79.While constituting a tribunal, in our opinion, it is not necessary that a person having knowledge in law must be appointed. In any event, the petitioner in the aforementioned case submitted itself to the jurisdiction of the tribunal. The petitioner sat on the fence; he took chance before the Tribunal. Only when the decision of the Tribunal went against it, he had filed the writ petition. In Munindra Kumar V. Rajivgovil (AIR 1991 SC 1607) it was held:
The next question which arises for consideration is as to what direction would be just and proper in the circumstances of this case. We do not agree with the High Court to quash the entire selection made by the Board for the posts of Assistant Engineers (Civil). It may be noted that Rajeev Govil, Vivek Aggarwal and Gyanendra Srivastava who remained unsuccessful had filed the writ petitions after taking chance and fully knowing the percentage of marks kept for interview and group discussion. It is no doubt correct that they cannot be estopped from challenging the rule which is arbitrary and violative of
Article 14 of the Constitution, but in modulating the relief, their conduct and the equities of those who have been selected are the relevant considerations. The appellants have joined the post on 28.12.1989 and after completing the training are discharging their duties at different places. It has been submitted on their behalf that some of them had left their earlier jobs and have also become overage. Thus we do not consider it proper in the interest of justice to set aside the selections of the appellants. We have seen the mark-sheet of 295 candidates of the general category who had actually attended the interview and group discussion. So far as the respondents in general category are concerned, they have secured the marks in the following manner:
80.......In terms of the Arbitration and Conciliation Act, 1996, it is not necessary that a lis must be determined by a person having a legal knowledge. The arbitrator need not have an experience in law."
17.The said judgment was taken on appeal before the Supreme Court in Civil Appeal No.5597 of 2002 in A.P.Transco Vs. Bala Conductors (P) Ltd. and another, dated 23.9.2003. The Supreme Court dismissed the appeal and confirmed the order passed by the division bench. The following passages found in the said judgment may be usefully extracted below:
"We are of the view that the High Court was correct in rej4ecting the challenge under
Article 14 of the Constitution. The industrial undertakings have been defined with specific reference to the provisions of the IDRA. The IDRA has already created the class by specifying the particular industries in the First Schedule to that Act the control of which is expedient in the public interest to be under/by the Union of India. We are also of the view, and as submitted by the Union of India, that the discrimination, if any, would operate against other industries and not against the buyer, all of whom are similarly situate vis-a-vis the particular industries in question.
In the cases before us admittedly, the appellants had been supplied goods by small scale or ancillary industrial undertakings which had commenced proceedings for recovery of interest under the Act against the appellants. In the circumstances, it is unnecessary for us, to consider the orbit of the definition of the word 'services' and whether it should be limited to services which are incidental to or rendered in connection with the supply of goods of the specified industries."
18.Subsequently,
Section 19 of the MSMED Act came to be challenged before the High Court of Kerala. A division bench of the Kerala High Court vide its judgment in K.S.R.T.C. Vs. Union of India reported in 2010 (1) KLT 65 upheld the validity of
Section 19.19.Since MSMED Act under challenge had repealed the earlier Interest on Delayed Payment Act, 1993 and some arguments were based upon the relative merits of the 1993 Act, it is necessary to refer to the relevant provisions of the MSMED Act together with similar provisions found under the 1993 Act. The following table will show the Chapter V of the MSMED Act and the corresponding provisions under the Interest on Delayed Payment Act, 1993 and the changes brought out by the subsequent enactment.
Section 15 TO 24 MSMED ACT 2006
Section 15. The Liability of buyer to make pay ment-
Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.
PARI MATERIA
Section 3 TO 10 INTEREST ON DELAYED PAYMENT ACT 1993, AS AMENDED Act No.23 of 1998 (w.e.f. 10.8.1998)
Section 3. Liability of buyer to make payment-
Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf before the appointed day: 2*[.Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed one hundred and twenty days from the day of acceptance or the day of deemed acceptance].
Changes made The period has been reduced from 120 days to 45 days
Section 16. Date from which and rate at which interest is payable-
Where any buyer fails to make payment of the amount to the supplier, as required under
section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on (hat amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.
Section *4. Date from which and rate at which interest is payable.-
Where any buyer fails to make payment of the amount to the supplier, as required under
section 3, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay interest to the supplier on that amount from the appointed day or, as the case may be, from the dale immediately following the date agreed upon, at one and half time of prime lending Rate charged by the State Bank of India.
