1. Dispute over unpaid purchase prices and maintainability of counter-claims in arbitration proceedings initiated under the Micro, Small and Medium Enterprises Development Act, 2006. (Para 4 , 6 )
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2021 Supreme(SC) 299
SUPREME COURT OF INDIA
ASHOK BHUSHAN, R. SUBHASH REDDY, JJ.
M/s. Silpi Industries – Appellant
Versus
Kerala State Road Transport Corporation and Another – Respondents
Civil Appeal Nos. 1570-1578, 1620-1622 of 2021
Decided On : 29-06-2021
Advocates appeared:
For the Appellant(s) :John Mathew, Karthik S.D., PB Suresh, Vipin Nair, Karthik Jayshankar, Arindam Ghosh, Anshuman Bahadur, Advocates
For the Respondent(s):Aishwarya Bhati, Deepak Prakash, Nikhil Balan, Nachiketa Vajpayee, Divyangna Malik, Nitin, Abhishek Bhati, Jessica Bhardwaj, Prerna Robin, Nikhil Goel, V.N.Raghupathy, Advocates
For the Appellant(s) :John Mathew, Karthik S.D., PB Suresh, Vipin Nair, Karthik Jayshankar, Arindam Ghosh, Anshuman Bahadur, Advocates
For the Respondent(s):Aishwarya Bhati, Deepak Prakash, Nikhil Balan, Nachiketa Vajpayee, Divyangna Malik, Nitin, Abhishek Bhati, Jessica Bhardwaj, Prerna Robin, Nikhil Goel, V.N.Raghupathy, Advocates
Important Points
The Court held that the Limitation Act, 1963 applies to MSMED Act arbitrations and counter-claims are maintainable. Furthermore, MSMED Act benefits cannot be claimed retrospectively; registration must exist at the time of contract/supply to invoke the Act's special provisions.
Subject
Arbitration Law - ARBITRATION PROCEEDINGS
Act Referred
ARBITRATION AND CONCILIATION ACT: S.11(6), S.34, S.37, S.23(2)(a), S.65, S.66, S.67, S.68, S.69, S.70, S.71, S.72, S.73, S.74, S.75, S.76, S.77, S.78, S.79, S.80, S.81, S.7(1), S.43
INDUSTRIES DEVELOPMENT AND REGULATIONS ACT: S.11(b), S.29(b)
KHADI AND VILLAGE INDUSTRIES COMMISSION ACT: S.2(h)
MICRO SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT: S.17, S.18, S.2(n), S.32, S.8
INDUSTRIES DEVELOPMENT AND REGULATIONS ACT: S.11(b), S.29(b)
KHADI AND VILLAGE INDUSTRIES COMMISSION ACT: S.2(h)
MICRO SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT: S.17, S.18, S.2(n), S.32, S.8
Headnote
Arbitration and Conciliation Act, 1996 - Section 11(6) - Micro, Small and Medium Enterprises Development Act, 2006 - Invited tenders - Supply of thread rubber for tyre rebuilding - Respondent no. 1-Kerala State Road Transport Corporation (for short ‘KSRTC’) invited tenders for supply of thread rubber for tyre rebuilding - Appellants herein who were the claimants before arbitrator were given purchase orders - As per the terms of the purchase order, 90% of total purchase price was payable to appellants/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 thread rubber supplied by the appellants was to run a minimum number of kilometers - Earlier IDPASC Act was replaced by MSMED Act and earlier Act was repealed - Whether the Limitation Act, 1963 applies to arbitration proceedings held under the IDPASC and MSMED Acts? –Held, It is specific case of respondent that the appellant has abandoned the incomplete work having made deficient and defective supplies in the month - In that view of the matter, we are of firm view that the appellant is not entitled to invoke the provisions of Chapter V and seek reference to arbitration under Section 18 of MSMED Act, 2006 - Further, as it is also not in dispute that there is an agreement for arbitration between parties for resolution of disputes pursuant to their contract, as such, Court are of the view that the High Court has rightly allowed application filed by the respondent under Section 11(6) of 1996 Act - Civil Appeals are dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether the Limitation Act applies to MSMED arbitrations and whether buyers can file counter-claims in proceedings before the Facilitation Council. (Para 4 , 8 , 19 )
3. MSMED Act is a special beneficial legislation overriding the general Arbitration and Conciliation Act, 1996, and registration under the Act is prospective, not retrospective. (Para 20 , 23 , 26 )
4. Counter-claims are maintainable in MSMED arbitrations per Section 23(2A) of the 1996 Act; however, MSMED benefits require registration prior to contract and supply. (Para 20 , 24 , 26 )
5. Appeals dismissed. (Para 28 )
6. Does the Limitation Act, 1963 apply to arbitration proceedings initiated under Section 18(3) of the MSMED Act, 2006?
Yes, the Limitation Act, 1963 applies to such arbitrations as per Section 43 of the Arbitration and Conciliation Act, 1996, which applies to arbitrations as it applies to court proceedings. (Para 18 )
7. Are counter-claims maintainable in arbitration proceedings conducted by the Micro and Small Enterprises Facilitation Council?
Yes, counter-claims are maintainable. Section 18(3) of the MSMED Act makes the 1996 Act applicable, and Section 23(2A) of the 1996 Act expressly allows respondents to submit counter-claims or set-offs. (Para 19 , 20 , 24 )
8. Which law prevails when there is a conflict between the MSMED Act, 2006 and the Arbitration and Conciliation Act, 1996?
The MSMED Act, being a special beneficial legislation with an overriding provision under Section 24, prevails over the Arbitration and Conciliation Act, 1996, which is a general law. (Para 23 )
9. Can a supplier claim benefits under the MSMED Act for supplies made before obtaining registration?
No, registration under Section 8 of the MSMED Act is prospective. A supplier cannot claim benefits retrospectively for contracts entered into or supplies made prior to registration. (Para 25 , 26 )
JUDGMENT :
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/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 w
