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Exide Industries Limited Vs M/s. C.G. Enterprise

    C.O. Nos. 106, 107 & 108 of 2018

    Decided On, 18 July 2018

    At, High Court of Judicature at Calcutta

    By, THE HONOURABLE MR. JUSTICE SABYASACHI BHATTACHARYYA

    For the Petitioner: Samrat Sen, Mainak Bose, Manali Bose, Soni Ojha, Advocates. For the Respondents: ----.



Judgment Text

1. The aforesaid three revisional applications, arising out of connected orders, are taken up for hearing together. Despite repeated service, the opposite party is not represented and as such, the matters are taken up for hearing ex parte.

2. In an agreement entered into between the parties on March 3, 2014, there was an arbitration clause. By virtue of the said clause, the parties had agreed to refer the difference, disputes or questions arising between them as to the meaning or effect of the agreement or as to the rights or liabilities of the parties arising thereunder or any matters or things relating to the agreement or arising out of or in connection therewith, either during the continuance of the agreement or after any termination or purported termination thereof, to an arbitrator to be appointed by the petitioner‐company only. Such arbitral proceeding was to be held in Kolkata in accordance with, and subject to, the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or re‐enactment thereof for the time being in force (hereinafter referred to as "the 1996 Act").

3. Upon disputes having arisen between the parties, the petitioner appointed an arbitrator of its choice by a letter dated April 1, 2016.

4. Subsequently, the petitioner received a notice under Section 18(2) of the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as "the 2006 Act") from a Facilitation Council at Thane, Maharashtra, formed under the said Act, intimating the petitioner that the petitioner was required to appear before the said council and submit its defence statement within fifteen days from the date of such notice, failing which ex parte orders would be passed. From such notice, the petitioner learnt that the opposite party had filed a petition under Section 18(1) of the 2006 Act.

5. On April 18, 2016, a representation was made on behalf of the petitioner before the said

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Facilitation Council intimating the council that an arbitrator had already been appointed pursuant to the arbitration agreement between the parties and that the arbitral proceedings had already commenced under the 1996 Act. By such representation, the Facilitation Council was requested to keep the proceedings before it in abeyance and not to take any further steps therein. Thereafter a letter was issued on behalf of the opposite party to the petitioner containing certain allegations against the petitioner.

6. The first sitting of the reference under the 1996 Act was held on April 29, 2016. Thereafter several sittings were held by the arbitrator. After taking several adjournments, the opposite party filed its counter‐statement before the sole arbitrator. Subsequently a demurrer application was filed by the opposite party, challenging the jurisdiction of the sole arbitrator to entertain the dispute, primarily on the ground that a proceeding was already pending under the 2006 Act. Vide order dated March 23, 2017, the sole arbitrator dismissed the demurrer application by the opposite party on the ground that Section 16 of the 1996 Act specifically provided that such an application had to be made prior to the filing of the statement of defence and that the opposite party had failed to do so. Meanwhile, at the 12th sitting of the arbitral reference, held on March 17, 2017, the arbitrator informed the parties that the period of 12 months, as stipulated in Section 29‐A(1) of the 1996 Act, would expire on March 31, 2017 and as such, an extension of the said time would be required for the arbitrator to proceed with the matter. Learned counsel for the petitioner proposed to have the time extended by a further period of 6 months as envisaged in Section 29‐A of the 1996 Act.

7. However, at the 13th sitting, held on March 21, 2017, learned counsel appearing for the opposite party handed over a letter dated March 21, 2017 conveying that the opposite party did not wish to consent to the extension of time.

8. In the above scenario, the petitioner filed an application before the District Judge at Alipore, District: South 24 Parganas under Section 29‐A(4) of the 2006 Act, praying for an extension of the arbitrator's mandate.

9. The opposite party took a preliminary objection as to the maintainability of the said application on the ground that, in view of the enactment of the 2006 Act, no arbitral reference under the 1996 Act was maintainable.

10. The petitioner, in the meantime, had taken out three writ petitions in connection with the present three matters, bearing Writ Petition (C) No. 5378 of 2017, Writ Petition (C) No. 5379 of 2017 and Writ Petition (C) No. 5380 of 2017. In such proceedings, the High Court at Bombay passed an order dated May 3, 2017, by which all further proceedings of all those matters initiated under the 2006 Act before the Facilitation Council, were stayed.

11. Ultimately, the learned District Judge at Alipore, by his order dated November 30, 2017, dismissed on contest the applications, filed by the petitioner, in all three matters, under Section 29‐A(4) of the 1996 Act.