Explanation.- For the purposes of this section, "Prime Lending Rale" means the Prime Lending Rate of the State Bank of India which is available to the best borrowers of the bank.---------- -------- -----------
1.Subs by Act 23 of 1998, s 2 for certain words. 2.Ins. By s.3, ibid. 3.Subs by s.4, for s.4.
Section 5. Liability of buyer to pay compound interest.-
Notwithstanding anything contained in any agreement between a supplier and a buyer or in any law for the time being in force, the buyer shall be liable to pay compound interest (with monthly interests) at ilic rate mentioned in section 4 on the amount due to the supplier.
Rate of interest on delayed payment changed from 1.5 times of SBI's PLR to 3 times of the Bank rate notified by Reserve Bank.
Section 17. Recovery of amount due.
.For any goods supplied or services rendered by the supplier, the buyer sha be liable to pay the amount with interest thereon as provided under
section 16.Section 6. Recovery of amount due.-
1 "
Section 6(1) [(]) The amount due from a buyer, together with the amount of interest calculated in accordance with the provisions of sections 4 and
5, shall be recoverable by the supplier from the buyer by way of a suit or other proceeding under any law for the time being in force.].
Section 17of MSMED act substitutes
section 6(1) and clarifies any ambiguity as to unconditional liability of buyer.
Section 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 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 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 it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 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 2* Section 6(2)-
[(2)Notwithstanding anything contained in subsection (1), any party to a dispute may make a reference to the Industry Facilitation Council for acting as an arbitrator or conciliator in respect of the matters referred to in that sub-section and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such dispute as if the arbitration or conciliation were pursuant to an arbitration agreement referred to in sub-section (I) of section 7 of that Act. ] Section 18 of MSMED Act substitutes
section 6(2) and enables taking the help of any institution or centre providing alternate dispute resolution services The reference made under this section to be decided within a period of ninety days.
Section 19. Application for setting aside decree, award or order.
No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court: Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case subject to such conditions as it deems necessary to impose.
Section 7.Appeal.-
No appeal against any decree, award or other order shall be entertained by any court or other authority unless the appellant (not being a supplier) has deposited with it seventy-five per cent, oj the amount in terms of the decree, award or, as the case may he, other order in the manner directed by such court or, as the case may be, such authority.
Section 19 provides for interim relief for supplier pending disposal of the buyers application for setting aside any decree/award/order.
Section 20. Establishment of Micro and Small Enterprises Facilitation Council.
The State Government shall, by notification, establish one or more Micro and Small Enterprises Facilitation Councils, at such places, exercising such jurisdiction and for such areas, as may be specified in he notification.
Section 7A. Establishment of Industry Facilitation Council The State Government may, by notification in the Official Gazette, establish one or more Industry Facilitation Councils at such places exercising such jurisdiction and for such areas, as may be specified in the notification.
1) The Micro and Small Enterprise Facilitation Council shall consist of not less than three but not more than five members to be appointed from among the following categories, namcly:-
(i) Director of Industries, by whatever name called, or any othei officer not below the rank of such Director, in the Department of the State Government having administrative control of the small scale industries or, as the case may be, micro, small and medium enterprises; and
(ii) one or more office-bearers or representatives of associations of micro or small industry or enterprises in the State; and
(iii) one or more representatives of banks and financial institutions lending to micro or small enterprises; or
(iv) one or more persons having special knowledge in the field of industry, finance, law, trade or commerce
2) The person appointed under clause (i) of sub-section (1) shall be the chairperson of the Micro and Small Enterprise Facilitation Council.
3)The composition of the Micro and Small Enterprise Facilitation Council, the manner of filling vacancies of its members and the procedure to be followed in the discharge of their functions by the members shall be such as may be prescribed by the State Government.
Section 7B. Composition of Industry Facilitation Council. [}) The Industry Facilitation Council shall consist of one or more members to be appointed from amongst the following categories.:
(i) Director of Industries by whatever name called or any other officer not below the rank of such Director, of the State Government.
(ii) representatives of banks and financial institution;
(id) officer bearers or representative of State Industry Associations; and
(iv) persons having special knowledge in the field of Industry, Finance, law, Trade and Commerce.
(2) The person appointed under clause (i) of sub-section (J) shall be the Chairperson of the Industry Facilitation Council.
