Chamundeshwari Electricity Supply Corporation Ltd. V. Rajshekar and Associates and Micro and Small Enterprise Facilitation Council Bengaluru

WP/6083/2020

AI Insights

The case involves M/s. Chamundeshwari Electricity Supply Corporation Ltd., which filed two writ petitions against the orders of the Micro and Small Enterprise Facilitation Council, Bengaluru, referring disputes to arbitration. The disputes arose from contracts awarded to M/s. Rajshekar and Associates for electrical projects, which were not completed on time. The Corporation alleged breaches and sought to blacklist the contractor, while the contractor claimed payments for the work done. The Council's orders were challenged on grounds including the applicability of the Limitation Act and the jurisdiction to refer the matter to arbitration. The High Court's decision affirmed that the Limitation Act applies and the Arbitral Tribunal has the jurisdiction to decide on these matters.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 799804 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 22-04-2024
• Assessment Year: misc
• Other Referred Cases: SHANTI CONDUCTORS LIMITED v. ASSAM STATE ELECTRICITY BOARD, SHAH & PARIKH v. URMI TRENCHLESS TECHNOLOGY PRIVATE LIMITED, S.R. TECHNOLOGIES UNIT II v. MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL, INDIA GLYCOLS LIMITED v. MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL, SILPI INDUSTRIES v. KERALA STATE ROAD TRANSPORT CORPORATION
• Laws Referred To: Constitution of India, Companies Act, 1956, Indian Partnership Act, 1932, Micro and Small Enterprises Development Act, 2006, Arbitration and Conciliation Act, 1996
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: ABHINAV
• Assessee Lawyers: S SRIRANGA
• Keywords: Arbitration; Blacklisting; Contract; Electrical projects; Facilitation Council; Limitation Act; Liquidated Damages; Micro and small enterprises; Tender
• Section: 18; 226; 227

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 22ND DAY OF APRIL, 2024 BEFORE THE HON'BLE MR. JUSTICE M. NAGAPRASANNA WRIT PETITION No.6083 OF 2020 (GM-RES) C/W WRIT PETITION No.6093 OF 2020 (GM-RES) IN WRIT PETITION No.6083 OF 2020: BETWEEN: M/S. CHAMUNDESHWARI ELECTRICITY SUPPLY CORPORATION LTD., A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT NO. CA 29, 80 FEET ROAD VIJAYANAGAR, 2ND STAGE HINKAL, MYSURU – 570 071. REPRESENTED BY ITS GENERAL MANAGER (PROJECTS) ... PETITIONER (BY SRI. S.SRIRANGA, SENIOR ADVOCATE FOR SMT. SUMANA NAGANAND, ADVOCATE) R 2 AND: 1 . M/S. RAJSHEKAR AND ASSOCIATES A PARTNERSHIP FIRM REGISTERED UNDER THE PROVISIONS OF THE INDIAN PARTNERSHIP ACT, 1932 HAVING ITS REGISTERED OFFICE AT: UNIT 201, LANDMARK PLAZA NO.299, LANGFORD ROAD BENGALURU – 560 025. REPRESENTED BY ITS MANAGING DIRECTOR MR. N.SATYANARAYAN. 2 . MICRO AND SMALL ENTERPRISE FACILITATION COUNCIL BENGALURU DIRECTORATE OF MSME, NO. 49 GROUND FLOOR, KHANIJA BHAVAN RACE COURSE ROAD, BENGALURU – 560 001. REPRESENTED HEREIN BY ITS MEMBER SECRETARY MSEFC, BENGALURU. ... RESPONDENTS (BY SRI. ABHINAV R., ADVOCATE FOR C/R-1) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER DATED 23.01.2020 ANNEXURE-Q PASSED BY THE R-2 IN CASE DT 5.2.20; ALLOW THE APPLICATION DATED 18.07.2019 ANNEXURE-K FILED BY THE PETITIONER. IN WRIT PETITION No.6093 OF 2020: BETWEEN: M/S. CHAMUNDESHWARI ELECTRICITY SUPPLY CORPORATION LTD., A COMPANY INCORPORATED UNDER 3 THE PROVISIONS OF COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT: NO. CA 29, 80 FEET ROAD VIJAYANAGAR, 2ND STAGE HINKAL, MYSURU – 570 071. REPRESENTED BY ITS GENERAL MANAGER (PROJECTS) ... PETITIONER (BY SRI. S.SRIRANGA, SENIOR ADVOCATE FOR SMT. SUMANA NAGANAND, ADVOCATE) AND: 1 . M/S. RAJSHEKAR AND ASSOCIATES A PARTNERSHIP FIRM REGISTERED UNDER THE PROVISIONS OF THE INDIAN PARTNERSHIP ACT, 1932 HAVING ITS REGISTERED OFFICE AT: UNIT 201, LANDMARK PLAZA NO. 299, LANGFORD ROAD BENGALURU – 560 025. REPRESENTED BY ITS MANAGING DIRECTOR MR. N.SATYANARAYAN. 2 . MICRO AND SMALL ENTERPRISE FACILITATION COUNCIL, BENGALURU DIRECTORATE OF MSME, NO. 49 GROUND FLOOR, KHANIJA BHAVAN RACE COURSE ROAD BENGALURU – 560 001. REPRESENTED HEREIN BY ITS MEMBER SECRETARY MSEFC, BENGALURU. ... RESPONDENTS (BY SRI. ABHINAV R., ADVOCATE FOR C/R-1) 4 THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER DTD.23.1.2020 (ANNEXURE-R) PASSED BY THE R-2; ALLOW THE APPLICATION DTD.18.7.2019 ANNEXURE-J FILED BY THE PETITIONER. THESE WRIT PETITIONS HAVING BEEN HEARD AND RESERVED FOR ORDERS, COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT MADE THE FOLLOWING:- ORDER Both these petitions are preferred by M/s.Chamundeshwari Electricity Supply Corporation Limited (hereinafter referred to as the ‘Corporation’ for short). The two raise challenge to a solitary order dated 23-01-2020 passed by the 2nd respondent/Micro and Small Enterprise Facilitation Council, Bengaluru (hereinafter referred to as ‘the Council’ for short). 2. For the sake of convenience, the facts in Writ Petition No.6083 of 2020, which are common in the other petition, would be noticed. 