NBCC (INDIA) LTD. vs MICRO SMALL AND MEDIUM ENTERPRISES FACILITATION COUNCIL & ANR.
$~37.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ LPA 505/2024 & CM APPL. 35527/2024, CM APPL. 35529/2024 NBCC (INDIA) LTD. …..Appellant
Through: Mr. Jagdeep Singh Bakshi, Sr. Adv. with Mr. Rajnish Kumar Jha, Mr. Nishant Kr. Srivastava, Mr. Navroop Singh Bakshi, Advs. Mr. Vikash Kumar, DGM, Law.
versus
MICRO SMALL AND MEDIUM ENTERPRISES FACILITATION COUNCIL & ANR. …..Respondent
Through: Mr. Anuj Aggarwal, ASC, GNCTD with Ms. Arshya Singh, Mr. Yash Upadhyay, Mr. Siddharth Dutt, Advs. for R-1.
% Date of Decision: 04th July, 2024
CORAM: HON’BLE THE ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE TUSHAR RAO GEDELA
JUDGMENT
MANMOHAN, ACJ : (ORAL)
CM APPL. 35530/2024
1.
Present application has been filed for condonation of delay of eighty
nine (89) days.
2.
Keeping in view the averments in the application, the same is
allowed. Accordingly, the application stands disposed of.
LPA 505/2024 & CM APPL. 35527/2024, CM APPL. 35529/2024
3.
Present appeal has been filed challenging the order dated 16th February, 2024 passed by the learned Single Judge in W.P. (C) 15874/2023 whereby the learned Single Judge disposed of the petition and referred the matter to Delhi International Arbitration Centre (DIAC) for initiating arbitration proceedings under Section 18(3) of the Micro Small & Medium Enterprises Development (MSMED) Act, 2006 and the Arbitration & Conciliation Act, 1996 as there are disputed questions of fact.
4.
Learned senior counsel for the Appellant states that on 18th November, 2013, the Appellant floated a tender at the request of Directorate General of Health Services, Government of NCT Delhi (DGHS) for construction of 200 beds at Ambedkar Nagar, Delhi and one Pratibha Industries Ltd. became the lowest bidder for the said work. He states that an Agreement was executed between Pratibha Industries Ltd. and the Appellant.
5.
He further states that Pratibha Industries Ltd. issued a letter of Award in favour of Respondent no. 2 to execute the electrical work.
6.
He states that Respondent No. 2 filed an application for recovery of amounts due before the Micro Small & Medium Enterprises Facilitation Council (MSEFC), Delhi on 19th August, 2021 and notice was issued to both the Appellant and Respondent no. 2 to appear before MSEFC, Delhi. He states that subsequently, Respondent No. 2 filed a Writ Petition bearing no. W.P. (C) 13032/2022 for issuance of direction to the Appellant to pay the outstanding dues along with interest whereby this Court vide order dated 8th September, 2022 dismissed the petition and left it open to Respondent No. 2 to pursue the proceedings before the MSEFC.
7.
He states that Respondent No. 1/MSEFC, Delhi vide order dated 4th March, 2023 referred the matter to DIAC for initiating arbitration proceedings under Section 18 (3) of MSMED Act, 2006 and the Arbitration & Conciliation Act, 1996 against the Appellant.
8.
He submits that the jurisdiction of respondent No.1 under Section 18(3) is akin to Section 11(6) of the Arbitration and Conciliation Act, 1996.
9.
He states that the MSEFC, Delhi failed to act on the jurisdiction entrusted upon it under the special statute and further ignored to take note of the fact that there was no privity of contract between the Appellant and Respondent No. 2. He further states that MSEFC failed to issue the notice to Pratibha Industries Ltd. who was the main contractor with whom the Respondent No. 2 had entered into the contract. He also states that Respondent No. 2 was not registered as an MSME on the date of entering into contract and therefore the matter is not amenable to be referred to arbitration under the provisions of MSMED Act, 2006.
10.
He also states that the contract in question is a works contract and, therefore, MSMED Act is not applicable.
11.
In support of his contention and submission, he relies upon the judgment of the Supreme Court in Magic Eye Developers Pvt. Ltd. v. M/s. Green Edge Infrastructure Pvt. Ltd. & Ors. Etc., SLP(C) Nos. 1833942/2021, wherein the Supreme Court has held as under:
5. Heard. The short question which is posed for the consideration of this Court is, the jurisdiction of the referral court at pre-referral stage when the issue with respect to the existence and validity of an arbitration agreement is raised.
