# M/S. SILPI INDUSTRIES ETC v. KERALA STATE ROAD TRANSPORT CORPORATION & ANR. ETC

- **Citation:** [2021] 3 S.C.R. 1044
- **Court:** Supreme Court of India
- **Decided:** 2021-06-29
- **Case number:** Civil Appeal Nos. 1570-1578 of 2021
- **Bench:** Ashok Bhushan, R. Subhash Reddy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-silpi-industries-etc-v-kerala-state-road-transport-corporation-anr-etc-34955
- **Pages:** 31

## Headnote

Limitation Act, 1963: Applicability to proceedings under AC
Act, 1996 arising out of MSMED Act, 2006 - Held: Limitation Act
is applicable to arbitration covered by s.18(3) of the MSMED Act,
2006 - Arbitration and Conciliation Act, 1996 - Micro, Small and
Medium Enterprises Development Act, 2006 - s.18(3).
Micro, Small and Medium Enterprises Development Act, 2006:
s.18(3) - Maintainability of counter claim in arbitration proceedings
initiated as per s.18(3) of MSMED Act - Held: In view of s.23(2A)
of AC Act, 1996, counter claim/set off is maintainable - Arbitration
and Conciliation Act, 1996 - s.23(2A).
Dismissing the appeals, the Court
HELD: 1.1 The Micro, Small and Medium Enterprises
Development Act, 2006 was 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. By bringing
the aforesaid Act (Act 27 of 2006) w.e.f. 16th June 2006, the earlier
Act, namely, Interest on Delayed Payments to Small Scale and
Ancillary Industrial Undertakings Act, 1993 was repealed by virtue
of Section 32 of the 2006 Act. [Para 16][1056-F-G]
1.2 From the Statement of Objects and Reasons of both
the above legislations, it is clear that the earlier legislation, i.e.,
Act No.32 of 1993 was confined only with regard to delayed
payments to small scale and ancillary industrial undertakings but
by subsequent enactment of 2006, a comprehensive legislation
was brought covering the micro, small and medium enterprises.
[Para 17][1057-F-G]
[2021] 3 S.C.R. 1044
1044
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1.3 As per Section 15 of the 2006 Act, where supplier
supplies any goods or renders any services to any buyer, the
buyer shall make payment on or before the agreed date between
the parties in writing or where there is no agreement, before the
appointed day. Section 16 deals with date from which and rate of
interest payable in the event of not making the payment. The
recovery mechanism for the amount due is covered by Sections
17 and 18 of the said Act. If any party has a dispute with regard to
amount due under Section 17, a reference is required to be made
to the Micro and Small Enterprises Facilitation Council. On such
reference, the Council is empowered to conduct conciliation in
the matter or seek assistance of any institution or centre providing
alternate dispute resolution services by making a reference to
such institution for conducting conciliation. If the conciliation is
not successful, as contemplated under Section 18(2) of the said
Act, same stands terminated under Section 18(3) of the said Act.
Thereafter, 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 Arbitration and Conciliation Act, 1996 are made
applicable as if the arbitration was in pursuance of arbitration
agreement between the parties, under sub-section (1) of Section
7 of the 1996 Act. Applicability of Limitation Act, 1963 to the
arbitrations is covered by Section 43 of the 1996 Act. [Para
18][1065-E-H; 1066-A-B]
Andhra Pradesh Power Coordination Committee & Ors.
v. Lanco Kondapalli Power Ltd. & Ors. (2016) 3 SCC
468 : [2015] 12 SCR 447 - affirmed.
1.4 A reading of Section 43 itself makes it clear that the
Limitation Act, 1963 shall apply to the arbitrations, as it applies
to proceedings in court. When the settlement with regard to a
dispute between the parties is not arrived at under Section 18 of
the 2006 Act, necessarily, the Micro and Small Enterprises
Facilitation Council shall take up the dispute for arbitration under
Section 18(3) of the 2006 Act or it may refer to institution or
centre to provide alternate dispute resolution services and
provisions of Arbitration and Conciliation Act 1996 are made
applicable as if there was an agreement between the parties under
M/S. SILPI INDUSTRIES ETC. v. KERALA STATE RO

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SUPREME COURT REPORTS
[2021] 3 S.C.R.
M/S. SILPI INDUSTRIES ETC.
v.
KERALA STATE ROAD TRANSPORT CORPORATION
& ANR. ETC.
(Civil Appeal Nos. 1570-1578 of 2021)
JUNE 29, 2021
[ASHOK BHUSHAN AND R. SUBHASH REDDY, JJ.]
Limitation Act, 1963: Applicability to proceedings under AC
Act, 1996 arising out of MSMED Act, 2006 - Held: Limitation Act
is applicable to arbitration covered by s.18(3) of the MSMED Act,
2006 - Arbitration and Conciliation Act, 1996 - Micro, Small and
Medium Enterprises Development Act, 2006 - s.18(3).
