Allahabad High Court: In a writ petition filed against the order passed by U.P. State Micro and Small Enterprises Facilitation Council (‘Council’), whereby the Council decided that, in view of Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006 (‘MSMED Act, 2006’), the Council itself will arbitrate the dispute in between the petitioner (Bata India) and respondent (AVS International), the division bench of Mahesh Chandra Tripathi and Manjive Shukla*, JJ. has reiterated that in the event of conciliation proceedings being carried out by the Council fails, the Council itself can proceed to arbitrate the dispute between the parties and the prohibition contained in Section 80 of the Arbitration and Conciliation Act, 1996 (‘A&C Act’) will have no application in exercise of the said discretion by the Council.
Background:
Bata India is India’s largest retailer and leading manufacturer of footwear and accessories. In addition to manufacturing its goods in its own factories, Bata also appoints various manufacturers for manufacturing certain goods for its retail sales as well as for institutional supply including the supply to various government organisations. Bata signed an agreement with AVS International for supply of footwear to Bata who were having rate contract with the Government of India to supply the footwear to Indian Navy.
Bata pleaded that AVS has committed several breaches of the terms of the manufacturing agreement and the purchase order regarding timely delivery of goods. Further several issues were raised by the Indian Navy regarding inferior quality and defective supply of the footwear manufactured and supplied by AVS. Due to aforesaid reasons Indian Navy rejected the goods thrice and levied late delivery penalty which, as per the agreed terms, was to be borne by AVS and as such, Bata has deducted such charges from the amount payable to AVS. Thus, AVS approached the Council. Thereafter, the Council passed an order, wherein the Council itself decided to arbitrate the dispute between the parties.
Analysis:
The Court said that Section 18 of the MSMED Act, 2006 has an overriding effect in view of Section 24 of the Act of 2006. The legislature in Section 18(2) of the Act of 2006 has categorically provided that the Council may either itself act as a Conciliator or may refer the matter for conciliation to any institution providing alternate dispute resolution services and the procedure of conciliation proceedings will be carried out as per Sections 65 to 81 of the A&C Act. Thereafter, the legislature under Section 18(3) of the MSMED Act, 2006 has given absolute discretion to the Council that in the event of failure of the conciliation proceedings either Council itself can proceed to arbitrate the dispute between the parties or Council may refer the arbitration to an institution providing alternate dispute resolution.
The Court said that the MSMED Act, 2006 is a special law and in view of Section 24 of the Act, 2006 the discretion given to Council for selecting the forum of arbitration between the parties has an overriding effect and therefore, at the stage of selection of forum for arbitration by the Council the prohibition contained in Section 80 of the A&C Act will not be applicable.
Thus, the Court held that the discretion granted to the Facilitation Council under Section 18(3) of the MSMED Act, 2006 for selecting an arbitration forum between parties is absolute. This discretion holds overriding effect over any other law, and the prohibition outlined in Section 80 of the A&C Act, 1996 will not apply when exercising such discretion.
Therefore, the Court held that there is no illegality or infirmity in the impugned orders passed by the Facilitation Council.
[Bata India Limited v U.P. State Micro and Small Enterprise Facilitation Council, 2023 SCC OnLine All 334, Order dated 31-05-2023]
Advocates who appeared in this case :
Counsel for Petitioner: Advocate Chandra Bhan Gupta;
Counsel for Respondent: Advocate Ashok Kumar Singh, Advocate Ashok Kumar Singh, Advocate Sujeet Kumar.
Arbitration and Conciliation Act, 1996 HERE
