Full Judgment Text
C.A.Nos.1570-1578 of 2021 etc.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.1570-1578 OF 2021
M/s. Silpi Industries etc. …..Appellants
Versus
Kerala State Road Transport Corporation
& Anr. etc. …..Respondents
W I T H
CIVIL APPEAL NOS.1620-1622 OF 2021
M/s. Khyaati Engineering …..Appellant
Versus
Prodigy Hydro Power Pvt. Ltd. …..Respondent
J U D G M E N T
R. Subhash Reddy, J.
1. In view of the common issues which arise for
consideration, these appeals are heard together and disposed of
by this common judgment.
Signature Not Verified
Digitally signed by
Sanjay Kumar
Date: 2021.06.29
16:42:56 IST
Reason:
2. Civil Appeal Nos.1570-1578 of 2021 are filed, aggrieved
by the common judgment dated 11.08.2017 passed in Arbitration
1
C.A.Nos.1570-1578 of 2021 etc.
Appeal Nos.69, 70, 72, 73, 77, 78, 79, 80 and 81 of 2014. By the
aforesaid judgment, High Court has allowed the Arbitration
Appeals filed by the respondent no.1-Kerala State Road
Transport Corporation, by setting aside the common order dated
05.08.2014 passed in O.P.(Arb.) Nos.258 of 2007 etc. and the
awards passed by the arbitrator. The High Court has remanded
the matters to the arbitrator for disposal de novo in the light of
the observations made in the judgment.
3. Civil Appeal Nos.1620-1622 of 2021 are filed, aggrieved
by the order dated 06.09.2017 in O.P.No.617 of 2017, passed by
the High Court of Madras, allowing the Original Petition filed by
the respondent under Section 11(6) of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as ‗the 1996 Act‘)
and the orders dated 31.10.2017 and 12.12.2017 passed in
applications seeking interim directions.
4. Necessary facts in brief in the first batch of appeals
referred above are as under :
The respondent no.1-Kerala State Road Transport
Corporation (for short ‗KSRTC‘), invited tenders for supply of
thread rubber for tyre rebuilding. The appellants herein who
2
C.A.Nos.1570-1578 of 2021 etc.
were the claimants before the arbitrator were given purchase
orders. As per the terms of the purchase order, 90% of the total
purchase price was payable to the appellants/claimants on
supply of materials and the balance 10% was to be paid subject
to final performance report. This was so, since it was the
condition that the thread rubber supplied by the appellants was
to run a minimum number of kilometers. When the 10% balance
amount was not paid as per the purchase order, the
appellants/claimants herein have approached the Industrial
Facilitation Council [previously constituted under the Interest on
Delayed Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993 (for short, ‗IDPASC Act‘)] presently under
the Micro and Small Enterprises Facilitation Council constituted
under Micro, Small and Medium Enterprises Development Act,
2006 (hereinafter referred to as ‗the MSMED Act‘). The earlier
IDPASC Act was replaced by MSMED Act and earlier Act was
repealed. As the conciliation failed, the claims made by the
appellants herein were referred to arbitration under provisions of
the 1996 Act. The awards were passed in favour of the claimants
and such awards were challenged by way of applications for
3
C.A.Nos.1570-1578 of 2021 etc.
setting aside the same under Section 34 of the 1996 Act. When
their applications were dismissed, respondents have carried the
matter by way of appeals under Section 37 of the 1996 Act before
the High Court of Kerala at Ernakulam. The issues, which were
formulated in paragraph 5 of the judgment and answered by the
High Court, read as under:
―(a) Whether the Limitation Act, 1963 applies to
arbitration proceedings held under the IDPASC and
MSMED Acts?
(b) Which is the starting point of limitation to raise
claim for the 10% unpaid purchase price?
(c) Whether counter claim is entertainable in the
arbitration proceedings held pursuant to the
provisions of the IDPASC and MSMED Acts?‖
5. In the impugned judgment, the High Court, while
considering the submissions of the parties and by referring to
various provisions of the Arbitration and Conciliation Act, 1996
and the provisions of the Limitation Act, 1963, has answered the
issue of limitation and held that Limitation Act, 1963 is
applicable to the proceedings under the 1996 Act arising out of
MSMED Act. While answering the third question with regard to
maintainability of counter claim, the High Court has held that in
4
C.A.Nos.1570-1578 of 2021 etc.
view of Section 23(2A) of the 1996 Act, the ‗counter claim‘ and
‗set off‘ are maintainable. While holding that counter claim is
maintainable, the High Court has agreed with the view taken by
the learned Single Judge of Allahabad High Court in the case of
M/s. B.H.P. Engineers Pvt. Ltd. v. Director, Industries, U.P.
1
(Facilitation Centre), Kanpur & Ors. and the Division Bench
judgment of the High Court of Bombay at Nagpur in the case of
M/s. Steel Authority of India Ltd. & Anr. v. Micro, Small
2
Enterprise Facilitation Council . Primarily aggrieved by the
findings recorded by the High Court on the applicability of
Limitation Act, 1963 and maintainability of counter claim, the
claimants have filed these appeals on various grounds.