3. Facts adumbrated are as follows:- 5 The petitioner/Corporation, a Government company engaged in the business of executing electrical projects and is a licensee for distribution of electricity. The petitioner floats a tender for the purpose of carrying out work to strengthen electricity distribution network in Chamarajanagar and Kollegal Taluks by issuing a notice inviting tender in the year 2011. The 1st respondent emerges as a successful bidder. The 1st respondent is a small scale industry registered with the Karnataka Small Scale Industry and is engaged in the business of executing electrical projects. In view of the 1st respondent being declared a lowest bidder, a letter of intent was issued to the successful tenderer on 08-12-2011 for an amount of `5,27,08,038/-. On 14-12-2011, two work contracts were executed by the petitioner for supply portion and erection portion as found in the letter of intent. On 06-01-2012, two separate work orders are issued to the 1st respondent and separate contracts are entered into prior to the issuance of two separate work orders. In terms of contracts the period of completion of the project was 12 months from the date of issuance of work orders. There is a delay in completion of the project. The petitioner alleges that the work was delayed due to the breach committed by the 1st respondent in 6 execution of the work in both the Talukas. In Chamarajnagar Taluk, work to the tune of 62.19% was completed and in Kollegal Taluk the completion of work was 59.29%. Several notices are exchanged between the petitioner and the 1st respondent culminating in a show cause notice being issued against the 1st respondent on 19-02-2016, seeking to show cause as to why the contract should not be short closed and the first respondent should not be blacklisted and liquidated damages should not be claimed. The 1st respondent replies to the said notice and on 05-03-2016 the petitioner short closes the work entrusted to respondent No.1. The dispute arose with regard to completion of work and payment to be made. The Engineer of the petitioner adjudicated claims and declared an amount of `2,61,06,505/- was payable by respondent No.1 to the petitioner. A suit in O.S.No.501 of 2018 was filed which was subsequently placed before the Commercial Court in Commercial O.S.No.2 of 2019 seeking recovery of `3,25,92,719/-. When the proceedings were pending before the Commercial Court, the 1st respondent files an application before the Council on 04-03-2019 claiming a sum of `1,64,17,352/-. Another application is filed before the Council in case No.186 of 2018 claiming 7 `8,17,15,115/-. Therefore, there were two claims before the Council. On 16-07-2019, the petitioner files its objections contending that the claims made before the Council were barred by limitation to which a rejoinder is filed and the Council by the impugned order dated 23-01-2020 rejects the objections of the petitioner seeking dismissal of the claims on the ground of limitation and refers the matter for arbitration to an Arbitral Tribunal. It is aggrieved by the two orders passed separately in two cases viz., case No.1 of 2019 and case No.186 of 2018, these petitions are preferred by the petitioner/Corporation. 4. Heard Sri S. Sriranga, learned senior counsel for Smt.Sumana Naganand, learned counsel appearing for the petitioner and Sri R. Abhinav, learned counsel appearing for the 1st respondent. 5. The learned senior counsel representing the Corporation would vehemently contend that the order passed by the Council is in complete contravention of the judgment rendered by the Apex Court in SHANTI CONDUCTORS LIMITED v. ASSAM STATE 8 ELECTRICITY BOARD1. It is his emphatic submission that Limitation Act is applicable to proceedings under the Micro and Small Enterprises and Development Act, 2006 (‘the Act’ for short) and Section 2(b) which defines an Appointed date as the date following immediately after expiry of 30 days from the date of acceptance or deemed acceptance of the contract. It is his further submission that the claim of the 1st respondent is not a live claim and can never be referred to Arbitration. He would submit that law of limitation is based on public policy and, therefore, should be given complete credence. On merits of the matter, the learned senior counsel would submit that the petitioner has made 50% of the value of materials and 50% would become due only after completion of the project. Since the project is short closed, there would no question of making any payment and, therefore, there would be no question of reference to Arbitration. 6. Per contra, the learned counsel representing the 1st respondent would vehemently refute the submissions to contend that once facilitation falls before the Council, the dispute will have 1 2019 SCC OnLine SC 68 9 to be resolved only by way of Arbitration. No power is given to the Council to record evidence at the conciliation stage and, therefore, the Council cannot adjudicate even limitation. On merits, the learned counsel would submit that Clause 8 of the work order clearly indicates that total price of erection work would be paid progressively, which is breached by the petitioner. Insofar as the judgment in the case of SHANTI CONDUCTORS LIMITED (supra), he would submit that it is not applicable as there was no agreement between the parties regarding payment before the Apex Court. In the case at hand, there is a payment clause and there is a dispute. 7. I have given my anxious consideration to the submissions made by the respective learned counsel for the respective parties and have perused the material on record. In furtherance whereof the issues that fall for consideration are: (i) Whether the limitation Act is applicable to the facilitation under the Act and the Council has power to consider limitation without referring the same to the Arbitral Tribunal? and 10 (ii) Whether the writ petition against orders referring the matter to Arbitral Tribunal would be entertainable under Article 226 of the Constitution of India? ISSUE NO.1: (i) Whether the limitation Act is applicable to the facilitation under the Act and the Council has power to consider limitation without referring the same to the Arbitral Tribunal? 8. The afore-narrated facts are not in dispute. Therefore, they would not require any reiteration. Since the issue has sprung with regard to jurisdiction of the Council to refer the matter to the Arbitral Tribunal, it would suffice if the consideration would commence from noticing Section 18 of the Act. Section 18 of the Act reads as follows: “18. Reference to Micro and Small Enterprises Facilitation Council.