Arbitration and Conciliation Act, 1996 – s.37 – Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) – Whether the provisions of Chapter-V of the MSMED Act, 2006 would have an effect overriding the provisions of the Arbitration Act, 1996? – Held :One of principles of statutory interpretation relevant for our purpose is contained in the Latin maxim “leges posteriors priores contrarias abrogant” (the later laws shall abrogate earlier contrary laws) – Another relevant rule of construction is contained in the maxim “generalia specialibus non derogant” (General laws do not prevail over Special laws) – When there is apparent conflict between two statutes, the provisions of a general statute must yield to those of a special one – MSMED Act, 2006 being a special law and Arbitration Act, 1996 being a general law, the provisions of MSMED Act would have precedence over the Arbitration Act – It is settled legal position that no agreement entered into between the parties could be given primacy over the statutory provisions – When the Special Act i.e., MSMED Act, 2006 has been created for ensuring timely and smooth payment to the suppliers who are the micro and small enterprises, and to provide a legal framework for resolving the dispute with regard to the recovery of dues between the parties under the Act, also providing an overriding effect to the said law over any other law for the time being in force, any interpretation in derogation thereof would frustrate the very object of the Act. Arbitration and Conciliation Act, 1996 – s.37 – Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) – Whether any party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council under sub-section (1) of Section 18 of the said Act, if an independent arbitration agreement existed between the parties as contemplated in Section 7 of the Arbitration Act, 1996? 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 – S 18(1) of the MSMED Act, 2006 is an enabling provision which gives the party to a dispute covered under Section 17 thereof, a choice to approach the Facilitation Council, despite an arbitration agreement existing between the parties.
Arbitration and Conciliation Act, 1996 – s.37 – Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) – Whether the Micro and Small Enterprises Facilitation Council, itself could take up the dispute for arbitration and act as an arbitrator, when the council itself had conducted the conciliation proceedings under sub-section (2) of the Section 18 of the MSMED Act, 2006 in view of the bar contained in Section 80 of the Arbitration Act,1996? Held : In affirmative – Section 38 of the Arbitration Act, 1996 contains a bar that the Conciliator shall not act as an Arbitrator in any arbitral proceedings in respect of a dispute that is subject of conciliation proceedings, the said bar stands superseded by the provisions contained in Section 18 read with Section 24 of the MSMED Act, 2006 – The provisions of Arbitration Act, 1996 would apply to the proceedings conducted by the Facilitation Council only after the process of conciliation initiated by the council under Section 18(2) fails and the council either itself takes up the dispute for arbitration or refers to it to any institute or centre for such arbitration as contemplated under Section 18(3) of the MSMED Act, 2006. Disposing the appeals, the Court
HELD : 1.1 The first and foremost issue involved in these appeals is whether the provisions contained in Chapter V of the MSMED Act, 2006 with regard to the Delayed Payments to Micro and Small Enterprises would have the precedence over the provisions contained in the Arbitration Act, 1996, more particularly when the parties by execution of an independent agreement as contemplated in Section 7 of the Arbitration Act had agreed to submit to arbitration the disputes arising between them? In other words, whether the provisions contained in Chapter V of the MSMED Act, 2006 would have an effect overriding the provisions contained in the Arbitration Act, 1996? [Para 16][1120-G; 1121-A-B]
1.2 One of principles of statutory interpretation relevant for our purpose is contained in the Latin maxim “leges posteriors priores contrarias abrogant” (the later laws shall abrogate earlier contrary laws). Another relevant rule of construction is contained in the maxim “generalia specialibus non derogant” (General laws do not prevail over Special laws). When there is apparent conflict between two statutes, the provisions of a general statute must yield to those of a special one. [Para 18][1121-E]
1.3 Having regard to the purpose, intention and objects as also the scheme of the MSMED Act, 2006 and having regard to the unambiguous expressions used in Chapter-V thereof, following salient features emerge:
i.
Chapter-V is “party-specific”, in as much as the party i.e. the ‘Buyer’ and the ‘Supplier’ as defined in Sections 2(d) and 2(n) respectively are covered under the said Chapter.
ii.
