GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD VERSUS MAHAKALI FOODS PVT. LTD. (UNIT 2) & ANR

GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD VERSUS MAHAKALI FOODS PVT. LTD. (UNIT 2) & ANR

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले


1
REPORTABLE
IN THE SUPREME COURT OF INDIA
 CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. …… OF 2022
(Arising out of SLP (C) No. 12884/2020)
GUJARAT STATE CIVIL SUPPLIES
CORPORATION LTD. .... APPELLANT
VERSUS
MAHAKALI FOODS PVT. LTD.
(UNIT 2) & ANR. .... RESPONDENT(S)
WITH
CIVIL APPEAL NO. 127 OF 2018
M/S. RAMKRISHNA ELECTRICALS
LTD. .…APPELLANT
VERSUS
MAHARASHTRA STATE ELECTRICITY
DISTRIBUTION COMPANY LTD. & ANR.
.... RESPONDENT(S)
WITH
CIVIL APPEAL NO. 6167 OF 2013
M/S VIDARBHA CERAMICS PVT. LTD.
 …APPELLANT(S)
VERSUS
M/S STEEL AUTHORITY OF INDIA & ORS
 .... RESPONDENT(S)
WITH
2
CIVIL APPEAL NO. …… OF 2022
(Arising out of SLP (C) NO. 31227 OF 2018)
GUJARAT STATE PETRONET LTD. …APPELLANT
VERSUS
KRUNAL ENGINEERING WORKS & ORS.
 .... RESPONDENT(S)
WITH
CIVIL APPEAL NO. …… OF 2022
(Arising out of SLP (C) NO. 7375 OF 2020)
BHARAT ELECTRONICS LTD. &ANR. …APPELLANT(S)
VERSUS
IBEX INTEGRATED BUSINESS
EXPRESS PRIVATE LTD. & ORS. .... RESPONDENT(S)
WITH
CIVIL APPEAL NO. …… OF 2022
(Arising out of SLP (C) NO. 2135 OF 2021)
UNION OF INDIA …APPELLANT
VERSUS
M/S SIRUS GLOBAL PVT. LTD. .... RESPONDENT
WITH
CIVIL APPEAL NO. …… OF 2022
(Arising out of SLP (C) NO. 6166 OF 2021)
JITF WATER INFRASTRUCTURE
LIMITED …APPELLANT
VERSUS
MSME COMMISSIONERATE & ORS. .... RESPONDENT(S)
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 J U D G M E N T
BELA M. TRIVEDI, J.
1. Leave to appeal is granted in SLP(C) No. 12884/2020, SLP(C) No.
31227/2018, SLP(C) No. 7375/2020, SLP(C) No. 2135/2021 and SLP(C) No.
6166/2021.
2. All these seven appeals though factually different, involve certain common
questions of law and therefore were heard together.
3. The broad outline of the impugned orders in each appeal may be stated as
under:
(I) C.A. No …… of 2022 (@ SLP (C) No. 12884/2020)
The appellant Gujarat State Civil Supplies Corporation Ltd.
(Original Petitioner), has challenged the Order dated 13.11.2019
passed by the Gujarat High Court in the First Appeal No. 3613/2019,
whereby the High Court has dismissed the said appeal filed by the
appellant under Section 37 of the Arbitration and Conciliation Act,
1996 (Hereinafter referred to as “the Arbitration Act, 1996”). In the
said First Appeal, the appellant had challenged the Order dated
20.08.2018 passed by the Commercial Court, Ahmedabad in
Commercial Civil Misc. Application No. 54/2016 filed under
Section 34 of the Arbitration Act read with Section 19 of the Micro,
Small and Medium Enterprises Development Act, 2006 (hereinafter
referred to as “the MSMED Act, 2006”), whereby the commercial
4
court had confirmed the award made by the Madhya Pradesh Micro
and Small Enterprises Facilitation Council, Bhopal in Reference No.
NSEFC 442/2012, holding that the provisions of MSMED Act, 2006
had an effect overriding the provisions of the Arbitration Act and
that the Facilitation Council at Bhopal had the jurisdiction to
adjudicate upon the disputes between the parties.
(II) C.A. No. 127/2018
The appellant M/s. Ramkrishna Electricals Ltd. (Original
Respondent No. 2) has challenged the Order dated 27.06.2017
passed by the High Court of Judicature at Bombay, Nagpur Bench,
Nagpur, in W.P. No. 4435/2011, whereby the High Court has
allowed the said petition, holding that the Micro, Small Enterprises
Facilitation Council, Nagpur, did not have the jurisdiction to decide
the Original Application No. 24/2010 filed by the appellant herein.
In the impugned order, the High Court followed its earlier decision
in case Steel Authority Vs. MSE Facilitation Council1
, in which it
was held that the Facilitation Council would not be entitled to
proceed under the provisions of Section 18(3) of MSMED Act, 2006

1 AIR 2012 Bom. 178
5
when there is an independent arbitration agreement between the
parties.
(III) C.A. No. 6167/2013
The appellant M/s. Vidarbha Ceramics Pvt. Ltd. (Original
Respondent No. 2) has challenged the Order dated 27.08.2010
passed by the High Court of Judicature at Bombay, Nagpur Bench,
Nagpur, in W.P. No. 2145/2010 (AIR 2012 Bom. 178) whereby the
High Court has allowed the said petition holding that the Facilitation
Council, Nagpur, was not entitled to proceed under Section 18(3) of
the MSMED Act, 2006 in view of an arbitration agreement executed
between the parties.
(IV) C.A. …… of 2022 (@ SLP (C) No. 31227/2018)
The appellant Gujarat State Petronet Ltd. (Original Petitioner)
has challenged the Order dated 06.08.2018 passed by the High Court
of Judicature at Bombay, in W.P. No. 5459/2015, whereby the High
Court disposed of the Writ Petition by holding that despite
independent arbitration agreement between the parties, the
respondent Facilitation Council, Thane had the jurisdiction to
entertain the reference made by the Respondent No. 1 Krunal
Engineering Works (Original Respondent No. 3) under Section 18
of the MSMED Act, 2006, however the High Court held that the
respondent Facilitation Council itself having conducted the
6
conciliation proceedings, could not have taken up the disputes for
arbitration in view of Section 80 of the Arbitration Act, 1996. The
High Court directed the Facilitation Council to refer the disputes
between the parties to any institution or centre providing alternative
dispute resolution services for arbitration.
(V) C.A. …… of 2022 (@ SLP (C) No. 7375/2020)
The appellant Bharat Electronics Ltd. & Anr. (Original
Petitioners) have challenged the Order dated 20.01.2020 passed by
the High Court of Judicature at Bombay in W.P. No. 7899/2017,
whereby the High Court has dismissed the said petition along with
the W.P. No. 9356/2018, holding that when the Facilitation Council
had conducted the arbitration proceedings and passed an award
under Section 18(3) of the MSMED Act, 2006 the remedy of the
aggrieved party would be to take recourse to Section 34 of the
Arbitration Act. The High Court relied upon the ratio in case of SBP
& Company Vs. Patel Engineering Ltd.2 which disapproved the
practice of High Courts entertaining petitions under Article 226/227
of the Constitution of India challenging the orders passed by the
Arbitration Tribunal.

