M/S. Silpi Industries vs Kerala State Road Transport … on 29 June, 2021


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Supreme Court of India

M/S. Silpi Industries vs Kerala State Road Transport … on 29 June, 2021

Author: Hon’Ble Dr. Chandrachud

Bench: Hon’Ble Dr. Chandrachud, R. Subhash Reddy, S. Ravindra Bhat

     C.A.Nos.1570-1578 of 2021 etc.



                                                                          REPORTABLE

                                     IN THE SUPREME COURT OF INDIA

                                      CIVIL APPELLATE JURISDICTION

                                    CIVIL APPEAL NOS.1570-1578 OF 2021

                      M/s. Silpi Industries etc.                         …..Appellants

                           Versus

                      Kerala State Road Transport Corporation
                      & Anr. etc.                                       …..Respondents

                                                      WITH

                                    CIVIL APPEAL NOS.1620-1622 OF 2021

                      M/s. Khyaati Engineering                           …..Appellant

                           Versus

                      Prodigy Hydro Power Pvt. Ltd.                     …..Respondent

                                                 JUDGMENT

R. Subhash Reddy, J.

1. In view of the common issues which arise for

consideration, these appeals are heard together and disposed of

Signature Not Verifiedby this common judgment.
Digitally signed by
Sanjay Kumar
Date: 2021.06.29
16:42:56 IST
Reason: 2. Civil Appeal Nos.1570-1578 of 2021 are filed, aggrieved

by the common judgment dated 11.08.2017 passed in Arbitration
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Appeal Nos.69, 70, 72, 73, 77, 78, 79, 80 and 81 of 2014. By the

aforesaid judgment, High Court has allowed the Arbitration

Appeals filed by the respondent no.1-Kerala State Road

Transport Corporation, by setting aside the common order dated

05.08.2014 passed in O.P.(Arb.) Nos.258 of 2007 etc. and the

awards passed by the arbitrator. The High Court has remanded

the matters to the arbitrator for disposal de novo in the light of

the observations made in the judgment.

3. Civil Appeal Nos.1620-1622 of 2021 are filed, aggrieved

by the order dated 06.09.2017 in O.P.No.617 of 2017, passed by

the High Court of Madras, allowing the Original Petition filed by

the respondent under Section 11(6) of the Arbitration and

Conciliation Act, 1996 (hereinafter referred to as ‗the 1996 Act‘)

and the orders dated 31.10.2017 and 12.12.2017 passed in

applications seeking interim directions.

4. Necessary facts in brief in the first batch of appeals

referred above are as under :

The respondent no.1-Kerala State Road Transport

Corporation (for short ‗KSRTC‘), invited tenders for supply of

thread rubber for tyre rebuilding. The appellants herein who

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were the claimants before the arbitrator were given purchase

orders. As per the terms of the purchase order, 90% of the total

purchase price was payable to the appellants/claimants on

supply of materials and the balance 10% was to be paid subject

to final performance report. This was so, since it was the

condition that the thread rubber supplied by the appellants was

to run a minimum number of kilometers. When the 10% balance

amount was not paid as per the purchase order, the

appellants/claimants herein have approached the Industrial

Facilitation Council [previously constituted under the Interest on

Delayed Payments to Small Scale and Ancillary Industrial

Undertakings Act, 1993 (for short, ‗IDPASC Act‘)] presently under

the Micro and Small Enterprises Facilitation Council constituted

under Micro, Small and Medium Enterprises Development Act,

2006 (hereinafter referred to as ‗the MSMED Act‘). The earlier

IDPASC Act was replaced by MSMED Act and earlier Act was

repealed. As the conciliation failed, the claims made by the

appellants herein were referred to arbitration under provisions of

the 1996 Act. The awards were passed in favour of the claimants

and such awards were challenged by way of applications for

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setting aside the same under Section 34 of the 1996 Act. When

their applications were dismissed, respondents have carried the

matter by way of appeals under Section 37 of the 1996 Act before

the High Court of Kerala at Ernakulam. The issues, which were

formulated in paragraph 5 of the judgment and answered by the

High Court, read as under:

―(a) Whether the Limitation Act, 1963 applies to
arbitration proceedings held under the IDPASC and
MSMED Acts?

(b) Which is the starting point of limitation to raise
claim for the 10% unpaid purchase price?

(c) Whether counter claim is entertainable in the
arbitration proceedings held pursuant to the
provisions of the IDPASC and MSMED Acts?‖

5. In the impugned judgment, the High Court, while

considering the submissions of the parties and by referring to

various provisions of the Arbitration and Conciliation Act, 1996

and the provisions of the Limitation Act, 1963, has answered the

issue of limitation and held that Limitation Act, 1963 is

applicable to the proceedings under the 1996 Act arising out of

MSMED Act. While answering the third question with regard to

maintainability of counter claim, the High Court has held that in

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view of Section 23(2A) of the 1996 Act, the ‗counter claim‘ and

‗set off‘ are maintainable. While holding that counter claim is

maintainable, the High Court has agreed with the view taken by

the learned Single Judge of Allahabad High Court in the case of

M/s. B.H.P. Engineers Pvt. Ltd. v. Director, Industries, U.P.

(Facilitation Centre), Kanpur & Ors.1 and the Division Bench

judgment of the High Court of Bombay at Nagpur in the case of

M/s. Steel Authority of India Ltd. & Anr. v. Micro, Small

Enterprise Facilitation Council2. Primarily aggrieved by the

findings recorded by the High Court on the applicability of

Limitation Act, 1963 and maintainability of counter claim, the

claimants have filed these appeals on various grounds.