6. Necessary facts in Civil Appeal Nos.1620-1622 of 2021
are as under :
The appellant and respondent herein have entered into a
contract for supply and installation of hydro-mechanical
equipments for 2 x 3 MW Baner-II SHP. The parties have signed
an agreement on 27.03.2011, containing various clauses. It is
the case of the appellant that it has completely executed the
1
2009 SCC OnLine All 565
2
2010 SCC OnLine Bom 2208
5
C.A.Nos.1570-1578 of 2021 etc.
contract and project was commissioned on 27.06.2015. The
appellant herein alleging that, though it has fulfilled all its
obligations under the contract, the respondent has refused to
make payments as per the contract, has filed a Claim Petition,
before the Micro and Small Enterprises Facilitation Council
constituted under the provisions of MSMED Act, on 20.03.2017.
The claim was filed in respect of supply of goods and services
rendered to the respondent-company. It is the case of the
appellant that pursuant to notice issued by Facilitation Council,
the respondent appeared before the Council. Thereafter the
respondent has filed O.P.No.617 of 2017 before the High Court of
Judicature at Madras. The said application was filed under
Section 11(6) of the 1996 Act praying for appointment of a
second arbitrator to decide upon disputes that have arisen
between the parties pursuant to the breach of terms and
conditions of contract for supply of hydro-mechanical
equipments.
7. The said application filed by the respondent herein, is
opposed by the appellant mainly on the ground that it has
already moved the Micro and Small Enterprises Facilitation
6
C.A.Nos.1570-1578 of 2021 etc.
Council for resolution of disputes, as such, the respondent as
well participate in the proceedings before the Council, prayed for
dismissal of application filed under Section 11(6) of the 1996 Act.
8. Before the High Court, it was the case of the respondent
that the Facilitation Council has been constituted primarily to
deal with the disputes that are raised by the supplier and does
not envisage the laying of counter claim by other party to a
contract, as such it can seek appointment of arbitrator under
Section 11(6) of the 1996 Act.
9. The High Court, while considering the definition of
‗supplier‘ under Section 2(n) of MSMED Act and also by placing
reliance on Section 17 and 18 of MSMED Act, has allowed the
application and appointed Mr. Justice K. Gnanaprakasam,
former Judge of Madras High Court as 2nd arbitrator.
10. When the said order is challenged before this Court, by
order dated 29.01.2018, while issuing notice this Court has
ordered the Special Leave Petition be tagged with
S.L.P.(C)Nos.33745-33753 of 2017 (C.A.Nos.1570-1578 of 2021).
11. In S.L.P.(C)Nos.33745-33753 of 2017 (C.A.Nos.1570-
1578 of 2021), vide order dated 25.01.2018, this Court issued
7
C.A.Nos.1570-1578 of 2021 etc.
notice limited to the issue as to whether the counter claim of the
respondent could be entertained by the Arbitral Tribunal.
12. We have heard Sri V. Giri, learned senior counsel
appearing for the appellants and Ms. Aishwarya Bhati, learned
Additional Solicitor General appearing for the Kerala State Road
Transport Corporation in Civil Appeal Nos.1570-1578 of 2021
and Sri P.B. Suresh, learned counsel appearing for the appellant
and Sri Basava Prabhu Patil, learned senior counsel appearing
for the respondent, in Civil Appeal Nos.1620-1622 of 2021.
13. Having regard to contentions of the parties, only two
issues arise for consideration before this Court, namely :
(i) Whether the provisions of Indian Limitation Act,
1963 is applicable to arbitration proceedings initiated
under Section 18(3) of Micro, Small and Medium
Enterprises Development Act, 2006 ?; and
(ii) Whether, counter claim is maintainable in such
arbitration proceedings ?
14. Before we deal with the above issues, we need to refer
certain background aspects of the Micro, Small and Medium
Enterprises Development Act, 2006 and the earlier Act, namely,
8
C.A.Nos.1570-1578 of 2021 etc.
Interest on Delayed Payments to Small Scale and Ancillary
Industrial Undertakings Act, 1993 which was repealed by virtue
of Section 32 of the MSMED Act.
15. The Act 32 of 1993 was an outcome pursuant to a policy
statement on small scale industries made by the Government in
Parliament. It was felt that, inadequate working capital in small
scale or an ancillary industrial undertaking causes serious and
endemic problems affecting the health of such undertaking. The
Small Scale Industries Board, which was an apex advisory body
on policies relating to small scale industrial units with
representatives from all the States, governmental bodies and
industrial sector was also of the same view. Therefore, it was felt
that prompt payments of money by buyers should be statutorily
ensured and mandatory provisions for payment of interest on
outstanding money, in case of default, should be made. The
―appointed day‖, as defined under Section 2(b) of the said Act,
means – the day following immediately after the expiry of the
period of thirty days from the day of acceptance or the day of
deemed acceptance of any goods or any services by a buyer from
a supplier. Therefore, a liability to make payment by the buyer
9
C.A.Nos.1570-1578 of 2021 etc.
was made under Section 3 of the said Act mandating that buyer
shall make payment before the agreed date by the parties, where
there is no agreement, before the appointed day. In case of
failure to make payment by the buyer within the stipulated time
as per Section 3, buyer was made to pay interest at one and a
half time of Prime Lending Rate charged by the State Bank of
India. There was also a mechanism for recovery and created
Industry Facilitation Council, as primary body and appellate
authority was notified under Section 7 of the said Act. Under
Section 10 of the said Act, Act 32 of 1993 was given overriding
effect.
