Delhi High Court: In a case wherein a writ petition filed by petitioner, Mahanagar Telephone Nigam Limited (‘MTNL’), had challenged a decision passed by Respondent 2, Micro and Small Enterprises Facilitation Council (‘MSME Council’), accepting the reference of dispute raised by Respondent 3, claimant against petitioner before Respondent 1, the Delhi International Arbitration Centre (‘DIAC’), under Section 18 of Micro, Small and Medium Enterprises Development Act, 2006 (‘MSME Act’) and further referred the dispute in the said case to DIAC; Subramonium Prasad, J.*, disposed of the writ petition and held that the Court would not enter into the issue at this juncture leaving it open to petitioner to raise the dispute between the parties before Arbitrator by filing appropriate applications under the Arbitration and Conciliation Act, 1996.
Background
Respondent 3 was registered as a small enterprise under the MSME Act on 14-11-2018 and as micro enterprise on 12-10-2020. Respondent 3 submitted quotation for the construction for the balance work of the telephone exchange building at Keshav Puram, Delhi vide letter dated 18-09-2006. Petitioner vide letter dated 04-09-2006 had requested the Delhi Development Authority (‘DDA’) to extend the time for construction of the telephone exchange over the said plot. A Letter of Intent for Architectural Consultancy Service in respect of the construction was given to Respondent 3. The consultancy fee for the service was settled at 2.95% of the estimated cost of the project and for that Respondent 3 was requested to submit an irrecoverable performance bank guarantee of Rs 1,69,920.
Bills were raised by Respondent 3 for the work done and, in the interregnum, the plot allotted to petitioner was cancelled. The DDA agreed to restore the allotment of the plot and granted an extension of three years for construction on 05-08-2016. It was further submitted that revised building plans and revised estimates were sent by Respondent 3, to petitioner. The first RA Bill of Rs 55,80,311 was submitted to Executive Engineer (Civil) North, MTNL for the project cost of Rs 80,15,38,516 and the last of the RA bills on record was dated 12-05-2022 for Rs 1,33,23,786.
Since the money was not being paid, Respondent 3 approached MSME Council by filing an application under Section 17, to refer the dispute regarding non-payment of dues by petitioner to Respondent 3 which was referred to DIAC. A claim statement was filed before DIAC for Rs 1,59,62,436.83 which was the principal amount due along with the interest. Petitioner submitted that the day contract was entered into between the parties, petitioner was not a micro enterprise and, therefore, Respondent 2 could not have entertained the request for referring the dispute to DIAC for arbitration.
Analysis, Law, and Decision
The Court noted that the purpose of Sections 17 and 18 of the MSME Act was to grant a cost-effective dispute resolution mechanism for recovery of unpaid dues of the supplier, which was a micro, small and medium level enterprise. The provision provided the right to a micro, small and medium enterprise for adjudication of its disputes by approaching the Facilitation Councils and it could not be obliterated on account of any other contract to the contrary.
The Court relied on Gujarat State Civil Supplies Corpn. Ltd. v. Mahakali Foods (P) Ltd., (2023) 6 SCC 401, wherein the Supreme Court held that “if a micro, small and medium enterprise had not been registered at the time when the contract was entered into between the parties but was registered subsequently, then the same would have effect prospectively and apply to the supply of goods and rendering services subsequent to the registration and this issue could be decided by the Facilitation Council/Institutes/ Centre acting as an Arbitral Tribunal under the MSME Act”.The Court noted that in the present case, the contract was entered into in 2006 and Respondent 3 registered himself as a small enterprise on 14-11-2018 and one of the RA bills was given subsequent to registration of Respondent 3 as a micro enterprise. The Court stated that “what was the service rendered after the contract was entered into between the parties, and whether the contract was a works contract or only a contract for providing services”, were mixed questions of law and facts and could be decided by the Arbitral Tribunal.
The Court disposed of the writ petition and held that it would not enter into the issue at this juncture leaving it open to petitioner to raise the dispute between the parties before the Arbitrator by filing appropriate applications under the Arbitration and Conciliation Act, 1996.
[MTNL v. Delhi International Arbitration Centre, 2024 SCC OnLine Del 687, decided on: 30-01-2024]
*Judgment Authored by: Justice Subramonium Prasad
Advocates who appeared in this case :
For the Petitioner: Chandan Kumar and Kirti Atri, Advocates
For the Respondents: Avishkar Singhvi, Naved Ahmed, Vivek Kumar Singh, Deokinandan Sharma and Anurag Kumar Agarwal, Advocates
Buy Arbitration and Conciliation Act, 1996 HERE