2
(2005) 8 SCC 618.
7
(VI) C.A. …… of 2022 (@ SLP (C) No. 2135/2021)
The appellant Union of India (Original Appellant) has
challenged the Order dated 23.08.2019 passed by the Delhi High
Court in LPA 42/2019, whereby the High Court while dismissing
the said LPA held that despite the arbitration clause in the agreement
between the parties, if the MSMED Act, 2006 is applicable to the
party, Facilitation Council would have the jurisdiction under Section
18(3) to either take up the matter for arbitration itself or refer the
matter for arbitration to any institution or centre providing
alternative dispute resolution services.
(VII) C.A. …… of 2022 (@ SLP (C) No. 6166/2021)
The appellant JITF Water Infrastructure Ltd. (Original
Petitioner) has challenged the Order dated 24.07.2020 passed by the
Gujarat High Court in LPA 1667/2019, whereby the High Court
while dismissing the said LPA and confirming the order passed by
the Single Bench, held that Respondent No. 2 M/s. Aquafil Polymers
Company Pvt. Ltd. and M/s. Wintech Engineering Pvt. Ltd. being
integral part of the joint venture, any contract signed by the joint
venture would be a contract for the benefit and on behalf of its
constituents/components; and that if one of the components of the
joint venture (in this case M/s Aquafil Polymers) had filed its
memorandum under Section 8 of the MSMED Act, 2006 it cannot
8
be denied the status of the supplier, even though joint venture had
not filed such memorandum. The High Court further held that the
respondent no. 2 Aquafil Polymers, who was the supplier had rightly
applied to the Facilitation Council under Section 18(1) of the
MSMED Act, 2006 and that the Facilitation Council having
conducted the Conciliation process and the same having failed, the
Facilitation Council had no option left but to refer it to the institution
or centre providing alternative dispute resolution services for
carrying out the matter further in accordance with the provisions of
Arbitration Act, 1996.
4. In the background of afore-stated spectrum of cases, following common
questions of law arise for consideration:
(i) Whether the provisions of Chapter-V of the MSMED Act, 2006
would have an effect overriding the provisions of the Arbitration
Act, 1996?
(ii) Whether any 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 under sub-section (1) of Section 18 of the
said Act, if an independent arbitration agreement existed
9
between the parties as contemplated in Section 7 of the
Arbitration Act, 1996?
(iii) Whether the Micro and Small Enterprises Facilitation Council,
itself could take up the dispute for arbitration and act as an
arbitrator, when the council itself had conducted the conciliation
proceedings under sub-section (2) of the Section 18 of the
MSMED Act, 2006 in view of the bar contained in Section 80 of
the Arbitration Act,1996?
5. Before adverting to the afore-stated questions of law, beneficial would be
to glance through the legislative history and the objects and reasons as also the
relevant provisions of the MSMED Act, 2006 and of the Arbitration Act, 1996.
So far as the legislative history of MSMED Act, 2006 is concerned, it appears
that in order to promote and strengthen the small, tiny and medium scale industrial
undertakings, the “Interest on Delayed Payments to Small Scale and Ancillary
Industrial Undertakings Act, 1993” (hereinafter referred to as “The Delayed
Payments Act”) was enacted by the Parliament. The object of the said enactment
was to provide for and regulate the payment of interest on delayed payments to
the small scale and ancillary industrial undertakings. Though Sections 4 and 5 of
the Delayed Payments Act, made the provisions of the recovery of amount and
computation of compound interest and section 10 thereof provided for the effect
overriding the other laws for the time being in force, it did not provide for any
dispute resolution mechanism through which a small enterprise could avail of its
10
remedies. The small enterprises, therefore, had to file a suit or to follow the
contractual terms as contained in the arbitration agreement for the recovery of
their dues. The Government of India, Ministry of Industry, the Department of
Small-Scale Industries and Argo and Rural Industries, realizing the need for
reforms in the then existing policies and to design new policies for the
development of small and medium enterprises constituted “an expert committee
on small enterprises” vide the Order dated 29.12.1995. The committee
recommended for enacting an Act for the inclusion of stringent provisions for
non-payment of dues to the small-scale industries. This was followed by the
Small and Medium Enterprises Development Bill, 2005 in August, 2005. The said
Bill was referred to the Parliamentary Standing Committee on Industry, which
submitted its 176th report on the said Bill of 2005. The recommendations of the
said committee culminated into the MSMED Bill, which sought to achieve
following amongst other objects: -
- to make provisions for ensuring timely and smooth
flow of credit to small and medium enterprises to
minimize the incidence of sickness among and
enhancing the competitiveness of such enterprises,
in accordance with the guidelines or instructions of
the Reserve Bank of India;
- to make further improvements in the Interest on
Delayed Payments to Small Scale and Ancillary
11
Industrial Undertakings Act, 1993 and making that
enactment a part of the proposed legislation and to
repeal that enactment.
6. The MSMED Bill having been passed by both the Houses of Parliament,
received the assent of the President on 16th June, 2006 and came into the Statute
Book as the MSMED Act, 2006, (27 of 2006). The long title of the Act states that
the said Act has been 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. The Act has
been divided into Six Chapters, and Chapter-V pertains to the ‘Delayed payments
to micro and small enterprises.’
7. Some of the definitions and provisions contained in the MSMED Act, 2006
being relevant for the purpose of deciding these appeals are reproduced
hereunder: -
“2. Definitions. —In this Act, unless the context otherwise
requires, —
(a) ….
(b) “appointed day” means the day following immediately
after the expiry of the period of fifteen days from the day of
acceptance or the day of deemed acceptance of any goods or
any services by a buyer from a supplier.
Explanation. —For the purposes of this clause, —
(i) “the day of acceptance” means, —
(a) the day of the actual delivery of goods or the
rendering of services; or
(b) where any objection is made in writing by the
buyer regarding acceptance of goods or services
within fifteen days from the day of the delivery of
goods or the rendering of services, the day on which
such objection is removed by the supplier;
12
(ii) “the day of deemed acceptance” means, where no
objection is made in writing by the buyer regarding
acceptance of goods or services within fifteen days
from the day of the delivery of goods or the rendering
of services, the day of the actual delivery of goods or
the rendering of services;
(c) …..
(d) “buyer” means whoever buys any goods or receives any
services from a supplier for consideration;
(e) …..
(f) …..
(g) …..
(h) “micro enterprise” means an enterprise classified as such
under sub-clause (i) of clause (a) or sub-clause (i) of clause
(b) of sub-section (1) of section 7;
(i) …..
(j) …..
(k) ….
(l) …..
(m) “small enterprise” means an enterprise classified as such
under sub-clause (ii) of clause (a) or sub-clause (ii) of clause
(b) of sub-section (1) of section 7;
(n) “supplier” means a micro or small enterprise, which has
filed a memorandum with the authority referred to in subsection (1) of section 8, and includes, —
(i) the National Small Industries Corporation, being
a company, registered under the Companies Act,
1956 (1 of 1956);
(ii) the Small Industries Development Corporation of
a State or a Union territory, by whatever name called,
being a company registered under the Companies
Act, 1956 (1 of 1956);
(iii) any company, co-operative society, trust or a
body, by whatever name called, registered or
constituted under any law for the time being in force
and engaged in selling goods produced by micro or
small enterprises and rendering services which are
provided by such enterprises;”
Section 8(1) pertaining to the filing of
Memorandum of micro, small and medium
enterprises reads as under: -
“(1) Any person who intends to establish, -
13
(a) a micro or small enterprise, may, at his
discretion; or
(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.”
8. Chapter-V of the MSMED Act, 2006 pertaining to the “delayed payments
to micro and small enterprises” contains Sections 15 to 25, out of which Sections
15 to 20 and 24 being relevant are reproduced herein below:
“15. Liability of buyer to make payment. —Where any
supplier supplies any goods or renders any services to any
buyer, the buyer shall make payment therefor on or before
14
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.
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 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.
15
(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 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.
20. Establishment of Micro and Small Enterprises
Facilitation Council. —The State Government shall, by
notification, establish one or more Micro and Small
Enterprises Facilitation Councils, at such places, exercising
such jurisdiction and for such areas, as may be specified in
the notification.
21….
22…….
23……
