Full Judgment Text
C.A. No.2899 of 2021
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2899 OF 2021
Jharkhand Urja Vikas Nigam Limited ...Appellant
versus
The State of Rajasthan & Ors. ...Respondents
J U D G M E N T
R. Subhash Reddy, J.
1. In this civil appeal, challenge is to the order dismissing the
intra-court appeal preferred by the appellant in D.B. Special Appeal
Writ No.1854 of 2017 passed by the High Court of Judicature at
Rajasthan, Jaipur Bench, vide judgment and order dated 11.12.2017,
confirming the order of the learned Single Judge in W.P. No.11657 of
2017. In the writ petition, the order dated 06.08.2012 passed by the
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2 respondent, i.e., Rajasthan Micro & Small Industries Facilitation
Council, Jaipur (in short, ‘Council’) was questioned.
2. The appellant herein, which is the successor company of
Signature Not Verified
Digitally signed by
Anita Malhotra
Date: 2021.12.15
14:29:55 IST
Reason:
erstwhile Jharkhand State Electricity Board, entered into a contract
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with the 3 respondent - M/s. Anamika Conductors Ltd., Jaipur, for
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supply of ACSR Zebra Conductors. Respondent No.3 claiming to be a
small scale industry, has approached the Rajasthan Micro and Small
Enterprises Facilitation Council, claiming an amount of Rs.74,74,041/-
towards the principal amount of bills and an amount of
Rs.91,59,705.02 paise towards interest. On the ground that the
appellant has not responded to earlier notices, the Council issued
summons dated 18.07.2012 for appearance of the appellant before the
Council on 06.08.2012. Only on the ground that on 06.08.2012 the
appellant has not appeared, the order dated 06.08.2012 was passed by
the Council directing the appellant to make the payment to the 3rd
respondent, as claimed, within a period of thirty days from the date of
the order.
3. The said order was under challenge before the High Court by
way of writ petition in Civil Writ Petition No.11657 of 2017, and same
was dismissed by the learned Single Judge. An intra-court appeal
preferred by the appellant was also ended in dismissal. Hence, this
appeal.
4. We have heard Sri Anup Kumar, learned Senior Standing
Counsel appearing for the appellant; Dr. Manish Singhvi, learned
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Senior Counsel appearing for 2 respondent and Sri Kailash Vasdev,
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learned Senior Counsel appearing for the 3 respondent. Having heard
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the counsel for the parties we have perused the impugned order and
other material placed on record.
5. It is mainly contended by learned counsel for the appellant, as
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there were some disputes on the supplies made by the 3 respondent,
the bill amount due was not paid immediately. It is submitted that only
on the ground that the appellant has not responded in the conciliation
proceedings, straightaway the order was passed by the Council without
giving proper opportunity. The order impugned in the writ petition was
passed, in utter disregard to the mandatory provision under Section 18
of the Micro, Small and Medium Enterprises Development Act, 2006 (for
short ‘MSMED Act’) and the provisions of Arbitration and Conciliation
Act, 1996. It is submitted that even after the order passed by the
Council on 06.08.2012, the appellant after inspecting the records, has
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paid the due amount Rs.63,43,488/- to the 3 respondent. Such
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amount was paid after inspecting the records to the 3 respondent, who
had received that amount without any protest. After a period of three
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years thereafter, 3 respondent has filed Execution Case No.69 of 2016
before the Civil Judge, Ranchi which ultimately ended in dismissal on
the ground of maintainability. When the said order was challenged by
way of writ petition, said writ petition was subsequently dismissed as
withdrawn. It is submitted that when the conciliation fails, as per
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Section 18(3) of the MSMED Act, Council has to initiate arbitration
proceedings. On failure of conciliation, the Council shall either itself
take up the dispute for arbitration or refer to any institution or centre
providing alternate dispute resolution services for such arbitration and
the provisions of Arbitration and Conciliation Act, 1996 shall apply to
the dispute, as if the arbitration was in pursuance of arbitration
agreement referred to under sub-section (1) of Section 7 of Arbitration
and Conciliation Act, 1996. It is submitted that in this case without
following the procedure, straightaway the order impugned in the writ
petition was passed without giving any opportunity to the appellant to
participate in the arbitration proceedings. It is submitted, as the said
order was passed in utter disregard to the mandatory provisions of
Arbitration and Conciliation Act, 1996 the said order is a nullity and
cannot be termed as an award under provisions of Arbitration and
Conciliation Act, 1996. It is further submitted that as per the terms of
the contract any dispute was subject to jurisdiction of civil courts at
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Ranchi and the 3 respondent having agreed to such terms, had
approached the Council in the State of Rajasthan. Thus it is submitted
that the order passed by the Council is without jurisdiction and
contrary to terms and conditions of the agreement.
