Allowed

Chhattisgarh Samvaad v. M/S Shri Ram Printers and Stationers

Chhattisgarh HC2 Dec 2024WPC/1440/2023

Case brief

AI extract

What is this about?

This High Court held that a writ petition challenging an award of the MSME Facilitation Council is maintainable due to violation of natural justice and procedural mandatory under the Arbitration and Conciliation Act. It set aside the award for not following proper arbitration procedures and remanded the matter.

What did the court decide?

The impugned award passed by the Facilitation Council dated 27.01.2023 was set aside, and the matter was remitted back to the Council to pass an order afresh in accordance with law.

Chhattisgarh Samvaad Vs M/S Shri Ram Printers and Stationers — Arbitration | Chhattisgarh HC (2024)

2024:CGHC:47561

NAFR

HIGH COURT OF CHHATTISGARH, BILASPUR

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Order Reserved on 30/07/2024 Order delivered on 03/12/2024

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WPC No. 1440 of 2023

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Chhattisgarh Samvaad Through General Manager, Sector - 19, North Block, Atal Nagar, New Raipur, District : Raipur, Chhattisgarh . .. Petitioner

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versus

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M/s Shri Ram Printers And Stationers Address - Lodhipara Chowk, Raipur,Chhattisgarh.PinCode-492004.

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Micro And Smal Enterprises Facilitation Council, Udyog Bhawan, Ring Road No. 01, Telibandha, Raipur, Chhattisgarh.

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... Respondents

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For Petitioner : Mr. Shobhit Mishra, Advocate For Respondent : Mr. Apurv Goyal, Advocate.

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SB: Hon’ble Mr. Justice Parth Prateem Sahu

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CAV Order

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Petitioner has filed this petition seeking following reliefs:-

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“10.1. That this Hon’ble Court may kindly be pleased to allow this writ petition and consequently, issue an appropriate writ/order/direction thereby quashing/setting aside the impugned order dated 29.11.2022 pronounced on 27.01.2023 passed by respondent No.2.

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Digitally NISHA signed by DUBEY NISHA DUBEY

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10.2 That this Hon’ble Court may kindly be pleased to issue an appropriate writ/order/direction thereby remanding back the matter to the respondent No.2

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and direct respondent No.2 to pass the order only after following the procedures prescribed in the MSME Act, 2006.

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10.3 That any other order/relief which this Hon’ble Court may deem fit, proper and just in the facts and circumstances of the present case may also kindly be awarded to the petitioner in the ends of justice & equity.

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10.4. That the cost of the petition may kindly also be awarded to the petitioner.”

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Facts of the case, in brief, are that petitioner institution is an associate organization of the Directorate of Public Relations, Raipur and works in different sectors of advertising and publication like classified type advertisement, display type advertisement, designing and publication of diary, calendar, books, advertorials etc. Respondent No.1 is an entity registered as a small manufacturing Enterprise under the Udyam Scheme of the Ministry of Micro, Small and Medium Enterprise (MSME) and is engaged in the business of printing various commercial requirements. Respondent No.1 filed an application under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (for short ‘the Act of 2006’) before respondent No.2 for recovery of amount Rs.1,41,54,182/-, mentioning that petitioner allotted the work of printing cards for the Ayushman Bharat under the Pradhan Mantri Jan Aarogya Yojna and after completion of said work, petitioner submitted final bills for payment but the same has

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not been released. Non-applicant/ Petitioner herein submitted reply to the application raising an objection with respect to jurisdiction of the Council on the ground that non-applicant never denied payment of legally recoverable amount and hence, there is no dispute exists between the parties. The Council vide order impugned allowed the application of respondent No.2 and directed the petitioner herein to make payment of Rs.2,15,11,175/- i.e. balance amount of Rs.1,41,54,182/- plus accrued interest thereon i.e. Rs.73,56,993/-.