Micro, Small and Medium Enterprises Development Act, 2006:
s.18(3) - Maintainability of counter claim in arbitration proceedings
initiated as per s.18(3) of MSMED Act - Held: In view of s.23(2A)
of AC Act, 1996, counter claim/set off is maintainable - Arbitration
and Conciliation Act, 1996 - s.23(2A).
Dismissing the appeals, the Court
HELD: 1.1 The Micro, Small and Medium Enterprises
Development Act, 2006 was 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. By bringing
the aforesaid Act (Act 27 of 2006) w.e.f. 16th June 2006, the earlier
Act, namely, Interest on Delayed Payments to Small Scale and
Ancillary Industrial Undertakings Act, 1993 was repealed by virtue
of Section 32 of the 2006 Act. [Para 16][1056-F-G]
1.2 From the Statement of Objects and Reasons of both
the above legislations, it is clear that the earlier legislation, i.e.,
Act No.32 of 1993 was confined only with regard to delayed
payments to small scale and ancillary industrial undertakings but
by subsequent enactment of 2006, a comprehensive legislation
was brought covering the micro, small and medium enterprises.
[Para 17][1057-F-G]
[2021] 3 S.C.R. 1044
1044
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1.3 As per Section 15 of the 2006 Act, where supplier
supplies any goods or renders any services to any buyer, the
buyer shall make payment on or before the agreed date between
the parties in writing or where there is no agreement, before the
appointed day. Section 16 deals with date from which and rate of
interest payable in the event of not making the payment. The
recovery mechanism for the amount due is covered by Sections
17 and 18 of the said Act. If any party has a dispute with regard to
amount due under Section 17, a reference is required to be made
to the Micro and Small Enterprises Facilitation Council. On such
reference, the Council is empowered to conduct conciliation in
the matter or seek assistance of any institution or centre providing
alternate dispute resolution services by making a reference to
such institution for conducting conciliation. If the conciliation is
not successful, as contemplated under Section 18(2) of the said
Act, same stands terminated under Section 18(3) of the said Act.
Thereafter, 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 Arbitration and Conciliation Act, 1996 are made
applicable as if the arbitration was in pursuance of arbitration
agreement between the parties, under sub-section (1) of Section
7 of the 1996 Act. Applicability of Limitation Act, 1963 to the
arbitrations is covered by Section 43 of the 1996 Act. [Para
18][1065-E-H; 1066-A-B]
Andhra Pradesh Power Coordination Committee & Ors.
v. Lanco Kondapalli Power Ltd. & Ors. (2016) 3 SCC
468 : [2015] 12 SCR 447 - affirmed.
1.4 A reading of Section 43 itself makes it clear that the
Limitation Act, 1963 shall apply to the arbitrations, as it applies
to proceedings in court. When the settlement with regard to a
dispute between the parties is not arrived at under Section 18 of
the 2006 Act, necessarily, the Micro and Small Enterprises
Facilitation Council shall take up the dispute for arbitration under
Section 18(3) of the 2006 Act or it may refer to institution or
centre to provide alternate dispute resolution services and
provisions of Arbitration and Conciliation Act 1996 are made
applicable as if there was an agreement between the parties under
M/S. SILPI INDUSTRIES ETC. v. KERALA STATE ROAD
TRANSPORT CORPORATION
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sub-section (1) of Section 7 of the 1996 Act. In view of the express
provision applying the provisions of the Limitation Act, 1963 to
arbitrations as per Section 43 of the Arbitration and Conciliation
Act, 1996. the High Court has rightly relied on the judgment in
the case of Andhra Pradesh Power Coordination Committee and
held that Limitation Act, 1963 is applicable to the arbitration
proceedings under Section 18(3) of the 2006 Act. The provisions
of Limitation Act, 1963 will apply to the arbitrations covered by
Section 18(3) of the 2006 Act. [Para 18][1066-C-F]
2.1 The other issue is with regard to maintainability of
counter claim in the arbitration proceedings initiated as per
Section 18(3) of the 2006 Act. Reading of Section 18(3) of the
2006 Act show that when the conciliation initiated under subsection (2) of Section 18 of the said Act is not successful, the
Council shall either itself take up the dispute for arbitration or
refer to any institution for arbitration. Further Section 18(3) of
the said Act also makes it clear that the provisions of 1996 Act
are made applicable as if there is an agreement between the
parties under sub-section (1) of Section 7 of the 1996 Act. Section
23 of the 1996 Act deals with the statement of claim and defence.
Section 23(2A), which gives a right to respondent to submit a
counter claim or plead set-off with regard to claims within the
scope of the arbitration agreement, is brought into Statute by
Amending Act 3 of 2016. The Statement of Objects and Reasons
of the Amending Act, is also enacted to provide for speedy disposal
of cases relating to arbitration with least court intervention.