24. Overriding effect. —The provisions of sections 15 to 23
shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in
force.”
9. So far as the Arbitration Act, 1996 is concerned, its Bill, taking into
account the United Nations Commission on International Trade Law
(UNCITRAL) Model Law and Rules, sought to achieve following amongst other
objects: -
16
- to comprehensively cover international and
commercial arbitration and conciliation as also
domestic arbitration and conciliation;
- to permit an arbitral tribunal to use mediation,
conciliation or other procedures during the arbitral
proceedings to encourage settlement of disputes;
- to provide that a settlement agreement reached by
the parties as a result of conciliation proceedings
will have the same status and effect as an arbitral
award on agreed terms on the substance of the
dispute rendered by an arbitral tribunal.
10. The Arbitration and Conciliation Bill having been passed by both the
Houses of Parliament received the assent of the President on 16th Aug. 1996, and
came on the Statute Book as the Arbitration and Conciliation Act, 1996 (26 of
1996). It came into force on 22.08.1996. As per the long title of the Act, the said
Act was enacted to consolidate and amend the law relating to domestic
arbitration, international commercial arbitration and enforcement of foreign
arbitral awards as also to define the law relating to conciliation, and for matters
connected therewith and incidental thereto. The Act has been divided into five
parts. Part-I pertains to Arbitration, Part-IA to Arbitration Council of India, PartII to Enforcement of certain Foreign Awards, Part-III to Conciliation and PartIV pertains to Supplementary Provisions.
11. Some of the relevant provisions of the Act are reproduced hereunder for
ready reference: -
Section 2(1)(b) defines “arbitration agreement” to
mean an agreement referred to in Section 7.
17
Section 2(4) reads as under:
“(4) This Part except sub-section (1) of section
40, sections 41 and 43 shall apply to every arbitration
under any other enactment for the time being in force,
as if the arbitration were pursuant to an arbitration
agreement and as if that other enactment were an
arbitration agreement, except in so far as the
provisions of this Part are inconsistent with that other
enactment or with any rules made thereunder.”
Section 7 reads as under:
“7. Arbitration agreement. —
(1) In this Part, “arbitration agreement” means an
agreement by the parties to submit to arbitration all or
certain disputes which have arisen or which may arise
between them in respect of a defined legal relationship,
whether contractual or not.
(2) An arbitration agreement may be in the form of an
arbitration clause in a contract or in the form of a separate
agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is
contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or
other means of telecommunication including
communication through electronic means
which provide a record of the agreement; or
(c) an exchange of statements of claim and
defence in which the existence of the
agreement is alleged by one party and not
denied by the other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the
contract is in writing and the reference is such as to make
that arbitration clause part of the contract.”
18
Section 8(1) pertaining to the power of the judicial
authority to refer parties to arbitration where there
is an arbitration agreement, reads as under:
“8. Power to refer parties to arbitration where there is an
arbitration agreement. —
(1) A judicial authority, before which an
action is brought in a matter which is the
subject of an arbitration agreement shall, if a
party to the arbitration agreement or any person
claiming through or under him, so applies not
later than the date of submitting his first
statement on the substance of the dispute, then,
notwithstanding any judgment, decree or order
of the Supreme Court or any Court, refer the
parties to arbitration unless it finds that prima
facie no valid arbitration agreement exists.”
Chapter-IV pertains to the jurisdiction of arbitral
tribunals. Sections 16 thereof reads as under:
“16. Competence of arbitral tribunal to rule on its
jurisdiction.
(1) The arbitral tribunal may rule on its own jurisdiction,
including ruling on any objections with respect to the
existence or validity of the arbitration agreement, and for
that purpose, —
(a) an arbitration clause which forms part of
a contract shall be treated as an agreement
independent of the other terms of the
contract; and
(b) a decision by the arbitral tribunal that the
contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction
shall be raised not later than the submission of the statement
of defence; however, a party shall not be precluded from
raising such a plea merely because that he has appointed, or
participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of
its authority shall be raised as soon as the matter alleged to
19
be beyond the scope of its authority is raised during the
arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred
to in sub-section (2) or sub-section (3), admit a later plea if
it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in
sub-section (2) or sub-section (3) and, where the arbitral
tribunal takes a decision rejecting the plea, continue with the
arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make
an application for setting aside such an arbitral award in
accordance with section 34.”
Section 21 pertaining to the commencement of
arbitral proceedings reads as under:
“21. Commencement of arbitral proceedings. —Unless
otherwise agreed by the parties, the arbitral proceedings in
respect of a particular dispute commence on the date on
which a request for that dispute to be referred to arbitration
is received by the respondent.”
Section 42 pertaining to the jurisdiction of the
courts reads as under:
“42. Jurisdiction. —Notwithstanding anything contained
elsewhere in this Part or in any other law for the time being
in force, where with respect to an arbitration agreement any
application under this Part has been made in a Court, that
Court alone shall have jurisdiction over the arbitral
proceedings and all subsequent applications arising out of
that agreement and the arbitral proceedings shall be made in
that Court and in no other Court.”
Section 43 pertaining to the Limitations reads as
under:
“43. Limitations. — (1) The Limitation Act, 1963 (36 of
1963), shall apply to arbitrations as it applies to proceedings
in Court.
20
(2) For the purposes of this section and the Limitation Act,
1963 (36 of 1963), an arbitration shall be deemed to have
commenced on the date referred in section 21.
(3) Where an arbitration agreement to submit future disputes
to arbitration provides that any claim to which the agreement
applies shall be barred unless some step to commence
arbitral proceedings is taken within a time fixed by the
agreement, and a dispute arises to which the agreement
applies, the Court, if it is of opinion that in the circumstances
of the case undue hardship would otherwise be caused, and
notwithstanding that the time so fixed has expired, may on
such terms, if any, as the justice of the case may require,
extend the time for such period as it thinks proper.
(4) Where the Court orders that an arbitral award be set
aside, the period between the commencement of the
arbitration and the date of the order of the Court shall be
excluded in computing the time prescribed by the Limitation
Act, 1963 (36 of 1963), for the commencement of the
proceedings (including arbitration) with respect to the
dispute so submitted.”
12. The learned counsels appearing for the parties had made their submissions
at length on various issues involved in their respective appeals. Since some of the
appeals are filed by the Suppliers and some by the Buyers, for the sake of
convenience, the learned counsels shall be referred to as the counsels for the
Suppliers and the counsels for the Buyers instead of the counsels for the
Appellants or the Respondents. Their respective submissions may be summarized
as under.
13. The learned counsels for the Buyers submitted as under:
(i) The non obstante portion of Section 18 of the MSMED Act, 2006
does not include ‘agreement’ as expressly done in Section 16 of the
21
said Act and therefore Section 18 cannot take precedence over an
arbitration agreement executed between the parties.
(ii) The intention of the legislature not to supersede the contracts
between the parties is clear, when the term “shall” in Section 16 is
replaced with the term “may” in Section 18.
(iii) Section 18(1) and 18(4) have a non obstante clause, whereas Section
18(2), 18(3) and 18(5) do not have such non obstante clause.
Therefore, Section 18(1) only gives an option to any party to a
dispute, and does not compel the party to make a reference to the
Facilitation Council. Similarly, Section 18(4) confers jurisdiction
upon the Facilitation Council to act as an arbitrator or the conciliator
in a dispute between the supplier located within its jurisdiction and a
buyer located anywhere in India.
(iv) As per the well settled principle of law, the Courts cannot supply
casus omissus i.e., omission in a statute cannot be supplied by
construction. In this regard, reliance is placed on the decision in case
of Shiv Shakti Cooperative Housing Society, Nagpur vs. Swaraaj
Developers and Others3
.
(v) Section 18 of MSMED Act, 2006 does not grant any substantive right
to the supplier and it is merely a procedure/mechanism available to

