MANU/GJ/1181/2018

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/Special Civil Application No. 17925 of 2018
Decided On: 11.12.2018
Appellants: Yamuna Cable Accessories Pvt. Ltd.
Vs.
Respondent: Gujarat Chamber of Commerce and Industries
Hon'ble Judges/Coram:
V.M. Pancholi, J.
Counsels:
For Appellant/Petitioner/Plaintiff: C.J. Gogda, Rajabhai J. Gogda and Vikas V. Nair
For Respondents/Defendant: G.M. Amin
Case Note:
Arbitration - Jurisdiction - Section 7 (1) of Arbitration and Conciliation Act,
1996 and Section 17 and 18 of Micro, Small and Medium Enterprises
Development Act, 2006 - Petitioner sought quashing of order passed by
Respondent no. 2 and all consequential proceedings arising out of said
order and thereby restrain Respondents in proceeding further in connection
with arbitration case pending before arbitral tribunal - Whether in absence
of arbitration agreement between Petitioner and private Respondent matter
could not be referred to arbitral tribunal - Held, it was not in dispute that
private Respondent was registered under Act and was 'supplier' within
meaning of Act - When private Respondent had rendered services and
Petitioner 'buyer' had not made any payment within stipulated time limit,
application was submitted by private Respondent before Respondent
Council - If provisions contained in section 18 of Act was carefully
examined, it could be said that any party to dispute may, with regard to any
amount due under section 17 of Act make reference to council - If
conciliation conducted by Respondent council was not successful and
terminated without any settlement between parties, Respondent council
was empowered to take up dispute for arbitration itself or refer same to any
institution or centre providing alternate dispute resolution services for such
arbitration - In such case, provisions of Arbitration Act should apply to
dispute as if arbitration was in pursuance of 'arbitration agreement'
referred to in section 7(1) of Arbitration Act - Thus even in absence of
arbitration agreement between parties, once matter was referred to arbitral
tribunal under provisions of section 18(3) of Act, there was deeming
provision that provisions of Arbitration Act would be applicable - Thus,
contention raised by Petitioner that in absence of arbitration agreement
between Petitioner and private Respondent matter could not be referred to
arbitral tribunal could not be accepted - Petition dismissed. [17], [18], [28]
Ratio Decidendi:
In absence of arbitration agreement between parties, once matter was
referred to arbitral tribunal under provisions of Section 18(3) of MSME Act,
there was deeming provision that provisions of Arbitration Act would be

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applicable
ORDER
V.M. Pancholi, J.
1 . Heard learned advocate Mr. Vikas Nair appearing for the petitioner, learned
advocate Mr. G.M. Amin for respondent No. 1 and learned advocate Mr. B.S. Patel for
respondent No. 3.
2 . This petition is filed under Articles 226 and 227 of the Constitution of India in
which the petitioner has prayed that the order dated 10th August, 2018 passed by
respondent No. 2 and all consequential proceedings arising out of the said order be
quashed and set aside and thereby restrain the respondents in proceeding further in
connection with Arbitration Case No. A-046/2018 pending before the Arbitral
Tribunal.
3. The factual matrix of the present case is as under:
3.1. It is the case of the petitioner that it is a company which is engaged in
the business of production, designing, supply of electric cable accessories
since many years. The respondent No. 3 - private respondent at the time of
procuring the work order from the petitioner, stated that they are Civil
Engineers and Contractors experts in carrying out engineering and
construction activities for setting-up of factories and other constructions.
Petitioner gave work order dated 30.08.2016 for total value of Rs.
4,78,29,825/- to the private respondent. It is alleged that the private
respondent has failed to supply the required quality of bricks as promised
and there were various lapses and shortcomings in the work performed by
the private respondent. The petitioner referred various lapses on the part of
the private respondent in the memo of the petition. Petitioner, therefore, sent
emails to the private respondent and pointed out the deficiencies in providing
the services on the part of the private respondent. In spite of that the private
respondent has raised bills. The dispute between the parties arose as the
petitioner did not make the payment as per the demand raised by the private
respondent. The private respondent, therefore, raised the grievance before
the Council constituted under the provisions of the Micro, Small and Medium
Enterprises Development Act, 2006 (hereinafter referred to as the 'MSME
Act'). It is further stated that the respondent Council issued notice to the
petitioner. Petitioner submitted reply dated 11.06.2018, wherein it was
pointed out that the petitioner has suffered a loss because of the deficiencies
in service provided by the private respondent. Petitioner also pointed out to
the respondent Council that the private respondent is liable to pay the
amount to the petitioner and therefore matter be referred to the Arbitral
Tribunal.
3.2. It is stated that by the impugned order dated 10.08.2018 when the
conciliation failed, the respondent Council referred the matter to respondent
No. 1 for arbitration proceedings under Section 18(3) of the MSME Act.
Petitioner has, therefore, challenged the said order by filing the present
petition.
4. Learned advocate Mr. Nair appearing for the petitioner has, at the outset, referred
the provisions contained in Sections 2(b), 2(n), 15 and 19 of the MSME Act. After