—(1) Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under Section 17, make a reference to the Micro and Small Enterprises Facilitation Council. (2) On receipt of a reference under sub-section (1), the Council shall either conduct mediation itself or refer the matter to any mediation service provider as provided under the Mediation Act, 2023. 11 (3) The conduct of mediation under this section shall be as per the provisions of the Mediation Act, 2023. (4) Where the mediation initiated under sub- section (3) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternative dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996), shall, then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of that Act. (5) Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternative dispute resolution services shall have jurisdiction to act as an Arbitrator or mediator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.” (Emphasis supplied) Section 18 mandates that on receipt of a reference, the Council shall either conduct mediation itself or refer the matter to a mediation service provider. Where the mediation initiated by the Council is not successful and stands terminated, the Council shall either itself take up the dispute for arbitration or refer it to any institution for Arbitration. The contract between the parties and the dispute are all a matter of record. 12 9. The contention of the petitioner is that, the claim of the 1st respondent is a stale claim and could not have been referred to Arbitration by the Council. Heavy reliance is placed upon Section 2(b) of the Act. Section 2(b) defines what is ‘appointed day’ and it means a day following immediately after the expiry of 15 days from the day of acceptance or of deemed acceptance of any goods or any service by a buyer from the supplier. The explanation has three components. The explanation explains what could be claimed before the Council. The issue is, whether an arranged stale claim could still be consolidated by the Council and refer the matter for Arbitration. It is trite law that limitation is always a mixed question of law and fact, which can be decided only by evidence. In questions of limitation where disputed questions of fact would arise, ordinarily the Courts exercising jurisdiction under Article 226 of the Constitution of India would be loathe to peep into. Well, since the petitioner has raised the very applicability of the Limitation Act to the proceedings before the Council, I deem it appropriate to consider the same in answer to the issue that has arisen. The issue need not detain this Court for long or delve deep into the matter. 13 10. The High Court of Bombay in SHAH & PARIKH v. URMI TRENCHLESS TECHNOLOGY PRIVATE LIMITED2 expressly deals with the issue of Limitation Act to become applicable under the Act and holds that the issue of limitation is within the exclusive jurisdiction of the Arbitral Tribunal to be constituted in terms of the Act and the High Court would have no jurisdiction to entertain such matters. The High Court of Bombay holds as follows: “…. …. …. 32. Having regard to the above legal position, this Court ought to reject the plaint which seeks an injunction restraining proceedings before the Council. As held by the Hon'ble Supreme Court, this Hon'ble Court would have no jurisdiction to pass such an order. In any event, the ground raised by plaintiff for opposing the proceedings before the Arbitral Tribunal to be constituted under Section 18 of the MSME Act, those are matters which can be raised before the Arbitral Tribunal, as held by the Hon'ble Supreme Court in Secure Industries Limited (Supra). The question as to limitation of defendant no. 1's claim raised before the Facilitation Council is a matter that is squarely within the sole province of the Arbitral Tribunal to decide, and no order on this aspect can or ought to be passed by this Court. 33. While considering the interplay between an arbitration agreement and statutory arbitrations under Section 18 of the MSME Act, the Hon'ble Allahabad High Court in Paper & Board Converters Ors. (Supra) held inter alia that Section 18 of the MSME Act commences with the words “notwithstanding anything contained in any other law for the time being in force”, 2 2019 SCC OnLine Bom.340 14 and therefore, for disputes contemplated under Section 18 of the MSME Act, if the jurisdiction of the Facilitation Council had been validly invoked, the Facilitation Council had exclusive jurisdiction to first enter upon conciliation and if conciliation fails, to refer the parties to arbitration. 34. Thus, the Facilitation Council having exclusive jurisdiction, this Court ought to reject the plaint as being barred by law, as it seeks reliefs which are clearly within the exclusive province of the Arbitral Tribunal and this Court has no jurisdiction to grant these reliefs. … … … 40. Issue of limitation is something which defendant no. 2 will decide. The reliance of plaintiff in Maharashtra State Electricity Distribution Company Limited (Supra), Delton Electricals (Supra), Patel Engineering Ltd. (Supra) and Cable Corporation of India Limited (Supra) are also misplaced. The facts in those cases were totally different. In Maharashtra State Electricity Distribution Company Limited (Supra), Delton Electricals (Supra) it was a matter where an award was challenged under Section 34 of the Arbitration Act, 1996 and Facilitation Council had come to a conclusion that Limitation Act was not applicable to the provisions under the MSME Act. The Court came to a conclusion that Limitation Act was applicable and all issues, including limitation, fall within the exclusive jurisdiction of the Arbitral Tribunal constituted under the MSME Act. Therefore, defendant no. 2 while considering the reference of defendant no. 1 will consider whether the claim is barred by limitation or is within limitation. 