3
(2003) 6 SCC 659
22
him under the Act to make reference with regard to the dispute to the
Facilitation Council. The said remedy would be available only when
there is no clause in the contract providing for the resolution of
dispute by way of arbitration under the Arbitration Act, 1996.
(vi) Sections 15, 16 and 17, though are substantive in nature, Section 18
is procedural, providing for an option to go to the Facilitation
Council for the recovery of dues under Section 17.
(vii) Commercial contracts must be construed with care, since it not only
affects the party’s autonomy but also the country’s economy. The
parties to an arbitration agreement have the autonomy to decide not
only on the procedural law to be followed but also the substantive
law. In this regard, reliance is placed on various decisions of this
Court in case of Bharat Aluminum Company Vs. Kaiser Aluminum
Technical Services4 & Antrix Corporaton Limited Vs. Devas
Multimedia Private Limited5 and Amazon.com NV Investment
Holdings LLC. Vs. Future Retail Limited and others6
.
(viii) The courts have to read the agreement as it is and cannot rewrite or
create a new one. In this regard, reliance is placed in case of Orissa

4
(2012) 9 SCC 648
5
(2014) 11 SCC 560
6
(2022) 1 SCC 209
23
State Financial Corporation vs. Narsingh ch. Nayak and Others7
and Shin Satellite Public Co. Ltd. Vs. Jain Studios Ltd.8
(ix) The doctrine of election is inbuilt in the concept of approbate and
reprobate. One cannot take advantage of one part while rejecting the
rest. A party cannot be allowed to have the benefit of an instrument,
while questioning it at the same time.
(x) Both the Acts of 1996 and 2006 are special laws and operate in
different fields. Therefore, where the agreement between the parties
(one of which is micro or small enterprise) is silent about the mode
of dispute resolution, then only the recourse to the provisions of
Section 18 can be said to be valid. However, when the contract itself
mentions about the dispute to be resolved through arbitration, then
there is no occasion for invoking the provisions of MSMED Act,
2006.
(xi) The Facilitation Council cannot act as a conciliator and as an
arbitrator over the same dispute, in view of the bar contained in
Section 80 of the Arbitration Act, 1996.
(xii) Section 18 of 2006 Act does not override the contract entered into
between the parties providing for referring the dispute to the
arbitrator under the Arbitration Act, 1996. The reliance placed by the

7
(2003) 10 SCC 261
8
(2006) 2 SCC 628
24
counsels for the Suppliers on the decision of this Court in Silpi
Industries etc. vs. Kerala State Road Transport Corporation and
Anr.9
is misplaced as the observations made in the said decision with
regard to the issue of effect of MSMED Act over the Arbitration Act,
were per incuriam.
14. The learned counsels for the Suppliers made the following submissions: -
(i) The avowed object and purpose of Section 18 is to create a cost
effective and expeditious dispute resolution mechanism for the
recovery of an unpaid dues of a supplier under Section 17. Section
18 is not subject to a contract or an agreement to the contrary
between the parties. It gives the parties a right to have their disputes
adjudicated by approaching the Facilitation Council, even if there is
a contractual provision setting out the manner by which the parties
had to resolve their disputes.
(ii) Section 18 is consistent with Section 2(4) of the Arbitration Act,
1996 inasmuch as Section 18(3) deems the reference to statutory
arbitration as the arbitration agreement for the purposes of Section
7(1) of the Arbitration Act, 1996 and therefore, once availed, the
reference under Section 18 would override any agreement including
arbitration agreement between the parties. The observations made in

9 2021 SCC Online SC 439
25
M/s. Silpi Industries (supra) clinches the issue that the MSMED Act,
2006 being the special legislation to protect the MSME’s by setting
out the statutory mechanism for the payment of interest on delayed
payments, the said Act would override the provisions of the
Arbitration Act 1996, which is a general legislation.
(iii) In view of the specific mandate under Section 24 of the MSMED Act
2006, the provisions of Sections 15 to 23 would have an effect
notwithstanding anything inconsistent therewith contained in any
other law for the time being in force.
(iv) Section 18 of the MSMED Act, 2006 provides the party a statutory
right to approach the council, and such right cannot be obliterated on
account of an arbitration agreement entered into between the parties.
(v) Section 18(3) of the MSMED Act, 2006 creates a deeming fiction
consistent with Section 2(4) of the Arbitration Act, and sets out that
if conciliation is not successful and parties move to arbitration, the
provisions of the Arbitration Act 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 the Act. Hence, once the
mechanism under Section 18 is triggered, then it would override any
agreement between the parties to arbitrate. In this regard, reliance is
26
placed on the decision of this Court in case of Secur Industries Ltd.
Vs. Godrej & Boyce Mfg. Co. Ltd. And Anr10
.
(vi) The MSMED Act, 2006 being a special statute ought to prevail over
the Arbitration Act, 1996 which is a general statute. Even if, the
Arbitration Act is also treated as a special statute, the MSMED Act,
2006 would still prevail, since a special statute enacted subsequently
in time prevails in case of any conflict. In this regard, reliance is
placed in case of Solidaire India Ltd. Vs. Fairgrowth Financial
Services Ltd. & Ors11 and Maruti Udyog Ltd. Vs. Ram Lal & Ors12
.
15. The learned counsel appearing for the MSE Facilitation Council in support
of the submissions made by the learned counsels for the Suppliers, made further
following submissions: -
(i) Sections 15 to 19 of the MSMED Act, 2006 are interlinked and
dependent on each other, which prescribe a special scheme under the
Act. A cumulative effect of the said provisions would clearly
override an arbitration agreement independently entered into
between the parties.
(ii) Section 18 is a substantive law and not a procedural law, as it
provides a right and the remedy on the MSE for resolution of
disputes.

10 (2004) 3 SCC 447.
11 (2001) 3 SCC 71
12 (2005) 2 SCC 638
27
(iii) Beneficial or welfare statutes should be given a liberal and not a strict
interpretation. If the words used in the beneficial statute are capable
of two constructions, the one which is more in consonance with the
object of the Act, and the interpretation for the benefit of the persons
for whom the Act is made, should be preferred. In this regard,
reliance is placed on decision of this Court in case of Union of India
Vs. Prabhakaran Vijaya Kumar and Ors13 and in case of Regional
Provident Fund Commr. Vs. Hoogly Mills Co. Ltd.14
.
16. Now, the first and foremost issue involved in these appeals is whether the
provisions contained in Chapter V of the MSMED Act, 2006 with regard to the
Delayed Payments to Micro and Small Enterprises would have the precedence
over the provisions contained in the Arbitration Act, 1996, more particularly when
the parties by execution of an independent agreement as contemplated in Section
7 of the Arbitration Act had agreed to submit to arbitration the disputes arising
between them? In other words, whether the provisions contained in Chapter V of
the MSMED Act, 2006 would have an effect overriding the provisions contained
in the Arbitration Act, 1996?
17. It is trite to say that the provisions of the special statute would override the
provisions of the general statute. It is also well settled that while determining the
effect of a statute overriding the other statute, the purpose and policy underlying

13 (2008) 9 SCC 517
14 (2012) 2 SCC 489
28
the two statutes and the clear intendment conveyed by the language of the relevant
provisions therein would be the relevant consideration. This Court in
Commissioner of Income Tax, Patiala Vs. Shahzada Nand & Sons15 , while
stating the fundamental rule of construction, had observed that the meaning and
intention of a statute must be collected from the plain and unambiguous
expression used therein rather than from any notions which may be entertained by
the court as to what is just and expedient.
18. One of principles of statutory interpretation relevant for our purpose is
contained in the Latin maxim “leges posteriores priores contrarias abrogant”
(the later laws shall abrogate earlier contrary laws). Another relevant rule of
construction is contained in the maxim “generalia specialibus non derogant”
(General laws do not prevail over Special laws). When there is apparent conflict
between two statutes, the provisions of a general statute must yield to those of a
special one.
19. As observed in Kaushalya Rani Vs. Gopal Singh16, a “Special Law” means
a law enacted for special cases, in special circumstances, in contradiction to the
general rules of law laid down, as applicable generally to all cases with which the
general law deals.