6. Necessary facts in Civil Appeal Nos.1620-1622 of 2021

are as under :

The appellant and respondent herein have entered into a

contract for supply and installation of hydro-mechanical

equipments for 2 x 3 MW Baner-II SHP. The parties have signed

an agreement on 27.03.2011, containing various clauses. It is

the case of the appellant that it has completely executed the
1
2009 SCC OnLine All 565
2
2010 SCC OnLine Bom 2208

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contract and project was commissioned on 27.06.2015. The

appellant herein alleging that, though it has fulfilled all its

obligations under the contract, the respondent has refused to

make payments as per the contract, has filed a Claim Petition,

before the Micro and Small Enterprises Facilitation Council

constituted under the provisions of MSMED Act, on 20.03.2017.

The claim was filed in respect of supply of goods and services

rendered to the respondent-company. It is the case of the

appellant that pursuant to notice issued by Facilitation Council,

the respondent appeared before the Council. Thereafter the

respondent has filed O.P.No.617 of 2017 before the High Court of

Judicature at Madras. The said application was filed under

Section 11(6) of the 1996 Act praying for appointment of a

second arbitrator to decide upon disputes that have arisen

between the parties pursuant to the breach of terms and

conditions of contract for supply of hydro-mechanical

equipments.

7. The said application filed by the respondent herein, is

opposed by the appellant mainly on the ground that it has

already moved the Micro and Small Enterprises Facilitation

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Council for resolution of disputes, as such, the respondent as

well participate in the proceedings before the Council, prayed for

dismissal of application filed under Section 11(6) of the 1996 Act.

8. Before the High Court, it was the case of the respondent

that the Facilitation Council has been constituted primarily to

deal with the disputes that are raised by the supplier and does

not envisage the laying of counter claim by other party to a

contract, as such it can seek appointment of arbitrator under

Section 11(6) of the 1996 Act.

9. The High Court, while considering the definition of

‗supplier‘ under Section 2(n) of MSMED Act and also by placing

reliance on Section 17 and 18 of MSMED Act, has allowed the

application and appointed Mr. Justice K. Gnanaprakasam,

former Judge of Madras High Court as 2nd arbitrator.

10. When the said order is challenged before this Court, by

order dated 29.01.2018, while issuing notice this Court has

ordered the Special Leave Petition be tagged with

S.L.P.(C)Nos.33745-33753 of 2017 (C.A.Nos.1570-1578 of 2021).

11. In S.L.P.(C)Nos.33745-33753 of 2017 (C.A.Nos.1570-

1578 of 2021), vide order dated 25.01.2018, this Court issued

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notice limited to the issue as to whether the counter claim of the

respondent could be entertained by the Arbitral Tribunal.

12. We have heard Sri V. Giri, learned senior counsel

appearing for the appellants and Ms. Aishwarya Bhati, learned

Additional Solicitor General appearing for the Kerala State Road

Transport Corporation in Civil Appeal Nos.1570-1578 of 2021

and Sri P.B. Suresh, learned counsel appearing for the appellant

and Sri Basava Prabhu Patil, learned senior counsel appearing

for the respondent, in Civil Appeal Nos.1620-1622 of 2021.

13. Having regard to contentions of the parties, only two

issues arise for consideration before this Court, namely :

(i) Whether the provisions of Indian Limitation Act,

1963 is applicable to arbitration proceedings initiated

under Section 18(3) of Micro, Small and Medium

Enterprises Development Act, 2006 ?; and

(ii) Whether, counter claim is maintainable in such

arbitration proceedings ?

14. Before we deal with the above issues, we need to refer

certain background aspects of the Micro, Small and Medium

Enterprises Development Act, 2006 and the earlier Act, namely,

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C.A.Nos.1570-1578 of 2021 etc.

Interest on Delayed Payments to Small Scale and Ancillary

Industrial Undertakings Act, 1993 which was repealed by virtue

of Section 32 of the MSMED Act.

15. The Act 32 of 1993 was an outcome pursuant to a policy

statement on small scale industries made by the Government in

Parliament. It was felt that, inadequate working capital in small

scale or an ancillary industrial undertaking causes serious and

endemic problems affecting the health of such undertaking. The

Small Scale Industries Board, which was an apex advisory body

on policies relating to small scale industrial units with

representatives from all the States, governmental bodies and

industrial sector was also of the same view. Therefore, it was felt

that prompt payments of money by buyers should be statutorily

ensured and mandatory provisions for payment of interest on

outstanding money, in case of default, should be made. The

―appointed day‖, as defined under Section 2(b) of the said Act,

means – the day following immediately after the expiry of the

period of thirty days from the day of acceptance or the day of

deemed acceptance of any goods or any services by a buyer from

a supplier. Therefore, a liability to make payment by the buyer

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was made under Section 3 of the said Act mandating that buyer

shall make payment before the agreed date by the parties, where

there is no agreement, before the appointed day. In case of

failure to make payment by the buyer within the stipulated time

as per Section 3, buyer was made to pay interest at one and a

half time of Prime Lending Rate charged by the State Bank of

India. There was also a mechanism for recovery and created

Industry Facilitation Council, as primary body and appellate

authority was notified under Section 7 of the said Act. Under

Section 10 of the said Act, Act 32 of 1993 was given overriding

effect.

