M/S.B.R.Sponge P Ltd. Vs Mse Facilitation Council

1 . Instant writ petition is at the behest of the petitioner challenging the correctness, legality and judicial propriety of the impugned order dated 30^th December, 2016 (Annexure17A) and all such consequential orders including the proceeding in connection with MSEFC Case No.27 of 2014 seeking its quashment on the grounds stated.

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The petitioner is a private limited company so also opposite party No.2 incorporated under the Companies Act, whereas, opposite party No.1 is the Micro and Small Enterprises Facilitation Council (in short ‘the Council’) constituted as per the provisions of the Micro Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as ‘the MSMED Act’) to conciliate and arbitrate upon payment disputes in respect of small and medium scale industries. In fact, the petitioner has questioned the impugned order dated 30^th December, 2016 notwithstanding existence of alternate remedy in view of Section 19 of the MSMED Act.

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As made for reveal from the record, the dispute was referred to at the instance of opposite party No.2, whereafter, according to the petitioner, opposite party No.1 in complete departure to the statutory provisions of the Arbitration and Conciliation Act and the MSMED Act passed the order dated 30^th December, 2016 in MSEFC Case No.27 of 2014 which is therefore not legally tenable, hence, to be set aside with the entire proceeding quashed. According to the petitioner, opposite party No.2 instituted a suit for recovery of the amount alleged to be due in C.S. No.397 of 2010 payable along with interest at the rate of 21% per annum, however, the learned Civil Judge, Senior Division, Rourkela dismissed it on 7^th April, 2014 by order under Annexure-3 on the premise that the statutory remedy under Section 19 of the MSMED Act is to be availed of. Furthermore, as per the pleading, while denying the liability, the petitioner advanced a plea that opposite party No.2 is not a supplier within the scope and meaning of the MSMED Act since for a reference under Section 18, such is a pre-condition. In other words, as per the petitioner, a Memorandum under Section 8 of the MSMED Act since was filed on 18^th January, 2010, whereas, the supply of iron ores by opposite party No.2 is of the year 2009, the reference could not have been entertained by opposite party No.1 and hence, it has resulted in a jurisdictional wrong and therefore, the writ petition is maintainable even if an alternate statutory remedy is available. The further contention of the petitioner is that the impugned order dated 30^th December, 2016 is not sustainable in law also for the fact that opposite party No.1 has not proceeded with the reference in accordance with law, inasmuch as, the MSMED Act stipulates that before

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any such decree or award, the council is to exercise jurisdiction for a conciliation between the parties, an exercise which has not been undertaken in the case. With the above grounds, the order under challenge and also the whole of the proceeding in MSEFC Case No.27 of 2014 is sought to be quashed by the petitioners.

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Heard Mr. Lal, learned counsel for the petitioner, learned counsel for the State and Mr. Naik, learned counsel for opposite party No.2.

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Mr. Lal, learned counsel for the petitioner would submit that the impugned order dated 30^th December, 2016 by opposite party No.1 is without jurisdiction and as such a nullity and therefore, the same is liable to be quashed since the reference under Section 18 of the MSMED Act to be not maintainable and furthermore, there has been non-adherence to the mandatory procedure prescribed under sub-section (3) of Section 18 thereof. Referring to Section 2(n) of the MSMED Act which defines a ‘supplier’ in relation to a micro or small enterprise, Mr. Lal submits that the Act came into existence w.e.f. 16^th June, 2006 and opposite party No.2 claimed to have registered itself thereunder on 1^st November, 2003 which is apparently fallacious and at best it can be said that the establishment commenced manufacturing activity on and from said date. Further by referring to Annexure-2, Mr. Lal submits that it shows opposite party No.2 to have been issued with the Entrepreneurs’ Memorandum on 18^th January, 2010 under Section 8(1) of MSMED Act. By contending that opposite party No.2 admittedly supplied iron ores on 30^th April, 2009 and 19^th December, 2009 which is much before its registration