Section 7C. Laying of rules before State Legislature.- Every notification issued and every rule made by the State Government under this Act shall be laid, as soon as may be after it is issued or made, before the State Legislature.] No changes in sum and substance Instead of Industrial Facilitation Council it is Micro and Small Enterprises Facilitation Council.
Instead of office bearers or representatives of state Industry Associations it is substituted representatives of associations of micro or small industry or enterprises in the State.
Section 22. Requirement to specify unpaid amount with interest in the annual statement of accounts-
Where any buyer is required to get his annual accounts audited under any law for the time being in force, such buyer shall furnish the following additional information in his annual statement of accounts, namely:-
(i) the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;
(ii) the amount of interest paid by the buyer in terms of
section 18, along with the amounts of the payment made to the supplier beyond the appointed day during each accounting year;
(iii) the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act;
(iv)the amount of interest accrued and remaining unpaid at the end of each accounting year; and
(v) the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under
section 23 .
Section 8. Requirement to specify unpaid amount with interest in the annual statement of accounts. Where any buyer is required to get his annual accounts audited under any law for the time being in force, such buyer shall specify the amount together with the interest in his annual statement of accounts as remains unpaid to any supplier at the end of each accounting year.
Disclosure requirements are more stringent.
Principal dues and interest dues to be shown separately Introduction of penalty for intentional violation of
section 22 of the Act.
Section 23. Interest not to be allowed as deduction from income -Notwithstanding anything contained in the Income-tax Act, 1961, the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction.
Section 9. Interest not to be allowed as deduction from income. Notwithstanding anything contained in the Income-tax Act, 1961 (43 of 1961), the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction.
No change in this section except provision gets more effect due to
section 22 (v)
Section 24. Over riding 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.
Section 10. Overriding effect.-
The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
No change
20.From the above table, it will be seen that the MSMED Act had more or less incorporated the provisions of the 1993 Act. After having found that the previous Act was a toothless Tiger, the Parliament provided tooth and claws in the MSMED Act. The question is whether the changes brought about are so arbitrary or discriminatory and that the mischief sought to be removed are so unconstitutional, the provisions will have to be struck down on grounds of Articles 14 and 19(1)(g) of the Constitution?
21.The first ground of attack is whether reduction of outer time limit for payment to 45 days is unconstitutional. If analogous provisions found in the Interest on Delayed Payment Act, 1993 was upheld by the Andhra Pradesh High Court and confirmed by the Supreme Court, then there can be no further challenge to the similar provisions found in the MSMED Act, 2006. A division bench of the Andhra Pradesh High Court in A.P.Transco's case (cited supra) has held that there was no discrimination in the classification made under the 1993 Act. The said decision was also upheld by the Supreme Court and the arguments based on discrimination was rejected. Even otherwise there is no guarantee for an unrestricted fundamental right to carry on trade and it is always subjected to reasonable restrictions found under the
Article 19(6) of the Constitution.
22.It must also be noted that the previous 1993 Act providing for 120 days outer time limit for credit facilities was not working satisfactorily and the Micro and Small enterprises were driven to the point of extinct. Therefore, outer time limit of 45 days was fixed. In normal circumstances, when goods are delivered and services are rendered, payments are to be made instantaneously. It is by agreement credit facilities can be worked out between the parties and such agreements are controlled by the Contract. The Parliament has ample power to restrict such contract. The fixing of time limit is to save the Micro and Small Enterprises from going out of existence due to wanton delay in payments by the buyers. To that extent, right to enter into contract can be curtailed. Such curtailment cannot be said to be either arbitrary or unconstitutional.
23.The argument by some of the counsel that they will have to sell their products in the market and only after getting amounts, they can pay back their supplier cannot be accepted. As already held, there is no absolute freedom to carry on in a trade or business. The Parliament having found that the 1993 Act did not fulfill the objects for which it was enacted and having seen its working for over 13 years, had chosen to enact the MSMED Act. Its attempt was to plug the loopholes found in the earlier Act. The contention of some of the counsel that even if goods are defective or there is deficiency in service, they will be bound to make payments under threat of compulsory arbitration do not find any support from the provisions of the Act.