12. Being thus aggrieved, the petitioner has preferred the present three revisional applications.

13. It is argued by learned senior Advocate appearing for the petitioner that the District Judge applied wrong legal tests in dismissing the petitioner's applications under Section 29‐A(4) of the 1996 Act. It was observed by the District Judge that the arbitral proceeding under the 1996 Act was not maintainable once it was found that the opposite party was covered under the 2006 Act. It was further opined by the District Judge that since the writ petitions were pending in the Bombay High Court in connection with the proceedings under the 2006 Act, and since the matters in issue in the instant case were closely related to the issues to be decided in such writ petitions, the extension of time for the arbitrator to proceed would depend on the outcome of the said writ petitions. It was also held by the District Judge that since a small scale enterprise was involved in the matter, the said Court was not in a position to extend the time unless and until the writ petitions were disposed of. The District Judge held that the petitioner could not on the one hand, by filing the writ petitions challenging the jurisdiction of the Facilitation Council, pray for allowing a private arbitrator to adjudicate, and on the other hand try to get some reliefs indirectly by praying for extension of time in the present proceeding.

14. Learned senior Advocate for the petitioner argues that the entire premise of the impugned order was bad in law. The writ petitions pending in the Bombay High Court had no connection with the prayer for extension of time to continue with the present arbitral proceeding.

15. It is submitted that the options before the District Judge, while hearing the applications for extension of time under Section 29‐A(4) of the 2006 Act, were limited. The Court could extend the time and, if it found that the proceedings had been delayed for reasons attributable to the Arbitral Tribunal, might even order reduction of fees of the arbitrator by not exceeding five per cent for each month of such delay. The Court could also substitute the arbitrator while extending the period. In case of such substitution, the arbitral proceedings would continue from the stage already reached and on the basis of the evidence and material already on record. In the event of a fresh arbitrator being appointed under the said section, the re‐constituted Arbitral Tribunal would be deemed to be in continuation of the previously appointed Arbitral Tribunal.

16. It is argued on behalf of the petitioner that, apart from the aforesaid options, the Court below did not have any other, while deciding an application under Section 29‐A(4) of the 2006 Act.

17. In any event, the Court below did not have the power to stay an arbitral proceeding for any reason under Section 29‐A of the 2006 Act. Even if extension of mandate was refused to the arbitrator, the substituted arbitrator would have to continue with the arbitral proceedings, as per the scheme of the said section. Not only did the District Judge exceed his jurisdiction by staying the arbitral proceeding itself, such excess of jurisdiction was all the more glaring since such stay was made subject to the fate of the writ proceedings pending in the Bombay High Court, which had no nexus with the present proceedings.

18. In this context, learned senior Advocate appearing for the petitioner cites a judgment reported at 2013 SCC OnLine Bom 1789 [Faridabad Metal Udyog Pvt. Ltd & ors. vs. Anurag Deepak & anr.]. It was held in the said judgment by the Bombay High Court, inter alia that provisions under the arbitration agreement existing between the parties would not be affected by enactment of the 2006 Act and the dispute between the parties would be governed by the provisions of the existing arbitration agreement, under the 1996 Act.

19. Learned senior Advocate appearing for the petitioner next cites a judgment reported at 2013 SCC OnLine Bom 547 [M/s Hindustan Wires Limited vs. Mr. R. Suresh and another], in support of the proposition that it could not be said that, because Section 18 of the 2006 Act provided a forum of arbitration, an independent arbitration agreement entered into between the parties would cease to have effect. It was held that no provision in the 2006 Act negated or rendered ineffective an arbitration agreement entered into between the parties. There was no inconsistency between an arbitration conducted by the council under the 2006 Act and that conducted by an arbitrator under the 1996 Act.

20. The next judgment cited on behalf of the petitioner was reported at AIR 2012 Bom 178 [M/s Steel Authority of India Ltd. and anr. vs. Micro, Small Enterprise Facilitation Council, through Joint Director of Industries, Nagpur Region, Nagpur]. In the said judgment, a Division Bench of the Bombay High Court (Nagpur bench) held that because Section 18 of the 2006 Act provides for a forum of arbitration, an independent arbitration agreement entered into between the parties could not be said to cease to have effect. It was further held that the overriding effect of Section 24 of the 2006 Act would not have the effect of negating an arbitration agreement.