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Main contention of learned counsel for petitioner is that upon reference of claim by respondent under Section 18(1) of the Act of 2006, respondent No.2-Council fixed the case for conciliation of dispute between the parties, as provided under Section 18 (2) of the Act of 2006. Parties appeared fo conciliation on the date fixed, but the conciliation between the parties failed and thereafter the Facilitation Council itself taken the case for Arbitration. However, the procedure provided under the Arbitration and Conciliation Act, 1996 has not been followed and only on the basis of submission made, the Facilitation Council has passed the order on 27.01.2023. He further pointed out that perusal of the impugned order would show that the judgment was pre-drafted as in the award typed date is mentioned as ‘29.11.2022’, which is the date when the case was fixed for conciliation, it failed ad thereafter taken up

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for arbitration, meaning thereby, the Council itself has exercised the jurisdiction as an Arbitrator. From the face of the award, it is appearing that the Council was predetermined to pass the award against petitioner that too without following due process of law. In support of his contention he refers the provisions under Section 18(3) of the Act of 2006 and also places reliance upon the decision of Hon’ble Supreme Court in case of Jharkhand Urja Vikas Nigam Limited v. State of Rajasthan and others , reported in 2021 SCC OnLine SC 1257

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Mr. Apurva Goyal, learned counsel for respondent vehemently opposes the submission made by learned counsel for petitioner and submits that respondent No.2-Facilitation Council after following due procedure provided under Section 18 of the Act of 2006, i.e. after providing proper opportunity of hearing to both the sides, has passed the order impugned, therefore it does not call for interference. Writ petition itself is not maintainable as the petitioner is having efficacious alternate remedy of filing application under Section 34 of the Act of 1996 for setting aside arbitral award on any of the grounds as enumerated under the Act of 1996. In support of his contention he placed reliance on the order of Division Bench of this Court dated 10.7.2024 passed in Writ Appeal No.427 of 2024, parties being Collector and District Mission Director v. The Micro and Small Enterprises Facilitation

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Council Chhattisgarh and another. Relying upon the aforementioned decision of the Division Bench, he argued that in the said case, petitioner therein raised a ground that there is non-compliance of the provision of Section 18 (2) of the Act of 2006 as the parties were not sent for conciliation, which was turned down.

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I have heard learned counsel for the parties.

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Before proceedings further on merits of this case, this Court find its appropriate to first decide the objection raised by counsel for respondent with respect to maintainability of writ petition in view of availability of efficacious alternate remedy of filing an application under Section 34 of the Act, 1996 for setting aside arbitral award.

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Section 7 of the Act of 2006 talks of classification of enterprise. Section 7 (1) (a) talks of micro enterprise, small enterprise and medium enterprise. Section 7 (1) (b) talks of enterprise engaged in rendering / providing service as micro, small or medium enterprise. Section 8 talks of memorandum of micro, small and medium enterprise. Under sub-section ((1) (c) of Section 8, a medium enterprise engaged in manufacture or production shall file memorandum of micro, small or as the case may be, with the authority as may be specified by the State Government under sub-section (4) or the Central Government under sub-section (3) of Section 8 of

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the Act of 2006. Section 15 talks of liability of buyer to make payment where any supplier, supplies any goods or renders any services to any buyer, provided that in no case the period agreed upon between the supplier and the buyer shall exceed forty-five days from the date of acceptance or the day of deemed acceptance. Section 20 provides for establishment of micro and small Enterprises Facilitation Council. Section 18 talks of reference to micro and small enterprises facilitation council, which is relevant and reproduced herein below for ready reference:-

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“18. Reference to Micro and Small Enterprises Facilitation Council. -

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(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.

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(2) On receipt of a reference under subsection (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 Signature Not Verified Digitally Signed By:DUSHYANT RAWAL of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act.

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(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

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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.

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(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.

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(5) Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference."

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Section 18 (1) of the Act of 2006 starts with non-obstante clause and provides for making a reference to the Facilitation Council by any party to a dispute with regard to any amount due under Section 17 of the Act of 2006. Section 18 (2) provides the procedure to be adopted by the Facilitation Council to conduct conciliation in the matter by itself or by seeking assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre. Sub-section (3) of Section 18 provides for procedure, when conciliation initiated under subsection (2) fails and terminated without any settlement between the parties, to initiate proceeding of arbitration by itself or to refer it to any institution or centre.