Clause 11 of the Bill, by which sub-section (2A) was proposed to
be inserted, states that sub-section (2A) was intended to give an
opportunity to the respondent, in support of his case, to submit
counter-claim or a set-off if such counter-claim or set-off falls within
the scope of arbitration agreement. When Section 18(3) makes
it clear that in the event of failure by the Council under Section
18(2) if proceedings are initiated under Section 18(3) of the 1996
Act, the provisions of 1996 Act are not only made applicable but
specific mention is made to the effect as if the arbitration was in
pursuance to an arbitration agreement referred to in sub-section
(1) of Section 7 of the 1996 Act. When there is a provision for
filing counter-claim and set-off which is expressly inserted in
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Section 23 of the 1996 Act, there is no reason for curtailing the
right of the respondent for making counter-claim or set-off in
proceedings before the Facilitation Council. [Paras 19, 20][1066G-H; 1068-G-H; 1069-A-D]
2.2 It is also further to be noted that if the counter-claim
made by the buyer in the proceedings arising out of claims made
by the seller is not allowed, it may lead to parallel proceedings
before the various fora. On one hand, in view of beneficial
legislation, seller may approach the Facilitation Council for claims,
in the event of failure of payment by the buyer under provisions
of 2006 Act, at the same time, if there is no separate agreement
between the parties for any arbitration in a given case, buyer
may approach the civil court for making claims against the seller,
or else if there is an agreement between the parties for arbitration
in the event of dispute between the parties, parties may seek
appointment of arbitrator. At the same time if the seller is covered
by definition under micro, small and medium enterprises, seller
may approach the Facilitation Council for making claims under
the provisions of Micro, Small and Medium Enterprises
Development Act, 2006. In such event, it may result in conflicting
findings, by various forums. [Para 21][1069-E-G]
2.3 The obligations of the buyer to make payment, and
award of interest at three times of the bank rate notified by
Reserve Bank in the event of delay by the buyer and the
mechanism for recovery and reference to Micro and Small
Enterprises Facilitation Council and further remedies under the
2006 Act for the party aggrieved by the awards, are covered by
Chapter V of the 2006 Act. The provisions of Section 15 to 23 of
the Act are given overriding effect notwithstanding anything
inconsistent therewith contained in any other law for the time
being in force. From the Statement of Objects and Reasons also
it is clear that it is a beneficial legislation to the small, medium
and micro sector. The Arbitration and Conciliation Act, 1996 is a
general law whereas the Micro, Small and Medium Enterprises
Development Act, 2006 is a special beneficial legislation which
is intended to benefit micro, small and medium enterprises
covered by the said Act. The Act of 2006 contemplates a statutory
M/S. SILPI INDUSTRIES ETC. v. KERALA STATE ROAD
TRANSPORT CORPORATION
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arbitration when conciliation fails. A party which is covered by
the provisions of 2006 Act allows a party to apply to the Council
constituted under the Act to first conciliate and then arbitrate on
the dispute between it and other parties. There are fundamental
differences in the settlement mechanism under the 2006 Act and
the 1996 Act. The first difference is, the Council constituted under
the 2006 Act to undertake mandatory conciliation before the
arbitration which is not so under the 1996 Act. Secondly, in the
event of failure of conciliation under the 2006 Act, the Council or
the centre or institution is identified by it for arbitration. The
1996 Act allows resolution of disputes by agreed forum. The third
difference is that, in the event of award in favour of seller and if
the same is to be challenged, there is a condition for pre-deposit
of 75% of the amount awarded. Such is not the case in the 1996
Act. When such beneficial provisions are there in the special
enactment, such benefits cannot be denied on the ground that
counter-claim is not maintainable before the Council. In any case,
whenever buyer wish to avoid the jurisdiction of the Council, the
buyer can do on the spacious plea of counter-claim, without
responding to the claims of the seller. When the provisions of
Sections 15 to 23 are given overriding effect under Section 24 of
the Act and further the 2006 Act is a beneficial legislation, even
the buyer, if any claim is there, can very well subject to the
jurisdiction before the Council and make its claim/ counter claim
as otherwise it will defeat the very objects of the Act which is a
beneficial legislation to micro, small and medium enterprises.
Even in cases where there is no agreement for resolution of
disputes by way of arbitration, if the seller is a party covered by
Micro, Small and Medium Enterprises Development Act, 2006,
if such party approaches the Council for resolution of dispute,
other party may approach the civil court or any other forum making
claims on the same issue. If two parallel proceedings are allowed,
it may result in conflicting findings. [Para 23][1070-C-H; 1071A-D]
Edukanti Kistamma (Dead) through LRs. v.
S. Venkatareddy (Dead) through LRs. & Ors. (2010) 1
SCC 756 : [2009] 16 SCR 47 - relied on.