16. The Micro, Small and Medium Enterprises Development
Act, 2006 was enacted to provide, for facilitating the promotion
and development and enhancing the competitiveness of micro,
small and medium enterprises and for matters connected
therewith or incidental thereto. By bringing the aforesaid Act
th
(Act 27 of 2006) w.e.f. 16 June 2006, the earlier Act, namely,
Interest on Delayed Payments to Small Scale and Ancillary
Industrial Undertakings Act, 1993 was repealed by virtue of
Section 32 of the 2006 Act. Prior to the enforcement of Act 32 of
10
C.A.Nos.1570-1578 of 2021 etc.
1993, the small scale industry was defined only by notification
under Section 11B of the Industries (Development and
Regulation) Act, 1951. As per Section 29B of the said Act,
notifications were being issued notifying reservation of items for
exclusive manufacture in small scale industry sector. Except the
above said two provisions, as there was no legal framework for
the small scale industry, and by noticing that the small scale
industry is the dynamic and vibrant sector of the country‘s
economy, it was felt to bring a comprehensive Central enactment
to provide appropriate legal framework for the sector to facilitate
its growth and development. It is also clear from the Statement
of Objects and Reasons of the Act, that the need which was felt to
extend policy support for small scale sector so that they are
enabled to grow into medium ones and to adopt better and
higher levels of technology and achieve higher productivity to
remain competitive in fast globalization period. It was also
noticed that medium industry or enterprise was not defined by
any law. From the Statement of Objects and Reasons, it is clear
that the said Act was enacted to provide statutory definitions to
‗small enterprise‘ and ‗medium enterprise‘; to provide for
11
C.A.Nos.1570-1578 of 2021 etc.
establishment of National Small and Medium Enterprises Board;
provide for classification of small and medium enterprises on the
basis of investment in plant and machinery; empower the Central
Government to notify programmes, guidelines for enhancing the
competitiveness of small and medium enterprises; to make
provisions for ensuring timely and smooth flow of credit to small
and medium enterprises to minimize the incidence of sickness;
empower the Central and State Governments to notify preference
policies in respect of procurement of goods and services;
empowering the Central Government to create a Fund or Funds
for facilitating promotion and development and enhancement of
the competitiveness of small enterprises and medium
enterprises; to make further improvements in the Interest on
Delayed Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993 and to make that enactment a part of
the proposed legislation and to repeal the enactment, etc.
17. From the Statement of Objects and Reasons of both the
above legislations, it is clear that the earlier legislation, i.e., Act
No.32 of 1993 was confined only with regard to delayed
payments to small scale and ancillary industrial undertakings
12
C.A.Nos.1570-1578 of 2021 etc.
but by subsequent enactment of 2006, a comprehensive
legislation was brought covering the micro, small and medium
enterprises. Under the new Act, there is a provision for
establishment of Board by the Central Government, namely,
National Board for Micro, Small and Medium Enterprises. The
‗enterprises‘ were classified under Chapter III of the 2006 Act into
micro, small and medium enterprises. Liability of buyer and the
mechanism in the event of default is by various provisions under
Chapter V of the Act. Sections 5 to 19 which are relevant for the
purpose of disposal of these cases read as under :
― 5. Functions of Board. —The Board shall, subject to
the general directions of the Central Government,
perform all or any of the following functions, namely:—
(a) examine the factors affecting the promotion
and development of micro, small and medium
enterprises and review the policies and programmes of
the Central Government in regard to facilitating the
promotion and development and enhancing the
competitiveness of such enterprises and the impact
thereof on such enterprises;
(b) make recommendations on matters referred to
in clause (a) or on any other matter referred to it by
the Central Government which, in the opinion of that
Government, is necessary or expedient for facilitating
the promotion and development and enhancing the
competitiveness of the micro, small and medium
enterprises; and
13
C.A.Nos.1570-1578 of 2021 etc.
(c) advise the Central Government on the use of
the Fund or Funds constituted under section 12.
6. Powers and functions of Member-Secretary of
Board. —Subject to other provisions of this Act, the
Member-Secretary of the Board shall exercise such
powers and perform such functions as may be
prescribed.
7. Classification of enterprises. —(1) Notwithstanding
anything contained in section 11B of the Industries
(Development and Regulation) Act, 1951 (65 of 1951),
the Central Government may, for the purposes of this
Act, by notification and having regard to the provisions
of sub-sections (4) and (5), classify any class or classes
of enterprises, whether proprietorship, Hindu
undivided family, association of persons, co-operative
society, partnership firm, company or undertaking, by
whatever name called,—
(a) in the case of the enterprises engaged in the
manufacture or production of goods pertaining to any
industry specified in the First Schedule to the
Industries (Development and Regulation) Act, 1951 (65
of 1951), as—
(i) a micro enterprise, where the investment in
plant and machinery does not exceed twenty five
lakh rupees;
(ii) a small enterprise, where the investment in
plant and machinery is more than twenty-five lakh
rupees but does not exceed five crore rupees; or
(iii) a medium enterprise, where the investment in
plant and machinery is more than five crore rupees
but does not exceed ten crore rupees;
14
C.A.Nos.1570-1578 of 2021 etc.