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under the MSMED Act, it cannot therefore be termed as a ‘supplier’ and hence, the proceeding before opposite party No.1 was not maintainable, a plea which was not duly taken cognizance of, hence, has resulted in passing of the impugned order exercising jurisdiction in a perfunctory manner. While advancing such an argument, Mr. Lal refers to the decision in Silpi Industries Etc. Vrs. Kerala State Road Transport Corporation and Another 2021 SCC Online SC 439 and the following decisions, such as, Vaishno Enterprises Vrs. Hamilton Medical AG and Another 2022 SCC Online SC 355 ; Nitesh Estates Ltd. Vrs. Micro and Small Enterprises Facilitation Council of Haryana and Others 2022 SCC Online SC 1198 and Bridge and Roof Company (India) Ltd. Vrs. State of Odisha and Others MANU/OR/0313/2022:2022(I) OLR 1046 , wherein, the MSEFC proceeding was quashed. The second limb of argument of Mr. Lal is that there has been no mandatory compliance of Section 18 of the MSMED Act by opposite party No.1 as no attempt was made for conciliation as per the provisions of the Arbitration and Conciliation Act since the Act prescribes that when conciliation fails and stands terminated, the dispute between the parties to be resolved by arbitration. According to Mr. Lal, since no such procedure was adopted as the MSMED Act mandates conciliation as per Section(s) 65 to 81 of the Arbitration and Conciliation Act, the award by opposite party No.1 with a direction for payment of outstanding dues with interest is not tenable in law. In support of such contention, Mr. Lal refers to a decision of this Court in M/s. Orissa Coal Chem. Pvt. Ltd. Vrs. M/s. NALCO and Others 2023 SCC Online Orissa 5234 and also Jharkhand Urja Vikas Nigam Limited Vrs. State of Rajasthan and Others 2021 SCC Online SC 1257

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besides Sri Mahavir Ferro Alloys Pvt. Ltd. Vrs. Passary Minerals Ltd. and Others MANU/OR/0286/2023: AIR 2023 Ori 112 and M/s. Feedback Infra Pvt. Ltd. Vrs. MSEFC and Others decided by the Madras High Court on 29^th September, 2023. Mr. Lal submits that the order under challenge is no award in the eye of law. On the point of alternate remedy under the MSMED Act, Mr. Lal cited the following decisions, such as, M/s Magadh Sugar and Energy Limited Vrs. State of Bihar and others (Civil Appeal No. 5728 of 2021 disposed of on 24^th September, 2021); Radha Krishan Industries Vrs. State of Himachal Pradesh and Others (2021 )6 SCC 771 and State of Uttar Pradesh and Another Vrs. Ehsan and Another (Civil Appeal No.5721 of 2023 decided on 13^th October 2023) and contends that there is no bar to entertain the writ petition even if the impugned order may be challenged under Section 34 of the Arbitration and Conciliation Act since the award is without jurisdiction and a nullity.

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On the contrary, Mr. Naik placed reliance on a decision of the Apex Court in the Case of M/s. India Glycols Limited and Another Vrs. Micro and Small Enterprises Facilitation Council Medchal-Malkajgiri and Others decided on 6^th November, 2023 in Civil Appeal No.7491 of 2023 and submits that the writ petition is not maintainable in view of the alternate remedy under Section 34 of the Arbitration and Conciliation Act. An order of this Court dated 26^th April, 2017 in W.P.(C) No. 20768 of 2016 is referred to whereby a similar view was expressed on the maintainability of the writ petition in view of remedy under the Arbitration Conciliation Act referring to Section 19 of the MSMED Act and the conditions stipulated therein in relation to deposit of 75% of the impugned award.

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Mr. Naik finally submits that any such award by opposite party No.1 cannot be challenged in view of the rigour of law as there is a bar to entertain any such challenge by any Court except by invoking Section 34 of the Arbitration and Conciliation Act. A decision of the Delhi High Court in case of State Trading Corporation of India Limited Vrs. Micro and Small Enterprises Facilitation Council Delhi and Another decided on 8^th February, 2024 in LPA No.91 of 2024 and connected matters is cited by Mr. Naik while advancing the plea that the impugned decision of opposite party No.1 cannot be a subject of challenge while exercising writ jurisdiction.