16. The Micro, Small and Medium Enterprises Development

Act, 2006 was enacted to provide, for facilitating the promotion

and development and enhancing the competitiveness of micro,

small and medium enterprises and for matters connected

therewith or incidental thereto. By bringing the aforesaid Act

(Act 27 of 2006) w.e.f. 16th June 2006, the earlier Act, namely,

Interest on Delayed Payments to Small Scale and Ancillary

Industrial Undertakings Act, 1993 was repealed by virtue of

Section 32 of the 2006 Act. Prior to the enforcement of Act 32 of

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1993, the small scale industry was defined only by notification

under Section 11B of the Industries (Development and

Regulation) Act, 1951. As per Section 29B of the said Act,

notifications were being issued notifying reservation of items for

exclusive manufacture in small scale industry sector. Except the

above said two provisions, as there was no legal framework for

the small scale industry, and by noticing that the small scale

industry is the dynamic and vibrant sector of the country‘s

economy, it was felt to bring a comprehensive Central enactment

to provide appropriate legal framework for the sector to facilitate

its growth and development. It is also clear from the Statement

of Objects and Reasons of the Act, that the need which was felt to

extend policy support for small scale sector so that they are

enabled to grow into medium ones and to adopt better and

higher levels of technology and achieve higher productivity to

remain competitive in fast globalization period. It was also

noticed that medium industry or enterprise was not defined by

any law. From the Statement of Objects and Reasons, it is clear

that the said Act was enacted to provide statutory definitions to

‗small enterprise‘ and ‗medium enterprise‘; to provide for

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establishment of National Small and Medium Enterprises Board;

provide for classification of small and medium enterprises on the

basis of investment in plant and machinery; empower the Central

Government to notify programmes, guidelines for enhancing the

competitiveness of small and medium enterprises; to make

provisions for ensuring timely and smooth flow of credit to small

and medium enterprises to minimize the incidence of sickness;

empower the Central and State Governments to notify preference

policies in respect of procurement of goods and services;

empowering the Central Government to create a Fund or Funds

for facilitating promotion and development and enhancement of

the competitiveness of small enterprises and medium

enterprises; to make further improvements in the Interest on

Delayed Payments to Small Scale and Ancillary Industrial

Undertakings Act, 1993 and to make that enactment a part of

the proposed legislation and to repeal the enactment, etc.

17. From the Statement of Objects and Reasons of both the

above legislations, it is clear that the earlier legislation, i.e., Act

No.32 of 1993 was confined only with regard to delayed

payments to small scale and ancillary industrial undertakings

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but by subsequent enactment of 2006, a comprehensive

legislation was brought covering the micro, small and medium

enterprises. Under the new Act, there is a provision for

establishment of Board by the Central Government, namely,

National Board for Micro, Small and Medium Enterprises. The

‗enterprises‘ were classified under Chapter III of the 2006 Act into

micro, small and medium enterprises. Liability of buyer and the

mechanism in the event of default is by various provisions under

Chapter V of the Act. Sections 5 to 19 which are relevant for the

purpose of disposal of these cases read as under :

―5. Functions of Board.—The Board shall, subject to
the general directions of the Central Government,
perform all or any of the following functions, namely:—

(a) examine the factors affecting the promotion
and development of micro, small and medium
enterprises and review the policies and programmes of
the Central Government in regard to facilitating the
promotion and development and enhancing the
competitiveness of such enterprises and the impact
thereof on such enterprises;

(b) make recommendations on matters referred to
in clause (a) or on any other matter referred to it by
the Central Government which, in the opinion of that
Government, is necessary or expedient for facilitating
the promotion and development and enhancing the
competitiveness of the micro, small and medium
enterprises; and

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(c) advise the Central Government on the use of
the Fund or Funds constituted under section 12.

6. Powers and functions of Member-Secretary of
Board.—Subject to other provisions of this Act, the
Member-Secretary of the Board shall exercise such
powers and perform such functions as may be
prescribed.

7. Classification of enterprises.—(1) Notwithstanding
anything contained in section 11B of the Industries
(Development and Regulation) Act, 1951 (65 of 1951),
the Central Government may, for the purposes of this
Act, by notification and having regard to the provisions
of sub-sections (4) and (5), classify any class or classes
of enterprises, whether proprietorship, Hindu
undivided family, association of persons, co-operative
society, partnership firm, company or undertaking, by
whatever name called,—

(a) in the case of the enterprises engaged in the
manufacture or production of goods pertaining to any
industry specified in the First Schedule to the
Industries (Development and Regulation) Act, 1951 (65
of 1951), as—

(i) a micro enterprise, where the investment in
plant and machinery does not exceed twenty five
lakh rupees;

(ii) a small enterprise, where the investment in
plant and machinery is more than twenty-five lakh
rupees but does not exceed five crore rupees; or

(iii) a medium enterprise, where the investment in
plant and machinery is more than five crore rupees
but does not exceed ten crore rupees;

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(b) in the case of the enterprises engaged in
providing or rendering of services, as—

(i) a micro enterprise, where the investment in
equipment does not exceed ten lakh rupees;

(ii) a small enterprise, where the investment in
equipment is more than ten lakh rupees but does
not exceed two crore rupees; or

(iii) a medium enterprise, where the investment in
equipment is more than two crore rupees but does
not exceed five crore rupees.

Explanation 1.—For the removal of doubts, it is
hereby clarified that in calculating the investment in
plant and machinery, the cost of pollution control,
research and development, industrial safety devices
and such other items as may be specified, by
notification, shall be excluded.