41. The judgment in Patel Engineering Limited (Supra) was relied upon by plaintiff to urge that limitation was a matter which was required to be considered by a Court under Section 11 and Section 8 of the Arbitration Act. This judgment was interpreted by the Hon'ble Supreme Court in National Insurance Co. Ltd. Boghara Polyfab Private Limited which notes inter alia that the question of whether a claim is a long dead claim may or may not be decided by the Court. Eventually, in the 2015 amendment to the Arbitration Act, even this limited determination has been excluded and the Court is only to examine whether there exists an arbitration agreement and 15 nothing more under Section 11(6-A) of the Arbitration Act. Even under the amended Section 8 of the Arbitration Act, it is held that the Court must refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. Thus, it is clarified by the amended Act that the criteria to be looked at under Section 8 and Section 11 of the Arbitration Act is whether there exists an arbitration agreement and not matters such as limitation. 42. The judgment in Cable Corporation of India Limited (Supra) cited by Mr. Vashi in fact supports defendant no. 1. The judgment holds that the Facilitation Council would have jurisdiction to consider the issue of limitation because by a legal fiction, Section 43 of the Arbitration Act, as also the Arbitration Act itself, are applicable to arbitrations conducted under the MSME Act (or its predecessor). Thus, the objection of limitation raised in prayer clause (c) of the Plaint of the present suit is within the exclusive jurisdiction of the Arbitral Tribunal to be constituted under the MSME Act and this Court would have no jurisdiction in such matters. 43. Therefore, plaintiff can file its objections and challenge the jurisdiction of defendant no. 2 and this Court cannot decide on that issue particularly, by virtue of Section 16 of the Arbitration Act, 1996.” (Emphasis supplied) I am in respectful agreement with the view taken by the Bombay High Court. Later, a Division Bench of the High Court of Telangana in a judgment reported in S.R. TECHNOLOGIES UNIT II v. MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL3 has held as follows: “…. …. …. 3 2023 SCC OnLine TS 4394 16 28. Before adverting to the order passed by the learned Single Judge, it would be apposite to briefly dilate on the MSME Act. 29. The Micro, Small and Medium Enterprises Development Act, 2006 (already referred to as, “the MSME Act”) has been enacted by the Parliament to provide for facilitating the promotion, development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. As per the statement of objects and reasons, at the time of introduction of the related Bill in Parliament there were only two provisions viz., Section 11B and Section 29B in the Industries (Development and Regulation) Act, 1951 which dealt with small scale industrial sector. It may be mentioned that medium industry or enterprise was not even defined in any law. While Section 1 IB provided for definition of small scale industry by way of notification, Section 29B provided for notifying reservation of items for exclusive manufacture in the small scale industrial sector. Except these two provisions there existed no legal framework for this dynamic and vibrant sector of the country's economy. Following suggestions by many expert groups or committees it was emphasised that there should be a comprehensive central legislation to provide for an appropriate legal framework for the micro, small and medium enterprises to facilitate its growth and development. Therefore, to address the concerns of the entire small and medium enterprises sector, the related Bill was introduced in Parliament providing for a single legal framework. 30. Section 2 under Chapter I defines various words and expressions finding place in the MSME Act. Chapter II deals with establishment of a national board for micro, small and medium enterprises. While Chapter III provides for classification of enterprises, advisory committee and memorandum of micro, small and medium enterprises, Chapter IV focuses on measures for promotion, development and enhancement of competitiveness of micro, small and medium enterprises. 17 31. Chapter V deals with delayed payments to micro and small enterprises. Sections 15 to 25 of the MSME Act form part of Chapter V. As per Section 15 of the MSME Act, where any supplier i.e., a micro or small enterprise supplies any goods or renders services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or where there is no agreement in this behalf, before the appointed day. As per the proviso, in no case the period agreed upon shall exceed forty five days from the day of acceptance or the day of deemed acceptance. 32. Section 16 of the MSME Act deals with payment of interest and rate of interest. It says that where any buyer fails to make payment of the amount to the supplier as required under Section 15 the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon at three times of the bank rate notified by the Reserve Bank. 33. Section 17 of the MSME Act clarifies that 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. 