21. In the light of the aforesaid submissions and the materials on record, certain provisions of law, as set out below, are to be considered:

ARBITRATION AND CONCILIATION ACT, 1996:

29‐A. Time‐limit for arbitral award. - "(1) The award shall be made within a period of twelve months from the date the arbitral tribunal enters upon the reference.

Explanation.--For the purpose of this sub‐section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment.

(2) If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.

(3) The parties may, by consent, extend the period specified in sub‐section (1) for making award for a further period not exceeding six months.

(4) If the award is not made within the period specified in sub‐section (1) or the extended period specified under sub‐section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period:

Provided that while extending the period under this sub‐section, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent. for each month of such delay.

(5) The extension of period referred to in sub‐section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court.

(6) While extending the period referred to in sub‐section (4), it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.

(7) In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.

(8) It shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.

(9) An application filed under sub‐section (5) shall be disposed of by the Court as expeditiously as possible and endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party."

MICRO, SMALL AND MEDIUM ENTERPRISE DEVELOPMENT ACT, 2006:

"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 to it 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."

"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."

22. A perusal of the 2006 Act reveals that Section 24 thereof provides only that the provisions of Section 15 to 23, contained in Chapter V thereof, shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. The said chapter deals with delayed payments to micro and small enterprises. The individual sections being Section 15 to 23, deal with liability of buyer to make payment, date from which and rate at which interest is payable, liability of the buyer for recovery of amount due, reference to Micro and Small Enterprises Facilitation Council, as to deposit of 75 per cent of the amount in terms of the decree, award or order in cases of applications for setting aside such decrees, awards or orders, establishment and composition of the aforesaid council, requirement to specify unpaid amount with interest in the annual statement of accounts and interest not to be allowed as deduction from the income.

23. As rightly laid down by the Bombay High Court in the cited decisions, Section 24 only gives overriding effect to Sections 15 to 23 against anything which is inconsistent therewith, contained in any other law for the time being in force.

24. The 1996 Act provides an independent forum and procedure and modalities governing adjudication by such forum and related matters, which do not infringe upon the domain of the 2006 Act. As such, the overriding effect given in Section 24 of the 2006 Act cannot, in any manner, curtail the jurisdiction of an arbitrator adjudicating upon a dispute within the contemplation of the 1996 Act.

25. As such, in the present case, there could not arise any question of granting stay of the arbitral proceedings, commenced in terms of a pre‐existing arbitration agreement between the parties, on the ground either of enactment of the 2006 Act or the pendency of any proceeding under the said Act.

26. That apart, the power of the Court, while deciding an application under Section 29‐A(4) of the 1996 Act, is limited. The Court cannot, under the said provision, stay the arbitral proceedings in connection with which extension of time is sought. The arbitral proceedings, under the scheme of Section 29‐A, would continue in any event, either before the existing arbitrator upon extension of time, with or without any term or condition being imposed, or under a substituted arbitrator, from the stage already reached and on the basis of evidence and material already on record. The re‐constituted Arbitral Tribunal, if any, shall be deemed to be in continuation of the previously appointed Arbitral Tribunal. As such, there is no option before the Court taking up an application under Section 29‐A(4) to stay the arbitral proceedings itself on any ground whatsoever.

27. Moreover, the stay granted by the Bombay High Court in connection with the proceedings initiated by the opposite party under the 2006 Act could have no nexus with the present arbitral proceedings. Whatever result would be arrived at in the said writ petitions would only affect the proceedings under the 2006 Act, pending in Maharashtra, and would not touch the arbitral proceedings going on in Kolkata, before the sole arbitrator, in any manner whatsoever.

28. In view of such legal position, learned senior Advocate for the petitioner was justified in contending that the impugned orders in all the three matters were passed without jurisdiction. Accordingly, C.O. No. 106 of 2018, C.O. No. 107 of 2018 and C.O. No. 108 of 2018 are allowed, thereby setting aside the respective impugned orders dated November 30, 2017 passed by the District Judge at Alipore, District: South 24 Parganas, respectively in Miscellaneous Case No. 260 of 2017, Miscellaneous Case No. 261 of 2017 and Miscellaneous Case No. 259 of 2017.

29. The District Judge at Alipore, District: South 24 Parganas is directed to re‐hear the applications under Section 29‐A(4) of the 1996 Act, filed by the petitioner in the three cases, and to pass a reasoned order in the light of the observations made above as well as in accordance with the provisions of Section 29‐A of the 1996 Act.

30. There will be no order as to costs.
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