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referring to the relevant provisions it is contended that where any supplier supplies
any goods or renders any service to any buyer, the buyer has to make the payment
on or before the agreed date and if there is no agreement then before the appointed
day. It is submitted that under the Scheme of the MSME Act only supplier can raise
the dispute against the buyer. However, there is no remedy for the buyer under the
Act to seek a reference. It is submitted that in the present case, petitioner is not
liable to make any payment to the private respondent and on the contrary petitioner
is claiming certain amount from the private respondent and therefore reference made
to the Arbitral Tribunal by the respondent Council is invalid and therefore the
impugned order be set aside. It is submitted that in the present case there is no
agreement between the parties and therefore the respondent Council ought not to
have referred the matter to the Arbitral Tribunal. In fact in the facts of the present
case, Arbitrator is not having jurisdiction to decide the dispute between the parties
and even if the petitioner raises the grievance/counter claim, the Arbitral Tribunal will
not be in a position to decide the same.
5 . Learned advocate for the petitioner would further submit that after the matter is
referred to the Arbitral Tribunal, the learned Arbitrator cannot ask for the cost from
the present petitioner who is the original respondent in the said proceedings as the
dispute is raised by the private respondent herein.
6. Learned advocate for the petitioner thereafter referred the provisions contained in
Section 19 of the MSME Act and submitted that even after the award is passed by the
Arbitral Tribunal, if it is against the petitioner, such award can be challenged before
the concerned Court. The petitioner will have to deposit 75% of the amount in terms
of the award, whereas if the claim of the present respondent No. 3 - private
respondent is not entertained, the private respondent can challenge the award
without deposit of any amount before the concerned court. Thus, the provisions
contained in Section 19 of the MSME Act is harsh.
7 . It is submitted that the private respondent can file a suit before the competent
Civil Court for recovery of the alleged amount from the petitioner. However, the
Arbitral Tribunal has no jurisdiction to decide the dispute between the present
petitioner and the private respondent. It is, therefore, urged that the impugned order
be quashed and set aside.
8 . Learned advocate for the petitioner has placed reliance upon the following
decisions:
(1) In Super Cassettes Industries Ltd. v. Music Broadcast Pvt. Ltd., reported
in MANU/SC/0408/2012 : AIR 2012 SC 2144;
(2) In Afcons Infrastructure Limited and Another v. Cherian Varkey
Construction Company Private Limited and Ors., reported in
MANU/SC/0525/2010 : (2010) 8 SCC 24; and
(3) In Shailesh Dhairyawan v. Mohan Balkrishna Lulla, reported in
MANU/SC/1206/2015 : (2016) 3 SCC 619.
9 . On the other hand, learned advocate Mr. B.S. Patel appearing for the private
respondent submitted that private respondent is 'supplier' within the meaning of the
provisions contained in Section 2(n) of the MSME Act. It is submitted that when the
private respondent has rendered the services to the petitioner and when the amount
due is not paid by the petitioner within stipulated time limit, as the private