15 AIR 1966 SC 1342
16 AIR 1964 SC 260
29
20. Keeping in view the aforestated principles of statutory interpretations as
also the proposition of law laid down by this Court with regard to the general
rules of construction, let us proceed to examine whether the MSMED Act, 2006
is a special enactment having an effect overriding the Arbitration Act, 1996 which
is perceived to be a general enactment? As stated earlier, the very object of
enacting MSMED Act, 2006 was to facilitate the promotion and development,
and enhance the competitiveness of micro, small and medium enterprises. The
Act also aimed to ensure timely and smooth flow of credit to the micro, small and
medium enterprises, and to minimize the incidence of sickness. One of the main
objects of the Act was to delete the Interest on Delayed Payments to Small Scale
and Ancillary Industry Undertakings Act, 1993, and to include stringent
provisions as also to provide dispute resolution mechanism for resolving the
disputes of non-payment of dues to the micro and small enterprises. Thus, the
seed of MSMED Act, 2006 had sprouted from the need for a comprehensive
legislation to provide an appropriate legal framework and extend statutory
support to the micro and small enterprises to enable them to develop and grow
into medium ones.
21. Section 15 to 25 contained in Chapter-V of the MSMED Act, 2006 pertain
to the ‘delayed payments to micro and small enterprises.’ A bare perusal of the
said provisions contained in Chapter-V shows that a strict liability is fastened on
the buyer to make payment to the supplier who supplies any goods or renders any
30
services to the buyer, prescribing the time limit in Section 15. Section 16 further
fastens the liability on the buyer to pay compound interest if any buyer fails to
make payment to the supplier as required under Section 15. Such compound
interest is required to be paid at three times of the bank rate notified by the
Reserve Bank, notwithstanding contained in any agreement between the buyer
and supplier or in any law for the time being in force. An obligation to make
payment of the amount with interest thereon as provided under Section 16 has
been cast upon the buyer and a right to receive such payment is conferred on the
supplier in Section 17. Thus, Section 17 is the ignition point of any dispute under
MSMED Act, 2006. Section 18 thereof provides for the mechanism to enable the
party to the dispute with regard to any amount due under Section 17, to make a
reference to the Micro and Small Enterprises Facilitation Council.
22. Section 18 starts with a non obstante clause i.e., ‘notwithstanding anything
contained in any other law for the time being in force’. It means that the said
provision has been enacted with the aim to supersede other laws for the time being
in force. Further a dedicated statutory forum i.e., the Micro and Small Enterprises
Facilitation Council (As established under Section 20 of the MSMED Act, 2006),
has been provided to which a reference could be made by any party to the dispute.
Sub-section (2) of Section 18 empowers the Facilitation Council, on receipt of
such reference made under sub-section (1), 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 an institution or centre, for
31
conducting Conciliation, as contemplated in Section 65 to 81 of the Arbitration
Act, 1996. If the conciliation initiated under sub-section (2) is not successful and
stands terminated without any settlement between the parties, the Council is
further empowered under sub-section (3) to either itself take up the dispute for
arbitration or refer to it any institution or centre providing alternate dispute
resolution services for such arbitration. The provisions of Arbitration Act, 1996
are then made applicable 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
Arbitration Act, 1996. Sub-section (4) of Section 18 again starts with a non
obstante clause i.e., ‘notwithstanding anything contained in any other law for the
time being in force’, and confers jurisdiction upon the Facilitation Council to act
as an arbitrator or a conciliator in a dispute between the supplier located within
its jurisdiction and a buyer located anywhere in India. Sub-section (5) of Section
18 fixes the time limit of ninety days to decide such reference. Section 19
prescribes the procedure to be followed when any application is made in the court
for setting aside any decree, award or other order made either by the Council itself
or by any institution or centre to which reference is made by the Council. Section
24 of the MSMED Act, 2006 states that the provisions of Section 15 to 23 shall
have an effect notwithstanding anything inconsistent therewith contained in any
other law for the time being in force.
32
23. Having regard to the purpose, intention and objects as also the scheme of
the MSMED Act, 2006 and having regard to the unambiguous expressions used
in Chapter-V thereof, following salient features emerge:
(i) Chapter-V is “party-specific”, in as much as the party i.e. the ‘Buyer’
and the ‘Supplier’ as defined in Sections 2(d) and 2(n) respectively
are covered under the said Chapter.
(ii) A specific provision is made fastening a liability on the buyer to
make payment of the dues to the supplier in respect of the goods
supplied or services rendered to the buyer, as also a liability to pay
compound interest at three times of the bank rate notified by the
Reserve Bank, if the buyer fails to make payment within the
prescribed time limit. The said liability to pay compound interest is
irrespective of any agreement between the parties or of any law for
the time being in force.
(iii) A dedicated statutory forum i.e., Micro and Small Enterprises
Facilitation Council is provided to enable any party to a dispute with
regard to any amount due under Section 17, to make reference to
such Council.
(iv) A specific procedure has been prescribed to be followed by the
Facilitation Council after the reference is made to it by any party to
the dispute.
33
(v) The Facilitation Council or the centres providing alternative dispute
resolution services have been conferred with the jurisdiction to act
as an Arbitrator or Conciliator under Section 18(4), notwithstanding
anything contained in any law for the time being in force, in a dispute
between the supplier located within its jurisdiction.
(vi) The provisions of Arbitration Act, 1996 has been made applicable
to the dispute only after the Conciliation initiated under sub-section
(2) does not succeed and stands terminated without any settlement
between the parties.
(vii) Sub-section (1) and sub-section (4) of Section 18 starting with non
obstante clauses have an effect overriding the other laws for the time
being in force.
(viii) As per Section 24, the provisions of Sections 15 to 23 have an effect
notwithstanding anything inconsistent therewith contained in any other
law for the time being in force.
24. As against the above position, if the purpose, objects and scheme of the
Arbitration Act, 1996 are considered, as stated hereinabove, the said Act was
enacted to consolidate and amend the law relating to the domestic arbitration,
international commercial arbitration and enforcement of foreign arbitral awards
and also to define the law relating to Conciliation. It was enacted taking into
account the UNCITRAL Model Law on international commercial arbitration. The
main objectives amongst others of the said Act were to make provision for an
34
arbitral procedure which was fair, efficient and capable to meet the needs of the
specific arbitration and to minimize the supervisory role of courts in the arbitral
process, as also to permit arbitral tribunal to use mediation, conciliation or other
procedures during the arbitral proceedings in the settlement of disputes etc17
. The
Arbitration Act, 1996 focuses and covers the law relating to the Arbitration and
Conciliation, providing for the requirements of the arbitration agreement,
composition of arbitral tribunal, conduct of arbitration proceedings, finality and
enforcement of domestic arbitral awards as well as of certain foreign awards, and
covers the law relating to Conciliation. Having regard to the entire scheme of the
Arbitration Act 1996, it appears that it is a general law relating to the domestic
arbitration, international commercial arbitration and for conciliation. It does not
specify any specific dispute or specific class or category of persons to which the
Act shall apply, as has been specified in the MSMED Act, 2006.
25. Thus, the Arbitration Act, 1996 in general governs the law of Arbitration
and Conciliation, whereas the MSMED Act, 2006 governs specific nature of
disputes arising between specific categories of persons, to be resolved by
following a specific process through a specific forum. Ergo, the MSMED Act,
2006 being a special law and Arbitration Act, 1996 being a general law, the
provisions of MSMED Act would have precedence over or prevail over the
Arbitration Act, 1996. In Silpi Inustries case (supra) also, this Court had observed

