The Bombay High Court dismissed the application filed under section 11 of the Arbitration and Conciliation Act, 1996 (“A&C Act”) seeking the appointment of an arbitrator. A single-judge bench comprising Hon’ble Justice Bharati Dangre held that no party would be precluded from making a reference to the Facilitation Council under Section 18(1) of the Micro, Small and Medium Enterprises Development Act, 2006 (“the MSMED Act”) merely because there is an arbitration agreement existing between the parties.
Brief Facts:
The Applicant is a company engaged in manufacturing, marketing and supplying consumer electrical equipment. The Respondents are the proprietor and authorized signatories of the Firm involved in the business of distribution line products. The dispute between the parties occurred when in 2018-19, the Applicant issued Purchase Orders (POs) in favour of the Respondent, on which they agreed to abide by the terms and conditions stated therein and act accordingly for smooth transaction of business. The POs contain a specific provision for arbitration under recital/clause 12, which makes it imperative for the parties to resolve the disputes/differences arising from the POs through arbitration.
It was alleged by the Applicant that there was excess or over-supply, and on other occasions, short or deficient supply of the goods by the Respondent. Accordingly, the amounts of the invoices raised were adjusted by the amount of the short or deficient supply and penal charges were also levied as per the terms of the POs. This gave rise to a dispute between the parties, and the claim of the Applicant was that it made every attempt to resolve the dispute through correspondence and negotiation, but there was no success, which resulted in the arbitration clause being invoked by the Applicant.
The Respondents on 07/01/2021 filed a claim before the Micro and Small Enterprises Facilitation Council (“the Council”), which the Applicant duly received. They also replied to the arbitration invocation notice but did not agree to the appointment of the sole arbitrator. The moot question that arises for determination to this Court was - Whether clause 12 of the agreement entered between the parties, which is sought to be construed as an arbitration clause, would supersede the action initiated by the respondents before the Council?
Submissions of the Applicant:
The learned Counsel for the Applicant informed the Court that the arbitration was invoked on 28/12/2020, and this event occurred much prior to the reference under MSMED Act filed by the respondents on 07/01/2021 before the Council. Therefore, the Counsel contended that once the arbitration had been invoked, the subsequent reference for conciliation and arbitration under Sections 18(2) and 18(3) of the MSMED Act cannot invalidate the application filed under Section 11(5) of the Act of 1996. His further contention was Section 18(4) of the MSMED Act provides for a ‘notwithstanding’ provision in the context of any other law, however, it does not nullify bilateral contracts such as agreements contemplated between the parties.
Observation of the Court:
This Court observed that the moot question raised in the present case is no more res integra and had been put to rest by a bunch of Appeals decided by the Hon’ble Apex Court in the case of Gujarat State Civil Supplies Corporation Ltd. Vs. Mahakali Foods Pvt. Ltd. (Unit 2) & Anr AIR 2022 SC 5545. In this case, the issue before the Apex Court was- Whether the provisions contained in Chapter V would have an overriding effect on the provision contained in the Act of 1996? The Apex Court held that “no party to a dispute covered under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Facilitation Council under Section 18(1) thereof, merely because there is an arbitration agreement existing between the parties”.
In the wake of the aforesaid assertion, the Court denied giving any consideration to the argument advanced by the learned Council for the Applicant. This Court concluded that there is no reason to grant the relief of appointment of an arbitrator as the Council is already in the process of commencing arbitration by acting as an arbitrator as per the MSMED Act.
The decision of the Court:
The Bombay High Court dismissed the application as there was no reason to grant the relief of appointment of an arbitrator merely because the parties had an arbitration agreement.
Case Title: Balaji Electricals Ltd. vs Chanda S. Khetawat & Anr.
Coram: Hon’ble Justice Bharati Dangre
Case no.: ARBITRATION APPLICATION NO.02 OF 2022
Advocate for the Applicant: Mr.Mayur Khandeparkar
Advocate for the Respondents: Ms.Maya Majumdar
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