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respondent is registered under the MSME Act, it has lodged the claim before the
respondent Council. It is submitted that as per the provisions of the MSME Act, the
Council initially conducted conciliation proceedings. However, the petitioner did not
remain present and therefore the impugned order came to be passed by the
respondent Council referring the matter to the respondent No. 1. It is submitted that
it is not necessary that the matter can be referred to the Arbitral Tribunal only when
there is an Arbitration Agreement between the parties. In support of the said
contention, learned advocate for the private respondent has referred the provisions
contained in Section 18 of the MSME Act.
10. Learned advocate Mr. Patel would thereafter submit that validity of provisions
contained in Section 19 of the MSME Act is not under challenge in the present
petition and therefore it would not be proper on the part of the petitioner to contend
that the provision of Section 19 of MSME Act is harsh. It is submitted that validity of
Section 19 of the Act is upheld. Thus, it is not open for the petitioner to contend that
such provision is harsh.
1 1 . Learned advocate Mr. Patel has referred the provisions contained in Section
31(8), 31A, 38 and 39 of the Arbitration and Conciliation Act, 1996 (hereinafter
referred to as the 'Act of 1996') and submitted that it is for the Arbitral Tribunal to
decide the cost of arbitration and therefore merely because the private respondent
has referred the dispute to the respondent Council and when the conciliation
proceeding is failed, the matter is referred by the Council to the Arbitral Tribunal, it
cannot be said that the petitioner is not liable to make any payment towards the cost
of arbitration.
12. Learned advocate Mr. Patel has thereafter submitted that in fact the petitioner has
requested the respondent Council by communication dated 11.06.2018 to refer the
matter to the Arbitral Tribunal at the earliest and therefore now it is not open for the
petitioner to contend that Arbitral Tribunal has no jurisdiction to decide the dispute
between the petitioner and the private respondent. At this stage, learned advocate Mr.
Patel would submit that if the petitioner is challenging the jurisdiction of the Arbitral
Tribunal, such issue can be raised before the Arbitral Tribunal itself and if the
application of the petitioner is rejected, such order can be challenged before
appropriate forum. It is, therefore, urged that this petition be dismissed.
1 3 . Learned advocate Mr. G.M. Amin appearing for the respondent No. 1 also
opposed the petition and submitted that as per the Scheme of the MSME Act, the
claim is made by the private respondent before the respondent Council. When the
conciliation failed, Council has referred the matter to the Arbitral Tribunal and
thereby the Council has not committed any illegality. Learned advocate Mr. Amin has
placed reliance upon the following decisions:
(1) In the case of Food Corporation of India v. Indian Council of Arbitration
and Ors., reported in MANU/SC/0469/2003 : (2003) 6 SCC 564; and
(2) In the case of Nimet Resources Inc. and Anr. v. Essar Steels Ltd.,
reported in MANU/SC/0603/2000 : (2000) 7 SCC 497.
1 4 . After referring the said decisions, it is submitted that the legislative intent
underlying the Act of 1996 is to minimize the supervisory role of Courts in the
arbitral process and nominate/appoint the arbitrator without wasting time, leaving all
contentious issues to be urged and agitated before the Arbitral Tribunal itself. Thus,
this Court may not entertain the present petition.

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15. Having heard the learned advocates appearing for the parties and having gone
through the material produced on record, it would emerge that the private respondent
has rendered services to the petitioner as per the work order dated 30.08.2016 issued
by the petitioner. However, the petitioner has raised the dispute with regard to the
quality of services provided by the private respondent and raised certain issues and
also claimed some amount from the private respondent. The petitioner has not made
payment to the private respondent and therefore an application was submitted by the
private respondent to the respondent Council under the provisions of the MSME Act.
The Council initially issued notice to the petitioner to which the petitioner submitted
reply and it was requested by the petitioner itself that the matter be referred to the
Arbitral Tribunal. Thus, the conciliation failed and therefore respondent Council
referred the matter to the Arbitral Tribunal.
16. The petitioner has mainly contended that Arbitral Tribunal has no jurisdiction to
decide the dispute raised by the private respondent in absence of any Arbitration
Agreement and when the petitioner itself is claiming the amount from the private
respondent, the Arbitral Tribunal has no jurisdiction to conduct the arbitration
proceedings. With a view to consider the said submission, relevant provisions of the
MSME Act are required to be referred to. Section 2(b) of the MSME Act provides as
under:
"(b) "appointed day" means the day following immediately after the expiry of
the period of fifteen days from the day of acceptance or the day of deemed
acceptance of any goods or any services by a buyer from a supplier.
Explanation.-For the purposes of this clause,-
(i) "the day of acceptance" means,-
(a) the day of the actual delivery of goods or the rendering
of services; or (b) where any objection is made in writing by
the buyer regarding acceptance of goods or services within
fifteen days from the day of the delivery of goods or the
rendering of services, the day on which such objection is
removed by the supplier;
(ii) "the day of deemed acceptance" means, where no objection is
made in writing by the buyer regarding acceptance of goods or
services within fifteen days from the day of the delivery of goods or
the rendering of services, the day of the actual delivery of goods or
the rendering of services;"
16.1 Section 2(n) of the MSME Act provides as under:
"(n) "supplier" means a micro or small enterprise, which has filed a
memorandum with the authority referred to in sub-section (1) of section 8,
and includes,-
(i) the National Small Industries Corporation, being a company,
registered under the Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State or a
Union territory, by whatever name called, being a company
registered under the Companies Act, 1956 (1 of 1956);