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2.4 It is clear that out of the two legislations, the provisions
of MSMED Act will prevail, especially when it has overriding
provision under Section 24 thereof. Thus, this court holds that
MSMED Act, being a special Statute, will have an overriding effect
vis-à-vis Arbitration and Conciliation Act, 1996, which is a general
Act. Even if there is an agreement between the parties for
resolution of disputes by arbitration, if a seller is covered by Micro,
Small and Medium Enterprises Development Act, 2006, the seller
can certainly approach the competent authority to make its claim.
If any agreement between the parties is there, same is to be
ignored in view of the statutory obligations and mechanism
provided under the 2006 Act. Further, apart from the provision
under Section 23(2A) of the 1996 Act, it is to be noticed that if
counter-claim is not permitted, buyer can get over the legal
obligation of compound interest at 3 times of the bank rate and
the "75% pre-deposit" contemplated under Sections 16 and 19
of the MSMED Act. On a harmonious construction of Section
18(3) of the 2006 Act and Section 7(1) and Section 23(2A) of the
1996 Act, counter-claim is maintainable before the statutory
authorities under MSMED Act. [Paras 23, 24][1071-D-H; 1072A]
3.1 In C.A.Nos.1620-1622 of 2021, the High Court, while
negating the plea of the appellant, on the maintainability of
counter-claim, has allowed the application filed by the respondent
under Section 11(6) of the 1996 Act and appointed the second
arbitrator. Though, counter-claim and set-off is maintainable before
the statutory authorities under MSMED Act, appellant in this
set of appeals is not entitled for the relief, for the reason that on
the date of supply of goods and services the appellant did not
have the registration by submitting the memorandum as per
Section 8 of the Act. The bids were invited on 23.02.2010,
appellant submitted its bid on 17.05.2010, respondent awarded
contract to the appellant on 24.09.2010 and the parties signed
the contract documents for supply of material, installation/
commissioning of the power plant on 29.07.2011. Thereafter,
supplies were made and the appellant has raised first invoice on
02.11.2011 for supply contract and also raised the first invoice
pursuant to contract for installation on 07.07.2012 and the
appellant has raised the last invoice in furtherance of contract for
supply of material, on 29.03.2014. The appellant also claims to
M/S. SILPI INDUSTRIES ETC. v. KERALA STATE ROAD
TRANSPORT CORPORATION
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SUPREME COURT REPORTS
[2021] 3 S.C.R.
have raised last invoice on 29.03.2015 in furtherance of contract
for installation. It is to be noticed that appellant approached the
District Industrial Centre for grant of entrepreneur memorandum
only on 25.03.2015. [Para 25][1072-A-E]
GE T & D India Ltd. v. Reliable Engineering Projects
and Marketing (2017) SCC OnLine Del 6978 -
distinguished.
3.2 Though the appellant claims the benefit of provisions
under MSMED Act, on the ground that the appellant was also
supplying as on the date of making the claim, as provided under
Section 8 of the MSMED Act, but same is not based on any
acceptable material. In the present case, undisputed position is
that the supplies were concluded prior to registration of supplier.
To seek the benefit of provisions under MSMED Act, the seller
should have registered under the provisions of the Act, as on the
date of entering into the contract. In any event, for the supplies
pursuant to the contract made before the registration of the unit
under provisions of the MSMED Act, no benefit can be sought
by such entity, as contemplated under MSMED Act. [Para
26][1072-E-F, G-H; 1073-A]
Shanti Conductors Pvt. Ltd. & Anr. Etc. v. Assam State
Electricity Board & Ors. Etc. (2019) 19 SCC 529 -
referred to.
3.3 There is no acceptable material to show that, supply of
goods has taken place or any services were rendered, subsequent
to registration of appellant as the unit under MSMED Act, 2006.
By taking recourse to filing memorandum under sub-section (1)
of Section 8 of the Act, subsequent to entering into contract and
supply of goods and services, one cannot assume the legal status
of being classified under MSMED Act, 2006, as an enterprise, to
claim the benefit retrospectively from the date on which appellant
entered into contract with the respondent. The appellant cannot
become micro or small enterprise or supplier, to claim the benefits
within the meaning of MSMED Act 2006, by submitting a
memorandum to obtain registration subsequent to entering into
the contract and supply of goods and services. If any registration
is obtained, same will be prospective and applies for supply of
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goods and services subsequent to registration but cannot operate
retrospectively. Any other interpretation of the provision would
lead to absurdity and confer unwarranted benefit in favour of a
party not intended by legislation. [Para 26][1073-C-F]
3.4 It is also not in dispute that the appellant approached
the District Industrial Centre and filed entrepreneur memorandum
under Section 8 of the MSMED Act 2006 only on 25.03.2015 and
later has approached the Council invoking the provisions of
MSMED Act by filing application under Section 18 of the Act. It
is the specific case of the respondent that the appellant has
abandoned the incomplete work having made deficient and
defective supplies in the month of February/March 2015. In that
view of the matter, the appellant is not entitled to invoke the
provisions of Chapter V and seek reference to arbitration under
Section 18 of the MSMED Act, 2006. Further, as it is also not in
dispute that there is an agreement for arbitration between the
parties for resolution of disputes pursuant to their contract, as
such, the High Court has rightly allowed the application filed by
the respondent under Section 11(6) of the 1996 Act. [Para
17][1073-F-H; 1074-A]
M/s. B.H.P. Engineers Pvt. Ltd. v. Director, Industries,
U.P. (Facilitation Centre), Kanpur & Ors. (2009) SCC
OnLine All 565; M/s. Steel Authority of India Ltd. &
Anr. v. Micro, Small Enterprise Facilitation Council
(2010) SCC OnLine Bom 2208 - referred to.