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6. Dr. Manish Singhvi, learned senior counsel appearing for the
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2 respondent, i.e., Rajasthan Micro and Small Enterprises Facilitation
Council has submitted that there are no grounds to interfere with the
impugned order passed by the High Court. It is submitted that against
the award passed by the Council on 06.08.2012, it was open to
appellant to challenge the same before the competent forum under
Section 34(3) of the Arbitration and Conciliation Act, within the
specified time. It is submitted that having failed to question the award
before the competent forum, the appellant has made a belated attempt
by questioning the order of the Council by way of writ petition, which
was rightly dismissed by the learned Single Judge and confirmed by the
Division Bench of the High Court. It is submitted that as the appellant
has not responded to the various notices/summons issued by the
Council, the Council itself has taken up the dispute and passed the
award.
Sri Kailash Vasdev, learned senior counsel appearing for the
respondent no.3 has submitted that though the supplies were made as
per the terms of the contract, the appellant has delayed the payment
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which necessitated the 3 respondent to approach the Council. Though
several notices were issued by the Council, appellant has not responded
to the same and lastly by issuing summons on 18.07.2012 the Council
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has passed the award on 06.08.2012 by recording a finding that
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appellant is guilty of delay in paying the amounts due to the 3
respondent. It is submitted that even after the award, a notice was
issued to the appellant, instead to comply the award only an amount of
Rs.63,43,488/- was paid. Thereafter as the awarded amount was not
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paid, the 3 respondent has filed execution case before the civil court
at Ranchi, same was questioned by the appellant by way of writ petition
which was subsequently dismissed as withdrawn. It is submitted that
Civil Judge at Ranchi has dismissed the execution case on the ground
that it was not maintainable due to lack of territorial jurisdiction, since
award was passed on 06.08.2012 at Jaipur. It is submitted that after
a gap of nearly 9 months C.W.P. No.6885 of 2016 was filed by the
appellant. It is submitted that the MSMED Act is a beneficial legislation
to the small and medium enterprises. Though proper opportunity was
given, the appellant has not responded to the same before the Council
and there are no grounds to interfere with the impugned order passed
by the High Court. It is submitted that when the award is passed by
the Council it is open to challenge under Section 34 of the Arbitration
and Conciliation Act, 1996 within the specified period and having failed
to question the award belated attempt is made by filing writ petition
before the High Court. Learned senior counsel placed reliance on a
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judgment of this Court in the case of Rajkumar Shivhare v. Asst.
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Director, Directorate of Enforcement & Anr . in support of his
submissions and further submitted that appellant has partly complied
the award by paying an amount of Rs.63,43,488/-, as such it is not
open to challenge the same at this point of time.
7. In the writ petition the appellant has challenged the
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order/award dated 06.08.2012 passed by the 2 respondent-Council
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constituted under provisions of MSMED Act. The 3 respondent has
approached the Council seeking directions against the appellant for
payment of delayed bill amount along with interest under provisions of
MSMED Act. Immediately after filing application by initiating
conciliation proceedings, Council has issued notices and as the
appellant has not appeared summons were issued to the appellant on
18.07.2012 for appearance on 06.08.2012. The relevant portion of the
summons dated 18.07.2012 issued by the Council reads as under :
“Now, therefore, notice is hereby given to you to
appear in person or through authorized representative
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before the Council on 6 August, 2012 at 3.30 P.M. or
on such day as may be fixed by the Council to submit in
support of the claim/dispute and you are directed to
produce on that day all the documents upon which you
intend to rely in support of your defense.
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(2010) 4 SCC 772
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Take note that in default of your response within the
period mentioned above, the dispute shall stand
terminated. Otherwise the dispute shall be heard and
reconciled with a view to the settlement of dispute and in
case settlement is not arrived at, the Council shall either
itself act as an arbitrator for final settlement of dispute or
refer it to an institute for such settlement as per provisions
of the Act.”
8. Only on the ground that even after receipt of summons the
appellant has not appeared the Council has passed order/award on
06.08.2012. As per Section 18(3) of the MSMED Act, if conciliation is
not successful, the said proceedings stand terminated and thereafter
Council is empowered to take up the dispute for arbitration on its own
or refer to any other institution. The said Section itself makes it clear
that when the arbitration is initiated all the provisions of the Arbitration
and Conciliation Act, 1996 will apply, as if arbitration was in pursuance
of an arbitration agreement referred under sub-section (1) of Section 7
of the said Act.
Section 18 of the MSMED Act reads as under :
“ 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.
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(2) On receipt of a reference under sub-section (1), the
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 and the provisions of sections 65 to 81 of the
Arbitration and Conciliation Act, 1996 (26 of 1996) shall
apply to such a dispute as if the conciliation was initiated
under Part III of that Act.
(3) Where the conciliation initiated under sub-section
(2) 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 alternate 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.
(4) Notwithstanding anything contained in any other
law for the time being in force, the Micro and Small
Enterprises Facilitation Council or the centre providing
alternate dispute resolution services shall have
jurisdiction to act as an Arbitrator or Conciliator under
this section in a dispute between the supplier located
within its jurisdiction and a buyer located anywhere in
India.
