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IN THE HIGH COURT OF DELHI AT NEW DELHI
Prateek Jalan, J.
Jkg Infratech Private Limited - Appellant
Versus
Larsen And Toubro Limited - Respondent
ARB. A. (COMM.) 8 of 2024
Decided On : 06-02-2024
Arbitration - MSME Act - Arbitration and Conciliation Act, 1996 ["A&C Act"] - Micro, Small and Medium Enterprises Development Act, 2006 ["MSME Act"] - Section 37 of the A&C Act
Fact of the Case:
The appellant invoked arbitration under Section 18 of the MSME Act for non-release of performance bank guarantee and retention money. The respondent contended that the proceedings under the MSME Act were barred as the appellant was registered under Section 8 of the MSME Act only after the contracts were concluded.
Finding of the Court:
The court upheld the respondent's contention, citing judgments of the Supreme Court and this Court, and dismissed the appeal. The appellant was not entitled to invoke arbitration under Section 18 of the MSME Act as it was registered after rendering services under the contracts.
Issues: Applicability of the MSME Act to a party registered after the conclusion of contracts, interpretation of Section 18 of the MSME Act, and the effect of registration under the MSME Act on arbitration proceedings.
Ratio Decidendi: The court held that the appellant, registered under the MSME Act after rendering services under the contracts, was not entitled to invoke arbitration under Section 18 of the MSME Act. The judgments of the Supreme Court and this Court supported this interpretation.
Final Decision: The appeal was dismissed, and the appellant was advised to seek appropriate remedies in accordance with law.
JUDGMENT
Prateek Jalan, J. (Oral)
I.A. 2604/2024(Exemption)
Exemption allowed, subject to all just exceptions.
The application stands disposed of.
ARB. A. (COMM.) 8/2024 & I.A. 2605/2024 (Condonation of delay in re-filing)
1. This appeal under Section 37 of the Arbitration and Conciliation Act, 1996 ["A&C Act"] is directed against an order dated 06.10.2023 of the learned arbitrator, allowing an application of the respondent under Section 16 of the A&C Act.
2. At the outset, it is recorded that I have disclosed to Mr. Parvesh Bansal, learned counsel for the appellant, that I hold some shares in the respondent-company but Mr. Bansal has stated that he has no objection to the appeal being heard by this Bench.
3. The arbitral proceedings were instituted by the appellant under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 ["MSME Act"]. The appellant's claim before the learned arbitrator arose out of contracts dated 19.11.2013 and 03.03.2014 by which it supplied certain services to the respondent. The appellant claims that the respondent did not release its performance bank guarantee and retention money as required under the contracts even after the prescribed defect liability period. Both contracts also contained arbitration clauses, but the appellant proceeded to invoke arbitration under Section 18 of the MSME Act.
4. The respondent made an application under Section 16 of the A&C Act before the learned arbitrator, contending that the proceedings under the MSME Act were barred as the appellant was registered under Section 8 of the MSME Act only on 03.02.2017. The learned arbitrator has accepted this position relying, inter alia, upon the decisions of the Supreme Court in Silpi Industries Etc. vs. Kerala State Road Transport Corporation and Anr., (2021) SCC OnLine 439: 2021 LAWPACK(SC) 65215: 2021(4) R.A.J. 39 ("Silpi Industries") and Vaishno Enterprises vs. Hamilton Medical AG and Anr., (2022) SCC OnLine SC 355: 2022 LAWPACK(SC) 66258 ("Vaishno Enterprises") and upon three decisions of this Court [JKS Infrastructure Pvt. Ltd. vs. MSME Facilitation Council and Ors., (2023) SCC OnLine Del 5873 2023 LAWPACK(Del) 96837; Municipal Corporation of Delhi vs. Ram Prakash, [order dated 16.03.2023 in WP (C) 16891/2022 and connected matters], Grand Mumtaz Hotel and Resort vs. Deputy Commissioner North East Government of NCT of Delhi & Ors., (2023) SCC OnLine Del 3891: 2023 LAWPACK(Del) 94944]. The learned arbitrator has consequently dismissed the claims of the appellant, leaving the parties to adopt their respective remedies in law.
5. Mr. Bansal submits that the decision of the learned arbitrator proceeds on a misappreciation of the effect of registration under the MSME Act. He submits that the MSME Act, being a beneficial legislation, the benefits of its provisions should be extended to a registered MSME, even if the registration was obtained after the goods/services were supplied. On the facts of the case, he does not dispute that the supplies under the contracts in question concluded in the year 2014, and the appellant was registered under the MSME Act only on 03.02.2017. Mr. Bansal relies upon a decision of this Court in Ramky Infrastructure Pvt. Ltd. vs. Micro and Small Enterprises Facilitation Council and Anr., Judgment of this Court dated 04.07.2018 in WP (C) 5004/2017: 2018 LAWPACK(Del) 65854 and a decision of the Madras High Court in M/s Khushboo Creations vs. M/s Kanpur Sivasankar Spices, Judgment of the Madras HC dated 12.06.2023 in C.R.P (MD) No. 2450/2022, against which the Supreme Court refused special leave to appeal. He also cites the judgment of the Andhra Pradesh High Court in Indur District Cooperative Marketing Society Ltd. vs. Microplex (India), Hyderabad, (2015) SCC OnLine Hyd 494 and of the Allahabad High Court in M/s Hameed Leather Finishers vs. M/s Associated Chemical Industries Kanpur Pvt. Ltd., (2013) SCC OnLine All 9058.
6. Turning first to the judgments of the Supreme Court, in Silpi Industries
The registration under the MSME Act must precede the conclusion of contracts for a party to invoke arbitration under Section 18 of the MSME Act.
The benefits under the MSME Act do not apply if the registration under the Act was obtained subsequently.
The registration under the MSMED Act, 2006 applies prospectively and not retrospectively, and the benefits of the Act do not apply if the registration is obtained subsequently to the agreement and th....
Provisions of MSME Act shall be applicable in case of supplier who has filed a memorandum with authority referred to in subsection (1) of Section 8.
The central legal point established in the judgment is that the benefits under the MSMED Act, 2006 would not apply if the registration under the Act was obtained subsequently, as clarified by the Sup....
The court clarified that registration under Section 8 of the MSMED Act is not a prerequisite for making a reference to the Facilitation Council under Section 18, emphasizing broad access to justice.
If any registration under the MSMED Act is obtained, the same will be prospective and would apply to supply of goods and services subsequent to registration but cannot operate retrospectively. Accord....
The court affirmed that failure to consider the MSMED Act's provisions on interest constitutes a significant error, leading to the setting aside of the arbitral award.
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