Explanation 2.—It is clarified that the provisions
of section 29B of the Industries (Development and
Regulation) Act, 1951 (65 of 1951), shall be applicable
to the enterprises specified in sub-clauses (i) and (ii) of
clause (a) of sub-section (1) of this section.

(2) The Central Government shall, by notification,
constitute an Advisory Committee consisting of the
following members, namely:—

(a) the Secretary to the Government of India in
the Ministry or Department of the Central
Government having administrative control of the
small and medium enterprises who shall be the
Chairperson, ex officio;

(b) not more than five officers of the Central
Government possessing necessary expertise in

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matters relating to micro, small and medium
enterprises, members, ex officio;

(c) not more than three representatives of the
State Governments, members, ex officio; and

(d) one representative each of the associations of
micro, small and medium enterprises, members, ex
officio.

(3) The Member-Secretary of the Board shall also
be the ex officio Member-Secretary of the Advisory
Committee.

(4) The Central Government shall, prior to
classifying any class or classes of enterprises under
sub-section (1), obtain the recommendations of the
Advisory Committee.

(5) The Advisory Committee shall examine the
matters referred to it by the Board in connection with
any subject referred to in section 5 and furnish its
recommendations to the Board.

(6) The Central Government may seek the advice
of the Advisory Committee on any of the matters
specified in section 9, 10, 11, 12 or 14 of Chapter IV.

(7) The State Government may seek advice of the
Advisory Committee on any of the matters specified in
the rules made under section 30.

(8) The Advisory Committee shall, after
considering the following matters, communicate its
recommendations or advice to the Central Government
or, as the case may be, State Government or the
Board, namely:—

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(a) the level of employment in a class or classes of
enterprises;

(b) the level of investments in plant and
machinery or equipment in a class or classes of
enterprises; 8

(c) the need of higher investment in plant and
machinery or equipment for technological
upgradation, employment generation and enhanced
competitiveness of the class or classes of
enterprises;

(d) the possibility of promoting and diffusing
entrepreneurship in micro, small or medium
enterprises; and

(e) the international standards for classification of
small and medium enterprises.

(9) Notwithstanding anything contained in section
11B
of the Industries (Development and Regulation)
Act
, 1951 (65 of 1951) and clause (h) of section 2 of
the Khadi and Village Industries Commission Act,
1956 (61 of 1956), the Central Government may, while
classifying any class or classes of enterprises under
sub-section (1), vary, from time to time, the criterion of
investment and also consider criteria or standards in
respect of employment or turnover of the enterprises
and include in such classification the micro or tiny
enterprises or the village enterprises, as part of small
enterprises.

8. Memorandum of micro, small and medium
enterprises.—(1) Any person who intends to
establish,—

(a) a micro or small enterprise, may, at his
discretion; or

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(b) a medium enterprise engaged in providing or
rendering of services may, at his discretion; or

(c) a medium enterprise engaged in the
manufacture or production of goods pertaining to
any industry specified in the First Schedule to the
Industries (Development and Regulation) Act, 1951
(65 of 1951),

shall file the memorandum of micro, small or, as the
case may be, of medium enterprise with such
authority as may be specified by the State
Government under sub-section (4) or the Central
Government under sub-section (3):

Provided that any person who, before the
commencement of this Act, established—

(a) a small scale industry and obtained a
registration certificate, may, at his discretion; and

(b) an industry engaged in the manufacture or
production of goods pertaining to any industry
specified in the First Schedule to the Industries
(Development and Regulation) Act, 1951 (65 of
1951), having investment in plant and machinery of
more than one crore rupees but not exceeding ten
crore rupees and, in pursuance of the notification of
the Government of India in the erstwhile Ministry of
Industry (Department of Industrial Development)
number S.O. 477(E), dated the 25th July, 1991 filed
an Industrial Entrepreneur’s Memorandum,

shall within one hundred and eighty days from the
commencement of this Act, file the memorandum,
in accordance with the provisions of this Act.

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(2) The form of the memorandum, the procedure
of its filing and other matters incidental thereto
shall be such as may be notified by the Central
Government after obtaining the recommendations of
the Advisory Committee in this behalf.

(3) The authority with which the memorandum
shall be filed by a medium enterprise shall be such
as may be specified, by notification, by the Central
Government.

(4) The State Government shall, by notification,
specify the authority with which a micro or small
enterprise may file the memorandum.

(5) The authorities specified under sub-sections
(3) and (4) shall follow, for the purposes of this
section, the procedure notified by the Central
Government under sub-section (2).

9. Measures for promotion and development.—The
Central Government may, from time to time, for the
purposes of facilitating the promotion and
development and enhancing the competitiveness of
micro, small and medium enterprises, particularly of
the micro and small enterprises, by way of
development of skill in the employees, management
and entrepreneurs, provisioning for technological
upgradation, marketing assistance or infrastructure
facilities and cluster development of such enterprises
with a view to strengthening backward and forward
linkages, specify, by notification, such programmes,
guidelines or instructions, as it may deem fit.

10. Credit facilities.—The policies and practices in
respect of credit to the micro, small and medium
enterprises shall be progressive and such as may be
specified in the guidelines or instructions issued by
the Reserve Bank, from time to time, to ensure timely

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and smooth flow of credit to such enterprises,
minimise the incidence of sickness among and
enhance the competitiveness of such enterprises.

11. Procurement preference policy.—For facilitating
promotion and development of micro and small
enterprises, the Central Government or the State
Government may, by order notify from time to time,
preference policies in respect of procurement of goods
and services, produced and provided by micro and
small enterprises, by its Ministries or departments, as
the case may be, or its aided institutions and public
sector enterprises.