(5) Every reference made under this section shall be
decided within a period of ninety days from the date of
making such a reference.”
9. From a reading of Section 18(2) and 18(3) of the MSMED Act it
is clear that the Council is obliged to conduct conciliation for which the
provisions of Sections 65 to 81 of the Arbitration and Conciliation Act,
1996 would apply, as if the conciliation was initiated under Part III of
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the said Act. Under Section 18(3), when conciliation fails and stands
terminated, the dispute between the parties can be resolved by
arbitration. The Council is empowered either to take up arbitration on
its own or to refer the arbitration proceedings to any institution as
specified in the said Section. It is open to the Council to arbitrate and
pass an award, after following the procedure under the relevant
provisions of the Arbitration and Conciliation Act, 1996, particularly
Sections 20, 23, 24, 25.
10. There is a fundamental difference between conciliation and
arbitration. In conciliation the conciliator assists the parties to arrive
at an amicable settlement, in an impartial and independent manner. In
arbitration, the Arbitral Tribunal/ arbitrator adjudicates the disputes
between the parties. The claim has to be proved before the arbitrator,
if necessary, by adducing evidence, even though the rules of the Civil
Procedure Code or the Indian Evidence Act may not apply. Unless
otherwise agreed, oral hearings are to be held.
11. If the appellant had not submitted its reply at the conciliation
stage, and failed to appear, the Facilitation Council could, at best, have
recorded the failure of conciliation and proceeded to initiate arbitration
proceedings in accordance with the relevant provisions of the
Arbitration and Conciliation Act, 1996, to adjudicate the dispute and
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make an award. Proceedings for conciliation and arbitration cannot be
clubbed.
12. In this case only on the ground that the appellant had not
appeared in the proceedings for conciliation, on the very first date of
appearance, that is, 06.08.2012, an order was passed directing the
appellant and/or its predecessor/Jharkhand State Electricity Board to
pay Rs.78,74,041/- towards the principal claim and Rs.91,59,705/-
odd towards interest. As it is clear from the records of the impugned
proceedings that the Facilitation Council did not initiate arbitration
proceedings in accordance with the relevant provisions of the
Arbitration and Conciliation Act, 1996.
13. The order dated 06.08.2012 is a nullity and runs contrary not
only to the provisions of MSMED Act but contrary to various mandatory
provisions of Arbitration and Conciliation Act, 1996. The order dated
06.08.2012 is patently illegal. There is no arbitral award in the eye of
law. It is true that under the scheme of the Arbitration and Conciliation
Act, 1996 an arbitral award can only be questioned by way of
application under Section 34 of the Arbitration and Conciliation Act,
1996. At the same time when an order is passed without recourse to
arbitration and in utter disregard to the provisions of Arbitration and
Conciliation Act, 1996, Section 34 of the said Act will not apply. We
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cannot reject this appeal only on the ground that appellant has not
availed the remedy under Section 34 of the Arbitration and Conciliation
Act, 1996. The submission of the learned senior counsel appearing for
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the 3 respondent that there was delay and laches in filing writ petition
also cannot be accepted. After 06.08.2012 order, the appellant after
verification of the records has paid an amount of Rs.64,43,488/- on
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22.01.2013 and the said amount was received by the 3 respondent
without any protest. Three years thereafter it made an attempt to
execute the order in Execution Case No.69 of 2016 before the Civil
Judge, Ranchi, which ultimately ended in dismissal for want of
territorial jurisdiction, vide order dated 31.01.2017. Thereafter
S.B.Civil Writ Petition No.11657 of 2017 was filed questioning the order
dated 06.08.2012 before the Rajasthan High Court. In that view of the
matter it cannot be said that there was abnormal delay and laches on
the part of the appellant in approaching the High Court. As much as
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the 3 respondent has already received an amount of Rs.63,43,488/-
paid by the appellant, without any protest and demur, it cannot be said
that the appellant lost its right to question the order dated 06.08.2012.
Though the learned counsel appearing for the respondents have placed
reliance on certain judgments to support their case, but as the order of
06.08.2012 was passed contrary to Section 18(3) of the MSMED Act
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and the mandatory provisions of the Arbitration and Conciliation Act,
1996, we are of the view that such judgments would not render any
assistance to support their case.
14. For the aforesaid reasons, this civil appeal is allowed, the
impugned judgment and order is set aside. Consequently, the
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order/award dated 06.08.2012 passed by the 2 respondent stand
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quashed. However, it is open to the 2 respondent-Council to either
take up the dispute for arbitration on its own or refer the same to any
institution or centre providing alternate dispute resolution services, for
resolution of dispute between the parties. It is needless to observe that
for such arbitration, the Council shall follow the provisions of
Arbitration and Conciliation Act, 1996 before passing any award. As
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we have not gone into merits of the claim made by 3 respondent, it is
open for the arbitral tribunal, to decide the matter on its own merits.
………………………………J.
[Indira Banerjee]
………………………………J.
[R. Subhash Reddy]
New Delhi.
December 15, 2021.
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