed between the parties as contemplated in
Section 7 of the Arbitration Act,1996?
(iii)
Whether the Micro and Small Enterprises Facilitation
Council, itself could take up the dispute for arbitration and
act as an arbitrator, when the council itself had conducted
the conciliation proceedings under sub-section (2) of the
Section 18 of the MSMED Act, 2006 in view ofthe bar
contained in Section 80 of the Arbitration Act,1996?
5. Before adverting to the afore-stated questions of law, beneficial
would be to glance through the legislative history and the objects and
reasons as also the relevant provisions of the MSMED Act, 2006 and of
the Arbitration Act, 1996. So far as the legislative history of MSMED
Act, 2006 is concerned, it appears thatin order to promote and strengthen
the small, tiny and medium scale industrial undertakings, the "Interest on
Delayed Payments to Small Scale and Ancillary Industrial Undertakings
Act, 1993" (hereinafter referred to as "The Delayed Payments Act")
was enacted by the Parliament. The object of the said enactment was to
provide for and regulate the payment of interest on delayed payments to
the small scale and ancillary industrial undertakings. Though Sections 4
and 5 of the Delayed Payments Act, made the provisions of the recovery
of amount and computation of compound interest and section 10 thereof
provided for the effect overriding the other laws for the time being in
force, it did not provide for any dispute resolution mechanism through
which a small enterprise could avail of its remedies. The small enterprises,
therefore, had to file a suit or to follow the contractual terms as contained
in the arbitration agreement for the recovery of their dues. The
Government of India, Ministry of Industry, the Department of SmallScale Industries and Argo and Rural Industries, realizing the need for
reforms in the then existing policies and to design new policies for the
development of small and medium enterprises constituted "an expert
committee on small enterprises" vide the Order dated 29.12.1995. The
committeerecommended for enacting an Act for the inclusion of stringent
provisions for non-payment of dues to the small-scale industries. This
was followed by the Small and Medium Enterprises Development Bill,
2005 in August, 2005.The said Bill was referred to the Parliamentary
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Standing Committee on Industry, which submitted its 176th report on the
said Bill of 2005.The recommendations of the said committee culminated
into the MSMED Bill, which sought to achieve following amongst other
objects: -
-
to make provisions for ensuring timely and smooth flow of
credit to small and medium enterprises to minimize the
incidence of sickness among and enhancing the
competitiveness of such enterprises, in accordance with the
guidelines or instructions of the Reserve Bank of India;
-
tomake further improvements in the Interest on Delayed
Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993 and making that enactment a part
of the proposed legislation and to repeal that enactment.
6. The MSMED Bill having been passed by both the Houses of
Parliament, received the assent of the President on 16th June, 2006 and
came into the Statute Book as the MSMED Act, 2006, (27 of 2006).The
long title of the Act states that the said Act has been enacted to provide
for facilitating the promotion and development, and enhancing the
competitiveness of micro, small and medium enterprises and for matters
connected therewith or incidental thereto. The Act has been divided into
Six Chapters, and Chapter-V pertains to the 'Delayed payments to micro
and small enterprises.'
7. Some of the definitions and provisions contained in the MSMED
Act, 2006 being relevant for the purpose of deciding these appeals are
reproduced hereunder: -
"2.Definitions. -In this Act, unless the context otherwise
requires, -
(a) ....
(b) "appointed day" means the day following immediately after
the expiry of the period of fifteen days from the day of acceptance
or the day of deemed acceptance of any goods or any services by
a buyer from a supplier.
Explanation. -For the purposes of this clause, -
(i) "the day of acceptance" means, -
(a) the day of the actual delivery of goods or the rendering
of services; or
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD. (UNIT 2) [BELA M. TRIVEDI, J.]
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(b) where any objection is made in writing by the buyer
regarding acceptance of goods or services within fifteen days
from the day of the delivery of goods or the rendering of
services, the day on which such objection is removed by the
supplier;
(ii) "the day of deemed acceptance" means, where no objection
is made in writing by the buyer regarding acceptance of goods
or services within fifteen days from the day of the delivery of
goods or the rendering of services, the day of the actual delivery
of goods or the rendering of services;
(c) .....
(d) "buyer" means whoever buys any goods or receives any
services from a supplier for consideration;
(e) .....
(f) .....
(g) .....
(h) "micro enterprise" means an enterprise classified as such under
sub-clause (i) of clause (a) or sub-clause (i) of clause (b) of subsection (1) of section 7;
(i) .....
(j) .....
(k) ....
(l) .....