12. Funds.—There shall be constituted, by
notification, one or more Funds to be called by such
name as may be specified in the notification and there
shall be credited thereto any grants made by the
Central Government under section 13.

13. Grants by Central Government.—The Central
Government may, after due appropriation made by
Parliament by law in this behalf, credit to the Fund or
Funds by way of grants for the purposes of this Act,
such sums of money as that Government may consider
necessary to provide.

14. Administration and utilisation of Fund or
Funds.—(1) The Central Government shall have the
power to administer the Fund or Funds in such
manner as may be prescribed. (2) The Fund or Funds
shall be utilised exclusively for the measures specified
in sub-section (1) of section 9. (3) The Central
Government shall be responsible for the coordination
and ensuring timely utilisation and release of sums in
accordance with such criteria as may be prescribed.

15. Liability of buyer to make payment.—Where any
supplier supplies any goods or renders any services to

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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. 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 that 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.

17. Recovery of amount due.—For any goods
supplied or services rendered by the supplier, the
buyer shall be liable to pay the amount with interest
thereon as provided under section 16. 10

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

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provisions of sections 65 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 it to 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.

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

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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.‖

18. With regard to first issue, namely, applicability of

Limitation Act, 1963 to the arbitration proceedings initiated

under provisions of Micro, Small and Medium Enterprises

Development Act, 2006, we need to notice certain relevant

sections of the Act. As per Section 15 of the said Act, where

supplier supplies any goods or renders any services to any buyer,

the buyer shall make payment on or before the agreed date

between the parties in writing or where there is no agreement,

before the appointed day. Section 16 deals with date from which

and rate of interest payable in the event of not making the

payment. The recovery mechanism for the amount due is

covered by Sections 17 and 18 of the said Act. If any party has a

dispute with regard to amount due under Section 17, a reference

is required to be made to the Micro and Small Enterprises

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Facilitation Council. On such reference, the Council is

empowered to conduct conciliation in the matter or seek

assistance of any institution or centre providing alternate dispute

resolution services by making a reference to such institution for

conducting conciliation. If the conciliation is not successful, as

contemplated under Section 18(2) of the said Act, same stands

terminated under Section 18(3) of the said Act. Thereafter, 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

Arbitration and Conciliation Act, 1996 are made applicable as if

the arbitration was in pursuance of arbitration agreement

between the parties, under sub-section (1) of Section 7 of the

1996 Act. Applicability of Limitation Act, 1963 to the

arbitrations is covered by Section 43 of the 1996 Act. The High

Court, while referring to abovesaid provisions and the judgment

of this Court in the case of Andhra Pradesh Power

Coordination Committee & Ors. v. Lanco Kondapalli Power

Ltd. & Ors.3 has held that the Limitation Act, 1963 is applicable

3
(2016) 3 SCC 468

24
C.A.Nos.1570-1578 of 2021 etc.

to the arbitrations covered by Section 18(3) of the 2006 Act. A

reading of Section 43 itself makes it clear that the Limitation Act,

1963 shall apply to the arbitrations, as it applies to proceedings

in court. When the settlement with regard to a dispute between

the parties is not arrived at under Section 18 of the 2006 Act,

necessarily, the Micro and Small Enterprises Facilitation Council

shall take up the dispute for arbitration under Section 18(3) of

the 2006 Act or it may refer to institution or centre to provide

alternate dispute resolution services and provisions of Arbitration

and Conciliation Act 1996 are made applicable as if there was an

agreement between the parties under sub-section (1) of Section 7

of the 1996 Act. In view of the express provision applying the

provisions of the Limitation Act, 1963 to arbitrations as per

Section 43 of the Arbitration and Conciliation Act, 1996, we are

of the view that the High Court has rightly relied on the judgment

in the case of Andhra Pradesh Power Coordination

Committee3 and held that Limitation Act, 1963 is applicable to

the arbitration proceedings under Section 18(3) of the 2006 Act.

Thus, we are of the view that no further elaboration is necessary

on this issue and we hold that the provisions of Limitation Act,

25
C.A.Nos.1570-1578 of 2021 etc.

1963 will apply to the arbitrations covered by Section 18(3) of the

2006 Act. We make it clear that as the judgment of the High

Court is an order of remand, we need not enter into the

controversy whether the claims/counter claims are within time

or not. We keep it open to the primary authority to go into such

issues and record its own findings on merits.