17 Bharat Sewa Sansthan Vs. U.P. Electronics Corporation; AIR 2007 SC 2961.
35
while considering the issue with regard to the maintainability and counter claim
in arbitration proceedings initiated as per Section 18(3) of the MSMED Act, 2006
that the MSMED Act, 2006 being a special legislation to protect MSME’s by
setting out a statutory mechanism for the payment of interest on delayed
payments, the said Act would override the provisions of the Arbitration Act, 1996
which is a general legislation. Even if the Arbitration Act, 1996 is treated as a
special law, then also the MSMED Act, 2006 having been enacted subsequently
in point of time i.e., in 2006, it would have an overriding effect, more particularly
in view of Section 24 of the MSMED Act, 2006 which specifically gives an effect
to the provisions of Section 15 to 23 of the Act over any other law for the time
being in force, which would also include Arbitration Act, 1996.
26. The court also cannot lose sight of the specific non obstante clauses
contained in sub-section (1) and sub-section (4) of Section 18 which have an
effect overriding any other law for the time being in force. When the MSMED
Act, 2006 was being enacted in 2006, the Legislative was aware of its previously
enacted Arbitration Act of 1996, and therefore, it is presumed that the legislature
had consciously made applicable the provisions of the Arbitration Act, 1996 to
the disputes under the MSMED Act, 2006 at a stage when the Conciliation
process initiated under sub-section (2) of Section 18 of the MSMED Act, 2006
fails and when the Facilitation Council itself takes up the disputes for arbitration
or refers it to any institution or centre for such arbitration. It is also significant to
note that a deeming legal fiction is created in the Section 18(3) by using the
36
expression ‘as if’ for the purpose of treating such arbitration as if it was in
pursuance of an arbitration agreement referred to in sub-section (1) of Section 7
of the Arbitration Act, 1996. As held in K. Prabhakaran v. P. Jayarajan18, a
legal fiction presupposes the existence of the State of facts which may not exist
and then works out the consequences which flow from that state of facts. Thus,
considering the overall purpose, objects and scheme of the MSMED Act, 2006
and the unambiguous expressions used therein, this court has no hesitation in
holding that the provisions of Chapter-V of the MSMED Act, 2006 have an effect
overriding the provisions of the Arbitration Act, 1996.
27. The submissions made on behalf of the counsel for the Buyers that a
conscious omission of the word “agreement” in sub-section (1) of Section 18,
which otherwise finds mention in Section 16 of the MSMED Act, 2006 implies
that the arbitration agreement independently entered into between the parties as
contemplated under Section 7 of the Arbitration Act, 1996 was not intended to be
superseded by the provisions contained under Section 18 of the MSMED Act,
2006 also cannot be accepted. A private agreement between the parties cannot
obliterate the statutory provisions. Once the statutory mechanism under subsection (1) of Section 18 is triggered by any party, it would override any other
agreement independently entered into between the parties, in view of the non
obstante clauses contained in sub-section (1) and sub-section (4) of Section 18.

18 (2005) 1 SCC 754
37
The provisions of Sections 15 to 23 have also overriding effect as contemplated
in Section 24 of the MSMED Act, 2006 when anything inconsistent is contained
in any other law for the time being in force. It cannot be gainsaid that while
interpretating a statute, if two interpretations are possible, the one which enhances
the object of the Act should be preferred than the one which would frustrate the
object of the Act. If submission made by the learned counsel for the buyers that
the party to a dispute covered under the MSMED Act, 2006 cannot avail the
remedy available under Section 18(1) of the MSMED Act, 2006 when an
independent arbitration agreement between the parties exists is accepted, the very
purpose of enacting the MSMED Act, 2006 would get frustrated.
28. There cannot be any disagreement to the proposition of law laid down in
various decisions of this Court, relied upon by the learned counsel for the buyers
that the Court has to read the agreement as it is and cannot rewrite or create a new
one, and that the parties to an arbitration agreement have an autonomy to decide
not only on the procedural law to be followed but also on the substantive law,
however, it is equally settled legal position that no agreement entered into
between the parties could be given primacy over the statutory provisions. When
the Special Act i.e., MSMED Act, 2006 has been created for ensuring timely and
smooth payment to the suppliers who are the micro and small enterprises, and to
provide a legal framework for resolving the dispute with regard to the recovery
of dues between the parties under the Act, also providing an overriding effect to
38
the said law over any other law for the time being in force, any interpretation in
derogation thereof would frustrate the very object of the Act. The submission
therefore that an independent arbitration agreement entered into between the
parties under the Arbitration Act, 1996 would prevail over the statutory
provisions of MSMED Act, 2006 cannot countenanced. As such, sub-section (1)
of Section 18 of the MSMED Act, 2006 is an enabling provision which gives the
party to a dispute covered under Section 17 thereof, a choice to approach the
Facilitation Council, despite an arbitration agreement existing between the
parties. Absence of the word ‘agreement’ in the said provision could neither be
construed as casus omissus in the statute nor be construed as a preclusion against
the party to a dispute covered under Section 17 to approach the Facilitation
Council, on the ground that there is an arbitration agreement existing between
the parties. In fact, it is a substantial right created in favour of the party under the
said provision. It is therefore held that no party to a dispute covered under Section
17 of the MSMED Act, 2006 would be precluded from making a reference to the
Facilitation Council under Section 18(1) thereof, merely because there is an
arbitration agreement existing between the parties.
29. The aforesaid legal position also dispels the arguments advanced on behalf
of the counsel for the buyers that the Facilitation Council having acted as a
Conciliator under Section 18(2) of the MSMED Act, 2006 itself cannot take up
the dispute for arbitration and act as an Arbitrator. Though it is true that Section
39
80 of the Arbitration Act, 1996 contains a bar that the Conciliator shall not act as
an Arbitrator in any arbitral proceedings in respect of a dispute that is subject of
conciliation proceedings, the said bar stands superseded by the provisions
contained in Section 18 read with Section 24 of the MSMED Act, 2006. As held
earlier, the provisions contained in Chapter-V of the MSMED Act, 2006 have an
effect overriding the provisions of the Arbitration Act, 1996. The provisions of
Arbitration Act, 1996 would apply to the proceedings conducted by the
Facilitation Council only after the process of conciliation initiated by the council
under Section 18(2) fails and the council either itself takes up the dispute for
arbitration or refers to it to any institute or centre for such arbitration as
contemplated under Section 18(3) of the MSMED Act, 2006.
30. When the Facilitation Council or the institution or the centre acts as an
Arbitrator, it shall have all powers to decide the disputes referred to it as if such
arbitration was in pursuance of the arbitration agreement referred to in subsection (1) of Section 7 of the Arbitration Act, 1996 and then all the trappings of
the Arbitration Act, 1996 would apply to such arbitration. It is needless to say
that such Facilitation Council/institution/centre acting as an arbitral tribunal
would also be competent to rule on its own jurisdiction like any other arbitral
tribunal appointed under the Arbitration Act, 1996 would have, as contemplated
in Section 16 thereof.
40
31. One of the submissions made by the Ld. Counsels for the Buyers was that
if the party Supplier was not the “supplier” within the meaning of Section 2(n) of
the MSMED Act, 2006 on the date of the contract entered into between the
parties, it could not have made reference of dispute to Micro and Small
Enterprises Facilitation Council under Section 18(1) of the MSMED Act, 2006
and in such cases, the Council would not have the jurisdiction to decide the
disputes as an arbitrator.
32. At this juncture, a very pertinent observations made by this Court in Silpi
Industries case (supra) on this issue are required to be reproduced: -
“26. …… 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 Small Scale and Ancillary Industrial Undertakings Act,
1993, this Court, in the judgment in the case of Shanti
Conductors Pvt. Ltd. v. Assam State Electricity Board 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…..
….by taking recourse to filing memorandum under subsection (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 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
41
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.”
33. Following the above-stated ratio, it is held that a party who was not the “supplier”
as per Section 2 (n) of the MSMED Act, 2006 on the date of entering into the contract,
could not seek any benefit as a supplier under the MSMED Act, 2006. A party cannot
become a micro or small enterprise or a supplier to claim the benefit under the MSMED
Act, 2006 by submitting a memorandum to obtain registration subsequent to entering
into the contract and supply of goods or rendering services. If any registration, is
obtained subsequently, the same would have the effect prospectively and would apply
for the supply of goods and rendering services subsequent to the registration. The same
cannot operate retrospectively. However, such issue being jurisdictional issue, if raised
could also be decided by the Facilitation Council/Institute/Centre acting as an arbitral
tribunal under the MSMED Act, 2006.
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.
42
(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 rule 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.
43
35. Though afore-stated discussions and conclusions cover all the issues
involved in the appeals, it would be appropriate to deal with each of the Appeals
individually.
(I) C.A. No …… of 2022 (@ SLP(Civil) No. 12884 of 2020)
(i) In this case, the Gujarat State Civil Supplies
Corporation Ltd. had challenged the award made by the
Facilitation Council, Bhopal before the Commercial Court,
Ahmedabad, under Section 34 of the Arbitration Act, 1996 and
the commercial court vide Order dated 20.08.2018 had
confirmed the said award. The appeal being the F.A. No.
3613/2019 filed by the appellant-Gujarat State Civil Supplies
Corporation under Section 37 of the Arbitration Act, 1996 before
the High Court of Gujarat was dismissed by the High Court vide
the impugned Order dated 13.11.2019.
(ii) In the said First Appeal, the appellant had raised the
issue with regard to the jurisdiction of the Facilitation Council,
Bhopal, M.P. to decide the disputes between the appellant and
respondent no. 1- Mahakali Foods Pvt. Ltd. The High Court
following its earlier decision in Principal Chief Engineer Vs.
M/s. Manibhai & Brothers (Sleeper) & Anr19 held that Section