A specific provision is made fastening a liability on the buyer to make payment of the dues to the supplier in respect of the goods supplied or services rendered to the buyer, as also a liability to pay compound interest at three times of the bank rate notified by the Reserve Bank, if the buyer fails to make payment within the prescribed time limit. The said liability to pay compound interest is irrespective of any agreement between the parties or of any law for the time being in force.
iii.
A dedicated statutory forum i.e., Micro and Small Enterprises Facilitation Council is provided to enable any party to a dispute with regard to any amount due under Section 17, to make reference to such Council.
iv.
A specific procedure has been prescribed to be followed by the Facilitation Council after the reference is made to it by any party to the dispute.
v.
vi.
vii.
The Facilitation Council or the centres providing alternative dispute resolution services have been conferred with the jurisdiction to act as an Arbitrator or Conciliator under Section 18(4), notwithstanding anything contained in any law for the time being in force, in a dispute between the supplier located within its jurisdiction.
The provisions of Arbitration Act, 1996 has been made applicable to the dispute only after the Conciliation initiated under sub-section (2) does not succeed and stands terminated without any settlement between the parties.
s.18(4)(1) starting with non obstante clauses have an effect overriding the other laws for the time being in force.
viii. As per Section 24, the provisions of Sections 15 to
23 have an ef fect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. [Para 23][1123-F-H; 1124A-F]
1.4 Thus, the Arbitration Act, 1996 in general governs the law of Arbitration and Conciliation, whereas the MSMED Act, 2006 governs specific nature of disputes arising between specific categories of persons, to be resolved by following a specific process through a specific forum. Ergo, the MSMED Act, 2006 being a special law and Arbitration Act, 1996 being a general law, the provisions of MSMED Act would have precedence over or prevail over the Arbitration Act, 1996. [Para 25][1125-D]
1.5 There cannot be any disagreement to the proposition of law laid down in various decisions of this Court, relied upon by the learned counsel for the buyers that the Court has to read the agreement as it is and cannot rewrite or create a new one, and that the parties to an arbitration agreement have an autonomy to decide not only on the procedural law to be followed but also on the substantive law, however, it is equally settled legal position that no agreement entered into between the parties could be given primacy over the statutory provisions. When the Special Act i.e., MSMED Act, 2006 has been created for ensuring timely and smooth payment to the suppliers who are the micro and small enterprises, and to provide a legal framework for resolving the dispute with regard to the recovery of dues between the parties under the Act, also providing an overriding effect to the said law over any other law for the time being in force, any interpretation in derogation thereof would frustrate the very object of the Act. The submission therefore that an independent arbitration agreement entered into between the parties under the Arbitration Act, 1996 would prevail over the statutory provisions of MSMED Act, 2006 cannot countenanced. As such, sub-section (1) of Section
18 of the MSMED Act, 2006 is an enabling provision which gives the party to a dispute covered under Section 17 thereof, a choice to approach the Facilitation Council, despite an arbitration agreement existing between the parties. Absence of the word ‘agreement’ in the said provision could neither be construed as casus omissus in the statute nor be construed as a preclusion against the party to a dispute covered under Section 17 to approach the Facilitation Council, on the ground that there is an arbitration agreement existing between the parties. In fact, it is a substantial right created in favour of the party under the said provision. It is therefore 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. [Para 28][1127-B-G]
1.6 The aforesaid legal position also dispels the arguments advanced on behalf of the counsel for the buyers that the Facilitation Council having acted as a Conciliator under Section 18(2) of the MSMED Act, 2006 itself cannot take up the dispute for arbitration and act as an Arbitrator. Though it is true that Section 38 of the Arbitration Act, 1996 contains a bar that the Conciliator shall not act as an Arbitrator in any arbitral proceedings in respect of a dispute that is subject of conciliation proceedings, the said bar stands superseded by the provisions contained in Section 18 read with Section 24 of the MSMED Act, 2006. As held earlier, the provisions contained in Chapter-V of the MSMED Act, 2006 have an effect overriding the provisions of the Arbitration Act, 1996. The provisions of Arbitration Act, 1996 would apply to the proceedings conducted by the Facilitation Council only after the process of conciliation initiated by the council under Section 18(2) fails and the council either itself takes up the dispute for arbitration or refers to it to any institute or centre for such arbitration as contemplated under Section 18(3) of the MSMED Act, 2006. [Para 29][1127-H; 1128-A-C]
1.7 When the Facilitation Council or the institution or the centre acts as an Arbitrator, it shall have all powers to decide the disputes referred to it as if such arbitration was in pursuance of the arbitration agreement referred to in sub- section (1) of Section
7 of the Arbitration Act, 1996 and then all the trappings of the Arbitration Act, 1996 would apply to such arbitration. It is needless to say that such Facilitation Council/institution/centre acting as an arbitral tribunal would also be competent to rule on its own jurisdiction like any other arbitral tribunal appointed under the Arbitration Act, 1996 would have, as contemplated in Section
16 thereof. [Para 30][1128-D-E]
1.8 The upshot of the above is that:
i.
