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IN THE HIGH COURT AT CALCUTTA
Moushumi Bhattacharya, J.
Rashmi Cement Limited – Petitioner
Versus
Radha Bhattad – Respondent
AP 327 of 2023
Decided On : 26-06-2023
ARBITRATION - APPOINTMENT OF ARBITRATOR - MSME ACT - MSMED ACT, 2006 - SECTION 18(1) - SECTION 17 - SECTION 24 - ARBITRATION ACT, 1996 - SECTION 7(2) - SECTION 7(4) - SECTION 10(1) - SECTION 11 - SERVICE ORDER - ARBITRATION CLAUSE - SUMMARY: The court held that the buyer is not obligated to make a reference to the Micro and Small Enterprises Facilitation Council under section 18(1) of the MSMED Act, 2006. The court also held that the existence of the arbitration agreement between the parties in writing as contained in the Service Order is established from the exchange of electronic communications between the parties under section 7(4)(b) of the Act of 1996.
Fact of the Case:
The petitioner sought the appointment of a sole arbitrator based on a Letter of Invocation dated 8.4.2023. The respondent failed to reply to the said letter. Disputes arose between the parties which included the petitioner serving a legal notice on the respondent on 17.11.2022 for the amount due and the respondent raising a demand under section 8 of the Insolvency and Bankruptcy Code (IBC), 2016 on the petitioner alleging that the petitioner had failed to make full and complete payment of the invoices raised in connection with the Service Order.
Finding of the Court:
The court held that the buyer is not obligated to make a reference to the Micro and Small Enterprises Facilitation Council under section 18(1) of the MSMED Act, 2006. The court also held that the existence of the arbitration agreement between the parties in writing as contained in the Service Order is established from the exchange of electronic communications between the parties under section 7(4)(b) of the Act of 1996.
Issues: 1. Whether the buyer is obligated to make a reference to the Micro and Small Enterprises Facilitation Council under section 18(1) of the MSMED Act, 2006? 2. Whether the arbitration agreement between the parties is valid and enforceable?
Ratio Decidendi: 1. The court held that the "any party" under section 18 of the MSMED Act must necessarily and only mean the supplier who claims that the buyer is liable to pay the amount claimed by the supplier along with interest thereon culminating in a reference to the Council under section 18. 2. The court held that the existence of the arbitration agreement between the parties in writing as contained in the Service Order is established from the exchange of electronic communications between the parties under section 7(4)(b) of the Act of 1996.
Final Decision: The court allowed the application and appointed Mr. Jayanta Biswas, former Judge of this Court, to act as the Sole Arbitrator for resolving the disputes and differences between the parties.
JUDGMENT :
Moushumi Bhattacharya, J.
1. The petitioner seeks appointment of a sole Arbitrator on the basis of a Letter of Invocation dated 8.4.2023. The respondent failed to reply to the said letter.
2. The dispute between the parties arises out of a contract contained in Service Order dated 9.12.2021 under which the respondent was to arrange for transportation of 50,000 MT of coal required by the petitioner from Magadh to the petitioner’s plant at Jhargram for a total consideration of Rs. 2,15,35,000/-. Disputes arose between the parties which included the petitioner serving a legal notice on the respondent on 17.11.2022 for the amount due and the respondent raising a demand under section 8 of the Insolvency and Bankruptcy Code (IBC), 2016 on the petitioner alleging that the petitioner had failed to make full and complete payment of the invoices raised in connection with the Service Order. Learned counsel appearing for the parties, however, have raised certain preliminary questions on points of law which are required to be dealt with and answered.
3. The objection taken on behalf of the respondent is primarily on the ground that the respondent is an MSME or rather an entity defined under section 2 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 and that the respondent should accordingly get the protection of the 2006 Act. It is also the stand that the petitioner, as the buyer who placed the Service Order on the respondent for transport of 50,000 MT of coal for a consideration of Rs. 2.15 crores, was also under an obligation to make a reference to the Micro and Small Enterprises Facilitation Council under the provisions of the MSMED Act. Learned counsel appearing for the respondent/supplier relies on section 18(1) of the 2006 Act to urge that any party to a dispute may make a reference to the Council which means that the petitioner had an equal obligation to approach the Council for relief.
4. This contention is wholly incompatible with the object of The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. Section 18(1) deals with reference to the Facilitation Council and provides for “…. any party to a dispute may ….. make a reference to the … Council”. The significant part is what follows “any party to a dispute”. The reference made to the Council must be with regard to “any amount due under section 17 …..”. Sections 18 and 17 are set out below:
“17. Recovery of amount due. – For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16.”
5. Sections 18 and 17 – necessarily in reverse order – makes it clear that the reference made by any party to the Council must be with regard to any amount due under section 17 which is for goods supplied or services rendered by a supplier. Section 17 also mandates that the buyer shall be liable to pay the amount with interest thereon as provided under section 16 of the MSMED Act. Section 17 read in conjunction with section 18 makes it clear that the “any party” under section 18 must necessarily and only mean the supplier who claims that the buyer is liable to pay the amount claimed by the supplier along with interest thereon culminating in a reference to the Council under section 18.
6. No other interpretation is possible. This view is supported by the overall scheme and object of the MSMED Act including section 18(4) which empowers the Council having jurisdiction to act as an Arbitrator/Conciliator under section 18 in a dispute where the supplier is located within its jurisdiction and a buyer is located anywhere in India. The Act is replete with sections which protect t
The buyer is not obligated to make a reference to the Micro and Small Enterprises Facilitation Council under section 18(1) of the MSMED Act, 2006.
The Micro, Small and Medium Enterprises Development Act, 2006 has overriding effect over the Arbitration and Conciliation Act, 1996 when the jurisdiction of the Council has been invoked, and the Coun....
Micro and small enterprises may opt for arbitration even if the MSMED Act applies, but medium enterprises are not governed by its provisions.
The MSMED Act, 2006 provides a statutory framework that allows the Facilitation Council to act as an arbitrator after conciliation, overriding the restrictions of the Arbitration Act, 1996.
The Arbitration and Conciliation Act, 1996 is overridden by the MSMED Act, 2006, establishing the jurisdiction of the Facilitation Council for disputes, thereby necessitating adherence to its terms o....
Section 34 of the Arbitration Act arises as is evident from sub Section (6) of Section 16 of the Arbitration Act, which inter alia provides that the parties aggrieved by such an arbitral award may ma....
The court upheld that statutory remedies under the MSMED Act take precedence over private arbitration agreements, affirming the Facilitation Council’s jurisdiction in disputes involving MSMEs.
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