34. Section 18 of the MSME Act is relevant for the present discourse. It deals with reference to Micro and Small Enterprises Facilitation Council (already referred to hereinabove as, ‘the Facilitation Council’). Section 18 comprises of five sub-sections. Sub-section (1) starts with a non obstante clause. It says that notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under Section 17, make a reference to the Facilitation Council. Sub- section (2) deals with the procedure to be followed on receipt of a reference under sub-section (1). The Facilitation Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre for conducting conciliation, in which event 18 provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (already referred to hereinabove as, ‘the 3996 Act’) shall apply to such a dispute as if the conciliation was initiated under Part III of the 1996 Act comprising of Sections 65 to 81. As per sub-section (3), where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Facilitation Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration. In such a case, provisions of the 1996 Act would apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of the 1996 Act. Sub-section (4) clarifies that notwithstanding anything contained in any other law for the time being in force, the Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an arbitrator or conciliator under Section 18 in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India. Finally, sub-section (5) provides that every reference under Section 18 shall be decided within a period of ninety days from the date of making such reference. 35. Pausing here for a moment, we find that as per the scheme of Section 18 of the MSME Act, once a reference is made to the Facilitation Council with regard to any amount due under Section 17, the Facilitation Council shall first conduct conciliation either by itself or through the assistance of any institution or centre providing alternate dispute resolution services. During conciliation proceedings, provisions of Sections 65 to 81 of the 1996 Act would be applicable. If the conciliation proceedings are not successful, the Facilitation Council shall proceed for arbitration either by itself or through any institution or centre providing alternate dispute resolution services, in which event, provisions of the 1996 Act would be applicable as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of the 1996 Act. Such a reference is required to be decided expeditiously; the time limit provided is a period of ninety days from the date of making such a reference. 19 36. This brings us to Section 19 of the MSME Act which deals with application for setting aside decree, award or order. As per Section 19, no application for setting aside any decree, award or other order made either by the Facilitation Council or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Facilitation Council shall be entertained by any court unless the appellant (not being a supplier) has deposited with the court 75% of the amount in terms of the decree, award or other order. As per the proviso, once such deposit is made and during pendency of the application for setting aside decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier i.e., micro and small enterprise as may be considered reasonable. 37. From a careful analysis of Section 19 of the MSME Act, it is evident that Parliament has used the expression “shall” to make the provision a mandatory one. Therefore, it is crystal clear that no application for setting aside any decree, award or order made by the Facilitation Council or by any institution providing alternate dispute resolution services under Section 18 of the MSME Act shall be entertained by any court unless the appellant has deposited with the court 75% of the decretal or awarded amount. It is clarified that this provision will not be applicable, if the appellant is a micro or small enterprise. The proviso further mandates that once such a deposit is made, it is obligatory for the court to order such percentage of the amount deposited as may be considered reasonable be paid to the supplier i.e., micro or small enterprise. 38. Sections 20 and 21 of the MSME Act deal with establishment and composition of Facilitation Council. 39. Section 22 of the MSME Act requires a buyer to furnish information pertaining to unpaid amount with interest to the supplier in the annual statement of accounts. 40. Section 23 of the MSME Act which again starts with a non obstante clause says that notwithstanding anything contained in the Income Tax Act, 1961, the amount of interest payable or paid by any buyer under or in accordance with the 20 provisions of the MSME Act shall not be allowed as a deduction for the purposes of computation of income under the Income Tax Act, 1961. 41. Section 24 of the MSME Act clarifies that provisions of Sections 15 to 23 of the MSME Act, as discussed above, shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. 42. Even in case of closure of business of micro, small and medium enterprises Section 25 of the MSME Act requires the Central Government to notify a scheme to facilitate such closure within one year from the date of commencement of the MSME Act. 43. Thus from a conjoint reading of Sections 15 to 25 of the MSME Act, it is evident that Parliament has bestowed special attention on this significant sector of the Indian economy. It is clear that focus of the legislation is to safeguard the interest of the micro, small and medium enterprises. While a buyer is mandated to make payment to the micro or small enterprise within a definite period not exceeding forty five days from the day of acceptance or deemed acceptance, failure to make such payment would make the buyer liable to pay compound interest at three times of the bank rate notified by the Reserve Bank. The idea is to encourage prompt payment by the buyer to the supplier by making default extremely expensive. To clarify the matter further, Section 17 makes it mandatory for