Chapter-V of the MSMED Act, 2006 would override the provisions of the Arbitration Act, 1996.
ii.
No party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council, though an independent arbitration agreement exists between the parties.
iii.
iv.
The Facilitation Council, which had initiated the Conciliation proceedings under Section 18(2) of the MSMED Act, 2006 would be entitled to act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act.
The proceedings before the Facilitation Council/institute/centre acting as an arbitrator/arbitration tribunal under Section 18(3) of MSMED Act, 2006 would be governed by the Arbitration Act, 1996. v.
The Facilitation Council/institute/centre acting as an arbitral tribunal by virtue of Section 18(3) of the MSMED Act, 2006 would be competent to rule on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration Act, 1996.
vi.
A party who was not the ‘supplier’ as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract cannot seek any benefit as the ‘supplier’ under the MSMED Act, 2006. If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration. [Para 34][1130-B-G]
SBP & Company v. Patel Engineering Ltd (2005) 8 SCC
618 : [2005] 4 Suppl. SCR 688; Shiv Shakti Cooperative Housing Society, Nagpur vs. Swaraaj Developers and Others (2003) 6 SCC 659 : [2003] 3 SCR 762; Bharat Aluminum Company v. Kaiser Aluminum Technical Services (2012) 9 SCC 648; Antrix Corporaton Limited v. Devas Multimedia Private Limited (2014) 11 SCC
560 : [2013] 6 SCR 453; Amazon.com NV Investment Holdings LLC. v. Future Retail Limited and other (2022)
1 SCC 209; Orissa State Financial Corporation v. Narsinghch. Nayak and Others (2003) 10 SCC 261; Shin Satellite Public Co. Ltd. v. Jain Studios Ltd. (2006)
2 SCC 628 : [2006] 1 SCR 933; Silpi Industries etc. v. Kerala State Road Transport Corporation and Anr 2021 SCC Online SC 439; Secur Industries Ltd. v. Godrej & Boyce Mfg. Co. Ltd. And Anr (2004) 3 SCC 447 : [2004]
2 SCR 705; Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. & Ors (2001) 3 SCC 71 : [2001] 1 SCR 932; Maruti Udyog Ltd. v. Ram Lal & Ors (2005) 2 SCC 638 : [2005] 1 SCR 790; Union of India v. Prabhakaran Vijaya Kumar and Ors (2008) 9 SCC 517; Regional Provident Fund Commr. v. Hoogly Mills Co. Ltd. (2012) 2 SCC 489 : [2012] 1 SCR 363;
Commissioner of Income Tax, Patiala v. Shahzada Nand & Sons AIR 1966 SC 1342 : [1966] 3 SCR 379; Kaushalya Rani v. Gopal Singh AIR 1964 SC 260 : [1964] 4 SCR 982; K. Prabhakaran v. P. Jayarajan (2005) 1 SCC 754 : [2005] 1 SCR 296 - Referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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