(b) in the case of the enterprises engaged in
providing or rendering of services, as—
(i) a micro enterprise, where the investment in
equipment does not exceed ten lakh rupees;
(ii) a small enterprise, where the investment in
equipment is more than ten lakh rupees but does
not exceed two crore rupees; or
(iii) a medium enterprise, where the investment in
equipment is more than two crore rupees but does
not exceed five crore rupees.
Explanation 1.—For the removal of doubts, it is
hereby clarified that in calculating the investment in
plant and machinery, the cost of pollution control,
research and development, industrial safety devices
and such other items as may be specified, by
notification, shall be excluded.
Explanation 2.—It is clarified that the provisions
of section 29B of the Industries (Development and
Regulation) Act, 1951 (65 of 1951), shall be applicable
to the enterprises specified in sub-clauses (i) and (ii) of
clause (a) of sub-section (1) of this section.
(2) The Central Government shall, by notification,
constitute an Advisory Committee consisting of the
following members, namely:—
(a) the Secretary to the Government of India in
the Ministry or Department of the Central
Government having administrative control of the
small and medium enterprises who shall be the
Chairperson, ex officio;
(b) not more than five officers of the Central
Government possessing necessary expertise in
15
C.A.Nos.1570-1578 of 2021 etc.
matters relating to micro, small and medium
enterprises, members, ex officio;
(c) not more than three representatives of the
State Governments, members, ex officio; and
(d) one representative each of the associations of
micro, small and medium enterprises, members, ex
officio.
(3) The Member-Secretary of the Board shall also
be the ex officio Member-Secretary of the Advisory
Committee.
(4) The Central Government shall, prior to
classifying any class or classes of enterprises under
sub-section (1), obtain the recommendations of the
Advisory Committee.
(5) The Advisory Committee shall examine the
matters referred to it by the Board in connection with
any subject referred to in section 5 and furnish its
recommendations to the Board.
(6) The Central Government may seek the advice
of the Advisory Committee on any of the matters
specified in section 9, 10, 11, 12 or 14 of Chapter IV.
(7) The State Government may seek advice of the
Advisory Committee on any of the matters specified in
the rules made under section 30.
(8) The Advisory Committee shall, after
considering the following matters, communicate its
recommendations or advice to the Central Government
or, as the case may be, State Government or the
Board, namely:—
16
C.A.Nos.1570-1578 of 2021 etc.
(a) the level of employment in a class or classes of
enterprises;
(b) the level of investments in plant and
machinery or equipment in a class or classes of
enterprises; 8
(c) the need of higher investment in plant and
machinery or equipment for technological
upgradation, employment generation and enhanced
competitiveness of the class or classes of
enterprises;
(d) the possibility of promoting and diffusing
entrepreneurship in micro, small or medium
enterprises; and
(e) the international standards for classification of
small and medium enterprises.
(9) Notwithstanding anything contained in section
11B of the Industries (Development and Regulation)
Act, 1951 (65 of 1951) and clause (h) of section 2 of
the Khadi and Village Industries Commission Act,
1956 (61 of 1956), the Central Government may, while
classifying any class or classes of enterprises under
sub-section (1), vary, from time to time, the criterion of
investment and also consider criteria or standards in
respect of employment or turnover of the enterprises
and include in such classification the micro or tiny
enterprises or the village enterprises, as part of small
enterprises.
8. Memorandum of micro, small and medium
enterprises. —(1) Any person who intends to
establish,—
(a) a micro or small enterprise, may, at his
discretion; or
17
C.A.Nos.1570-1578 of 2021 etc.
(b) a medium enterprise engaged in providing or
rendering of services may, at his discretion; or
(c) a medium enterprise engaged in the
manufacture or production of goods pertaining to
any industry specified in the First Schedule to the
Industries (Development and Regulation) Act, 1951
(65 of 1951),
shall file the memorandum of micro, small or, as the
case may be, of medium enterprise with such
authority as may be specified by the State
Government under sub-section (4) or the Central
Government under sub-section (3):
Provided that any person who, before the
commencement of this Act, established—
(a) a small scale industry and obtained a
registration certificate, may, at his discretion; and
(b) an industry engaged in the manufacture or
production of goods pertaining to any industry
specified in the First Schedule to the Industries
(Development and Regulation) Act, 1951 (65 of
1951), having investment in plant and machinery of
more than one crore rupees but not exceeding ten
crore rupees and, in pursuance of the notification of
the Government of India in the erstwhile Ministry of
Industry (Department of Industrial Development)
number S.O. 477(E), dated the 25th July, 1991 filed
an Industrial Entrepreneur's Memorandum,
shall within one hundred and eighty days from the
commencement of this Act, file the memorandum,
in accordance with the provisions of this Act.
18
C.A.Nos.1570-1578 of 2021 etc.
(2) The form of the memorandum, the procedure
of its filing and other matters incidental thereto
shall be such as may be notified by the Central
Government after obtaining the recommendations of
the Advisory Committee in this behalf.
(3) The authority with which the memorandum
shall be filed by a medium enterprise shall be such
as may be specified, by notification, by the Central
Government.
(4) The State Government shall, by notification,
specify the authority with which a micro or small
enterprise may file the memorandum.