24.The Act under Section 2(b) while defining "appointed day", also gives further explanation and defined the terms such as "the day of acceptance" and "the day of deemed acceptance". Therefore, there is time enough for a buyer to test the quality of goods supplied and reject the defective goods. The Act nowhere interferes with the other terms of the contract. In effect, the Act is not a substantial provision to interfere with the right to enter into a contract, but it only regulate the time for payment. It cannot be said to be either discriminatory or arbitrary so as to infringe the constitutional guarantee provided under Part III of the Constitution. Therefore, the argument that it curtails the free right to enter into contracts is hereby rejected.
25.The second argument that in default, it provides for compound interest with monthly rests and three times interest as per the lending rates notified by the Reserve Bank also cannot be accepted. It was argued by the counsel for the petitioners that the said provision allows charging of usurious interest. Similar provision under Section 4 of the 1993 Act came to be considered and was upheld by the division bench of the Andhra Pradesh High Court in the A.P.Transco's case (cited supra). The following passages found in paragraphs 44 to 46 may be usefully extracted below:
"44.Provision was made in the Act for payment of interest by the buyers to the small industrial units, on account of non payment of their dues by the suppliers led to the aforementioned enactment is evident from the policy statement of Small Scale Industries made by the Government. By reason of the said Act, benefits are conferred upon the small scale and ancillary units. Ancillary units are those units upon which the large scale industries, medium scale industries survive. Small Scale Industries to a large extent also cater to the need of a large scale industry.
45.The Act seeks to regulate interest on delayed payment. Payment of interest ordinarily is a matter of contract. We may notice that provisions for payment of interest has also been made by the Parliament under the several statutes, as for examine (sic. Example), Code of Civil Procedure, Interest Act 1978, Usurious Loans Act, Sale of Goods Act, Debt Relief Laws etc. Whenever Courts and tribunals are constituted in terms of Entry 11-A of the List III of Seventh Schedule of the Constitution powers are conferred upon such courts and tribunals to grant interest, the rate of which may be fixed by Parliament under such laws, keeping in view the aforementioned aspects.
46.Provisions for payment of interest have also been made in the Land Acquisition Act, 1894, which again is a central statute. It is interesting to note that a constitution bench of the Apex Court in Sunder V. Union of India (2001 (4) ICC 1 (SC)) has held that interest can be paid also on solatium."
The judgment of the A.P. High Court was upheld by the Supreme Court in A.P.Transco's case (cited supra).
26.The present Act has changed the lending rate from that of the SBI to that of the RBI and from one and half times, it has been enhanced to three times. Such payments will have to be made only by the buyer, who defaults in making payment after having accepted the goods and utilized the same for his own business. A person who commits defaults and suffers an order or award or decree from the Facilitation Council alone is bound to pay such interest and such order if found erroneous can be corrected by judicial review by an appropriate legal forum.
27.The argument that the Interest on Delayed Payment Act 1993 is more beneficiary than the MSMED Act, 2006 cannot be entertained as one set of legislation cannot be telescoped into another legislation either for reading down the provisions or for deciding the vires of legislation on hand. The absence of some provisions which are found in the earlier law on in analogous legislation cannot be a ground to strike down the present law on ground of
Article 14 of the Constitution. In this context, it is necessary to refer to the judgment of the Supreme Court in State of Tamil Nadu and others Vs. Ananthi Ammal and others reported in 1995 (1) SCC 519. In paragraphs 6 and 7, the Supreme Court held as follows:
"6. In State of M.P. v. G.C. Mandawar a Constitution Bench held that
Article 14 does not authorise the striking down of the law of one State on the ground that, in contrast with the law of another State on the same subject, its provisions are discriminatory, nor does it contemplate the law of the Centre or of a State dealing with similar subjects being held to be unconstitutional by a process of comparative study of the provisions of the two. The sources of authority for the two being different,
Article 14 can have no application. In Sant Lal Bharti v. State of Punjab this was reiterated.
7. When a statute is impugned under
Article 14 what the court has to decide is whether the statute is so arbitrary or unreasonable that it must be struck down. At best, a statute upon a similar subject which derives its authority from another source can be referred to, if its provisions have been held to be reasonable or have stood the test of time, only for the purpose of indicating what may be said to be reasonable in the context. We proceed to examine the provisions of the said Act upon this basis."
