Invocation Of Section 9 Of The A&C Act; Need To Wait Termination Of Conciliation Proceedings Under MSME Act: Madhya Pradesh High Court

The Bench, consisting of Justices Sheel Nagu and Maninder S. Bhatti, held that the powers under Section 9 of the A&C Act cannot be invoked by the competent Court prior to the termination of the conciliation proceedings under the MSMED Act. The Court ruled that the word 'before' mentioned in Section 9 of the A&C Act refers to the period between the termination of the conciliation proceedings under the MSMED Act till the cognizance of the dispute by the Arbitral Tribunal under Section 18(3) of the MSMED Act.

The appellant M/S Ujas Associates, registered with the Ministry of Micro, Small and Medium Enterprises (MSME), Government of India, entered into a transaction with the respondent Company M/S KJS Cement (India) Ltd. for some construction work.

The appellant approached the Council constituted under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) for non-payment of dues by the respondent. Subsequently, conciliation proceedings were initiated by the Facilitation Council constituted under the MSMED Act. Thereafter, during the pendency of the conciliation proceedings, the appellant filed an application under Section 9 of the A&C Act before the District Court for interim measures of protection, which was dismissed by the District Court.

Against this, the appellant filed an appeal before the Madhya Pradesh High Court under Section 37 of the A&C Act.

The appellant Ujas Associates submitted before the High Court that though there was no written agreement between the parties, however, a contract for construction work existed between the parties, which was successfully carried out by the appellant. Thus, the appellant averred that it had claimed payment from the respondent for the work executed by it.

The appellant contended that the District Court had wrongly held that in the absence of an agreement between the parties, an application under Section 9 of the A&C Act was not maintainable.

The appellant averred that in view of the provisions of Section 18 of the MSMED Act, there need not be an agreement between the parties and that if a dispute fell within the ambit of the MSMED Act, it would automatically be referred for conciliation and then subsequently, for arbitration.

The respondent KJS Cement submitted that in the absence of an arbitration agreement between the parties, the arbitral proceedings were not maintainable. The respondent averred that since there was no agreement containing an arbitration clause between the parties, therefore, an application under Section 9 of the A&C Act was not maintainable.

Section 18(1) of the MSMED Act provides that any party to a dispute may make a reference to the Micro and Small Enterprises Facilitation Council (MSEFC). Under Section 18(2), the MSEFC shall either itself conduct conciliation proceedings in the matter or it may seek the assistance of any institution or centre. Section 18(3) provides that where the conciliation initiated under Section 18(2) is not successful and is thereby terminated, the MSEFC may either itself take up the dispute for arbitration or refer the matter to any institution or centre for arbitration. Section 18 (3) further provides that the provisions of the A&C Act shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement under Section 7 of the A&C Act.

The Court noted that a party can approach the Court under Section 9 of the A&C Act, before, during or at any time after the passing of the arbitral award for grant of interim measures. Thus, the Court held that powers under Section 9 can be invoked even prior to the initiation of the arbitral proceedings, or during its pendency, and even after the passing of an award. Hence, the Court ruled that pendency of arbitral proceeding is not a condition precedent for invoking the powers under Section 9 of the A&C Act. The Court added that even in the absence of the arbitral proceedings, the competent Court can be approached under Section 9 for grant of interim measures or other reliefs for preservation of the subject matter of the arbitration.

The Court observed that the parliament has enacted the MSMED Act for facilitating the promotion and development of the MSME and for enhancing their competitiveness. The Court added that the MSMED Act is a self-contained Code which provides a mechanism for redressal of the disputes.

The Court noted that under Section 15 of the MSMED Act, a protection is given to a supplier where there is a delay in payment by the buyer towards the goods supplied by the supplier. The Court added that a mechanism has been provided under Section 18 of the MSMED Act for the redressal of the supplier's grievances.

The Court observed that Section 24 of MSMED Act gives an overriding effect to the provisions of Section 15 to 23 of MSMED Act, notwithstanding anything inconsistent contained in any other law for the time being in force. Thus, the Court ruled that in view of this overriding effect, the MSMED Act is undoubtedly a special Act.

