Supreme Court| Existence of arbitration agreement does not bar reference to Facilitation Council; MSMED Act has an overriding effect over the provisions of the Arbitration Act, 1996

   

Supreme Court: The division bench of Uday Umesh Lalit, C.J. and Bela M. Trivedi*, J. has held that the provisions of Chapter-V of the Micro, Small and Medium Enterprises Development Act, 2006 (‘ MSMED Act’) have an overriding effect over the provisions of the Arbitration and Conciliation Act, 1996 [Arbitration Act, 1996] and 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. Further, the Facilitation Council, which 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.

The Court considered the following questions of law:

1) Whether the provisions of Chapter-V of the MSMED Act would have an effect overriding the provisions of the Arbitration Act, 1996?

The Court said that the provisions of the special statute would override the provisions of the general statute, and reiterated that, while determining the effect of a statute overriding the other statute, the purpose and policy underlying the two statutes and the clear intendment conveyed by the language of the relevant provisions therein would be the relevant consideration. Further, it referred to the CIT v. Shahzada Nand & Sons, (1966) 3 SCR 379, wherein it was 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”

The Court referred to the Latin maxims “leges posteriores priores contrarias abrogant” (the later laws shall abrogate earlier contrary laws) and “generalia specialibus non derogant” (General laws do not prevail over Special laws), thus, when there is apparent conflict between two statutes, the provisions of a general statute must yield to those of a special one.

The Court, after considering the purpose, intention and objects as also the scheme of the MSMED Act, 2006, said that:

  • Chapter-V is “party-specific”, in as much as the party i.e. the ‘Buyer’ and the ‘Supplier’ as defined under the said Chapter.

  • 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.

  • A dedicated statutory forum i.e., Micro and Small Enterprises Facilitation Council is provided to enable any party to refer to a dispute regarding any amount due under Section 17, to such Council.

  • A specific procedure has been prescribed to be followed by the Facilitation Council after reference is made to it by any party to the dispute.

  • The Facilitation Council or the centre 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.

  • The provisions of the Arbitration Act, 1996, have 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. Further, 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.

  • 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

The Court, after considering the entire scheme of the Arbitration Act 1996, said that it appears that it is a general law relating to domestic arbitration, international commercial arbitration and for conciliation and it does not specify any specific dispute or specific class or category of persons to which the Act shall apply, as it has been specified in the MSMED Act, 2006.

Thus, it was held that 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. Further, placing reliance on Silpi Industries Etc. v. Kerala State Road Transport Corporation, 2021 SCC OnLine SC 439, the Court said that even if the Arbitration Act is treated as a special law, then also the MSMED Act having been enacted subsequently in point of time 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.

It also said that the legislature was aware of its previously enacted Arbitration Act and therefore, it was presumed that the legislature had consciously made applicable the provisions of the Arbitration Act to the disputes under the MSMED Act, at a stage when the conciliation process initiated under Section 18(2) 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.

2) Whether any party to a dispute regarding 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 Section 18(1) of the said Act, if an independent arbitration agreement existed between the parties as contemplated in Section 7 of the Arbitration Act, 1996?

The Court said that Section 18(1) of the MSMED Act, 2006 is an enabling provision which gives the party to a dispute covered under Section 17, a choice to approach the Facilitation Council, despite an arbitration agreement existing between the parties and 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, as it is a substantial right created in favour of the party under the said provision.

Therefore, it was held that once the statutory mechanism under Section 18(1) MSMED Act, 2006 is triggered by any party, it would override any other agreement independently entered between the parties, in view of the non obstante clauses contained in Section 18(1) and (4) MSMED Act, 2006, thus, 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.

3) 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 Section 18(2) of the MSMED Act, 2006 in view of the bar contained in Section 80 of the Arbitration Act, 1996

The Court said that though it is true that Section 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, however, the said bar stands superseded by the provisions contained in Section 18 read with Section 24 of the MSMED Act, 2006. Further, 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 it to any institute or centre for such arbitration as contemplated under Section 18(3) of the MSMED Act, 2006.

Thus, the Court held that 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. Further, 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. It was also held that 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.

Moreover, the Court again placed reliance on Silpi Industries(supra) and held that 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 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 after the registration.

[Gujarat State Civil Supplies Corpn. Ltd. v. Mahakali Foods (P) Ltd., 2022 SCC OnLine SC 1492, decided on 31-10-2022 ]

*Judgment by: Justice Bela M. Trivedi.


*Apoorva Goel, Editorial Assistant has reported this brief.

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