Case Law Reference
[2015] 12 SCR 447
affirmed
Para 18
[2009] 16 SCR 47
relied on
Para 23
(2019) 19 SCC 529
referred to
Para 25
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 15701578 of 2021.
From the Judgment and Order dated 11.08.2017 of the High Court
of Kerala at Ernakulam in Arbitration Appeal No. 69, 70, 72, 73, 77, 78,
79, 80 and 81 of 2014.
M/S. SILPI INDUSTRIES ETC. v. KERALA STATE ROAD
TRANSPORT CORPORATION
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With
Civil Appeal Nos. 1620-1622 of 2021.
V. Giri, Ms. Aishwarya Bhati, Basava Prabhu S. Patil, Sr. Advs.,
Karthik S.D., John Mathew, Deepak Prakash, Nikhil Balan,
Ms. Divyangna Malik, Nitin, Nachiketa Vajpayee, Ms. Prerna Robin,
Ms. Jessica Bhardwaj, Abhishek Bhati, P. B. Suresh, Vipin Nair, Karthik
Jayashankar, Arindam Ghosh, Anshuman Bahadur, V. N. Raghupathy,
Advs. for the appearing parties.
The Judgment of the Court was delivered by
R. SUBHASH REDDY, J.
1. In view of the common issues which arise for consideration,
these appeals are heard together and disposed of by this common
judgment.
2. Civil Appeal Nos.1570-1578 of 2021 are filed, aggrieved by the
common judgment dated 11.08.2017 passed in Arbitration Appeal Nos.69,
70, 72, 73, 77, 78, 79, 80 and 81 of 2014. By the aforesaid judgment,
High Court has allowed the Arbitration Appeals filed by the respondent
no.1-Kerala State Road Transport Corporation, by setting aside the
common order dated 05.08.2014 passed in O.P.(Arb.) Nos.258 of 2007
etc. and the awards passed by the arbitrator. The High Court has
remanded the matters to the arbitrator for disposal de novo in the light
of the observations made in the judgment.
3. Civil Appeal Nos.1620-1622 of 2021 are filed, aggrieved by the
order dated 06.09.2017 in O.P.No.617 of 2017, passed by the High Court
of Madras, allowing the Original Petition filed by the respondent under
Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter
referred to as 'the 1996 Act') and the orders dated 31.10.2017 and
12.12.2017 passed in applications seeking interim directions.
4. Necessary facts in brief in the first batch of appeals referred
above are as under :
The respondent no.1-Kerala State Road Transport Corporation
(for short 'KSRTC'), invited tenders for supply of thread rubber for tyre
rebuilding. The appellants herein who were the claimants before the
arbitrator were given purchase orders. As per the terms of the purchase
order, 90% of the total purchase price was payable to the appellants/
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claimants on supply of materials and the balance 10% was to be paid
subject to final performance report. This was so, since it was the condition
that the thread rubber supplied by the appellants was to run a minimum
number of kilometers. When the 10% balance amount was not paid as
per the purchase order, the appellants/claimants herein have approached
the Industrial Facilitation Council [previously constituted under the Interest
on Delayed Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993 (for short, 'IDPASC Act')] presently under the
Micro and Small Enterprises Facilitation Council constituted under Micro,
Small and Medium Enterprises Development Act, 2006 (hereinafter
referred to as 'the MSMED Act'). The earlier IDPASC Act was replaced
by MSMED Act and earlier Act was repealed. As the conciliation failed,
the claims made by the appellants herein were referred to arbitration
under provisions of the 1996 Act. The awards were passed in favour of
the claimants and such awards were challenged by way of applications
for setting aside the same under Section 34 of the 1996 Act. When their
applications were dismissed, respondents have carried the matter by
way of appeals under Section 37 of the 1996 Act before the High Court
of Kerala at Ernakulam. The issues, which were formulated in paragraph
5 of the judgment and answered by the High Court, read as under:
"(a) Whether the Limitation Act, 1963 applies to arbitration
proceedings held under the IDPASC and MSMED Acts?
(b) Which is the starting point of limitation to raise claim for the
10% unpaid purchase price?
(c) Whether counter claim is entertainable in the arbitration
proceedings held pursuant to the provisions of the IDPASC and
MSMED Acts?"