28.The next question comes is whether the members of Facilitation Council are having qualification to preside over and to determine the rights of parties? According to the counsel for petitioners, they do not have any judicial bent of mind and packing the council with such persons from the executive is unconstitutional. In this context, reliance was placed upon the judgment of the Supreme Court in Union of India and another Vs. R.Gandhi, President, Madras Bar Association and another reported in 2010 (4) MLJ 734 (SC). Reliance was placed upon paragraph 44 of the said judgment which is as follows:
"44.We may summarize the position as follows:
(a)A legislature can enact a law transferring the jurisdiction exercised by Courts in regard to any specified subject (other than those which are vested in Courts by express provisions of the Constitution) to any Tribunal.
(b)All Courts are Tribunals. Any Tribunal to which any existing jurisdiction of Courts is transferred should also be a Judicial Tribunal. This means that such Tribunal should have as members, persons of a rank, capacity and status as nearly as possible equal to the rank, status and capacity of the Court which was till then dealing with such matters and the members of the Tribunal should have the independence and security of tenure associated with Judicial Tribunals.
(c)Whenever there is need for 'Tribunals', there is no presumption that there should be technical members in the Tribunals. When any jurisdiction is shifted from Courts to Tribunals, on the ground of pendency and delay in Courts, and the jurisdiction so transferred does not involve any technical aspects requiring the assistance of experts, the Tribunals should normally have only judicial members. Only where the exercise of jurisdiction involves inquiry and decisions into technical or special aspects, where presence of technical members will be useful and necessary, Tribunals should have technical members. Indiscriminate appointment of technical members in all Tribunals will dilute and adversely affect the independence of the Judiciary.
(d)The Legislature can re-organize the jurisdiction of Judicial Tribunals. For example, it can provide that a specified category of cases tried by a higher Court can be tried by a lower Court or vide versa (A standard example is the variation of pecuniary limits of Courts). Similarly while constituting Tribunals, the Legislature can prescribe the qualifications/eligibility criteria. The same is however subject to Judicial Review. If the Court in exercise of judicial review is of the view that such Tribunalisation would adversely affect the independence of judiciary or the standards of judiciary, the Court may interfere to preserve the independence and standards of judiciary. Such an exercise will be part of the checks and balances measures to maintain the separation of powers and to prevent any encroachment, intentional or unintentional, by either the legislature or by the executive."
After getting inspirations from that judgment, it was argued that with no judicial member in the Facilitation Council, conferring power on the Council to determine the rights of parties is unconstitutional. It must he noted that the Supreme Court in that judgment dealt with a Tribunal constituted by exercise of power under Articles 323-A and 323-B of the Constitution and also made distinction between a Tribunal and a Court. In the present case, the Facilitation Council is neither a Court nor a Tribunal and only a body of arbitrators and that too of a first instance.
29.It was also argued that even for such Council, there should be judicial member. It may be stated with respect that no such proposition was laid by the Supreme Court. On the contrary, the division bench of the Andhra Pradesh High Court in A.P.Transco's case (cited supra) dealt with similar provisions found in the Interest on Delayed Payment Act, 1993. It has been held that even while constituting a Tribunal person possesses knowledge in law alone must be appointed. Therefore, raising the status of the Facilitation Council to that of a Tribunal or a Court is totally unwarranted.
30.In fact, a Constitution Bench of the Supreme Court in Workmen Vs Meenakshi Mills Ltd. reported in 1992 (3) SCC 336 has held that if a statutory power is given to an executive authority under a statute with defined statutory guidelines, that cannot be held to be unconstitutional. This is because as against such an order of statutory authority, judicial review is always available under Articles 226 and 227 of the Constitution. Therefore, such an argument has to be rejected.
31.The other argument was that after having allowed the Tribunal to adjudicate upon the dispute between the parties and thereby creating resultant order, decree or award (as the case may be), parties are made to suffer even before going to a further forum. Therefore, vesting power on the Facilitation Council, the power of Arbitration is unwarranted. This issue also came to be considered by the division bench of the Andhra Pradesh High Court in A.P.Transco's case (cited supra) and found in paragraphs 75 to 77.
32.The next ground of attack is under
Section 19 requiring deposit of 75% of the amounts ordered by the Facilitation Council as a prerequisite to move another Court. The very same challenge made before the Kerala High Court in the decision relating to K.S.R.T.C. Vs. Union of India reported in 2010 (1) KLT 65. In paragraphs 8 to 10, the Kerala High Court rejected such an attack and had observed as follows:
"8.....we find it difficult to accept the contention of the petitioner that the above provision is violative of
Art.14 of the Constitution of India. The buyer and the seller are treated differently for valid reasons and grounds. A buyer, when challenges an adverse award, has to make pre-deposit. But, when a seller is non-suited, he need not make any pre-deposit for challenging the order, which is adverse to him. There is nothing wrong with it. If a defeated seller is called upon to make some deposit, it will appear irrational or arbitrary. So, the challenge made to the provision, on the ground that the same violates
Art.14, is untenable.
