Apex court approve the applicability of Limitation Act 1963 in arbitration proceedings

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 Ac; (Para 17)

M/S. SILPI INDUSTRIES ETC. VS KERALA STATE ROAD TRANSPORT CORPORATION & ANR. ETC.

Civil Appeal Nos.1570-1578 Of 2021

With

M/S. KHYAATI ENGINEERING VS PRODIGY HYDRO POWER PVT. LTD

Civil Appeal Nos.1620-1622 Of 2021

Dated 29th June 2021

Counsel for Civil Appeal Nos.1570-1578 Of 2021

Appellants: Senior counsel Sri V. Giri

Respondents: Ms. Aishwarya Bhati, Additional Solicitor General

Counsel for Civil Appeal Nos.1620-1622 of 2021:

Appellants: Sri P.B. Suresh

Respondents: Senior Counsel Sri Basava Prabhu Patil

The Supreme Court bench consisting of Justice Ashok Bhushan and R. Subhash Reddy dismissed the Civil Appeal Nos.1570-1578 of 2021 along with Civil Appeal Nos.1620-1622 of 2021.

In view of the common issues which arise for consideration, these appeals are heard together and disposed of by this common judgment. (Para 1)

The civil Appeal Nos.1570-1578 of 2021 are filed, aggrieved by the common judgment dated 11.08.2017 passed in Arbitration Appeal Nos.69- 81 of 2014.

The high court 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. (Para 2)

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 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. The award was challenged by Section 34 of the Act. The appeal was dismissed by Kerala High Court and respondent appealed under Section 37 of the Act.

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. (Para 5)

The 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.

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 equipment 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 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 equipment. (Para 6)

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? (Para 13)

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. Therefore, a liability to make payment by the buyer 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 as per defined in Section 2(b).

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.

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, 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. (Para 18).

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. (Para 22)

The Supreme Court addressed:

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 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. (Para 27)

For the aforesaid reasons, these Civil Appeals are dismissed with no order as to costs. (Para 28)

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