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Perusal of the order-sheets of the Facilitation Council would show that the parties, for the first time, appeared before the Council on 11.11.2022 and thereafter the Council fixed the case on 29.11.2022 for conciliation proceedings as provided under Section 18(2) of the Act of 2006. The Council further recorded the proceeding on 29.11.2022 and in said proceeding it is mentioned that conciliation proceedings between the parties failed and closed the proceedings under Section 18(2) of the Act, 2006. On the said date, the Council has initiated proceedings under Section 18(3) of the Act, 2006, decided to act itself as an Arbitrator and accordingly initiated the proceedings of Arbitration in the said case. On the same date, parties were heard and case was fixed for submitting the written arguments within a period of one week and thereafter to pass an order/award Accordingly, on 27.1. 2023 the impugned award/order was passed.

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From the aforementioned proceedings, as reflecting from the order-sheet, it is apparent that the Facilitation Council has not followed the procedure prescribed for Arbitration under Section 18(3) of the Act, 2006. Under the aforementioned provision under Section 18(3) of the Act, 2006, it is specified that the provisions of the Arbitration and Conciliation, 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.

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In this case petitioner has raised specific ground that the procedure as prescribed under Section 18(3) of the Act, 2006 has not been followed. The issue with regard to maintainability of writ petition when alternate remedy is available against the order under challenge came up for consideration in case of Whirlpool Corporation vs. Registrar of Trademarks, Mumbai & ors reported in (1998) 8 SCC 1 and while dealing with issue of maintainability of writ petition in view of availability of alternate remedy, Hon’ble Supreme Court has held that alternative remedy not to operate as a bar in atleast three contingencies; (i) where writ petition has been filed for enforcement of any of fundamental rights; (ii) where there has been a violation of principle of natural justice; and (iii) where the order or proceeding is absolutely without jurisdiction or the vires of an Act is challenged.

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In case of Harbans Lal Sahina Vs. Indian Oil Corporation Ltd. & ors reported in (2003) 2 SCC 107, Hon’ble Supreme

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Court has observed thus ;-

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“7. So far as the view taken by the High Court that the remedy by way of recourse to arbitration clause was available to the appellants and therefore the writ petition filed by the appellants was liable to be dismissed, suffice it to observe that the rule of exclusion of writ jurisdiction by availability of an alternative remedy is a rule of discretion and not one of compulsion. In an appropriate case in spite of availability of the alternative remedy, the High Court may still exercise its writ jurisdiction in at least three contingencies: (i) where the writ petition seeks enforcement of any of the Fundamental Rights; (ii)

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where there is failure of principles of natural justice or, (iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act and is challenged [Sess Whirlpool Corporation v. Registrar of Trade Marks Mumbai and orders, (1998) 8 SCC 11]. The present case attracts applicability of first two contingencies. Moreover, as noted, the petitioners' dealership, which is their bread and butter came to be terminated for an irrelevant and non-existent cause. In such circumstances, we feel that the appellants should have been allowed relief by the High Court itself instead of driving them to the need of initiating arbitration proceedings.”

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Recently, Hon’ble Supreme Court in the case of Assistant Commissioner of Sales Tax & others vs. Commercial Steel Limited , reported in (2021) SCC Online SC 884 , following the decision in the case of Whirlpool Corporation (supra) has observed thus:

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“11.The respondent had a statutory remedy under section 107. Instead of availing of the remedy, the respondent instituted a petition under Article 226. The existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226 of the Constitution. But a writ petition can be entertained in exceptional circumstances where there is: (i) a breach of fundamental rights;(ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or(iv) a challenge to the vires of the statues or delegated legislation.

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In the present case, none of the above exceptions was established. There was, in fact, no violation of the principles of natural justice since a notice was served on the person in charge of the conveyance. In this backdrop, it was not appropriate for the High Court to entertain a writ petition. The assessment of facts would have to be carried out by the appellate authority. As a matter of fact, the High Court has while doing this exercise preceded on the basis of surmises. However, since we are inclined to relegate the

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respondent to the pursuit of the alternate statutory remedy under Section 107, this Court makes no observation on the merits of the case of the respondent.”