(5) The authorities specified under sub-sections
(3) and (4) shall follow, for the purposes of this
section, the procedure notified by the Central
Government under sub-section (2).
9. Measures for promotion and development. —The
Central Government may, from time to time, for the
purposes of facilitating the promotion and
development and enhancing the competitiveness of
micro, small and medium enterprises, particularly of
the micro and small enterprises, by way of
development of skill in the employees, management
and entrepreneurs, provisioning for technological
upgradation, marketing assistance or infrastructure
facilities and cluster development of such enterprises
with a view to strengthening backward and forward
linkages, specify, by notification, such programmes,
guidelines or instructions, as it may deem fit.
10. Credit facilities. —The policies and practices in
respect of credit to the micro, small and medium
enterprises shall be progressive and such as may be
specified in the guidelines or instructions issued by
the Reserve Bank, from time to time, to ensure timely
19
C.A.Nos.1570-1578 of 2021 etc.
and smooth flow of credit to such enterprises,
minimise the incidence of sickness among and
enhance the competitiveness of such enterprises.
11. Procurement preference policy. —For facilitating
promotion and development of micro and small
enterprises, the Central Government or the State
Government may, by order notify from time to time,
preference policies in respect of procurement of goods
and services, produced and provided by micro and
small enterprises, by its Ministries or departments, as
the case may be, or its aided institutions and public
sector enterprises.
12. Funds. —There shall be constituted, by
notification, one or more Funds to be called by such
name as may be specified in the notification and there
shall be credited thereto any grants made by the
Central Government under section 13.
13. Grants by Central Government. —The Central
Government may, after due appropriation made by
Parliament by law in this behalf, credit to the Fund or
Funds by way of grants for the purposes of this Act,
such sums of money as that Government may consider
necessary to provide.
14. Administration and utilisation of Fund or
Funds. —(1) The Central Government shall have the
power to administer the Fund or Funds in such
manner as may be prescribed. (2) The Fund or Funds
shall be utilised exclusively for the measures specified
in sub-section (1) of section 9. (3) The Central
Government shall be responsible for the coordination
and ensuring timely utilisation and release of sums in
accordance with such criteria as may be prescribed.
15. Liability of buyer to make payment. —Where any
supplier supplies any goods or renders any services to
20
C.A.Nos.1570-1578 of 2021 etc.
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: Provided that in
no case the period agreed upon between the supplier
and the buyer in writing shall exceed forty-five days
from the day of acceptance or the day of deemed
acceptance.
16. Date from which and rate at which interest is
payable. —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.
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. 10
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 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
21
C.A.Nos.1570-1578 of 2021 etc.
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.
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
22
C.A.Nos.1570-1578 of 2021 etc.
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.‖
18. With regard to first issue, namely, applicability of
Limitation Act, 1963 to the arbitration proceedings initiated
under 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
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
23
C.A.Nos.1570-1578 of 2021 etc.
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
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. Applicability of 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 the case of Andhra Pradesh Power
Coordination Committee & Ors. v. Lanco Kondapalli Power
3
Ltd. & Ors. has held that the Limitation Act, 1963 is applicable
3
(2016) 3 SCC 468
24
C.A.Nos.1570-1578 of 2021 etc.
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 Arbitration
and Conciliation Act 1996 are made applicable as if there was an
agreement between the parties under sub-section (1) of Section 7
of the 1996 Act. 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 the case of Andhra Pradesh Power Coordination
3
Committee and held that 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 Limitation Act,
25
C.A.Nos.1570-1578 of 2021 etc.
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/counter claims 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.
19. The other issue is with regard to maintainability of
counter claim in the arbitration proceedings initiated as per
Section 18(3) of the 2006 Act. It is true that recovery amount
under Section 17 of the said Act is only with reference to the
amounts claimed by the supplier under Section 16 of the said
Act. But coming to Section 18 of the said Act, the words used
are, ‗any party to a dispute‘ for making a reference to Micro and
Small Enterprises Facilitation Council under Section 18 of the
Act. To decide the issue of maintainability we refer to the first
batch of appeals, which are filed aggrieved by the judgment of the
High Court of Kerala. The appellants are suppliers of thread
rubber for tyre rebuilding to the respondent-KSRTC. They were
given purchase orders by the Corporation and they were paid
90% of the total price and 10% was to be paid based on the final
26
C.A.Nos.1570-1578 of 2021 etc.
performance report. Whereas it is the case of the appellants that
they are entitled for balance amount of 10%, same was withheld
illegally, on the other hand it is the case of the Corporation that
as the performance of the supplies were not in accordance with
the contractual terms, as such, the appellants are not entitled for
any amount and in some of the matters counter claims were
made by the Corporation against the appellants. Sri V. Giri,
learned senior counsel appearing for the appellants in first batch
of appeals has mainly contended that a comprehensive reading of
the various provisions under Chapter V of the 2006 Act, makes it
clear that the conciliation and arbitration, is referable to the
claims of the supplier only. It is submitted that 2006 Act is a
beneficial legislation to the micro and small enterprises, as such,
scope of the Act cannot be expanded by allowing counter claims
by buyer. It is submitted that the object of 2006 Act is solely
intended to protect the micro and small enterprises, if counter
claims are allowed it amounts to expanding the scope of the
enactment. On the other hand it is submitted by Ms. Aishwarya
Bhati, learned Addl. Solicitor General appearing for the
respondent-Corporation and Sri P.B. Suresh, learned counsel
27
C.A.Nos.1570-1578 of 2021 etc.