19. The other issue is with regard to maintainability of

counter claim in the arbitration proceedings initiated as per

Section 18(3) of the 2006 Act. It is true that recovery amount

under Section 17 of the said Act is only with reference to the

amounts claimed by the supplier under Section 16 of the said

Act. But coming to Section 18 of the said Act, the words used

are, ‗any party to a dispute‘ for making a reference to Micro and

Small Enterprises Facilitation Council under Section 18 of the

Act. To decide the issue of maintainability we refer to the first

batch of appeals, which are filed aggrieved by the judgment of the

High Court of Kerala. The appellants are suppliers of thread

rubber for tyre rebuilding to the respondent-KSRTC. They were

given purchase orders by the Corporation and they were paid

90% of the total price and 10% was to be paid based on the final

26
C.A.Nos.1570-1578 of 2021 etc.

performance report. Whereas it is the case of the appellants that

they are entitled for balance amount of 10%, same was withheld

illegally, on the other hand it is the case of the Corporation that

as the performance of the supplies were not in accordance with

the contractual terms, as such, the appellants are not entitled for

any amount and in some of the matters counter claims were

made by the Corporation against the appellants. Sri V. Giri,

learned senior counsel appearing for the appellants in first batch

of appeals has mainly contended that a comprehensive reading of

the various provisions under Chapter V of the 2006 Act, makes it

clear that the conciliation and arbitration, is referable to the

claims of the supplier only. It is submitted that 2006 Act is a

beneficial legislation to the micro and small enterprises, as such,

scope of the Act cannot be expanded by allowing counter claims

by buyer. It is submitted that the object of 2006 Act is solely

intended to protect the micro and small enterprises, if counter

claims are allowed it amounts to expanding the scope of the

enactment. On the other hand it is submitted by Ms. Aishwarya

Bhati, learned Addl. Solicitor General appearing for the

respondent-Corporation and Sri P.B. Suresh, learned counsel

27
C.A.Nos.1570-1578 of 2021 etc.

appearing for the appellant in Civil Appeal arising out of

C.A.Nos.1620-1622 of 2021 that the MSMED Act which is a

beneficial legislation to ―unpaid seller‖ cannot be rendered otiose,

and the authorities constituted under the Act cannot be denied

its jurisdiction to entertain the claims, at the instance of buyer

on the mere plea of counter claim. It is submitted that only on

such ground that Facilitation Council is denied its jurisdiction,

the various benefits conferred under the Act to the sellers will be

denied. It is submitted that in every case to deny the benefits

conferred under the Statute, the seller cannot be deprived of

such benefits on the plea that counter claim is not maintainable

before the authorities constituted under 2006 Act. By referring

to Section 16 of the Act, it is submitted that where any buyer

fails to make payment of the amounts 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 that

amount from the appointed day or, as the case may be, from the

date agreed upon, at three times of the bank rate notified by the

28
C.A.Nos.1570-1578 of 2021 etc.

Reserve Bank. By further referring to Section 19 of the Act it is

submitted that when an application is filed for setting aside

decree, award or order same shall not be entertained by any

court unless the appellant (not being a supplier), has deposited

with it 75% of the amount in terms of the decree or award. The

said benefits are conferred, in view of the beneficial objects of the

Act, to the sellers. It is submitted that if the jurisdiction of the

Council is ousted on the ground that counter claim cannot be

entertained, buyer can easily get over the legal obligations of

payment of compound interest and pre-deposit of 75% of the

awarded amount in the event of challenge to the same, as

referred above. Thus, it is submitted that the counter claim is

maintainable before the authorities constituted under 2006 Act.

Further, it is submitted that when the conciliation is failed, for

further proceedings, provisions of the Arbitration and

Conciliation Act, 1996 are made applicable as if there is an

agreement between the parties under sub-section (1) of Section 7

of the 1996 Act, as such there is no reason for not allowing

counter claim by the buyer. A specific reference is made to

Section 23(2A) of the 1996 Act. Learned senior counsel Sri

29
C.A.Nos.1570-1578 of 2021 etc.

Basava Prabhu S. Patil, appearing for the respondent in

C.A.Nos.1620-1622 of 2021 has submitted that no claim or

counter claim under Section 18 is contemplated or permissible.

It is submitted that the expression ‗any party‘ occurring in

Section 18 is referable to supplier alone. Thus, it is submitted

that in absence of jurisdiction, no counter claim can be

entertained. Further it is submitted that in any event as the

supply of goods and services were made much prior to filing of

memorandum by the appellant, the appellant cannot make any

claim before the authority constituted under MSMED Act.

20. From a reading of Section 18(3) of the 2006 Act it is clear

that when the conciliation initiated under sub-section (2) of

Section 18 of the said Act is not successful, the Council shall

either itself take up the dispute for arbitration or refer to any

institution for arbitration. Further Section 18(3) of the said Act

also makes it clear that the provisions of 1996 Act are made

applicable as if there is an agreement between the parties under

sub-section (1) of Section 7 of the 1996 Act. Section 23 of the

1996 Act deals with the statement of claim and defence. Section

23(2A), which gives a right to respondent to submit a counter

30
C.A.Nos.1570-1578 of 2021 etc.

claim or plead set-off with regard to claims within the scope of

the arbitration agreement, is brought into Statute by Amending

Act 3 of 2016. If we look at the Statement of Objects and

Reasons of the Amending Act, same is also enacted to provide for

speedy disposal of cases relating to arbitration with least court

intervention. Clause 11 of the Bill, by which sub-section (2A)

was proposed to be inserted, states that sub-section (2A) was

intended to give an opportunity to the respondent, in support of

his case, to submit counter-claim or a set-off if such counter-

claim or set-off falls within the scope of arbitration agreement.

When Section 18(3) makes it clear that in the event of failure by

the Council under Section 18(2) if proceedings are initiated under

Section 18(3) of the 1996 Act, the provisions of 1996 Act are not

only made applicable but specific mention is made to the effect

as if the arbitration was in pursuance to an arbitration

agreement referred to in sub-section (1) of Section 7 of the 1996

Act. When there is a provision for filing counter-claim and set-off

which is expressly inserted in Section 23 of the 1996 Act, there is

no reason for curtailing the right of the respondent for making

31
C.A.Nos.1570-1578 of 2021 etc.

counter-claim or set-off in proceedings before the Facilitation

Council.