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 (iii) any company, co-operative society, trust or a body, by whatever
name called, registered or constituted under any law for the time
being in force and engaged in selling goods produced by micro or
small enterprises and rendering services which are provided by such
enterprises;"
16.2 Section 15 of the MSME Act provides as under:
"15. 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:
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.
16.3 Section 18 of the MSME Act provides as under:
"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 any
institution or centre providing alternate dispute resolution services by making
a reference to such an institution or centre, for conducting conciliation and
the provisions of sections65 to 81 of the Arbitration and Conciliation Act,
1996 (26 of 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 to it any
institution or centre providing alternate dispute resolution services for such
arbitration and the provisions of the Arbitration and Conciliation Act, 1996
(26 of 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.
17. It is not in dispute that private respondent is registered under MSME Act and is a
'supplier' within the meaning of the MSME Act. When the private respondent has

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rendered services and the petitioner 'buyer' has not made any payment within the
stipulated time limit, an application was submitted by the private respondent before
the respondent Council. If the provisions contained in Section 18 of the MSME Act is
carefully examined, it can be said that any party to a dispute may, with regard to any
amount due under section 17, make a reference to the Council. If the conciliation
conducted by the respondent Council is not successful and terminated without any
settlement between the parties, the respondent Council is empowered to take up the
dispute for arbitration itself or refer the same to any institution or centre providing
alternate dispute resolution services for such arbitration. In such case, the provisions
of the Act of 1996 shall apply to the dispute as if the arbitration was in pursuance of
an 'arbitration agreement' referred to in section 7(1) of that Act of 1996.
1 8 . Thus, from the aforesaid provisions, it is clear that even in absence of an
arbitration agreement between the parties, once the matter is referred to the Arbitral
Tribunal under the provisions of Section 18(3) of the MSME Act, there is a deeming
provision that provisions of the Act of 1996 would be applicable. Thus, the contention
raised by the learned advocate for the petitioner that in absence of arbitration
agreement between the petitioner and the private respondent matter cannot be
referred to the Arbitral Tribunal cannot be accepted.
19. At this stage, provisions contained in Section 16 of the Act of 1996 is required to
be referred to, which provides as under:
1 6 . Competence of arbitral tribunal to rule on its jurisdiction.-(1) The
arbitral tribunal may rule on its own jurisdiction, including ruling on any
objections with respect to the existence or validity of the arbitration
agreement, and for that purpose.
(a) an arbitration clause which forms part of a contract shall be
treated as an agreement independent of the other terms of the
contract; and
(b) a decision by the arbitral tribunal that the contract is null and
void shall not entail ipso jure the invalidity of the submission clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised
not later than the submission of the statement of defence; however, a party
shall not be precluded from raising such a plea merely because that he has
appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority
shall be raised as soon as the matter alleged to be beyond the scope of its
authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section
(2) or sub-section (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2)
or sub-section (3) and, where the arbitral tribunal takes a decision rejecting
the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for
setting aside such an arbitral award in accordance with section 34.