appearing for the appellant in Civil Appeal arising out of
C.A.Nos.1620-1622 of 2021 that the MSMED Act which is a
beneficial legislation to ―unpaid seller‖ cannot be rendered otiose ,
and the authorities constituted under the Act cannot be denied
its jurisdiction to entertain the claims, at the instance of buyer
on the mere plea of counter claim. It is submitted that only on
such ground that Facilitation Council is denied its jurisdiction,
the various benefits conferred under the Act to the sellers will be
denied. It is submitted that in every case to deny the benefits
conferred under the Statute, the seller cannot be deprived of
such benefits on the plea that counter claim is not maintainable
before the authorities constituted under 2006 Act. By referring
to Section 16 of the Act, it is submitted that where any buyer
fails to make payment of the amounts 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 agreed upon, at three times of the bank rate notified by the
28
C.A.Nos.1570-1578 of 2021 etc.
Reserve Bank. By further referring to Section 19 of the Act it is
submitted that when an application is filed for setting aside
decree, award or order same shall not be entertained by any
court unless the appellant (not being a supplier), has deposited
with it 75% of the amount in terms of the decree or award. The
said benefits are conferred, in view of the beneficial objects of the
Act, to the sellers. It is submitted that if the jurisdiction of the
Council is ousted on the ground that counter claim cannot be
entertained, buyer can easily get over the legal obligations of
payment of compound interest and pre-deposit of 75% of the
awarded amount in the event of challenge to the same, as
referred above. Thus, it is submitted that the counter claim is
maintainable before the authorities constituted under 2006 Act.
Further, it is submitted that when the conciliation is failed, for
further proceedings, provisions of the Arbitration and
Conciliation Act, 1996 are made applicable as if there is an
agreement between the parties under sub-section (1) of Section 7
of the 1996 Act, as such there is no reason for not allowing
counter claim by the buyer. A specific reference is made to
Section 23(2A) of the 1996 Act. Learned senior counsel Sri
29
C.A.Nos.1570-1578 of 2021 etc.
Basava Prabhu S. Patil, appearing for the respondent in
C.A.Nos.1620-1622 of 2021 has submitted that no claim or
counter claim under Section 18 is contemplated or permissible.
It is submitted that the expression ‗any party‘ occurring in
Section 18 is referable to supplier alone. Thus, it is submitted
that in absence of jurisdiction, no counter claim can be
entertained. Further it is submitted that in any event as the
supply of goods and services were made much prior to filing of
memorandum by the appellant, the appellant cannot make any
claim before the authority constituted under MSMED Act.
20. From a reading of Section 18(3) of the 2006 Act it is clear
that when the conciliation initiated under sub-section (2) of
Section 18 of the said Act is not successful, the Council shall
either itself take up the dispute for arbitration or refer to any
institution for arbitration. Further Section 18(3) of the said Act
also makes it clear that the provisions of 1996 Act are made
applicable as if there is an agreement between the parties under
sub-section (1) of Section 7 of the 1996 Act. Section 23 of the
1996 Act deals with the statement of claim and defence. Section
23(2A), which gives a right to respondent to submit a counter
30
C.A.Nos.1570-1578 of 2021 etc.
claim or plead set-off with regard to claims within the scope of
the arbitration agreement, is brought into Statute by Amending
Act 3 of 2016. If we look at the Statement of Objects and
Reasons of the Amending Act, same is also enacted to provide for
speedy disposal of cases relating to arbitration with least court
intervention. Clause 11 of the Bill, by which sub-section (2A)
was proposed to be inserted, states that sub-section (2A) was
intended to give an opportunity to the respondent, in support of
his case, to submit counter-claim or a set-off if such counter-
claim or set-off falls within the scope of arbitration agreement.
When Section 18(3) makes it clear that in the event of failure by
the Council under Section 18(2) if proceedings are initiated under
Section 18(3) of the 1996 Act, the provisions of 1996 Act are not
only made applicable but specific mention is made to the effect
as if the arbitration was in pursuance to an arbitration
agreement referred to in sub-section (1) of Section 7 of the 1996
Act. When there is a provision for filing counter-claim and set-off
which is expressly inserted in Section 23 of the 1996 Act, there is
no reason for curtailing the right of the respondent for making
31
C.A.Nos.1570-1578 of 2021 etc.
counter-claim or set-off in proceedings before the Facilitation
Council.
21. It is also further to be noted that if we do not allow the
counter-claim made by the buyer in the proceedings arising out
of claims made by the seller, it may lead to parallel proceedings
before the various fora. On one hand, in view of beneficial
legislation, seller may approach the Facilitation Council for
claims, in the event of failure of payment by the buyer under
provisions of 2006 Act, at the same time, if there is no separate
agreement between the parties for any arbitration in a given case,
buyer may approach the civil court for making claims against the
seller, or else if there is an agreement between the parties for
arbitration in the event of dispute between the parties, parties
may seek appointment of arbitrator. At the same time if the
seller is covered by definition under micro, small and medium
enterprises, seller may approach the Facilitation Council for
making claims under the provisions of Micro, Small and Medium
Enterprises Development Act, 2006. In such event, it may result
in conflicting findings, by various forums.