the buyer to make payment with interest statutorily prescribed for any goods supplied or services rendered by the supplier. In case of any dispute with regard to any amount due under Section 17, a reference may be made to the Facilitation Council. Thus Facilitation Council gets the jurisdiction in case of a dispute with regard to any amount due under Section 17 and not otherwise. Facilitation Council will first try conciliation and if that fails, will resort to arbitration. In both instances relevant provisions of the 1996 Act would be applicable. Such a reference is to be decided expeditiously within a period of ninety days. In case any 21 application is filed to set aside such award, the same shall not be entertained by any court unless the appellant deposits 75% of the awarded amount before the court. However, if the appellant is a micro or small enterprise, it would be exempted from such deposit. All these indicate the focus of the legislation. After the deposit is made, the court shall order such percentage of the deposit to be paid to the supplier i.e., micro or small enterprise. Parliament has also made it abundantly clear that payment of interest by the buyer under the MSME Act would not be deducted for the purpose of computation of its income under the Income Tax Act, 1961. There is a rationale behind it. In order to incentivise payment by the buyer to the supplier under the MSME Act within the period specified in which event no further interest would be accrued, the said provision has been inserted. In other words, payment of compound interest by the buyer to a micro or small enterprise on account of delayed payment of principal amount would not be allowed as a deduction while computing income under the Income Tax Act, 1961. To further clarify the matter, it is made clear that provisions of Sections 15 to 23 of the MSME Act would have overriding effect over anything inconsistent contained in any other law for the time being in force. … … … 67. Insofar the second question is concerned, Supreme Court following on its answer to the first question held that a private agreement between the parties as contemplated under Section 7 of the 1996 Act cannot obliterate statutory provisions. Once the statutory mechanism under subsection (1) of Section 18 of the MSME Act is triggered by any party, it would override any other agreement independently entered into between the parties. 68. Answering the third question, Supreme Court held that the Facilitation Council which had conducted conciliation proceedings under Section 18(2) of the MSME Act would be entitled to act as an arbitrator despite the bar contained in Section 80 of the 1996 Act. Thus, Supreme Court summed up its conclusions in the following manner: 22 34. The upshot of the above is that: (i) Chapter-V of the MSMED Act, 2006 would override the provisions of the Arbitration Act, 1996. (ii) No party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council, though an independent arbitration agreement exists between the parties. (iii) The Facilitation Council, which had initiated the conciliation proceedings under Section 18(2) of the MSMED Act, 2006 would be entitled to act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act. (iv) The proceedings before the Facilitation Council/institute/centre acting as an arbitrator/ arbitration tribunal under Section 18(3) of MSMED Act, 2006 would be governed by the Arbitration Act, 1996. (v) The Facilitation Council/institute/centre acting as an arbitral tribunal by virtue of Section 18(3) of the MSMED Act, 2006 would be competent to ruie on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration Act, 1996. (vi) A party who was not the ‘supplier’ as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract cannot seek any benefit as the ‘supplier’ under the MSMED Act, 2006. If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration. 69. That being the position, the aforesaid finding returned by the learned Single Judge is wholly unsustainable in law and is therefore liable to be set aside. … … … 87. This is more so when there was no compliance to the mandate of Section 19 of the MSME Act inasmuch as 75% of the awarded amount was not deposited by respondents No. 23 2 and 3 before the Registry of this Court at the time of filing the writ petition. It is true that Article 226 of the Constitution of India being a constitutional provision would not be subject to the rigor of Section 19 of the MSME Act. Nonetheless, having regard to the specific objective of the MSME Act and the fact that respondents No. 2 and 3 had not availed the statutory remedy and that the award is in the nature of a money decree, entertaining the writ petition without insisting on any deposit of the awarded amount was not at all justified. 88. Finally, we find that though learned Single Judge had taken great pains in deciding the writ petition, from a perusal of the judgment and order passed by the learned Single Judge it is seen that learned Single Judge had clearly exceeded the bounds of judicial review and had transgressed into the domain of facts and factual determination without any pleadings and evidence.” (Emphasis supplied) The Division Bench of the High Court of Telangana considers entire spectrum of the Act and holds that Limitation Act is applicable to the proceedings before the Council and the learned single Judge has fallen in error in entertaining a petition, which involves limitation, as limitation would involve mixed question of law and fact. This judgment of the Division Bench of the High Court of Telangana was challenged before the Apex Court in several connected cases. The Apex Court decides the issue in INDIA GLYCOLS LIMITED v. 24 MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL4 as follows: “…. …. …. 