5. In the impugned judgment, the High Court, while considering
the submissions of the parties and by referring to various provisions of
the Arbitration and Conciliation Act, 1996 and the provisions of the
Limitation Act, 1963, has answered the issue of limitation and held that
Limitation Act, 1963 is applicable to the proceedings under the 1996 Act
arising out of MSMED Act. While answering the third question with
regard to maintainability of counter claim, the High Court has held that
in view of Section 23(2A) of the 1996 Act, the 'counter claim' and 'set
off' are maintainable. While holding that counter claim is maintainable,
the High Court has agreed with the view taken by the learned Single
M/S. SILPI INDUSTRIES ETC. v. KERALA STATE ROAD
TRANSPORT CORPORATION [R. SUBHASH REDDY, J.]
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Judge of Allahabad High Court in the case of M/s. B.H.P. Engineers
Pvt. Ltd. v. Director, Industries, U.P. (Facilitation Centre), Kanpur
& Ors.1 and the Division Bench judgment of the High Court of Bombay
at Nagpur in the case of M/s. Steel Authority of India Ltd. & Anr. v.
Micro, Small Enterprise Facilitation Council2. Primarily aggrieved
by the findings recorded by the High Court on the applicability of
Limitation Act, 1963 and maintainability of counter claim, the claimants
have filed these appeals on various grounds.
6. Necessary facts in Civil Appeal Nos.1620-1622 of 2021 are as
under :
The appellant and respondent herein have entered into a contract
for supply and installation of hydro-mechanical equipments for 2 x 3
MW Baner-II SHP. The parties have signed an agreement on 27.03.2011,
containing various clauses. It is the case of the appellant that it has
completely executed the contract and project was commissioned on
27.06.2015. The appellant herein alleging that, though it has fulfilled all
its obligations under the contract, the respondent has refused to make
payments as per the contract, has filed a Claim Petition, before the Micro
and Small Enterprises Facilitation Council constituted under the provisions
of MSMED Act, on 20.03.2017. The claim was filed in respect of supply
of goods and services rendered to the respondent-company. It is the
case of the appellant that pursuant to notice issued by Facilitation Council,
the respondent appeared before the Council. Thereafter the respondent
has filed O.P.No.617 of 2017 before the High Court of Judicature at
Madras. The said application was filed under Section 11(6) of the 1996
Act praying for appointment of a second arbitrator to decide upon disputes
that have arisen between the parties pursuant to the breach of terms
and conditions of contract for supply of hydro-mechanical equipments.
7. The said application filed by the respondent herein, is opposed
by the appellant mainly on the ground that it has already moved the
Micro and Small Enterprises Facilitation Council for resolution of disputes,
as such, the respondent as well participate in the proceedings before the
Council, prayed for dismissal of application filed under Section 11(6) of
the 1996 Act.
8. Before the High Court, it was the case of the respondent that
the Facilitation Council has been constituted primarily to deal with the
1 2009 SCC OnLine All 565
2 2010 SCC OnLine Bom 2208
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disputes that are raised by the supplier and does not envisage the laying
of counter claim by other party to a contract, as such it can seek
appointment of arbitrator under Section 11(6) of the 1996 Act.
9. The High Court, while considering the definition of 'supplier'
under Section 2(n) of MSMED Act and also by placing reliance on Section
17 and 18 of MSMED Act, has allowed the application and appointed
Mr. Justice K. Gnanaprakasam, former Judge of Madras High Court as
2nd arbitrator.
10. When the said order is challenged before this Court, by order
dated 29.01.2018, while issuing notice this Court has ordered the Special
Leave Petition be tagged with S.L.P.(C)Nos.33745-33753 of 2017
(C.A.Nos.1570-1578 of 2021).
11. In S.L.P.(C)Nos.33745-33753 of 2017 (C.A.Nos.1570-1578
of 2021), vide order dated 25.01.2018, this Court issued notice limited to
the issue as to whether the counter claim of the respondent could be
entertained by the Arbitral Tribunal.
12. We have heard Sri V. Giri, learned senior counsel appearing
for the appellants and Ms. Aishwarya Bhati, learned Additional Solicitor
General appearing for the Kerala State Road Transport Corporation in
Civil Appeal Nos.1570-1578 of 2021 and Sri P.B. Suresh, learned counsel
appearing for the appellant and Sri Basava Prabhu Patil, learned senior
counsel appearing for the respondent, in Civil Appeal Nos.1620-1622 of
2021.
13. Having regard to contentions of the parties, only two issues
arise for consideration before this Court, namely :
(i) Whether the provisions of Indian Limitation Act, 1963 is
applicable to arbitration proceedings initiated under Section 18(3)
of Micro, Small and Medium Enterprises Development Act, 2006
?; and
(ii) Whether, counter claim is maintainable in such arbitration
proceedings ?