32
C.A.Nos.1570-1578 of 2021 etc.
22. In second set of cases it is clear that when the seller
approached the Facilitation Council making certain claims
against the buyer, buyer after his appearance, has approached
the High Court under Section 11(6) of the 1996 Act for
appointment of arbitrator on the ground that there is an
agreement between the parties for arbitration. Though it was
pleaded before the High Court by the appellant that it has
already approached the Facilitation Council and proceedings are
pending, the respondent as well contest the proceedings and also
lay its counter-claim, the High Court has rejected such plea on
the ground that the 2006 Act primarily deals with the claims of
the seller only. The High Court has held that as the buyer
cannot make counter-claim, the proceedings cannot be
proceeded with before the Council under 2006 Act and
accordingly ordered by appointing second arbitrator.
23. The obligations of the buyer to make payment, and award
of interest at three times of the bank rate notified by Reserve
Bank in the event of delay by the buyer and the mechanism for
recovery and reference to Micro and Small Enterprises
Facilitation Council and further remedies under the 2006 Act for
33
C.A.Nos.1570-1578 of 2021 etc.
the party aggrieved by the awards, are covered by Chapter V of
the 2006 Act. The provisions of Section 15 to 23 of the Act are
given overriding effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in force.
From the Statement of Objects and Reasons also it is clear that it
is a beneficial legislation to the small, medium and micro sector.
The Arbitration and Conciliation Act, 1996 is a general law
whereas the Micro, Small and Medium Enterprises Development
Act, 2006 is a special beneficial legislation which is intended to
benefit micro, small and medium enterprises covered by the said
Act. The Act of 2006 contemplates a statutory arbitration when
conciliation fails. A party which is covered by the provisions of
2006 Act allows a party to apply to the Council constituted under
the Act to first conciliate and then arbitrate on the dispute
between it and other parties. There are fundamental differences
in the settlement mechanism under the 2006 Act and the 1996
Act. The first difference is, the Council constituted under the
2006 Act to undertake mandatory conciliation before the
arbitration which is not so under the 1996 Act. Secondly, in the
event of failure of conciliation under the 2006 Act, the Council or
34
C.A.Nos.1570-1578 of 2021 etc.
the centre or institution is identified by it for arbitration. The
1996 Act allows resolution of disputes by agreed forum. The
third difference is that, in the event of award in favour of seller
and if the same is to be challenged, there is a condition for pre-
deposit of 75% of the amount awarded. Such is not the case in
the 1996 Act. When such beneficial provisions are there in the
special enactment, such benefits cannot be denied on the ground
that counter-claim is not maintainable before the Council. In
any case, whenever buyer wish to avoid the jurisdiction of the
Council, the buyer can do on the spacious plea of counter-claim,
without responding to the claims of the seller. When the
provisions of Sections 15 to 23 are given overriding effect under
Section 24 of the Act and further the 2006 Act is a beneficial
legislation, we are of the view that even the buyer, if any claim is
there, can very well subject to the jurisdiction before the Council
and make its claim/ counter claim as otherwise it will defeat the
very objects of the Act which is a beneficial legislation to micro,
small and medium enterprises. Even in cases where there is no
agreement for resolution of disputes by way of arbitration, if the
seller is a party covered by Micro, Small and Medium Enterprises
35
C.A.Nos.1570-1578 of 2021 etc.
Development Act, 2006, if such party approaches the Council for
resolution of dispute, other party may approach the civil court or
any other forum making claims on the same issue. If two parallel
proceedings are allowed, it may result in conflicting findings. At
this stage, it is relevant to notice the judgment of this Court in
the case of Edukanti Kistamma (Dead) through LRs. v. S.
4
Venkatareddy (Dead) through LRs. & Ors. where this Court
has held that a special Statute would be preferred over general
one where it is beneficial one. It was explained that the purport
and object of the Act must be given its full effect by applying the
principles of purposive construction. Thus, it is clear that out of
the two legislations, the provisions of MSMED Act will prevail,
especially when it has overriding provision under Section 24
thereof. Thus, we hold that MSMED Act, being a special Statute,
will have an overriding effect vis-à-vis Arbitration and
Conciliation Act, 1996, which is a general Act. Even if there is an
agreement between the parties for resolution of disputes by
arbitration, if a seller is covered by Micro, Small and Medium
Enterprises Development Act, 2006, the seller can certainly
4
(2010) 1 SCC 756
36
C.A.Nos.1570-1578 of 2021 etc.
approach the competent authority to make its claim. If any
agreement between the parties is there, same is to be ignored in
view of the statutory obligations and mechanism provided under
the 2006 Act. Further, apart from the provision under Section
23(2A) of the 1996 Act, it is to be noticed that if counter-claim is
not permitted, buyer can get over the legal obligation of
compound interest at 3 times of the bank rate and the ―75% pre-
deposit‖ contemplated under Sections 16 and 19 of the MSMED
Act.