8. Section 18 of the MSMED Act provides for a reference to the Facilitation Council. Sub-section (2) of Section 18 provides for the conduct of conciliation proceedings. Sub- section (3) empowers the Council to thereafter take up the dispute for arbitration or to refer it to an institution or centre providing for Alternative Dispute Resolution services “for such arbitration”. Sub-section (3) of Section 18 stipulates that the provisions of the Act of 1996 “shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of that Act”. 9. Section 19 provides recourse against an award of the Facilitation Council in the following terms: “19. Application for setting aside decree, award or order— No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent. of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court: Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose.” 10. In terms of Section 19, an application for setting aside an award of the Facilitation Council cannot be entertained by any court unless the appellant has 4 2023 SCC OnLine SC 1852 25 deposited seventy-five per cent of the amount in terms of the award. In view of the provisions of Section 18(4), where the Facilitation Council proceeds to arbitrate upon a dispute, the provisions of the Act of 1996 are to apply to the dispute as if it is in pursuance of an arbitration agreement under sub-section (1) of Section 7 of that Act. Hence, the remedy which is provided under Section 34 of the Act of 1996 would govern an award of the Facilitation Council. However, there is a super added condition which is imposed by Section 19 of MSMED Act, 2006 to the effect that an application for setting aside an award can be entertained only upon the appellant depositing with the Council seventy-five per cent of the amount in terms of the award. Section 19 has been introduced as a measure of security for enterprises for whom a special provision is made in the MSMED Act by Parliament. In view of the provisions of Section 18(4), the appellant had a remedy under Section 34 of the Act of 1996 to challenge the award which it failed to pursue. 11. In the judgment of this Court in Gujarat State Civil Supplies Corporation Limited (supra), a two-Judge Bench of the Court has observed, in the course of drawing its conclusions, that: “The proceedings before the Facilitation Council/institute/centre acting as an arbitrator/Arbitral Tribunal under Section 18(3) of the MSMED Act, 2006 would be governed by the Arbitration Act, 1996.” 12. The appellant failed to avail of the remedy under Section 34. If it were to do so, it would have been required to deposit seventy-five per cent of the decretal amount. This obligation under the statute was sought to be obviated by taking recourse to the jurisdiction under Articles 226/227 of the Constitution. This was clearly impermissible. 13. For the above reasons, we are in agreement with the view of the Division Bench of the High Court that the writ petition which was instituted by the appellant was not maintainable. 26 14. Mr. Parag P Tripathi, senior counsel appearing on behalf of the appellant sought to urge that the view of the Facilitation Council to the effect that the provisions of the Limitation Act, 1963 have no application, which has been affirmed by the Division Bench in the impugned judgment, suffers from a perversity, and hence a petition under Article 226 of the Constitution ought to have been entertained. We cannot accept this submission for the simple reason that Section 18 of the MSMED Act, 2006 provides for recourse to a statutory remedy for challenging an award under the Act of 1996. However, recourse to the remedy is subject to the discipline of complying with the provisions of Section 19. The entertaining of a petition under Articles 226/227 of the Constitution, in order to obviate compliance with the requirement of pre-deposit under Section 19, would defeat the object and purpose of the special enactment which has been legislated upon by Parliament. 15. For the above reasons, we affirm the decision of the Division Bench by holding that it was justified in coming to the conclusion that the petition under Articles 226/227 of the Constitution instituted by the appellant was not maintainable. Hence, it was unnecessary for the High Court, having come to the conclusion that the petition was not maintainable, to enter upon the merits of the controversy which arose before the Facilitation Council. 16. Mr. Parag P Tripathi, senior counsel then submitted that the appellant would move proceedings under Section 34 of the Act of 1996 and this Court may direct that they may be disposed of expeditiously. Having come to the conclusion that the remedy which was adopted by the appellant was thoroughly misconceived, it is not necessary for this Court to make any observation on what course of action should be adopted by the appellant. Were the appellant at this stage to take recourse to the proceedings under Section 34 of the Act of 1996, it would be open to the second respondent to object on all counts which are available in law.” (Emphasis supplied) 27 The Apex Court affirms the view taken by the High Court of Telangana and the finding rendered therein. The contention of the senior counsel for the petitioner is that, the very application was not entertainable on account of delay. The sheet anchor of the learned senior counsel was that the Limitation Act is not applicable. It is held to be applicable in the aforesaid judgments. Therefore, the said contention is too bleak to sustain. The Apex Court in the judgment rendered in the case of SILPI INDUSTRIES v. KERALA STATE ROAD TRANSPORT CORPORATION5 holds that applicability of the Limitation Act to MSME arises only after the matter is referred to Arbitration and not prior to it. The Apex Court holds as follows: “…. …. …. 