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In the case at hand, perusal of note-sheets of the Facilitation Council would show that the case was fixed on 29.11.2022 for conciliation, it failed and on the same date, the Facilitation council has taken-up the proceeding for Arbitration under Section 18 (3) of the Act, 2006, recorded the proceedings that parties were heard and after due consideration the council granted time to submit written arguments and case was reserved for order. Further, the award passed by the Council would show that in the award, date of award/judgment is mentioned as 29.11.2022, which is the date fixed for conciliation between the parties. The procedure as prescribed under Section 19, 21, 23 and 24 of the Arbitration and Conciliation Act, 1996 were not followed and nothing has been recorded in the order-sheet in this regard. Relevant portion of order sheet dated 29.11.2022 is quoted herein below:-

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Þizdj.k esa fnukad 29@11@2022 dks mHk; i+{k mifLFkr gq,A mHk; i{k ds e/; dksbZ lqyg ugha gqbZA vr% ,eñ ,yñ ,eñ bZñ Mhñ ,DV] 2006 dh /kkjk 18 ¼2½ ds rgr~ lqyg dh dk;Zokgh lekIr dh xbZ rFkk /kkjk 18 ¼3½ ds rgr~ ek/;LFke dh dk;Zokgh izkjaHk dh xbZA mHk; i{k dks lquk x;kA fopkjksijkar dkmafly }kjk mHk; i{k dks ,d lIrkg ds Hkhrj fyf[kr rdZ izLrqr djus ds funsZ’k fn;s x;sA rnksijkar izdj.k vkns’kkFkZ lqjf{kr j[kk tkosAß

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In the aforementioned facts of the case, I am of the considered view that the impugned award of the Facilitation Council is passed without following the due procedure as

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provided under the law which also will attract violation of principles of natural justice, therefore, I am of the considered view that writ petition is maintainable.

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So far as merits of the case is concerned, Section 18 of the Act, 2006 deals with reference to Micro and Small Enterprises Facilitation Council. Section 18(2) talks of the procedure after receipt of the Reference Application. Section 18(3) deals with the procedure where the conciliation initiated under subsection 2 of Section 18 fails and stands terminated without any settlement between the parties. It provides that 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 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.

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Sub-section (3) of Section 18 of the Act, 2006 is very clear and unambiguous. It specifically provides that after failure of conciliation proceeding initiated under sub-section(2), provisions of the Act, 1996 shall then apply to the disputes under the provisions of the Act, 1996. The arbitral tribunal has to conduct the proceedings. Under Section 23 of the Act, 1996, it is provided that within the period of time agreed upon by the parties or determined by the arbitral tribunal, the

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claimant shall state the facts supporting his claim, the points at issue and the relief or remedy sought, and the respondent shall state his defence in respect of these particulars, unless the parties have otherwise agreed as to the required elements of those statements. The parties may submit with their statements all documents they consider to be relevant or may add a reference to the documents or other evidence they will submit. It further provides that the respondent, in support of his case, may also submit a counterclaim or plead a set-off, which shall be adjudicated upon by the arbitral tribunal, if such counterclaim or set-off falls within the scope of the arbitration agreement. Sub-section (3) of Section 23 provides that unless otherwise agreed by the parties, either party may amend or supplement his claim or defence during the course of the arbitral proceedings, unless the arbitral tribunal considers it inappropriate to allow the amendment or supplement having regard to the delay in making it.

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In case at hand, the Council while acting as an arbitrator after taking upon it to arbitrate the dispute between the parties, has not followed the procedure as prescribed under Section 23 of the Act, 1996. It has not recorded in the proceedings that the option was given to the parties and thereafter the parties agreed upon to make their submission.

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In reply, respondent No.1 has pleaded that the petitioner mischievously suppressed the fact from this Court and has

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failed to disclose that a reply on merits submitted by counsel for petitioner to the claim raised by respondent No.1. Along with reply, he has also filed copy of reply submitted by petitioner before the Facilitation Council as Annexure-R-1/3.

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Perusal of the reply would show that the reply was submitted to the application under Section 18 (1) of the MSMED ACT, 2006, which is to the reference application.