24. For the aforesaid reasons and on a harmonious
construction of Section 18(3) of the 2006 Act and Section 7(1)
and Section 23(2A) of the 1996 Act, we are of the view that
counter-claim is maintainable before the statutory authorities
under MSMED Act.
25. In C.A.Nos.1620-1622 of 2021, the High Court, while
negating the plea of the appellant, on the maintainability of
counter-claim, has allowed the application filed by the
respondent under Section 11(6) of the 1996 Act and appointed
the second arbitrator. Though, we are of the view that counter-
claim and set-off is maintainable before the statutory authorities
37
C.A.Nos.1570-1578 of 2021 etc.
under MSMED Act, appellant in this set of appeals is not entitled
for the relief, for the reason that on the date of supply of goods
and services the appellant did not have the registration by
submitting the memorandum as per Section 8 of the Act. The
bids were invited on 23.02.2010, appellant submitted its bid on
17.05.2010, respondent awarded contract to the appellant on
24.09.2010 and the parties signed the contract documents for
supply of material, installation/commissioning of the power plant
on 29.07.2011. Thereafter, supplies were made and the
appellant has raised first invoice on 02.11.2011 for supply
contract and also raised the first invoice pursuant to contract for
installation on 07.07.2012 and the appellant has raised the last
invoice in furtherance of contract for supply of material, on
29.03.2014. The appellant also claims to have raised last invoice
on 29.03.2015 in furtherance of contract for installation. It is to
be noticed that appellant approached the District Industrial
Centre for grant of entrepreneur memorandum only on
25.03.2015.
26. Though the appellant claims the benefit of provisions
under MSMED Act, on the ground that the appellant was also
38
C.A.Nos.1570-1578 of 2021 etc.
supplying as on the date of making the claim, as provided under
Section 8 of the MSMED Act, but same is not based on any
acceptable material. The appellant, in support of its case placed
reliance on a judgment of the Delhi High Court in the case of GE
T&D India Ltd. v. Reliable Engineering Projects and
5
Marketing , but the said case is clearly distinguishable on facts
as much as in the said case, the supplies continued even after
registration of entity under Section 8 of the Act. In the present
case, undisputed position is that the supplies were concluded
prior to registration of supplier. The said judgment of Delhi High
Court relied on by the appellant also would not render any
assistance in support of the case of the appellant. In our view, to
seek the benefit of provisions under MSMED Act, the seller
should have registered under the provisions of the Act, as on the
date of entering into the contract. In any event, for the supplies
pursuant to the contract made before the registration of the unit
under provisions of the MSMED Act, no benefit can be sought by
such entity, as contemplated under MSMED Act. While
interpreting the provisions of Interest on Delayed Payments to
5
2017 SCC OnLine Del 6978
39
C.A.Nos.1570-1578 of 2021 etc.
Small Scale and Ancillary Industrial Undertakings Act, 1993, this
Court, in the judgment in the case of Shanti Conductors Pvt.
6
Ltd. & Anr. etc. v. Assam State Electricity Board & Ors. etc.
has held that date of supply of goods/services can be taken as
the relevant date, as opposed to date on which contract for
supply was entered, for applicability of the aforesaid Act. Even
applying the said ratio also, the appellant is not entitled to seek
the benefit of the Act. There is no acceptable material to show
that, supply of goods has taken place or any services were
rendered, subsequent to registration of appellant as the unit
under MSMED Act, 2006. By taking recourse to filing
memorandum under sub-section (1) of Section 8 of the Act,
subsequent to entering into contract and supply of goods and
services, one cannot assume the legal status of being classified
under MSMED Act, 2006, as an enterprise, to claim the benefit
retrospectively from the date on which appellant entered into
contract with the respondent. The appellant cannot become
micro or small enterprise or supplier, to claim the benefits within
the meaning of MSMED Act 2006, by submitting a memorandum
6
(2019) 19 SCC 529
40
C.A.Nos.1570-1578 of 2021 etc.
to obtain registration subsequent to entering into the contract
and supply of goods and services. If any registration is obtained,
same will be prospective and applies for supply of goods and
services subsequent to registration but cannot operate
retrospectively. Any other interpretation of the provision would
lead to absurdity and confer unwarranted benefit in favour of a
party not intended by legislation.
27. It is also not in dispute that the appellant approached
the District Industrial Centre and filed entrepreneur
memorandum under Section 8 of the MSMED Act 2006 only on
25.03.2015 and later has approached the Council invoking the
provisions of MSMED Act by filing application under Section 18
of the Act. It is the specific case of the respondent that the
appellant has abandoned the incomplete work having made
deficient and defective supplies in the month of February/March
2015. In that view of the matter, we are of the firm view that the
appellant is not entitled to invoke the provisions of Chapter V
and seek reference to arbitration under Section 18 of the MSMED
Act, 2006. Further, as it is also not in dispute that there is an
agreement for arbitration between the parties for resolution of
41
C.A.Nos.1570-1578 of 2021 etc.
disputes pursuant to their contract, as such, we are of the view
that the High Court has rightly allowed the application filed by
the respondent under Section 11(6) of the 1996 Act.
28. For the aforesaid reasons, these Civil Appeals are
dismissed with no order as to costs.
……………………………J.
[Ashok Bhushan]
……………………………J.
[R. Subhash Reddy]
New Delhi.
June 29, 2021
42