25. With regard to the first issue, namely, applicability of Limitation Act, 1963 to the arbitration proceedings initiated under the provisions of Micro, Small and Medium Enterprises Development Act, 2006, we need to notice certain relevant sections of the Act. As per Section 15 of the said Act, where supplier supplies any goods or renders any services to any buyer, the buyer shall make payment on or before the agreed date between the parties in writing or where there is no agreement, before the appointed day. Section 16 deals with date from which and rate of interest payable in the event of not making the 5 (2021) 18 SCC 790 28 payment. The recovery mechanism for the amount due is covered by Sections 17 and 18 of the said Act. If any party has a dispute with regard to amount due under Section 17, a reference is required to be made to the Micro and Small Enterprises Facilitation Council. On such reference, the Council is empowered to conduct conciliation in the matter or seek assistance of any institution or centre providing alternate dispute resolution services by making a reference to such institution for conducting conciliation. If the conciliation is not successful, as contemplated under Section 18(2) of the said Act, same stands terminated under Section 18(3) of the said Act. Thereafter, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 are made applicable as if the arbitration was in pursuance of arbitration agreement between the parties, under sub-section (1) of Section 7 of the 1996 Act. 26. Applicability of the Limitation Act, 1963 to the arbitrations is covered by Section 43 of the 1996 Act. The High Court, while referring to abovesaid provisions and the judgment of this Court in A.P. Power Coordination Committee v. Lanco Kondapalli Power Ltd. [A.P. Power Coordination Committee v. Lanco Kondapalli Power Ltd., (2016) 3 SCC 468] has held that the Limitation Act, 1963 is applicable to the arbitrations covered by Section 18(3) of the 2006 Act. A reading of Section 43 itself makes it clear that the Limitation Act, 1963 shall apply to the arbitrations, as it applies to proceedings in court. When the settlement with regard to a dispute between the parties is not arrived at under Section 18 of the 2006 Act, necessarily, the Micro and Small Enterprises Facilitation Council shall take up the dispute for arbitration under Section 18(3) of the 2006 Act or it may refer to institution or centre to provide alternate dispute resolution services and provisions of the Arbitration and Conciliation Act, 1996 are made applicable as if there was an agreement between the 29 parties under sub-section (1) of Section 7 of the 1996 Act. 27. In view of the express provision applying the provisions of the Limitation Act, 1963 to arbitrations as per Section 43 of the Arbitration and Conciliation Act, 1996, we are of the view that the High Court has rightly relied on the judgment in A.P. Power Coordination Committee [A.P. Power Coordination Committee v. Lanco Kondapalli Power Ltd., (2016) 3 SCC 468] and held that the Limitation Act, 1963 is applicable to the arbitration proceedings under Section 18(3) of the 2006 Act. Thus, we are of the view that no further elaboration is necessary on this issue and we hold that the provisions of the Limitation Act, 1963 will apply to the arbitrations covered by Section 18(3) of the 2006 Act. We make it clear that as the judgment of the High Court is an order of remand, we need not enter into the controversy whether the claims/counterclaims are within time or not. We keep it open to the primary authority to go into such issues and record its own findings on merits.” (Emphasis supplied) The Apex Court holds that it is in agreement with the view of the High Court that the Limitation Act is applicable to the arbitration proceedings under Section 18(3) of the Act. 11. On a coalesce of all the judgments quoted supra, what would unmistakably emerge is Limitation Act is applicable to the proceedings before the Council and that is adjudicatable in an arbitration proceedings referred to by the Council invoking its power 30 under sub-section (4) of Section 18 of the Act. No fault can be found with the order of the Council referring the matter to the Arbitration. The issue is thus answered against the petitioner. ISSUE NO.2: (ii) Whether the writ petition against orders referring the matter to Arbitral Tribunal would be entertainable under Article 226 of the Constitution of India? 12. The issue is whether the writ petition against the order referring the matter to the Arbitral Tribunal would be entertainable. In the considered view of this Court, unless it touches upon the jurisdiction of the Arbitral Tribunal to hold the proceedings or the Council lacking in jurisdiction to refer the matter to arbitration, no other factor would entail entertainment of a petition under Article 226 of the Constitution of India. The issues projected are, with regard to limitation, delay, claim being stale, all of which are in the realm of disputed question of fact qua the agreement between the parties and there is serious dispute about the claim itself. Therefore, these would be agitatable only before the Arbitral 31 Tribunal. This Court, save in the aforesaid circumstances, will be loathe to interfere with such orders, which would require evidence. Thus, answers the second issue, again against the petitioner. The answer results in the petitions not being entertainable under Article 226 of the Constitution of India. 13. For the aforesaid reasons, these writ petitions lacking in merit stand rejected. The interim order, if any subsisting, stands dissolved. Sd/- JUDGE nvj CT:SS "