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In fact, opposite party No.2 instituted the suit in C.S. No.397 of 2010 against the petitioner and another which was, however, disposed of by Judgment dated 16^th May, 2014 by the court of learned Civil Judge (Senior Division), Rourkela. In fact, the suit was dismissed primarily on the ground that the court does not have the jurisdiction to entertain the same in view of the statutory remedy available to opposite party No.2. The said suit was filed by opposite party No.2 for a money decree of Rs.16,20,374/- along with future and pendentelite interest to be realized from the petitioner. The learned Civil Judge (Senior Division), Rourkela though considered all the issues formulated, however, dismissed the suit as not maintainable in view of the bar under the MSMED Act. As it is made to understand, opposite party No.2, thereafter, approached the Council with a reference and the same has been disposed of with an award dated 30.12.2016 with a direction to the petitioner to pay the principal amount with interest followed by compound interest till its realization.

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8 . The petitioner since was non-suited by the Civil Court, hence, approached the Council. Ironically, the maintainability of reference is questioned by the petitioner on the premise that the petitioner to be not a ‘supplier’ under the MSMED Act since it was issued with the Entrepreneurs’ Memorandum as per Section 8(1) of the Act on 18^th January, 2010. Considering the rival contentions of the parties, the following issues emerge for a decision by the Court, such as, (i) whether, in the facts and circumstances of the case, reference under Section 18 of the MSMED Act is maintainable when the petitioner is alleged not to be a supplier under the Act by the time of supply of iron ores? (ii) whether the Council exercised jurisdiction under Section 18 of the MSMED Act with conciliation and arbitration on receiving reference in terms of Section 18 thereof? and lastly (iii) whether the reference before opposite party No.1 and impugned decision thereafter can be a subject of challenge before this Court as an alternate remedy by way of appeal is available to the petitioner?

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9 . As per Section 18 of the MSMED Act, any party to a dispute may with regard to amount due and payable under Section 17 may make a reference to the Micro and Small Enterprises Facilitation Council in view of sub-section 1 thereof. On receipt of such a reference under Sub-Section (1); the Council shall either itself conduct conciliation or seek the assistance of any institution or centre providing alternate dispute resolution to be held as per the provisions of the Arbitration and Conciliation Act as if the conciliation was initiated under part III of the said Act. If any such conciliation fails after it has been undertaken as per sub-section (2) of Section 18 MSMED Act and it stands terminated without any settlement between the

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parties, the Council shall take up the dispute for arbitration or may refer it to any institution or centre for such arbitration and for the said purpose, again provisions of the Arbitration and Conciliation Act would apply as if an arbitration was in pursuance of an arbitration agreement referred to in Section 7(I) of the said Act. Such reference as per sub-section (5) shall be decided within 90 days from the date of receiving it. In view of the aforesaid provisions of the MSMED Act, a scheme for conciliation and arbitration is in place, an exercise which may be undertaken by the Council itself or the same can be accomplished through such other institution or centre. The council or the institution or centre providing alternate dispute resolution services shall have the jurisdiction to act as an Arbitrator or Conciliator in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India in view of Section 18(4) of the MSMED Act.

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10 . According to Mr. Lal, opposite party No.1 did not follow the procedure as per Section 18 of the MSMED Act. It is alleged that neither conciliation nor arbitration was ever held or sincerely attempted rather the parties were left in lurch. It is alleged that the Council left it to the parties to reach at a settlement. Referring to order of opposite party No.1 as at Annexure-8 and onwards, Mr. Lal submits that amicable settlement was merely suggested to the parties with an intimation about the same in writing to be furnished within 15 days and in case, no communication was received within such time, the award to be passed for payment of the outstanding due with interest as per the MSMED Act. Such an order was passed by opposite party No.1 on 20^th February, 2016 at Annexure-11, referring to which, Mr. Lal would further submit

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that apart from above, the approach of the Council is not to be in consonance with Section 18 of the MSMED Act.