19 AIR 2016 Guj 151
44
18 of the MSMED Act, 2006 would have an overriding effect
over any other law for the time being in force including the
Arbitration Act, 1996. The High Court also held that the
contention with regard to the jurisdiction having not been raised
at the time of filing the statement of defence or reply, the said
contention raised subsequently could not be accepted.
(iii) As already held in the earlier part of this judgement,
the provisions contained in Chapter-V of the MSMED Act, 2006
have an effect overriding any other law for the time being in force
including the Arbitration Act. We therefore do not find any
infirmity in the impugned order passed by the High Court.
The appeal stands dismissed accordingly.
(II) Civil Appeal No. 127 of 2018
(i) This appeal filed by the Maharashtra State
Electricity Distribution Company challenging the impugned
order dated 27.06.2017 passed by the High Court of Judicature
at Bombay, Nagpur Bench, Nagpur in Writ Petition No. 4435 of
2011 also involves the issue as to whether the respondentFacilitation Council had the jurisdiction to decide the original
application filed by the present appellant- M/s. Ramkrishna
Electricals Ltd. (the Supplier under the Act) under Section 18(1)
45
of the MSMED Act. The High Court placing reliance on its
earlier decision in the case of M/s.Steel Authority of India &
Anr. vs. MSE Facilitation Council (supra) has held that the
Facilitation Council would not be entitled to proceed under the
provisions of Section 18 of the MSMED Act, 2006 in view of the
independent agreement existing between the parties.
(ii) The impugned order of the High Court deserves to
be set aside in view of the foregoing conclusion arrived at by us
to the effect that the Facilitation Council shall have the
jurisdiction to proceed with the reference made by the party in
respect of the dispute covered under Section 17 of the MSMED
Act, 2006 despite the existence of an independent arbitration
agreement between the parties.
The appeal stands allowed accordingly.
(III) Civil Appeal No. 6167 of 2013
(i) The present appeal is arising out of the judgment dated
21.08.2010 passed by the Division Bench of Bombay High Court,
Nagpur Bench. In the said case, the present appellant (original
respondent no. 2) had supplied certain goods to the respondent M/s
Steel Authority of India under a contract. However, some disputes
arose between the parties, and therefore the appellant invoked an
arbitration clause-22 contained in the agreement and proposed to
46
appoint Justice C.P. Sen (retired) as the arbitrator to settle the
disputes through arbitration. However, the respondent Steel
Authority, invoking Clause 23 of the General Conditions of Contract
appointed one Mr. S. K. Gulati as an arbitrator. The said arbitrator
issued notices to the parties asking them to submit their respective
claims. M/s Vidarbha Ceramics instead of filing a statement of claim
before the arbitrator, raised objection to the arbitration by stating that
the matter be either referred to Justice C.P. Sen (retired) or be
referred to the Micro and Small Enterprise Facilitation Council
established under the MSMED Act, 2006. The respondent Steel
Authority did not agree to the said proposition. The supplier i.e M/s
Vidarbha Ceramics thereafter filed a reference before the
Facilitation Council under Section 18(1) of the Act. The respondent
Steel Authority filed objections before the Facilitation Council
contending that the matter could not be entertained by it in view of
the arbitration agreement existing between the parties. The
respondent Steel Authority thereafter invoked the jurisdiction of the
High Court by filing the writ petition for restraining the Council
from entertaining the reference. The High Court vide impugned
Order dated 28.08.2010 allowed the said writ petition by holding that
the MSMED Facilitation Council was not entitled to proceed further
under the provisions contained in Section 18 (3) of the MSMED Act,
47
2006 in view of an independent arbitration agreement having entered
into between the parties.
(ii) In view of the detailed discussion and conclusions
arrived at by us, hereinabove, holding that Chapter-V of the
MSMED Act, 2006 has an overriding effect over the provisions
contained in the Arbitration Act 1996, the Facilitation Council
would be entitled to proceed further with the reference made by the
party (supplier) under Section 18 (1) of the MSMED Act, 2006
despite an independent arbitration agreement existing between the
parties. As a consequence, thereof, the impugned order of the High
Court deserves to be set aside and the appeal deserves to be allowed.
The Appeal stands allowed accordingly.
(IV) C.A. …… of 2022 (@ SLP (C) No. 31227 of 2018
(i) In this appeal, the appellant Gujarat State Petronet Ltd.
(original petitioner) has challenged the order dated 06.08.2018
passed by the High Court of Bombay, whereby the High Court held
that the reference made to the Facilitation Council was maintainable
in spite of the independent arbitration agreement. The High Court
also held that the Facilitation Council having itself conducted the
conciliation proceedings, it could not have decided to initiate
arbitration proceedings under Section 18 (3) of the MSMED Act,
2006.
48
(ii) In the instant case, the respondent no.1 i.e., Krunal
Works (original respondent no.3) had invoked Section 18 (1) of the
MSMED Act, 2006 by approaching the Micro and Small Enterprises
Facilitation Council. In the said reference, the appellant GSPL had
raised an objection with regard to the jurisdiction of the Facilitation
Council to entertain the reference in view of an arbitration agreement
existing between the parties. The Facilitation Council had initiated
conciliation proceedings between the parties, however the same
having failed, the Council vide the Order dated 29.04.2015, decided
to take up the dispute for arbitration. The said order was challenged
by the GSPL before the Bombay High Court.
(iii) In our view, both the issues have been elaborately
discussed and concluded hereinabove by holding that the reference
to Facilitation Council by a party to a dispute with regard to any
money due under Section 17 would be maintainable despite an
independent arbitration agreement existing between the parties and
that the Facilitation Council could also take up the dispute for
arbitration and act as an arbitrator as contemplated under Section 18
(3) of the MSMED Act, 2006 despite the bar contained in Section
80 of the Arbitration Act 1996.
(iv) The impugned order passed by the High Court,
therefore to the extent it records the finding that the Facilitation
49
Council could not have decided to initiate arbitration proceedings by
itself under Section 18 (3) of the MSMED Act, 2006 deserves to be
set aside and is accordingly set aside.
(v) The arbitration proceedings before the Facilitation
Council shall be proceeded further as per the Arbitration Act, 1996.
The Appeal stands disposed of accordingly.
(V) C.A. …… of 2022 (@ SLP (C) No. 7375 of 2020)
(i) The appeal is directed against the judgment and order
dated 20.01.2020 passed by the High Court of Judicature at Bombay,
whereby the High Court dismissed the writ petitions filed by the
appellants (original writ petitioners) holding that the party aggrieved
by the order passed by the Arbitral tribunal has to challenge the same
in accordance with the provisions of the Arbitration Act, 1996. In
the said case, the present respondent no.1 IBEX Integrated Business
Express Private Limited (original respondent no.1– supplier) had
approached the Facilitation Council for the recovery of its dues
against the appellants. The appellants appeared before the Council
and raised a preliminary objection with regard to the maintainability
of the reference on the ground that there was an arbitration clause
contained in the agreement executed between the parties.
50
(ii) The said preliminary objection was rejected by the
Facilitation Council vide the Order dated 20.12.2014. The Council
thereafter proceeded further with the reference in which the
appellants filed their reply on merits to the claim made by the
respondent IBEX, and the Facilitation Council eventually passed an
award on 31.03.2017, allowing the said reference filed by the IBEX.
Being aggrieved by the said award as well as the earlier order dated
20.12.2014 passed by the Facilitation Council, the appellants
approached the High Court by filing two writ petitions. The High
Court dismissed both the petitions vide the impugned order holding