21. It is also further to be noted that if we do not allow the

counter-claim made by the buyer in the proceedings arising out

of claims made by the seller, it may lead to parallel proceedings

before the various fora. On one hand, in view of beneficial

legislation, seller may approach the Facilitation Council for

claims, in the event of failure of payment by the buyer under

provisions of 2006 Act, at the same time, if there is no separate

agreement between the parties for any arbitration in a given case,

buyer may approach the civil court for making claims against the

seller, or else if there is an agreement between the parties for

arbitration in the event of dispute between the parties, parties

may seek appointment of arbitrator. At the same time if the

seller is covered by definition under micro, small and medium

enterprises, seller may approach the Facilitation Council for

making claims under the provisions of Micro, Small and Medium

Enterprises Development Act, 2006. In such event, it may result

in conflicting findings, by various forums.

32
C.A.Nos.1570-1578 of 2021 etc.

22. In second set of cases it is clear that when the seller

approached the Facilitation Council making certain claims

against the buyer, buyer after his appearance, has approached

the High Court under Section 11(6) of the 1996 Act for

appointment of arbitrator on the ground that there is an

agreement between the parties for arbitration. Though it was

pleaded before the High Court by the appellant that it has

already approached the Facilitation Council and proceedings are

pending, the respondent as well contest the proceedings and also

lay its counter-claim, the High Court has rejected such plea on

the ground that the 2006 Act primarily deals with the claims of

the seller only. The High Court has held that as the buyer

cannot make counter-claim, the proceedings cannot be

proceeded with before the Council under 2006 Act and

accordingly ordered by appointing second arbitrator.

23. The obligations of the buyer to make payment, and award

of interest at three times of the bank rate notified by Reserve

Bank in the event of delay by the buyer and the mechanism for

recovery and reference to Micro and Small Enterprises

Facilitation Council and further remedies under the 2006 Act for

33
C.A.Nos.1570-1578 of 2021 etc.

the party aggrieved by the awards, are covered by Chapter V of

the 2006 Act. The provisions of Section 15 to 23 of the Act are

given overriding effect notwithstanding anything inconsistent

therewith contained in any other law for the time being in force.

From the Statement of Objects and Reasons also it is clear that it

is a beneficial legislation to the small, medium and micro sector.

The Arbitration and Conciliation Act, 1996 is a general law

whereas the Micro, Small and Medium Enterprises Development

Act, 2006 is a special beneficial legislation which is intended to

benefit micro, small and medium enterprises covered by the said

Act. The Act of 2006 contemplates a statutory arbitration when

conciliation fails. A party which is covered by the provisions of

2006 Act allows a party to apply to the Council constituted under

the Act to first conciliate and then arbitrate on the dispute

between it and other parties. There are fundamental differences

in the settlement mechanism under the 2006 Act and the 1996

Act. The first difference is, the Council constituted under the

2006 Act to undertake mandatory conciliation before the

arbitration which is not so under the 1996 Act. Secondly, in the

event of failure of conciliation under the 2006 Act, the Council or

34
C.A.Nos.1570-1578 of 2021 etc.

the centre or institution is identified by it for arbitration. The

1996 Act allows resolution of disputes by agreed forum. The

third difference is that, in the event of award in favour of seller

and if the same is to be challenged, there is a condition for pre-

deposit of 75% of the amount awarded. Such is not the case in

the 1996 Act. When such beneficial provisions are there in the

special enactment, such benefits cannot be denied on the ground

that counter-claim is not maintainable before the Council. In

any case, whenever buyer wish to avoid the jurisdiction of the

Council, the buyer can do on the spacious plea of counter-claim,

without responding to the claims of the seller. When the

provisions of Sections 15 to 23 are given overriding effect under

Section 24 of the Act and further the 2006 Act is a beneficial

legislation, we are of the view that even the buyer, if any claim is

there, can very well subject to the jurisdiction before the Council

and make its claim/ counter claim as otherwise it will defeat the

very objects of the Act which is a beneficial legislation to micro,

small and medium enterprises. Even in cases where there is no

agreement for resolution of disputes by way of arbitration, if the

seller is a party covered by Micro, Small and Medium Enterprises

35
C.A.Nos.1570-1578 of 2021 etc.

Development Act, 2006, if such party approaches the Council for

resolution of dispute, other party may approach the civil court or

any other forum making claims on the same issue. If two parallel

proceedings are allowed, it may result in conflicting findings. At

this stage, it is relevant to notice the judgment of this Court in

the case of Edukanti Kistamma (Dead) through LRs. v. S.

Venkatareddy (Dead) through LRs. & Ors.4 where this Court

has held that a special Statute would be preferred over general

one where it is beneficial one. It was explained that the purport

and object of the Act must be given its full effect by applying the

principles of purposive construction. Thus, it is clear that out of

the two legislations, the provisions of MSMED Act will prevail,

especially when it has overriding provision under Section 24

thereof. Thus, we hold that MSMED Act, being a special Statute,

will have an overriding effect vis-à-vis Arbitration and

Conciliation Act, 1996, which is a general Act. Even if there is an

agreement between the parties for resolution of disputes by

arbitration, if a seller is covered by Micro, Small and Medium

Enterprises Development Act, 2006, the seller can certainly

4
(2010) 1 SCC 756

36
C.A.Nos.1570-1578 of 2021 etc.

approach the competent authority to make its claim. If any

agreement between the parties is there, same is to be ignored in

view of the statutory obligations and mechanism provided under

the 2006 Act. Further, apart from the provision under Section

23(2A) of the 1996 Act, it is to be noticed that if counter-claim is

not permitted, buyer can get over the legal obligation of

compound interest at 3 times of the bank rate and the ―75% pre-

deposit‖ contemplated under Sections 16 and 19 of the MSMED

Act.