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11 . Admittedly, opposite party No.1 held hearings on number of dates as revealed from the record but the question is, whether, any such conciliation was ever attempted and on its failure, followed by an action to arbitrate the dispute between the parties? As per MSMED Act, the Council is to take up the reference and proceed to hear the dispute between the parties, in course of which, it is to undertake conciliation and thereafter, to arbitrate as per Section 18 of the Act. On perusal of the series of orders prior to the date of award, the Court does not find any such sincere effort to have been put forth by the Council towards conciliation and arbitration which is envisaged in Section of 18 of the MSMED Act. Rather the Court finds that the parties were informed to go for an amicable settlement and finally, considering the pleadings on record, opposite party No.1 passed the award. Even after conciliation fails, the Council does have the power to arbitrate the dispute between the parties and in the present case, there has been no real attempt so to say. In such view of the matter, when the record reveals absence of any conciliation between the parties having taken place at the behest of the Council and absence of any such attempt for arbitration, as the orders of the proceeding in MSEFC Case No.27 of 2014 tell-tale the manner in which it was conducted, the Court has no other option except to form an opinion that the statutory formalities necessary in view of Section 18 of the MSMED Act have not been complied with instead opposite party No.1 passed the award. Before reaching at such a conclusion, it is apposite to

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reproduce the relevant extracts of the decision in M/s Orissa Coal Chem. Pvt. Ltd. (supra) which is as follows:

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“ 25. The MSMED Act provided for the establishment of MSME Facilitation Councils as the one-stop shop for resolution of disputes under the MSMED Act. Section 18 of the MSMED Act reads as:

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XXX XXX XXX

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26.It flows from a bare perusal of the above that there is a two tiered dispute resolution system provided in the MSMED Act itself for facilitating the promotion and development, and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto.

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XXX XXX XXX

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30. The MSMED Act, 2006, ab incunabulis, had grown from the need for a comprehensive legislation to provide an appropriate legal framework and extend statutory support to the micro and small enterprises to enable them to develop and grow into medium ones. As noted above, the M SMED Act lays down a two tiered system for dispute resolution. Only if the conciliation initiated under Section 18 (2 ) is not successful then without any such settlement between the parties, the Facilitation Council under Section 18 (3 ) is to either itself take up the dispute for arbitration or refer to it any institution or center providing alternate dispute resolution services for such arbitration. Thereon, the provisions of the A&C Act are made applicable to the dispute as if the arbitration so commenced was in pursuance of an arbitration agreement.”

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12 . This Court in the aforesaid case took cognizance of the fact that the Council did not refer the parties for a proper conciliation despite the statutory mandate prescribed under Section 18 of the MSMED Act and it was held therein that no reference was made; no Conciliator was appointed; and the parties were merely directed to make an amicable settlement W.P.(C) No.8006 of 2017 Page 10 of 17

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while dealing with appeals filed under Section 37 of the Arbitration and Conciliation Act. In the case at hand, opposite party No.1 perhaps in a similar manner did not exercise the jurisdiction as per Section 18 of the MSMED Act, neither considered conciliation by itself or appointed a Conciliator for the said purpose leave alone arbitrating the dispute and as earlier stated informed the parties to go for an amicable settlement. If such is the situation, the Court is of the humble view that the contention of Mr. Lal, learned counsel for the petitioner on the point has a substantial force.

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13 . With respect to the claim of the petitioner that opposite party No.2 not to be a ‘supplier’, such a question was not raised before the Council. The said contention is based on Annexure-2, namely, Entrepreneurs’ Memorandum issued by the District Industries Centre, Rourkela under Section 8(1) of the MSMED Act. The date of issuance of such Memorandum is placed reliance on by the petitioner while claiming that opposite party No.2 cannot be held as a ‘supplier’ by the time of supply of the iron ores. It is pleaded that opposite party No.2 can at best be said to have commenced the manufacturing activity w.e.f. 1.11.2003, however, was issued with the Memorandum on 18^th January, 2010. Such a claim of petitioner is strongly objected to by Mr. Naik, learned counsel for opposite party No.2. If the contention of the petitioner is accepted, opposite party No.2 may not be held as a supplier under the MSMED Act. To be a supplier, an Entrepreneurs’ Memorandum is to be issued by the concerned authority and in the instant case, the same is claimed to have been issued to opposite party No.2 in the year 2010 admittedly later to the supply of iron ores to the petitioner.

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14 . The dispute under reference is maintainable and can be entertained by the Council provided it is at the instance of one of the parties to it. If any such reference is by a supplier, he must have been issued with an Entrepreneurs’ Memorandum under the MSMED Act. As such the said question was not raised earlier and not even in the suit and since the Court has arrived at a conclusion that opposite party No.1 prima facie did not follow the procedure under Section 18 of the MSMED Act, the aforesaid question may be directed to be examined. In other words, the Court is inclined and in favour of a hearing on the said aspects.