that when the Facilitation Council had conducted the arbitration
proceedings and passed an award, the remedy of the party aggrieved
would be to take recourse to Section 34 of the Arbitration Act, 1996.
(iii) As held earlier, the proceedings before the Facilitation
Council/institute/centre acting as an arbitrator are governed by the
Arbitration Act, 1996 and therefore any order passed or award made
by such council/institute/centre has to be challenged as per the
Arbitration Act. The Appeal therefore deserves to be dismissed and
is dismissed.
(VI) C.A. No…… of 2022(@ SLP (C) No. 2135 of 2021)
(i) The appeal filed by the Union of India is directed
against the judgment and order dated 23.08.2019 passed by the High
51
Court of Delhi at New Delhi in L.P.A. No. 42 of 2019. So far as the
facts of the appeal are concerned – the appellant and the respondent
had entered into an agreement for Annual Maintenance Contract for
all equipment’s at all UTS, PRS and UTS-cum-PRS locations and all
equipment at the location under the control of Chief Commercial
Manager (CCM)/Passenger Marketing (PM)/ Eastern Railways.
When the dispute arose between the parties, the respondent instead
of invoking an arbitration clause containing the agreement,
approached the Micro and Small Enterprises Facilitation Council
under Section 18 of the MSMED Act, 2006. The conciliation process
having failed, the Facilitation Council in exercise of the powers
conferred under Section 18(3) of the MSMED Act, 2006 referred the
dispute between the parties to the Delhi International Arbitration
Centre. The appellant challenged the said order by filing the Writ
Petition being Writ Petition No. 2273 of 2018 before the Delhi High
Court on the ground that the said order was without any jurisdiction,
and even otherwise the respondent was not registered as the Micro
and Small Enterprises under the MSMED Act, 2006 at the material
point of time and, therefore, the respondent being not the supplier
under the MSMED Act, 2006 the provisions of the said Act were not
applicable. The Single Bench of the Delhi High Court dismissed the
said petition holding that by virtue of the provisions contained in
52
Section 24 of the MSMED Act, 2006 the provisions of the said Act
would have the effect notwithstanding anything inconsistent in any
other law or instrument and, therefore, the provisions of Section
18(3) of the MSMED Act, 2006would be applicable notwithstanding
the arbitration agreement in terms of Section 7 of the Arbitration Act,
1996. Being aggrieved by the said order, the appellant had preferred
the appeal before the Division Bench of the Delhi High Court, which
by the impugned order dated 23.08.2019 dismissed the same. The
aggrieved appellant has preferred the appeal before this Court.
(ii) In view of the conclusions arrived at by us in the earlier
part of the judgment, it is held that the High Court has rightly held
that despite an arbitration clause in the agreement between the
parties, if MSMED Act, 2006 is applicable to them, the Facilitation
Council has the power, jurisdiction and authority under Section 18(3)
to either take up the matter for arbitration itself or refer the matter for
arbitration to any institution or centre providing alternative dispute
resolution services, once the conciliation proceedings before the
Facilitation Council fails. As held earlier, the Facilitation Council or
the Institution or Centre to whom the disputes have been referred
under Section 18(3) of the MSMED Act, 2006 would be an Arbitral
Tribunal for deciding the disputes as if such arbitration was in
pursuance of the arbitration agreement referred to under Section 7(1)
53
of the Arbitration Act, 1996 and accordingly would have the
jurisdiction to rule on its own jurisdiction. In that view of the matter,
the present appeal deserves to be dismissed and is, accordingly,
dismissed.
(VII) C.A. No…… of 2022 (@ SLP(C) No. 6166 of 2021)
(i) The appeal arises out of the judgment and order dated
24.07.2020 passed by the Division Bench of the Gujarat High Court
in L.P.A. No. 1667 of 2019, whereby the Division Bench while
dismissing the L.P.A held that the Respondent No. 2- M/s. Aquafil
Polymers Company Pvt. Ltd. – Supplier had rightly applied under
Section 18(1) of the MSMED Act, 2006 to the Respondent No. 1-
MSME Commissionerate- Facilitation Council, and on the
conciliation process having failed, the Facilitation Council had no
option left but to refer the disputes between the parties to the
Respondent No. 3- Gujarat Chambers of Commerce and Industry.
(ii) Broadly stated the facts of the case are that the
appellant- JITF Water Infrastructure Limited was an Infrastructure
Company which had entered into the agreement with the joint
venture consisting of the Respondent No. 2 – M/s. Aquafil Polymers
Company Private Limited and one Wintech Engineering Pvt. Ltd. in
54
respect of an order issued in favour of the appellant under Guwahati
Water Supply Project. The joint venture did not perform its work as
per the agreement and, therefore, the appellant terminated the
Contract by Notice dated 08.01.2018. In view of the Arbitration
Clause contained in the agreement, the joint venture vide letter dated
08.02.2018 proposed the name of a retired Supreme Court Judge for
being appointed as the Sole Arbitrator to adjudicate upon the disputes
between the parties. In response to the said letter, the appellant vide
the letter dated 14.02.2018 replied that as per the relevant clause of
Arbitration, only the appellant had right to appoint the Arbitrator and
such right was not available to the joint venture. Accordingly, the
appellant appointed another retired Supreme Court Judge as the Sole
Arbitrator. The said Arbitrator appointed by the appellant directed
the parties to appear for preliminary hearing, and at that stage, the
respondent no. 2, i.e., the constituent of the joint venture filed an
application before Respondent No. 1- Facilitation Council invoking
the provisions of the MSMED Act, 2006. The Respondent No. 1-
Facilitation Council undertook the process of conciliation, however,
same having failed, the Respondent No. 1 referred the disputes to
Respondent No. 3- Gujarat Chambers of Commerce and Industry in
exercise of the powers conferred under Section 18(3) of the MSMED
Act, 2006 vide order dated 30.06.2018. The said order came to be
55
challenged by the appellant by filing a writ petition before the
Gujarat High Court. The Single Bench vide its order dated
09.09.2019 dismissed the said writ petition. The aggrieved appellant
preferred the L.P.A. which also came to be dismissed by the Division
Bench vide order dated 24.07.2020 against which the present appeal
has been filed.
(iii) The issues raised and the submissions made by the
learned counsel appearing for the appellant with regard to the
overriding effect of the MSMED Act, 2006 over the Arbitration Act,
1996 jurisdiction of Facilitation Council, the parties autonomy to
enter into an agreement qua the statutory provisions, the issue of
causus omissus etc. have been discussed and decided hereinabove
which need not be reiterated or repeated. Accordingly, it is held that
the reference made to the Facilitation Council would be maintainable
in spite of an independent arbitration agreement existing between the
parties to whom the MSMED Act, 2006 is applicable, and such
Council would be entitled to proceed under sub-section (2) of Section
18 of the MSMED Act, 2006 as also to act as an Arbitrator or to refer
the disputes to the institution or Centre as contemplated under
Section 18(3) of the MSMED Act, 2006. As held earlier, such
Facilitation Council/Institute/Centre acting as an Arbitral Tribunal
would have the jurisdiction to rule over on its own jurisdiction as per
56
Section 16 of the Arbitration Act, 1996. In that view of the matter,
the present appeal also deserves to be dismissed and is, accordingly,
dismissed.
36. In the aforesaid premises,
(I) C.A. No………of 2022 (@ SLP(c) No. 12884 of 2020) is dismissed,
(II) C.A. No. 127 of 2018 is allowed,
(III) C.A. No. 6167 of 2013 is allowed,
(IV) C.A. No……...of 2022 (@ SLP(c) No. 31227 of 2018) is disposed of,
(V) C.A. No……...of 2022 (@ SLP(c)No. 7375 of 2020) is dismissed,
(VI) C.A. No……...of 2022 (@ SLP(c)No. 2135 of 2021) is dismissed and
(VII) C.A. No……...of 2022 (@ SLP(c)No. 6166 of 2021) is dismissed.
.................................CJI
 [UDAY UMESH LALIT]
NEW DELHI ..............................J.
31.10.2022 [BELA M. TRIVEDI]

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