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20. Thus, from the aforesaid provisions, it is clear that the objection with regard to
the jurisdiction of the Arbitral Tribunal can be raised before such Tribunal and the
said Tribunal can decide such objection.
21. It is submitted by the learned advocate for the petitioner that learned Arbitrator
cannot ask for the cost from the petitioner as the dispute is raised by the private
respondent. The said contention is misconceived. It is already observed hereinabove
that provisions of Act of 1996 would be applicable as if the arbitration proceedings
were in pursuance of the arbitration agreement in view of Section 18(3) of the MSME
Act. Thus, the Arbitral Tribunal is empowered to fix the cost of arbitration in view of
Section 31, 31A read with Section 38 of the Act of 1996.
2 2 . Learned advocate for the petitioner has placed reliance upon the decision
rendered by the Hon'ble Supreme Court in the case of Super Cassettes Industries Ltd.
(supra) and more particularly paragraphs 42 and 43 of the said decision. However,
the said decision would not render any assistance to the petitioner.
2 3 . Learned advocate for the petitioner has thereafter placed reliance upon the
decision rendered by the Hon'ble Supreme Court in the case of Afcons Infrastructure
Limited and Another (supra), wherein the Hon'ble Supreme Court has held in
paragraphs 32 and 34 that arbitration is an adjudicatory dispute resolution process by
private forum governed by the provisions of Arbitration and Conciliation Act. There
can be reference to arbitration only if there is an arbitration agreement between the
parties. If there is no agreement between the parties for reference to arbitration, the
Court cannot refer the matter to arbitration under Section 89 of the Code.
23.1 There cannot be any dispute with regard to the proposition of law laid down by
the Hon'ble Supreme Court in the aforesaid decision. However, Section 18(1) of
MSME Act provides that 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.
It is further worded in Section 18 that after the conciliation is failed, dispute can be
referred for arbitration and thereafter the Act of 1996 shall apply to the dispute.
Thus, the aforesaid decision would not render any assistance to the petitioner.
2 4 . Learned advocate for the petitioner thereafter has relied upon the decision
rendered by the Hon'ble Supreme Court in the case of Shailesh Dhairyawan (supra)
and more particularly para 14 of the said decision. However, the said decision would
not render any assistance to the petitioner in the facts of the present case.
25. On the other hand, learned advocate appearing for the respondent has placed
reliance upon the decision rendered by the Hon'ble Supreme Court in the case of
Food Corporation of India (Supra), wherein the Hon'ble Supreme Court has held that
the legislative intent underlying the Act of 1996 is to minimize the supervisory role of
Courts in the arbitral process and nominate/appoint the arbitrator without wasting
time, leaving all contentious issues to be urged and agitated before the Arbitral
Tribunal itself. The question relating to the improper constitution of Arbitral Tribunal
or its want of jurisdiction or objections with respect to the existence or validity of the
arbitration agreement are matters to be pleaded before the Arbitral Tribunal itself
which has been specifically empowered to rule on such issues and its own
jurisdiction as well.
25.1 This Court is of the view that the aforesaid decision would be applicable to the
facts of the present case and therefore the petitioner has to raise its objections before

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the Arbitral Tribunal and the Arbitral Tribunal is empowered to decide such objection
including the objection with regard to the jurisdiction of the Arbitral Tribunal.
26. Learned advocate for the respondent has also placed reliance upon the decision
rendered by the Hon'ble Supreme Court in the case of Nimet Resources Inc. and Anr.
(supra). In the said case, the concerned respondents denied that they had entered
into the sales contract with the concerned petitioner. Contract was not signed by the
respondents and there were correspondences between the parties in respect of sale
and supply not establishing clearly whether the contract was finalized or not. The
Hon'ble Supreme Court held that such matters ought to be referred to arbitration
keeping all questions open.
27. Keeping in view the aforesaid decisions, if the facts as discussed hereinabove are
examined, this Court is of the view that the present petition is misconceived and the
petitioner can raise its objections before the learned Arbitrator who is empowered to
decide such objections including the objection with regard to jurisdiction.
28. In view of the aforesaid discussion, this petition being devoid of any merits is
dismissed.
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