The court ruled that a contract involving both supply and installation qualifies as a works contract, which is outside the jurisdiction of MSMED Act, leading to the Arbitrator's award being set aside.

ORDER :

N. Anand Venkatesh, J.

The petitioner has assailed the Award passed by the sole Arbitrator dated 02.11.2021 in the present petition filed under Section 34 (2) of the Arbitration and Conciliation Act , 1996, (for brevity, hereinafter referred to “the Act”).

2. The case of the respondent/claimant is that they are a small enterprise registered in the year 1991 under the Micro, Small and Medium Enterprises Development Act , 2006, (hereinafter referred to as “the MSMED Act ”) and that they are engaged in the manufacture of air pollution control equipments. The petitioner proposed to install a captive thermal power Plant of 25 MW capacity for the purpose of supplying energy to its manufacturing units. This power plant required pollution control equipment and, for that purpose, the petitioner negotiated with the respondent and issued a Letter of Intent (LOI) dated 12.03.2009 containing various terms and conditions for the design, engineering, manufacture, supply, storage, erection and commissioning of Elector Static Precipitator (hereinafter referred to as “ESP”). The contract price was fixed at Rs.3,95,00,000/-.

3. The further case of the respondent is that they supplied the ESP machinery at a price of Rs.3,75,00,000/- upon various payment terms. In the purchase order, it was stated that a separate work order will be issued later for erection and commissioning at a cost of Rs.20,00,0000/-. Subsequently, the purchase order was amended vide letter dated 22.05.2009, whereby the cost of supply was revised to Rs.3,55,00,000/- and the cost of erection and commissioning was revised to Rs.40,00,000/-.

4. It is the further case of the respondent that an advance amount of 10% of the contract value, amounting to Rs.37,50,000/-, was paid by the petitioner by means of cheques. When the respondent sent the scanned copy of the drawings, the petitioner released a further payment of Rs.33,50,000/- vide cheques in line with the terms contained in the purchase order.

5. There was a delay in making further payments and the parties arranged for a meeting and entered into a fresh agreement, which was recorded in the minutes of the meeting held from 12.03.2011 to 14.03.2011. Pursuant to the agreement, an amended letter dated 01.04.2011 was issued by the petitioner to the respondent, increasing the purchase price from Rs.3,55,00,000/- to Rs.3,97,60,000/-. This amended letter also provided for a hike in the price of erection and commissioning to the tune of Rs.47,40,000/-.

6. Once again, the parties were not able to comply with the terms of agreement, which resulted in a subsequent agreement, which was recorded in the minutes of the meeting held on 01.06.2011. Pursuant to the revised agreement, the petitioner opened an LC for Rs.1,50,00,000/- on 07.07.2011 and another LC for the remaining amount on 23.05.2012 and 19.01.2013, respectively. Accordingly, the respondent completed the supply of the ESP machinery on 04.04.2013 and conducted the necessary tests.

7. Both parties alleged breach of contract against each other. Since the parties were not able to reach an amicable settlement, the dispute ultimately reached the sole Arbitrator. The respondent made a claim for a sum of Rs.1,66,27,986/- on various heads. The petitioner also made certain counterclaims.

8. The respondent relied upon documents marked as Ex.C1 to Ex.C125 and the petitioner relied upon documents marked as Ex.R1 to Ex.R102.

9. The sole Arbitrator, on considering the facts and circumstances of the case and on appreciation of evidence, allowed Claim Nos.1(a), 1(b), 1(