"9......Here, the Arbitrator passes an award in favour of the supplier. If the buyer wants to set aside that award, he has to make pre-deposit of 75% of the amount due under the award. We find similar provisions are there in several legislations and they have been upheld by the Apex Court in several decisions. Some of those decisions are Anant Mills Co. Ltd. V. State of Gujarat ((1975) 2 SCC 175), Seth Nand Lal V. State of Haryana (1980 Supp. SCC 574), Vijay Prakash D.Mehta V. Collector of Customs (Preventive) ((1988) 4 SCC 402) and Shyam Kishore V. Municipal Corporation of Delhi ((1993) 1 SCC 22).
10.The Parliament could have said that an arbitration award passed under S.18 is final and shall not be called in question in any court of law. In that event, the possible remedy that may be open to the affected party is to file a Writ Petition under
Art.226 of the Constitution of India. But, in this case, the Parliament has chosen to give a remedy subject to certain restrictions. It is settled position in law that none has any inherent right to file an appeal and no forum has any inherent power to entertain an appeal. The right to file appeal and the power to hear appeal are statutory creations and they have to be exercised subject to the limitations contained in the Statute creating the rights/conferring the powers. The legislature in its wisdom, while making provisions for the development of small scale industries, has provided that once the Arbitrator finds in favour of a small scale industry, if that award is to be challenged before the District Court under S.34 of the Arbitration and Conciliation Act, a pre-deposit of 75% of the amount should be made. In the absence of such a provision for pre-deposit, the award could be executed only after the proceedings before the District Court are over, by virtue of S.36 of the Arbitration and Conciliation Act. So this special provision for making deposit and also further empowering the court concerned to disburse the amount on valid grounds, has been incorporated in the Act to help the small scale industries. Every legislation will create some trouble for some persons, when it seeks to confer benefits on others. Such crudities and inequities are not available as grounds for challenging a legislation...."
33.While analysing the similar provisions found in the Interest on Delayed Payments Act, 1993, the Supreme Court in Snehadeep Structures Private Limited Vs. Maharashtra Small Scale Industries Development Corporation Limited reported in 2010 (3) SCC 34 in paragraph 47 had observed as follows:
"47.The requirement of predeposit of interest is introduced as a disincentive to prevent dilatory tactics employed by the buyers against whom the small-scale industry might have procured an award, just as in cases of a decree or order. Presumably, the legislative intent behind Section 7 was to target buyers, who, only with the end of pushing off the ultimate event of payment to the small-scale industry undertaking, institute challenges against the award/decree/order passed against them. Such buyers cannot be allowed to challenge arbitral awards indiscriminately, expecially when the section requires predeposit of 75% interest even when appeal is preferred against an award, as distinguished from an order or decree."
In the light of the above, the said argument cannot be accepted.
34.The other argument made by the learned Advocate General and by Mr.T.Mohan was that under the provisions of Sections 18(2), 18(3) and
18(4), the Facilitation Council was given dual role of conciliator in terms of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 and thereafter it was conferred with the jurisdiction to act as Arbitrators. This goes against the norms of fairness. Under Section 80 of the Arbitration and Conciliation Act, 1996, it has been made clear that conciliator cannot act as an arbitrator.
Section 80(a) reads as follows:
"80.Role of conciliator in other proceedings.-Unless otherwise agreed by the parties,-
(a)the conciliator shall not act as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceeding in respect of a dispute that is the subject of the conciliation proceedings;
35.Having incorporated the said provision under
Section 18(2), it is not open to the Facilitation Council to act an conciliator as well as arbitrator. They have not agreed for the council to discharge the dual role. If they decide to act as conciliators, then they must relegate the parties to an outside arbitrator. In alternative, if they decide to arbitrate the matter, then they should send the parties for conciliation by an outside authority to do conciliation. The argument addressed by the counsel in this regard is not based upon any legal foundation. It can be stated that it may be based on the principle of fairness. Even a regular civil court, by 1976 amendment, has been made to conciliate in cases of matrimonial disputes and they are not prohibited by the CPC from deciding the lis between the parties.