(m) "small enterprise" means an enterprise classified as such under
sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b) of subsection (1) of section 7;
(n) "supplier" means a micro or small enterprise, which has filed
a memorandum with the authority referred to in sub-section (1)
of section 8, and includes, -
(i) the National Small Industries Corporation, being a company,
registered under the Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State
or a Union territory, by whatever name called, being a company
registered under the Companies Act, 1956 (1 of 1956);
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(iii) any company, co-operative society, trust or a body, by
whatever name called, registered or constituted under any law
for the time being in force and engaged in selling goods
produced by micro or small enterprises and rendering services
which are provided by such enterprises;"
Section 8(1) pertaining to the filing of Memorandum of micro,
small and medium enterprises reads as under: -
"(1) Any person who intends to establish, -
(a) a micro or small enterprise, may, at his discretion; or
(b) a medium enterprise engaged in providing or rendering of
services may, at his discretion; or
(c) a medium enterprise engaged in the manufacture or
production of goods pertaining to any industry specified in the
First Schedule to the Industries (Development and Regulation)
Act, 1951 (65 of 1951),
shall file the memorandum of micro, small or, as the case may
be, of medium enterprise with such authority as may be specified
by the State Government under sub-section (4) or the Central
Government under sub-section (3):
Provided that any person who, before the commencement of
this Act, established-
(a) a small-scale industry and obtained a registration certificate,
may, at his discretion; and
(b) an industry engaged in the manufacture or production of
goods pertaining to any industry specified in the First Schedule
to the Industries (Development and Regulation) Act, 1951 (65
of 1951), having investment in plant and machinery of more
than one crore rupees but not exceeding ten crore rupees and,
in pursuance of the notification of the Government of India in
the erstwhile Ministry of Industry (Department of Industrial
Development) number S.O. 477(E), dated the 25th July, 1991
filed an Industrial Entrepreneur's Memorandum,shall within
one hundred and eighty days from the commencement of this
Act, file the memorandum, in accordance with the provisions
of this Act."
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD. (UNIT 2) [BELA M. TRIVEDI, J.]
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8. Chapter-V of the MSMED Act,2006 pertaining to the
"delayedpayments to micro and small enterprises" contains Sections 15
to 25, out of which Sections 15 to 20 and 24 being relevant are reproduced
herein below:
"15.Liability of buyer to make payment. -Where any supplier
supplies any goods or renders any services to any buyer, the buyer
shall make payment therefor on or before the date agreed upon
between him and the supplier in writing or, where there is no
agreement in this behalf, before the appointed day: Provided that
in no case the period agreed upon between the supplier and the
buyer in writing shall exceed forty-five days from the day of
acceptance or the day of deemed acceptance.
16. Date from which and rate at which interest is payable.-
Where any buyer fails to make payment of the amount to the
supplier, as required under section 15, the buyer shall,
notwithstanding anything contained in any agreement between
the buyer and the supplier or in any law for the time being in
force, be liable to pay compound interest with monthly rests to the
supplier on that amount from the appointed day or, as the case
may be, from the date immediately following the date agreed upon,
at three times of the bank rate notified by the Reserve Bank.
17. Recovery of amount due. -For any goods supplied or
services rendered by the supplier, the buyer shall be liable to pay
the amount with interest thereon as provided under section 16.
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
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(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.
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 seventyfive 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.
20. Establishment of Micro and Small Enterprises
Facilitation Council. -The State Government shall, by
notification, establish one or more Micro and Small Enterprises
GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. v.
MAHAKALI FOODS PVT. LTD. (UNIT 2) [BELA M. TRIVEDI, J.]
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Facilitation Councils, at such places, exercising such jurisdiction
and for such areas, as may be specified in the notification.
21....
22.......
23......
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."
9. So far as the Arbitration Act, 1996 is concerned, its Bill, taking
into account the United Nations Commission on International Trade Law
(UNCITRAL) Model Law and Rules,sought to achieve following
amongst other objects: -
-
to comprehensively cover international and commercial
arbitration and conciliation as also domestic arbitration and
conciliation;
-
to permit an arbitral tribunal to use mediation, conciliation
or other procedures during the arbitral proceedings to
encourage settlement of disputes;
-
to provide that a settlement agreement reached by the parties
as a result of conciliation proceedings will have the same
status and effect as an arbitral award on agreed terms on
the substance of the dispute rendered by an arbitral tribunal.
10. The Arbitration and Conciliation Bill having been passed by
both the Houses of Parliament received the assent of the President on
16th Aug. 1996, and came on the Statute Book as the Arbitration and
Conciliation Act, 1996 (26 of 1996). It came into force on 22.08.1996.
As per the long title of the Act, the said Act was enacted to consolidate
and amend the law relating to domestic arbitration, international
commercial arbitration and enforcement of foreign arbitral awards as
also to define the law relating to conciliation, and for matters connected
therewith and incidental thereto. The Act has been divided into five parts.
Part-I pertains to Arbitration, Part-IA to Arbitration Council of India,
Part-II to Enforcement of certain Foreign Awards, Part-III to Conciliation
and Part-IV pertains to Supplementary Provisions.
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11.