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15 . Such a remand is permissible provided it is further concluded by the Court that the writ petition is maintainable despite a statutory remedy available to the petitioner. It is submitted by Mr. Lal, learned counsel for the petitioner that the impugned award dated 30^th December, 2016 runs contrary to the MSMED Act and provisions of the Arbitration and Conciliation Act, hence, a nullity and has referred to the decision in Jharkhand Urja Vikas Nigam Limited (supra). It is settled position of law that existence of an alternate remedy is not always a bar to maintain a writ petition where (i) such writ petition is filed for enforcement of a fundamental right guaranteed under the Constitution of India; (ii) there has been violation of principles of natural justice (iii) the order or proceeding to be fully without jurisdiction; or (iv) the vires of a legislation is challenged. In Ehsan (supra), the Apex Court while dealing with the question of alternate remedy was pleased to observe as hereunder:

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“We are conscious of the law that existence of an alternative remedy is not an absolute bar on exercise of

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writ jurisdiction. More so, when a writ petition has been entertained, parties have exchanged their pleadings/ affidavits and the matter has remained pending for long. In such a situation there must be a sincere effort to decide the matter on merits and not relegate the petitioner to the alternative remedy unless there are compelling reasons for doing so. One such compelling reason may arise where there is a serious dispute between the parties on a question of fact and materials/evidences available on record are insufficient/ inconclusive to enable the Court to come to a definite conclusion.”

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16 . It is pleaded by Mr. Lal that a similar view has been expressed by Supreme Court in M/s Magadh Sugar and Energy Limited and Radha Krishan Industries (supra). Of course, the matter has remained pending before this Court since 2017 and Mr. Lal, learned counsel for the petitioner submits that the writ petition should be disposed of on merit and not to relegate the parties to the alternate remedy more so when opposite party No.1 has not followed the mandate of the MSMED Act with conciliation and arbitration in view of Section 18 thereof, hence, the award dated 30^th December, 2016 shall have to be held as without jurisdiction. A question of jurisdiction of the Council was never a subject matter of debate. Such a question can be considered by the Authority under the MSMED Act. According to Mr. Naik, learned counsel for opposite party No.2, the aforesaid question may be examined in appeal filed against the award under Section 19 of the MSMED Act. As earlier discussed, existence of an alternate remedy does not stand as a bar in certain situations, one of being absence of jurisdiction. If there is a statutory bar either impliedly or by express words, jurisdiction is ousted and in such a case, any such order or award would be wholly without jurisdiction. However, a distinction shall have to be made, where jurisdiction lies with the Authority but the

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same is wrongly exercised or invoked not according to the prescribed procedure. In such a case, it is not to be held that there is lack of jurisdiction. By following a procedure which is not in consonance with the statutory mandate, an order or award does not become a nullity. As earlier stated, to hold a decision as without jurisdiction, it must have been barred either expressly or such exclusion may have to be inferred by necessary implication. A question of jurisdiction may be examined by the very Authority which passed the order or entertained the proceeding. In the case at hand, statute provides the authority to a Council. The irony is that there has been a round of litigation between the parties before a civil court but then the suit was held to be not maintainable. In case, opposite party No.2 is not considered as a ‘supplier’ under the MSMED Act, opposite party No.1, in such a situation, cannot have the jurisdiction to adjudicate the dispute. As earlier mentioned, the question of having jurisdiction with the Council was not raised or has ever been examined. Of course, the Court does not have the comfort to go through the pleadings of the parties filed before opposite party No.1. Even a question of jurisdiction as it hits to the root of the case can be raised, entertained and examined by the Authority itself created under the statute. The Court is quite conscious of the fact that the matter is pending for long. At this juncture, it would certainly cause inconvenience particularly to opposite party No.2, who is demanding payment of dues from the petitioner. Having gone through the decisions cited at the Bar, the Court is of the humble view that the question, whether, opposite party No.2 is a supplier under the MSMED Act is required to be examined in first place by considering the materials on record with an opportunity of

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hearing to the parties. Merely by referring to Annexure-2 without more, it would not be wise and proper to arrive at a decision, whether, opposite party No.2 fits in as a supplier within the scope and ambit of the MSMED Act. If opposite party No.2 is ultimately held as not a supplier, in such an event, opposite party No.1 cannot usurp the jurisdiction. Since the very authority or jurisdiction of the Council is questioned by the petitioner, notwithstanding any such delay or that the same was not raised earlier, it shall have to be decided providing both the sides an opportunity to defend.

