Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2022 Supreme(Cal) 117

IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
Moushumi Bhattacharya, J.
Bharat Heavy Electricals Limited-Electric Division and Others - Appellants
Versus
Optimal Power Synergy India And Others - Respondents
I.A. No. GA 3 of 2021 in A.P. 175 of 2020, E.C. 156 of 2020 and I.A. No. GA 1 of 2020
Decided On : 23-03-2022

Advocates:
Advocate Appeared:
For the Appellant : Mr. Tilak Kumar Bose, Sr. Adv., Mr. Ganesh Prasad Shaw, Adv., Mr. Gaurav Kumar, Adv.
For the Respondent: Mr. Jishnu Saha, Sr. Adv., Mr. Touseef Khan, Adv., Mr. Ishan Saha, Adv., Mr. Arindam Paul, Adv.

The main legal point established in the judgment is the discretion of the court in granting stay of the operation of an award and the right of an award-holder to withdraw a certain percentage of the amount deposited by the award-debtor under the MSME Act, which influenced the decision in the case.

Headnote:
Award - Stay of Award under MSME Act and Arbitration Act - Section 36 of Arbitration and Conciliation Act, 1996, Section 19 of MSME Act - 36(3), 19 - The court discussed the provisions of Section 36(3) of the Arbitration and Conciliation Act, 1996 and Section 19 of the MSME Act, 2006. It highlighted the discretion of the court in granting stay of the operation of an award and the right of an award-holder to withdraw a certain percentage of the amount deposited by the award-debtor under the MSME Act. The court emphasized the differences in the discretion provided by the two acts and how it influenced the decision in the case.
Fact of the Case:

The case involved three applications filed by Bharat Heavy Electricals Limited (BHEL) and Optimal Power Synergy regarding the setting aside and stay of an Award under the provisions of The Micro, Small and Medium Enterprises Development Act, 2006 and The Arbitration and Conciliation Act, 1996. The dispute arose from a reference by Optimal arising out of a dispute with BHEL, where BHEL failed to participate in the conciliation pursued under section 18 of the MSME Act, leading to arbitration.
Finding of the Court:

The court analyzed the provisions of Section 36(3) of the Arbitration and Conciliation Act, 1996 and Section 19 of the MSME Act, 2006, and found that the discretion of the court in granting stay of the operation of an award and the right of an award-holder to withdraw a certain percentage of the amount deposited by the award-debtor under the MSME Act influenced the decision in the case.
Issues: The issues involved the setting aside and stay of an Award under the provisions of The Micro, Small and Medium Enterprises Development Act, 2006 and The Arbitration and Conciliation Act, 1996, and the discretion of the court in granting stay of the operation of an award and the right of an award-holder to withdraw a certain percentage of the amount deposited by the award-debtor under the MSME Act.
Ratio Decidendi: The court's decision was influenced by the differences in the discretion provided by Section 36(3) of the Arbitration and Conciliation Act, 1996 and Section 19 of the MSME Act, 2006, regarding the grant of stay of an award and the right of an award-holder to withdraw a certain percentage of the amount deposited by the award-debtor.
Final Decision: The court allowed Optimal to withdraw 75% of the principal amount awarded to Optimal in the arbitration without requiring to furnish security for withdrawing the said amount. The Award dated 24th September 2019 was stayed until disposal of the pending proceedings.

ORDER :

Moushumi Bhattacharya, J.

Three applications filed by the parties before the Court are being considered in this judgment.

2. The first application is for setting aside of an Award dated 24th September, 2019 passed by the Facilitation Council under the provisions of The Micro, Small and Medium Enterprises Development Act, 2006 wherein Optimal Power Synergy emerged as the Award-holder. The second application is for stay of the Award under section 36 of The Arbitration and Conciliation Act, 1996. Both these applications have been filed by Bharat Heavy Electricals Limited (BHEL), the Award-debtor. The third is an Execution Petition filed by Optimal for execution of the Award.

3. The prayer of the Award-debtor, BHEL, is that the Award should be stayed pending hearing of the application for setting aside of the Award. The Award-holder Optimal prays for withdrawing 75% of the principal amount of Rs.61,08,654/- awarded to Optimal by the Facilitation Council without being required to furnish security in lieu of such withdrawal.

4. Mr. Tilak Kumar Bose, learned senior counsel appearing for the Award -holder Optimal, relies on the provisions of the MSME Act to urge that section 19 of the said Act requires the appellant to deposit 75% of the amount of the Award before an application for setting aside of the Award can be entertained. Counsel further relies on the proviso to section 19 under which the Court can make an order for payment of such percentage of the amount deposited by the appellant to the supplier as the court may consider to be reasonable. Counsel submits that Optimal is in a precarious financial condition and that the title deeds which Optimal initially wanted to deposit as security in exchange for the amount to be withdrawn are defective.

5. Mr. Jishnu Saha, learned senior counsel appearing for the Award-debtor BHEL, seeks stay of the impugned Award on the ground that the Award-debtor has already deposited 50% of Rs. 2,09,16,171/- (which is 75% of the total amount comprising of the principal sum awarded plus interest) in cash with the Registrar Original Side of this Court and has also given a bank guarantee of the balance 50% of the amount in compliance with the direction passed on 1st September, 2021. Counsel submits that Optimal should not be permitted to withdraw any amount of the deposit lying with the Registrar without furnishing security. Counsel seeks to distinguish the provisions of the MSME Act and the Arbitration and Conciliation Act, 1996 and submits that unconditional withdrawal of the amount deposited is not contemplated under the former.

6. A brief background of the three applications is necessary for a better understanding of the stand taken by the parties before this Court. The impugned Award was passed by the West Bengal State Micro Small Enterprises Facilitation Council under section 18 of the MSME Act on 24th September, 2019 on a reference by Optimal arising out of a dispute with BHEL. BHEL is the buyer and Optimal is the supplier as defined under sections 2 (d) and (n) respectively of the MSME Act. The Award notes that Optimal is a small manufacturing enterprise which issued eight purchase orders on BHEL for supply of a Solar Power Conditioning Unit and other items for a diesel power plant. The payment terms in the purchase order were 80% - 90% payment on supply plus 100% taxes to be made with 30-45 days of credit from receipt of the material at site and the balance 10% on execution of basic supply of the materials. The Award was passed after BHEL failed to participate in the conciliation pursued under section 18 of the MSME Act. The arbitration was commenced after the conciliation failed.

7. By the impugned Award, BHEL was directed to pay the principal sum of Rs. 61,08,654/- along with the interest thereon at three times the bank rate notified by RBI compounded with monthly rests under Section 16 of the MSME Act. The claimant / Award-holder, Optimal was directed to submit its claim of interest on the pr

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