36.
Section 18(2) only borrows the provisions of Sections 65 to 81 of the Arbitration and Conciliation Act for the purpose of conducting conciliation. It is not a bar for the same council to arbitrate on the matter. But however if there is any allegation of bias is made out, certainly such issues can be gone into in a judicial review based on concrete materials. In order to avoid the allegation of lack of fairness in other higher forums, it is open to the council to evolve its own rule of business by which members who had participated in the Conciliation may not sit in the Arbitral proceedings. But it is entirely for the Facilitation Council to evolve such a rule of business in future. On that ground, no direction can be issued by this Court.
37.In this context, it is necessary to refer to the judgment of the Supreme Court in Institute of Chartered Accountants of India Vs. L.K.Ratna reported in 1986 (4) SCC 537. In that case, the Supreme Court held that members of Chartered Accountants who sit in the disciplinary Tribunal should not participate in the council meeting to approve their own decision and it may hit on grounds of bias. It is for the Facilitation Council to keep in mind such principle so as to avoid future attacks against their orders in other legal forums.
38.The last attack was against the power being vested with the Facilitation Council to arbitrate the matter and finally to determine the rights of parties can cause prejudice to the buyers. That argument overlooks the fact that the MSMED Act do not foreclose judicial review by any other judicial forum notwithstanding the overriding effect given under
Section 24. At the maximum, the Facilitation Council acts as arbitrators at the first instance. It does not foreclose the parties from further agitating the matter to establish their rights in an appropriate legal forum.
39.In the light of the above, the contentions raised in assailing the Chapter V of the MSMED Act are hereby rejected. Hence, W.P.Nos.25406 and 16909 of 2009, 1202, 6015, 13308, 13613, 14432, 14650 and 14889 of 2010 will stand dismissed. No costs.
40.It is also necessary to deal with the individual cases where the vires of Chapter V was not attacked, but certain decisions and notices of the Facilitation Council came to be questioned by some of the writ petitioners.
41.In W.P.No.16908/2009, the challenge is to the order passed by the Facilitation Council, dated 10.6.2009. It was contended that the Facilitation Council ought not to have ordered Conciliation and thereafter to decide the matter. In any event, the question is once the petitioner had participated in the proceedings before the Facilitation Council, then any resultant order will have to be challenged before the appropriate court and certainly the jurisdiction under
Article 226 of the Constitution cannot be invoked that too for commercial cause where the right of parties were governed by the contract and intervened by MSMED Act. The attempt to move this court under
Article 226 is only to get over the pre-deposit. The attack against the said provision made by the petitioner in W.P.No.16909/2009 has already been repealed elsewhere.
42.Even otherwise, the Supreme Court very recently in Raj Kumar Shivhare Vs. Assistant Director, Directorate of Enforcement and another reported in 2010 (4) LW 1 has held that the statutory forum is created for redressal of grievance that too in a fiscal statute, a writ petition should not be entertained. In that case, an appeal itself was available to the High Court. In repelling that contention, in paragraphs 44 and 45, it was observed as follows:
"44.Therefore, principle laid down in the Ratan's case (supra) applies in the facts and circumstances of this case. If the appellant in this case is allowed to file a writ petition despite the existence of an efficacious remedy by way of appeal under
Section 35 of FEMA this will enable him to defeat the provisions of the Statute which may provide for certain conditions for filing the appeal, like limitation, payment of court fees or deposit of some amount of penalty or fulfillment of some other conditions for entertaining the appeal. (See para 13 at page 408 of the report). It is obvious that a writ court should not encourage the aforesaid trend of by-passing a statutory provision.
45.Learned counsel for the appellant relied on a decision of this Court in Monotosh Saha Vs. Special Director, Enforcement Directorate and another (2008) 12 SCC 359. That was a decision entirely on different facts. In that decision Saha preferred an appeal before the appellate tribunal with a request for dispensing with requirement of pre-deposit, but the tribunal directed the deposit of 60% of the penalty amount before entertaining the appeal. When an appeal was preferred before the High Court under
Section 35 of the FEMA, the same was dismissed by the High Court holding that no case for hardship was made out either before the tribunal or before it. In the background of those facts, this Court observed that since pursuant to this Court's interim order Rs.10 lacs have been deposited with the Directorate, the appellant was directed to furnish further such security as may be stipulated by the tribunal and directed that on such deposit tribunal is to hear the appeal without requiring further deposit."