The Court held that the legislature has consciously conferred the privilege to the MSMED Act to decide the stage from which the A&C Act would be applicable and that the said stage has been clearly mentioned in Section 18(3) of the MSMED Act. The Court observed that Section 18(3) of the MSMED Act provides that where the conciliation proceedings before the Facilitation Council are not successful and are terminated, the dispute shall be taken up for arbitration and that the provisions of the A&C Act shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement under Section 7 of the A&C Act.

The Court observed that the Bombay High Court in the case of Gujrat State Pertonet Ltd. versus Micro and Small Enterprises Facilitation Council and Ors. (2018) had held that notwithstanding the provisions of the A&C Act, and despite the existence of an arbitration agreement, any party can make a reference to the Facilitation Council constituted under the MSMED Act.

The Court, however, held that the applicability of the A&C Act is one issue and the stage of applicability of the A&C Act is another issue. The Court held that as per the provisions of Section 18(3) of the MSMED Act, the provisions of the A&C Act shall apply only when the conciliation proceedings initiated under Section 18 (2) of the MSMED Act are unsuccessful and are terminated.

"There are two stages of applicability of the Act of 1996. As per Section 18 (2) of the MS & ME Act, 2006 for the purposes of conducting conciliation, there is limited applicability of Section 65 to 81 of the Act of 1996, thereafter, the application of Act of 1996 comes in the picture only when the conciliation which is initiated under Sub Section (2) of Section 18 is not successful and stands terminated. Thus, the stage from which the Act of 1996 starts to apply is clearly mentioned in Section 18(3) of MS & ME Act."

The Court observed that the conciliation proceedings between the parties were pending before the Facilitation Council. The Court added that since the conciliation proceedings were not concluded, thus, there was no question of termination of the said conciliation proceedings.

Hence, the Court held that the stage of applicability of the A&C Act had not come. The Court added that the A&C Act would apply only when the conciliation proceedings under Section 18(2) of the MSMED Act were unsuccessful and terminated. Therefore, the Court held that Section 9 of the A&C Act would also come into operation after the termination of the conciliation proceedings under Section 18 of the MSMED Act and that the powers under Section 9 of the A&C Act cannot be invoked by the competent Court prior to the termination of the conciliation proceedings.

The Court added that for invoking the provisions of Section 9 of the A&C Act, there has to be a dispute in existence within the scope of the arbitration agreement. The Court held that since there was no arbitration agreement between the parties and since the A&C Act was made applicable by virtue of the deeming provisions of Section 18 (3) of the MSMED Act, therefore, the A&C Act could be applied only in accordance with Section 18 (3) of the MSMED Act. The Court ruled that the word 'before' mentioned in Section 9 of the A&C Act refers to the period between the termination of the conciliation proceedings under the MSMED Act till the cognizance of the dispute by the Arbitral Tribunal under Section 18(3) of the MSMED Act.

"No doubt, even in a dispute which falls within the Section 18 of the Act, there can be an application under Section 9 before the Civil Court, but that application would be maintainable when the conciliation proceedings are terminated finally under Sub Section (3) of Section 18. Thus, the words 'before' which finds mention in Section 9 of the Act of 1996, indicates to the period between termination of conciliation proceedings till cognizance of the dispute by the arbitral Tribunal as per Sub Section 3 of Section 18 of MS & ME Act."

Hence, the Court ruled that the application filed by the appellant under Section 9 of the A&C Act was not maintainable before the District Court since the stage of applicability of the A&C Act, including Section 9, had not yet arrived. The Court added that the application filed by the appellant under Section 9 of the A&C Act was premature.

Therefore, the Court dismissed the appeal.

Case Title: M/S Ujas Associates versus M/S KJS Cement (India) Ltd.

Citation: 2022 LiveLaw (MP) 164

Counsel for the Appellant: Abhijeet Awasthi, Advocate

Counsel for the Respondent: Arpan Pawar, Advocate

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