24. For the aforesaid reasons and on a harmonious

construction of Section 18(3) of the 2006 Act and Section 7(1)

and Section 23(2A) of the 1996 Act, we are of the view that

counter-claim is maintainable before the statutory authorities

under MSMED Act.

25. In C.A.Nos.1620-1622 of 2021, the High Court, while

negating the plea of the appellant, on the maintainability of

counter-claim, has allowed the application filed by the

respondent under Section 11(6) of the 1996 Act and appointed

the second arbitrator. Though, we are of the view that counter-

claim and set-off is maintainable before the statutory authorities

37
C.A.Nos.1570-1578 of 2021 etc.

under MSMED Act, appellant in this set of appeals is not entitled

for the relief, for the reason that on the date of supply of goods

and services the appellant did not have the registration by

submitting the memorandum as per Section 8 of the Act. The

bids were invited on 23.02.2010, appellant submitted its bid on

17.05.2010, respondent awarded contract to the appellant on

24.09.2010 and the parties signed the contract documents for

supply of material, installation/commissioning of the power plant

on 29.07.2011. Thereafter, supplies were made and the

appellant has raised first invoice on 02.11.2011 for supply

contract and also raised the first invoice pursuant to contract for

installation on 07.07.2012 and the appellant has raised the last

invoice in furtherance of contract for supply of material, on

29.03.2014. The appellant also claims to have raised last invoice

on 29.03.2015 in furtherance of contract for installation. It is to

be noticed that appellant approached the District Industrial

Centre for grant of entrepreneur memorandum only on

25.03.2015.

26. Though the appellant claims the benefit of provisions

under MSMED Act, on the ground that the appellant was also

38
C.A.Nos.1570-1578 of 2021 etc.

supplying as on the date of making the claim, as provided under

Section 8 of the MSMED Act, but same is not based on any

acceptable material. The appellant, in support of its case placed

reliance on a judgment of the Delhi High Court in the case of GE

T&D India Ltd. v. Reliable Engineering Projects and

Marketing5, but the said case is clearly distinguishable on facts

as much as in the said case, the supplies continued even after

registration of entity under Section 8 of the Act. In the present

case, undisputed position is that the supplies were concluded

prior to registration of supplier. The said judgment of Delhi High

Court relied on by the appellant also would not render any

assistance in support of the case of the appellant. In our view, to

seek the benefit of provisions under MSMED Act, the seller

should have registered under the provisions of the Act, as on the

date of entering into the contract. In any event, for the supplies

pursuant to the contract made before the registration of the unit

under provisions of the MSMED Act, no benefit can be sought by

such entity, as contemplated under MSMED Act. While

interpreting the provisions of Interest on Delayed Payments to

5
2017 SCC OnLine Del 6978

39
C.A.Nos.1570-1578 of 2021 etc.

Small Scale and Ancillary Industrial Undertakings Act, 1993, this

Court, in the judgment in the case of Shanti Conductors Pvt.

Ltd. & Anr. etc. v. Assam State Electricity Board & Ors. etc.6

has held that date of supply of goods/services can be taken as

the relevant date, as opposed to date on which contract for

supply was entered, for applicability of the aforesaid Act. Even

applying the said ratio also, the appellant is not entitled to seek

the benefit of the Act. There is no acceptable material to show

that, supply of goods has taken place or any services were

rendered, subsequent to registration of appellant as the unit

under MSMED Act, 2006. By taking recourse to filing

memorandum under sub-section (1) of Section 8 of the Act,

subsequent to entering into contract and supply of goods and

services, one cannot assume the legal status of being classified

under MSMED Act, 2006, as an enterprise, to claim the benefit

retrospectively from the date on which appellant entered into

contract with the respondent. The appellant cannot become

micro or small enterprise or supplier, to claim the benefits within

the meaning of MSMED Act 2006, by submitting a memorandum

6
(2019) 19 SCC 529

40
C.A.Nos.1570-1578 of 2021 etc.

to obtain registration subsequent to entering into the contract

and supply of goods and services. If any registration is obtained,

same will be prospective and applies for supply of goods and

services subsequent to registration but cannot operate

retrospectively. Any other interpretation of the provision would

lead to absurdity and confer unwarranted benefit in favour of a

party not intended by legislation.

27. It is also not in dispute that the appellant approached

the District Industrial Centre and filed entrepreneur

memorandum under Section 8 of the MSMED Act 2006 only on

25.03.2015 and later has approached the Council invoking the

provisions of MSMED Act by filing application under Section 18

of the Act. It is the specific case of the respondent that the

appellant has abandoned the incomplete work having made

deficient and defective supplies in the month of February/March

2015. In that view of the matter, we are of the firm view that the

appellant is not entitled to invoke the provisions of Chapter V

and seek reference to arbitration under Section 18 of the MSMED

Act, 2006. Further, as it is also not in dispute that there is an

agreement for arbitration between the parties for resolution of

41
C.A.Nos.1570-1578 of 2021 etc.

disputes pursuant to their contract, as such, we are of the view

that the High Court has rightly allowed the application filed by

the respondent under Section 11(6) of the 1996 Act.

28. For the aforesaid reasons, these Civil Appeals are

dismissed with no order as to costs.

……………………………J.

[Ashok Bhushan]

……………………………J.

[R. Subhash Reddy]
New Delhi.

June 29, 2021

42



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