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The Court is not oblivious of the settled legal position as highlighted upon in M/s. India Glycols Ltd. (supra) and other decisions referred to by Mr. Naik, learned counsel for opposite party No.2 which is to the effect that a party to a dispute cannot be allowed to bypass the statutory mandate under Section 19 of the MSMED Act. At times, in order to avoid payment of statutory deposit of 75% of the amount in terms of the decree or award, such a course is adopted. A dispute which is maintainable but the order or award is challenged on some pretext or other, which may be examined by the authority under the MSMED Act with an appeal filed, any such recourse approaching this Court invoking writ jurisdiction is certainly not to be entertained as in such a case, conduct of the party may be suspected for evading to pay the statutory deposit. However, in a particular case, where on the point of jurisdiction and with other grounds, an order or award is challenged not by filing an appeal under Section 19 of the MSMED Act but by knocking the doors of a writ court, irrespective of any delay or earlier round of litigation, the same has to be looked into instead of rejecting it on the premise of an alternate remedy available. So,

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therefore, in the instant case, a decision is required to be in place, as to if the Council can entertain the dispute accepting opposite party No.2 as a supplier within the meaning of Section 2(n) of the MSMED Act and then only, it shall have the jurisdiction and hence, the matter needs a remand. In case opposite party No.1 holds itself having jurisdiction may also consider conciliation and arbitration, which does not seem to have been sincerely attempted as per the statutory requirement. Of course, all such questions could have been a subject of deliberation in appeal but in the peculiar facts and circumstances of the case, the Court is inclined to set at right the question of jurisdiction with a decision by opposite party No.1 followed by an exercise to ensure conciliation and arbitration as per the procedure prescribed under law provided such authority lies with it on a satisfaction that opposite party No.2 is a supplier within the ambit of the MSMED Act. In case, opposite party No.1 found not to have the jurisdiction for opposite party No.2 not being a supplier, the remedy shall lie before the civil court, unfortunately, as in the present case, the suit filed by opposite party No.2 was dismissed for having the statutory alternative, which is now being questioned alleging that the Entrepreneurs’ Memorandum was issued after the supply of iron ores to the petitioner. Taking a wholesome approach and instead of further delay leaving the matter to be examined in appeal and for the fact that the jurisdiction of opposite party No.1 depends on a decision, whether, opposite party No.2 is a supplier or otherwise and for the reason that there has been no serious attempt towards conciliation and arbitration in view of Section 18(2) of the MSMED Act, the Court considers it proper to

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remand the matter for a decision afresh, which would rather serve the purpose and meet the ends of justice.

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Hence, it is ordered.

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In the result, the writ petition stands disposed of with a direction to opposite party No.1 to entertain the matter and adjudicate on the point of jurisdiction and thereafter, to do the needful keeping in view the statutory mandate and then, dispose it of at the earliest preferably within a period of four weeks from the date of receipt of a copy of this order after providing an opportunity of hearing to the parties. It is directed that such disposal shall be accomplished within the above stipulated period keeping in view the observations and directions issued. As a necessary corollary, the impugned order under Annexure-17A is hereby set aside, in the peculiar facts and circumstances of the case, with the matter in connection with MSEFC Case No.27 of 2014 restored to the file of opposite party No.1 for being disposed of according to law.

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In the circumstances, however, there is no order as to costs.

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Balaram/Rojina

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Signature Not Verified

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Digitally Signed Signed by: ROJINA SAHOO Reason: Authentication Location: OHC, CTC Date: 08-May-2024 14:52:29

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M/S.B.R.Sponge P Ltd. v. Mse Facilitation Council

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M/S.B.R.Sponge P Ltd. v. Mse Facilitation Council

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