14. Before we deal with the above issues, we need to refer certain
background aspects of the Micro, Small and Medium Enterprises
Development Act, 2006 and the earlier Act, namely, Interest on Delayed
Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993
which was repealed by virtue of Section 32 of the MSMED Act.
M/S. SILPI INDUSTRIES ETC. v. KERALA STATE ROAD
TRANSPORT CORPORATION [R. SUBHASH REDDY, J.]
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SUPREME COURT REPORTS
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15. The Act 32 of 1993 was an outcome pursuant to a policy
statement on small scale industries made by the Government in
Parliament. It was felt that, inadequate working capital in small scale or
an ancillary industrial undertaking causes serious and endemic problems
affecting the health of such undertaking. The Small Scale Industries
Board, which was an apex advisory body on policies relating to small
scale industrial units with representatives from all the States,
governmental bodies and industrial sector was also of the same view.
Therefore, it was felt that prompt payments of money by buyers should
be statutorily ensured and mandatory provisions for payment of interest
on outstanding money, in case of default, should be made. The "appointed
day", as defined under Section 2(b) of the said Act, means - the day
following immediately after the expiry of the period of thirty days from
the day of acceptance or the day of deemed acceptance of any goods or
any services by a buyer from a supplier. Therefore, a liability to make
payment by the buyer was made under Section 3 of the said Act
mandating that buyer shall make payment before the agreed date by the
parties, where there is no agreement, before the appointed day. In case
of failure to make payment by the buyer within the stipulated time as per
Section 3, buyer was made to pay interest at one and a half time of
Prime Lending Rate charged by the State Bank of India. There was
also a mechanism for recovery and created Industry Facilitation Council,
as primary body and appellate authority was notified under Section 7 of
the said Act. Under Section 10 of the said Act, Act 32 of 1993 was given
overriding effect.
16. The Micro, Small and Medium Enterprises Development Act,
2006 was 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. By bringing the aforesaid Act (Act 27 of 2006) w.e.f. 16th June
2006, the earlier Act, namely, Interest on Delayed Payments to Small
Scale and Ancillary Industrial Undertakings Act, 1993 was repealed by
virtue of Section 32 of the 2006 Act. Prior to the enforcement of Act 32
of 1993, the small scale industry was defined only by notification under
Section 11B of the Industries (Development and Regulation) Act, 1951.
As per Section 29B of the said Act, notifications were being issued
notifying reservation of items for exclusive manufacture in small scale
industry sector. Except the above said two provisions, as there was no
legal framework for the small scale industry, and by noticing that the
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small scale industry is the dynamic and vibrant sector of the country's
economy, it was felt to bring a comprehensive Central enactment to
provide appropriate legal framework for the sector to facilitate its growth
and development. It is also clear from the Statement of Objects and
Reasons of the Act, that the need which was felt to extend policy support
for small scale sector so that they are enabled to grow into medium ones
and to adopt better and higher levels of technology and achieve higher
productivity to remain competitive in fast globalization period. It was
also noticed that medium industry or enterprise was not defined by any
law. From the Statement of Objects and Reasons, it is clear that the said
Act was enacted to provide statutory definitions to 'small enterprise'
and 'medium enterprise'; to provide for establishment of National Small
and Medium Enterprises Board; provide for classification of small and
medium enterprises on the basis of investment in plant and machinery;
empower the Central Government to notify programmes, guidelines for
enhancing the competitiveness of small and medium enterprises; to make
provisions for ensuring timely and smooth flow of credit to small and
medium enterprises to minimize the incidence of sickness; empower the
Central and State Governments to notify preference policies in respect
of procurement of goods and services; empowering the Central
Government to create a Fund or Funds for facilitating promotion and
development and enhancement of the competitiveness of small enterprises
and medium enterprises; to make further improvements in the Interest
on Delayed Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993 and to make that enactment a part of the
proposed legislation and to repeal the enactment, etc.
17. From the Statement of Objects and Reasons of both the above
legislations, it is clear that the earlier legislation, i.e., Act No.32 of 1993
was confined only with regard to delayed payments to small scale and
ancillary industrial undertakings but by subsequent enactment of 2006, a
comprehensive legislation was brought covering the micro, small and
medium enterprises. Under the new Act, there is a provision for
establishment of Board by the Central Government, namely, National
Board for Micro, Small and Medium Enterprises. The 'enterprises' were
classified under Chapter III of the 2006 Act into micro, small and medium
enterprises. Liability of buyer and the mechanism in the event of default
is by various provisions under Chapter V of the Act. Sections 5 to 19
which are relevant for the purpose of disposal of these cases read as
under :
M/S. SILPI INDUSTRIES ETC. v. KERALA STATE ROAD
TRANSPORT CORPORATION [R. SUBHASH REDDY, J.]
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SUPREME COURT REPORTS
[2021] 3 S.C.R.
