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HIGH COURT OF DELHI
LPA 91/2024 and CM APPL. 6199/2024, CM APPL. 6200/2024 &
STATE TRADING CORPORATION OF INDIA LTD..... Appellant
Through: Mr. Sanjeev Puri, Sr. Advocate
DELHI AND ANR. ..... Respondent
Through:
Date of Decision: 8th February, 2024
HON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA
JUDGMENT
CM APPL. 6200-01/2024 (for exemption)
1. Allowed, subject to all just exceptions.
2. Accordingly, the applications stand disposed of LPA 91/2024 and CM APPL. 6199/2024
3. This Letters Patent Appeal has been filed challenging the impugned order dated 15th January, 2024, passed in W.P.(C) 4227/2023, whereby the learned Single Judge declined to interfere with the Award dated 1st December, 2012, passed by the Delhi Arbitration Centre in ARB. CASE ID: DL/10/M/SWC/00035 of 2022 (‘the Award’), holding that when a dispute resolution mechanism is provided under the Act, the Court in exercise of jurisdiction under Articles 226/227 of the Constitution of India should not entertain the petitions only because of condition of pre-deposit.
4. Bereft of unnecessary details, the writ petition was filed by the Appellant herein challenging the Award dated 1st December, 2012, whereby the learned Arbitrator awarded a sum of ₹ 7,21,10,729/- to the Respondent No. 2 along with pendente lite and future interest as per the Micro, Small and Medium Enterprises Development Act, 2006 (‘MSMED Act’) and litigation costs of ₹ 50,000/-. The Appellant contends that the Award is non-est in law and deserves to be set aside on ground of lack of inherent jurisdiction.
5. The Appellant contends that since, at the time of execution of contract and/or at the time of concluding of supplies thereunder i.e., in the year 1991, the Respondent No.2 was not registered under the MSMED Act, which itself was enacted in the year 2006 and therefore, the said Act is not applicable to the transactions/contracts entered into before enactment of said Act.
6. Learned senior counsel for the Appellant states that though the Appellant herein has the remedy of filing a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act of 1996’) challenging the Award, however, it is not an efficacious remedy in the facts of this case. He states that the Appellant will have to make a pre deposit of 75% of the awarded amount as per Section 19 of the MSMED Act. He states that, in fact, the objections by way of a petition under Section 34 of the Act of 1996 stands filed, however, the Appellant is not pursuing the same due to condition of pre-deposit.
6.1. He states that in similar facts, learned Single Judge of this Court in Malani Construction Company v. Delhi International Arbitration Centre and Ors.[1] had entertained a petition filed under Article 227 of the Constitution challenging the reference to arbitration made by Micro & Small Enterprises Facilitation Council (‘MSEFC’). He states that the writ petition was entertained and the reference to arbitration made by MSEFC was set aside.
7. This Court has considered the submissions of the Appellant and perused the record.
8. We are of the considered opinion that the writ petition filed by the Appellant under Articles 226/227 of the Constitution for setting aside the Award was not maintainable and the learned Single Judge has rightly dismissed the writ petition.
9. The issue of non-maintainability of the petitions filed under Article 226/227 of Constitution with respect to proceedings arising out of proceedings under Act of 1996 is no longer res integra. Undoubtedly, the Supreme Court in Deep Industries Ltd. v. ONGC[2] has observed that the power of the High Court under Article 226/227 has remained unaffected by the said Act of 1996; however, in the said judgment, the Supreme Court has further held that the High Court should be extremely circumspect in interfering with the arbitral proceedings in exercise of the said jurisdiction. In fact, the Constitution Bench of the Supreme Court [seven Judges Bench] in SBP & Co. v. Patel Engg. Ltd.,[3] has expressly disapproved the practice of the High Courts in entertaining writ petitions under Articles 226/227 of the Constitution against the orders passed in the arbitral proceedings.
10. Similarly, with respect to the issue of non-maintainability of writ petition challenging an award passed in pursuance to arbitral proceedings initiated under MSMED Act, the Supreme Court in its recent decision dated 6th November, 2023, passed in Civil Appeal No. 7491/2023, titled as ‘M/s India Glycols limited and Anr. v. Micro and Small Enterprises Facilitation Council, Medchal – Malkajgiri and Ors.’, has unequivocally held that petitions filed under Article 226/227 of Constitution of India ought not to be entertained in view of Section 18 of the MSMED Act, which provides for a recourse to statutory remedy for challenging the Award under Section 34 of the Act of 1996. The Supreme Court has observed that entertaining of petitions under Article 226/227 of Constitution, in order to obviate compliance with the requirement of pre-deposit under Section 19, would defeat the object and purpose of special enactment which has been legislated upon by Parliament. The relevant extracts of the said judgment read as under:
11. Further, the Constitutional Bench of Supreme Court in SBP & Co. (supra), while considering the issue of interference with an order passed by an arbitral tribunal under Articles 226/227 of the Constitution laid down as follows:
12. With respect to the objection taken by the Appellant to the effect that the MSEFC does not have inherent jurisdiction to make a reference to arbitration under the provisions of MSMED Act and therefore a writ petition would be maintainable, is also misconceived. In similar facts, the Supreme Court in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods (P) Ltd.[4] has categorically held that such an issue of lack of inherent jurisdiction can be decided by the Arbitral Tribunal appointed under the said 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 Act of 1996. 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 Act of 1996.
13. In light of the aforesaid judgments of the Supreme Court and more specifically the judgment M/s India Glycols Ltd. v. MSEFC, Medchal- Malkajgiri (supra) we are of the considered opinion that the judgment of the learned Single Judge of this Court in Malani Construction Company (supra) holding that a writ petition under Article 227 of the Constitution can be maintained, is not the correct view..
14. The Appellant has already taken recourse to the proceedings under Section 34 of the Act of 1996 and has raised the objection of lack of jurisidiction of the Arbitrator in the said petition. The contention of the Appellant that the obligation to comply with the condition of pre-deposit under Section 19 of the MSMED Act is onerous, is without any merit. The mandatory nature of Section 19 of the MSMED Act has been pronounced upon by the Supreme Court in Gujarat State Disaster Management Authority v. Aska Equipments Ltd.[5] and the same cannot be circumvented by the Petitioner by filing the present petition. The Petitioner admittedly has sufficient annual income of ₹. 62 crores and hardship, if any, in making the deposit is an issue which can be raised before the competent Court in terms of the observations made by the Supreme Court in Tirupati Steels v. Shubh Industrial Component and Anr.6.
15. In view of the aforesaid observation, the present appeal is without any merit and is accordingly, dismissed along with pending applications.