43.The Supreme Court while dealing with the very same
Section 19 under the MSMED Act in Snehadeep Structures Private Limited case (cited supra), in paragraph 59 had observed as follows:
"59.
Section 19 of the 2006 Act reads as follows:
"19.Application for setting aside decree, award or order. No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court :
Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose."
This provision, no doubt, requires the deposit to be made before an application under
Section 34 of the Arbitration Act is filed. However, we are not inclined to read this provision of a subsequent legislation into the provision in question.
44.The division bench of the Andhra Pradesh High Court in A.P.Transco's case (cited supra), in paragraphs 79 and 80 has held as follows:
"79....In any event, the petitioner in the aforementioned case submitted itself to the jurisdiction of the tribunal. The petitioner sat on the fence; he took chance before the Tribunal. Only when the decision of the Tribunal went against it, he had filed the writ petition...
80.......In terms of the Arbitration and Conciliation Act, 1996, it is not necessary that a lis must be determined by a person having a legal knowledge. The arbitrator need not have an experience in law."
45.Therefore, this court is not inclined to entertain the challenge made to the various decisions of the Facilitation Council. It is always open to the petitioner Corporation to move an appropriate civil court for relief or in alternative if there are any clause for arbitration provided under the terms of contract, to make an application for appointment of an Arbitrator under the relevant terms of the agreement.
46.In W.P.No.5062 of 2010, the prayer is twofold. The first portion relates to the challenge to vires of Sections 15 to 23 of the MSMED Act which has already been answered. The second portion is to the notice dated 24.9.2009 asking the petitioner to answer the complaint made before the council. The notice was challenged on ground that the provisions contained in Chapter V are ultravires. In the present case, since the constitutional validity of Chapter V is upheld, it is for the petitioner to answer the notice issued by the council.
47.In W.P.No.13407/2010, the petition is for a writ of prohibition prohibiting the Facilitation Council to act as an Arbitrator in the dispute raised by the second respondent. Mr.T.Mohan, learned counsel contended that the Facilitation Council should not do both functions, i.e. Conciliation as well as Arbitration and an attention was drawn from
Section 80(a). This argument has already been considered and it has been held that it was the Council to make an appropriate rule of business. Otherwise, there is no legal bar in acting as an Conciliator and thereafter to arbitrate the matter. Hence this writ petition cannot be entertained.
48.In W.P.Nos.13430 and 13431 of 2010, the challenge is to the order dated 3.6.2010 by which the Council has passed a final award. The second writ petition is to declare that the claim made by the second respondent is not maintainable. It is on the ground that the transaction was during the years from 1995 to 31.3.2000 and that the MSMED Act came into force only in the year 2006. In respect of the final award passed, a remedy is open to the petitioner to have recourse to
Section 19 before an appropriate civil forum. Even whether the claim is time barred can also be gone into by such forum. Hence this court is not inclined to entertain such a challenge.
49.W.P.No.14431 of 2010 is to forbear the third respondent from proceeding with the hearing of the original petition instituted by the contesting private respondent. The grounds raised are similar to one raised in the writ petitions challenging the vires of the Act which has already been answered against the petitioner in the earlier portion of the judgment. The contentions raised in the writ petitions are misconceived and lack in merits. Accordingly, they deserve to be dismissed.
50.In the light of the above legal precedents and the factual matrix involved, all writ petitions will stand dismissed. However, there will be no order as to costs. Consequently, connected miscellaneous petitions stand closed.
vvk To
1.The Secretary, Union of India, Ministry of Micro, Small and Medium Enterprises, Udyog Bhavan, New Delhi-110 011.
2.The Secretary, State of Tamil Nadu, Department of Industries and Commerce, Chepauk, Chennai-600 005.
3.Director, Ministry of Micro, Small and Medium Enterprises, Room 254, Udyog Bhawan, Rafi Marg, New Delhi-110 011.
4.Regional Joint Director of Industries and Commercial (i/c)/Zonal Officer MSE Facilitation council, Thiru Vi Ka. Industrial Estate, Guindy, Chennai-600 032.
5.The Secretary, M.P.Micro & Small Enterprises Facilitation council, Directorate of Industries, Madhya Pradesh, Vindhyachal Bhawan, Bhopal