MSMED Act - Reference To Facilitation Council Maintainable In Spite Of An Independent Arbitration Agreement Existing Between The Parties : Supreme Court

The Supreme Court observed that reference made to the Facilitation Council is maintainable in spite of an independent arbitration agreement existing between the parties to whom the Micro, Small and Medium Enterprises Development Act, 2006 is applicable.

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, the bench of CJI UU Lalit and Justice Bela M. Trivedi observed.

The court observed thus while disposing a batch of appeals in which the following issues were raised:

(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?

The contention raised by the Buyers before the Apex Court was that the remedy of reference to facilitation council 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. On behalf of the Suppliers, it was contended that 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.

Referring to the provisions of both the Arbitration Act and MSMED Act, the court answered the issues as follows:

(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.

(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.

Case details

Gujarat State Civil Supplies Corporation vs Mahakali Foods Pvt. Ltd. | 2022 LiveLaw (SC) 893 | SLP (C) No. 12884/2020 | 31 October 2022 | CJI UU Lalit and Justice Bela M Trivedi

Headnotes

Micro, Small and Medium Enterprises Development Act, 2006 ; Section 17, 18 - Arbitration and Conciliation Act, 1996 ; Section 80 - 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 - Chapter-V of the MSMED Act, 2006 would override the provisions of the Arbitration Act, 1996 - 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 -  Such proceedings would be governed by the Arbitration Act, 1996 -The Facilitation Council/institute/centre acting as an arbitral tribunal would be competent to rule on its own jurisdiction as also the other issues. (Para 34)

Micro, Small and Medium Enterprises Development Act, 2006 ; Section 2(n) - 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. (Para 34)

Legal Maxims - "Leges posteriores priores contrarias abrogant" (the later laws shall abrogate earlier contrary laws) - "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. (Para 17,18)

Interpretation of Statutes - 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 - 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. (Para 27)

Interpretation of Statutes - Legal Fiction - 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. (Para 26)

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