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From the order-sheets, it is also reflecting that after taking up the case for arbitration, respondent No.1 has not given statement that his application submitted under Section 18 (1) of the Act, 2006 be treated as statement of claim and thereafter an opportunity is provided to the petitioner to submit the defence statement/reply to statement of claim or opportunity to supplement/amend earlier reply and to place documents in evidence etc.

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In case of Jharkhand Urja Vikas Nigam (supra), Hon’ble Supreme Court has considered identical issue wherein after failure of conciliation proceedings and the procedure thereafter to be followed and observed thus:-

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“11. From a reading of Section 18(2) and 18(3) of the MSMED Act it is clear that the Council is obliged to conduct conciliation for which the provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 would apply, as if the conciliation was initiated under Part III of the said Act. Under Section 18(3), when conciliation fails and stands terminated, the dispute between the parties can be resolved by arbitration. The

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Council is empowered either to take up arbitration on its own or to refer the arbitration proceedings to any institution as specified in the said Section. It is open to the Council to arbitrate and pass an award, after following the procedure under the relevant provisions of the Arbitration and Conciliation Act, 1996, particularly Sections 20, 23, 24, 25.

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There is a fundamental difference between conciliation and arbitration. In conciliation the conciliator assists the parties to arrive at an amicable settlement, in an impartial and independent manner. In arbitration, the Arbitral Tribunal/ arbitrator adjudicates the disputes between the parties. The claim has to be proved before the arbitrator, if necessary, by adducing evidence, even though the rules of the Civil Procedure Code or the Indian Evidence Act may not apply. Unless otherwise agreed, oral hearings are to be held.

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If the appellant had not submitted its reply at the conciliation stage, and failed to appear, the Facilitation Council could, at best, have recorded the failure of conciliation and proceeded to initiate arbitration proceedings in accordance with the relevant provisions of the Arbitration and Conciliation Act, 1996, to adjudicate the dispute and make an award. Proceedings for conciliation and arbitration cannot be clubbed.

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In this case only on the ground that the appellant had not appeared in the proceedings for conciliation, on the very first date of appearance, that is, 06.08.2012, an order was passed directing the appellant and/or its predecessor/Jharkhand State Electricity Board to pay Rs.78,74,041/- towards the principal claim and Rs.91,59,705/- odd towards interest. As it is clear from the records of the impugned proceedings that the Facilitation Council did not initiate arbitration proceedings in accordance with the relevant provisions of the Arbitration and Conciliation Act, 1996.

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The order dated 06.08.2012 is a nullity and runs contrary not only to the provisions of MSMED Act but contrary to various mandatory provisions of Arbitration and Conciliation Act, 1996. The order dated 06.08.2012 is patently illegal. There is no arbitral award in the eye of

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law. It is true that under the scheme of the Arbitration and Conciliation Act, 1996 an arbitral award can only be questioned by way of application under Section 34 of the Arbitration and Conciliation Act, 1996. At the same time when an order is passed without recourse to arbitration and in utter disregard to the provisions of Arbitration and Conciliation Act, 1996, Section 34 of the said Act will not apply. We cannot reject that appeal only on the ground that appellant had not availed the remedy under Section 34 of the Arbitration and Conciliation Act, 1996.”

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After observing the above, Hon’ble Supreme Court has allowed the civil appeal.

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In the case at hand also the Facilitation Council has not followed the procedure as provided under the Act, 1996 and therefore, Section 34 of the said Act will not apply.

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The decision in case of Collector and District Mission Director(supra) relied upon by learned counsel for the respondent is distinguishable on facts. In that case Division Bench of this Court concluded that despite service of summons appellant therein did not turn up.

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For the foregoing discussions, writ petition is allowed. Impugned award is set aside. Matter is remitted back to the Facilitation Council to pass an order afresh in accordance with law after following due procedure as prescribed under the Act, 1996.

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Sd/-

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(Parth Prateem Sahu) Judge

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Nisha

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Chhattisgarh Samvaad v. M/S Shri Ram Printers and Stationers

Case brief

What is this about?

What did the court decide?

Chhattisgarh Samvaad v. M/S Shri Ram Printers and Stationers

Case brief

What is this about?

What did the court decide?

What the court decided

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