"5. Functions of Board.-The Board shall, subject to the general
directions of the Central Government, perform all or any of the
following functions, namely:-
(a) examine the factors affecting the promotion and
development of micro, small and medium enterprises and review
the policies and programmes of the Central Government in regard
to facilitating the promotion and development and enhancing the
competitiveness of such enterprises and the impact thereof on
such enterprises;
(b) make recommendations on matters referred to in clause
(a) or on any other matter referred to it by the Central Government
which, in the opinion of that Government, is necessary or expedient
for facilitating the promotion and development and enhancing the
competitiveness of the micro, small and medium enterprises; and
(c) advise the Central Government on the use of the Fund
or Funds constituted under section 12.
6. Powers and functions of Member-Secretary of Board.-
Subject to other provisions of this Act, the Member-Secretary of
the Board shall exercise such powers and perform such functions
as may be prescribed.
7. Classification of enterprises.-(1) Notwithstanding anything
contained in section 11B of the Industries (Development and
Regulation) Act, 1951 (65 of 1951), the Central Government may,
for the purposes of this Act, by notification and having regard to
the provisions of sub-sections (4) and (5), classify any class or
classes of enterprises, whether proprietorship, Hindu undivided
family, association of persons, co-operative society, partnership
firm, company or undertaking, by whatever name called,-
(a) in the case of the enterprises 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), as-
(i) a micro enterprise, where the investment in plant and
machinery does not exceed twenty five lakh rupees;
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(ii) a small enterprise, where the investment in plant and
machinery is more than twenty-five lakh rupees but does not
exceed five crore rupees; or
(iii) a medium enterprise, where the investment in plant and
machinery is more than five crore rupees but does not exceed ten
crore rupees;
(b) in the case of the enterprises engaged in providing or
rendering of services, as-
(i) a micro enterprise, where the investment in equipment
does not exceed ten lakh rupees;
(ii) a small enterprise, where the investment in equipment
is more than ten lakh rupees but does not exceed two crore rupees;
or
(iii) a medium enterprise, where the investment in equipment
is more than two crore rupees but does not exceed five crore
rupees.
Explanation 1.-For the removal of doubts, it is hereby
clarified that in calculating the investment in plant and machinery,
the cost of pollution control, research and development, industrial
safety devices and such other items as may be specified, by
notification, shall be excluded.
Explanation 2.-It is clarified that the provisions of section
29B of the Industries (Development and Regulation) Act, 1951
(65 of 1951), shall be applicable to the enterprises specified in
sub-clauses (i) and (ii) of clause (a) of sub-section (1) of this
section.
(2) The Central Government shall, by notification, constitute
an Advisory Committee consisting of the following members,
namely:-
(a) the Secretary to the Government of India in the Ministry
or Department of the Central Government having administrative
control of the small and medium enterprises who shall be the
Chairperson, ex officio;
M/S. SILPI INDUSTRIES ETC. v. KERALA STATE ROAD
TRANSPORT CORPORATION [R. SUBHASH REDDY, J.]
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[2021] 3 S.C.R.
(b) not more than five officers of the Central Government
possessing necessary expertise in matters relating to micro, small
and medium enterprises, members, ex officio;
(c) not more than three representatives of the State
Governments, members, ex officio; and
(d) one representative each of the associations of micro,
small and medium enterprises, members, ex officio.
(3) The Member-Secretary of the Board shall also be the
ex officio Member-Secretary of the Advisory Committee.
(4) The Central Government shall, prior to classifying any
class or classes of enterprises under sub-section (1), obtain the
recommendations of the Advisory Committee.
(5) The Advisory Committee shall examine the matters
referred to it by the Board in connection with any subject referred
to in section 5 and furnish its recommendations to the Board.
(6) The Central Government may seek the advice of the
Advisory Committee on any of the matters specified in section 9,
10, 11, 12 or 14 of Chapter IV.
(7) The State Government may seek advice of the Advisory
Committee on any of the matters specified in the rules made under
section 30.
(8) The Advisory Committee shall, after considering the
following matters, communicate its recommendations or advice
to the Central Government or, as the case may be, State
Government or the Board, namely:-
(a) the level of employment in a class or classes of
enterprises;
(b) the level of investments in plant and machinery or
equipment in a class or classes of enterprises; 8
(c) the need of higher investment in plant and machinery or
equipment for technological upgradation, employment generation
and enhanced competitiveness of the class or classes of
enterprises;
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(d) the possibility of promoting and diffusing
entrepreneurship in micro, small or medium enterprises; and
(e) the international standards for classification of small
and medium enterprises.
(9) Notwithstanding anything contained in section 11B of
the Industries (Development and Regulation) Act, 1951 (65 of
1951) and clause (h) of section 2 of the Khadi and Village Industries
Commission Act, 1956 (61 of 1956), the Central Government may,
while classifying any class or classes of enterprises under subsection (1), vary, from time to time, the criterion of investment
and also consider criteria or standards in respect of employment
or turnover of the enterprises and include in such classification
the micro or tiny enterprises or the village enterprises, as part of
small enterprises.
8.