5.1 While considering the aforesaid issue Section 11(6A) of the Arbitration Act which has been added through Arbitration and Conciliation Amendment Act, 2015 is required to be read which
reads as follows: (6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under subsection (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement.
5.2 Thus, post-Arbitration and Conciliation Amendment Act, 2015, the jurisdiction of the court under Section 11(6) of the Act is limited to examining whether an arbitration agreement exists between the parties nothing more, nothing less. Thus, as per the Section 11(6A) of the Act, it is the duty cast upon the referral court to consider the dispute/issue with respect to the existence of an arbitration agreement.
5.3 At this stage, it is required to be noted that as per the settled position of law, pre-referral jurisdiction of the court under Section 11(6) of the Arbitration Act is very narrow and inheres two inquiries. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicants privity to the said agreement. The said matter requires a thorough examination by the referral court. [paragraph 25 of the decision in the case of NTPC Ltd. (supra)]. The Secondary inquiry that may arise at the reference stage itself is with respect to the nonarbitrability of the dispute. Both are different and distinct. So far as the first issue with respect to the existence and the validity of an arbitration agreement is concerned, as the same goes to the root of the matter, the same has to be to conclusively decided by the referral court at the referral stage itself. Now, so far as the nonarbitrability of the dispute is concerned, even as per the law laid-down by this Court in the case of Vidya Drolia (supra), the court at pre-referral stage and while examining the jurisdiction under Section 11(6) of the Act may even consider prima facie examining the arbitrability of claims. As observed, the prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straightforward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage. However, so far as the dispute with respect to the existence and validity of an arbitration agreement is concerned and when the same is raised at pre-referral stage, the referral court has to decide the said issue conclusively and finally and should not leave the said issue to be determined by the arbitral tribunal. The reason is that the issue with respect to the existence and validity of an arbitration agreement goes to the root of the matter. As observed by the Constitution Bench in the case of N.N. Global Mercantile Pvt. Ltd. (supra) Sans an agreement, there cannot be any reference to the arbitration. In the said decision this Court has also specifically observed and held that the intention behind the insertion of Section 11(6A) in the Act was to confine the Court, acting under Section 11, to examine and ascertain about the existence of an arbitration agreement. We are of the opinion that therefore, if the dispute/issue with respect to the existence and validity of an arbitration agreement is not conclusively and finally decided by the referral court while exercising the pre-referral jurisdiction under Section 11(6) and it is left to the arbitral tribunal, it will be contrary to Section 11(6A) of the Arbitration Act. It is the duty of the referral court to decide the said issue first conclusively to protect the parties from being forced to arbitrate when there does not exist any arbitration agreement and/or when there is no valid arbitration agreement at all.
12. Per contra, learned counsel for the Respondent, who appears on
advance notice, states that there is a privity of contract between the appellant
and respondent No.2 inasmuch as, direct payments of Rs. Six (6) Crores
Eight two (82) Lakhs was released by the appellant to respondent No.2. He
further states that the respondent No.2 was registered as MSME way back in
the year 2016.
13. Having heard learned counsel for the parties, this Court is of the view
that Section 18 of the MSMED Act, 2006 is not akin to Section 11(6) of the Arbitration and Conciliation Act, 1996. It is pertinent to mention that while the power under Section 11(6) is exercised by a referral court, the reference under the MSMED Act is exercised by the council.
14.
Further, the Supreme Court in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods (P) Ltd. [(2023) 6 SCC 401 has categorically held that the issue of lack of inherent jurisdiction can be decided by the Arbitral Tribunal appointed under the MSMED Act, which by virtue of Section 18(3) of MSMED Act is competent to rule on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration and Conciliation Act, 1996. Consequently, the sequitur is that the decision of the Arbitral Tribunal on the issue of jurisdiction would be amendable to challenge under Section 34 of the Arbitration and Conciliation Act, 1996.
15.
Keeping in view the aforesaid, the appeal and applications are dismissed on merits.
ACTING CHIEF JUSTICE
TUSHAR RAO GEDELA, J JULY 04, 2024
N.Khanna