IRCON INTERNATIONAL LIMITED v. PIONEER FABRICATORS PVT. LTD.

1. The present Appeal has been filed by the appellant herein against the order dated November 29, 2022 passed by the District Judge (Commercial Court), Shahdara, Karkardooma Delhi, rejecting the petition filed by the appellant under section 19 of the Micro, Small, and Medium Enterprises Development Act, 2006 (‘MSMED Act’) read with Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act of 1996’). The appellant has specifically prayed for the following reliefs through this instant petition: “In the premises, aforesaid, the Appellant prays that this Hon'ble Court may be pleased to:

1. May call for the records of the OMP (COMM) 01 of 2022 lying in the court of Ld. District Judge (Commercial Court) 04, Shahdara, Karkardooma Delhi;

2. And may set aside the impugned order dated 29.11.2022 passed in OMP (COMM) No. 01 of 2022.

3. And may make any such other and further Orders as it may deem fit”

2. The facts which led to the filing of the present appeal are as follows: 2.[1] It is stated that the appellant issued Purchase Order dated September 25, 2013 to the respondent for Supply, Erection, testing & commissioning of 02 nos. 20 MT Mounded underground LPG Storage Bullet & Pipeline for a Rail Coach Factory, Rae Bareli (U.P). 2.[2] It is further stated that the subject work was completed by July 21, 2015. The respondent had also issued a ‘No Claim Certificate’ dated November 05, 2015 for ₹1,12,95,207/- which was the agreed amount towards full and final payment between the appellant and the respondent. 2.[3] It is stated that the respondent had applied for the registration under section 8 of the MSMED Act, on July 25, 2016 and consequently got registered under the provisions of the MSMED Act. 2.[4] It is further stated that the respondent had also sent a legal notice dated February 02, 2017, to the appellant, wherein it was admitted that it had issued a ‘No Claim Certificate’ after having agreed on ₹1,12,95,207/being the full and final payment. It is further submitted that out of this, an amount of ₹1,01,81,349/- had been received by the respondent. However, the amount of ₹ 11,13,858/was withheld by the appellant subject to the respondent submitting proof of actual tax paid by it under Clause 5.[2] of the Conditions of Contract (entered between the parties herein). This fact was also clarified by the appellant by submitting its reply dated March 08, 2017, wherein it sought proof of tax having been paid by the respondent for the said amount. 2.[5] Aggrieved by not receiving of the said amount, the respondent lodged its claim with Micro and Small Enterprises Facilitation Council, on December 11, 2018. Specifically, it had raised a claim of ₹36,49,707/- towards deduction qua Liquidated Damages and ₹33,53,694.15/towards interest thereon. 2.[6] It is further stated that conciliatory process had failed and thus the matter was further referred to arbitration in September 2019. 2.[7] Thereafter, vide award dated January 09, 2022, an award amounting to ₹63,35,077/- was passed in favour of the respondent and against the appellant. 2.[8] To challenge the afore-said award passed against the appellant, the appellant filed a petition under section 19 of the MSMED Act read with section 34 of the Act of 1996, bearing No. OMP (COMM) No.01/2022, before the District Judge, Commercial Court, Shahdara, Karkardooma, Delhi. 2.[9] Aggrieved by the impugned order dated November 29, 2022, passed in the afore-said case, whereby the said petition was dismissed by the District Court on the ground of lack of territorial jurisdiction to entertain the petition, the appellant has filed the instant FAO.

3. It is stated by Mr. Chandan Kumar, learned counsel appearing for the appellant that the impugned order is illegal on the following grounds: 3.[1] The impugned order has been passed contrary judgment of the Supreme Court in the case of Gujarat State Civil Supplies Corporation Ltd. vs. Mahakali Foods Pvt. Ltd.(Unit 2) and Another, 2022 SCC OnLine SC 1492, which entirely covers the issue of whether Courts in Delhi shall have the territorial jurisdiction to entertain the challenge against the award passed by the arbitrator at Kanpur, Uttar Pradesh. 3.[2] The District Court had accepted the fact that the MSMED Act has an overriding effect over the Act of 1996, however, on the issue of the jurisdiction, it had given primacy to the concept of ‘seat of arbitration’ over the mandate of section 19 of the MSMED Act. 3.[3] The ratio adopted by the District Court, as laid down in the judgments of the Supreme Court in the cases of BGS SGS SOMA JV vs. NHPC LTD., arising out of Civil Appeal No. 9307 of 2019, decided on December 10, 2019 and Hindustan Construction Company Ltd. vs. NHPC Ltd. & Anr., arising out of Transfer Petition (C) no. 3053 of 2019 decided on March 04, 2020, cannot be applied in the facts and circumstances of the instant FAO, because in the said cases, the arbitration process undergone between the parties therein, took place arising out of an arbitration agreement entered between them, wherein both the parties also had an agreement over the seat of arbitration. However, the arbitration that took place in the present case did not arise out of the arbitration agreement between the parties herein. It is a statutory arbitration under the MSMED Act, wherein parties have no opportunity to choose a seat of arbitration. It is his submission that the District Court completely ignored the observation of the Supreme Court in paragraph 35 of the Gujarat State Civil Supplies Corporation Ltd. (supra).

3.4. Section 19 of the MSMED Act, allows filing of objection before ‘any court’ having the jurisdiction, which includes both territorial and pecuniary jurisdiction. He submitted that the interpretation by the District Court to hold that Section 19 of the MSMED Act does not grant territorial jurisdiction, is without any basis and suffers from flaw of interpretation. He substantiated this submission by contending that the words ‘any court’ inserted by the Legislature under Section 19 of the MSMED Act, is not merely a surplusage. In order to emphasis on its interpretation and to contend that whilst interpreting a statute, efforts should be made by the Courts to give effect to each and every word used by the legislature, reliance has been placed upon the judgment of the Constitutional Bench of the Supreme Court in the case of Nath Devi vs. Radha Devi Gupta, (2005) 2 SCC 271. In order to further substantiate this submission, reliance was also placed upon the recent judgment of the Supreme Court in the case of Noor Mohammed vs. Khurram Pasha, 2022 SCC OnLine SC 956. 3.[5] If the District Court had no jurisdiction to entertain the subject petition then as a corollary it could not have exercised its jurisdiction to direct the release of the pre-deposit to the respondent as well. It was his submission that the District Court’s reliance on the order dated July 06, 2021 passed in the FAO (COMM) 103 of 2021 titled as Bhartia Non Conventional Products (Jamshedpur) vs. Akshit Enterprises Private Limited, is misplaced, inasmuch as, it can be reflected from paragraphs 10 and 11 of that order that it was an order passed with the consent of the parties therein. Moreover, it has also been his submission that the said order was passed in 2021, without having taken the benefit of authority of the Supreme Court in the case of Gujarat State Civil Supplies Corporation Ltd. (supra). 3.[6] Reliance has also been placed upon another judgment of the Supreme Court in the case of M/s Silpi Industries etc. vs. Kerala State Road Transport Corporation and Anr., 2021 SCC OnLine SC 439, specifically on paragraph 23 of the said judgment, to contend that the MSMED Act contemplates a statutory arbitration as compared to the Act of 1996 inasmuch as the former Act, being a special statute, overrides the provisions of the Act of 1996, which is a only general Act. 3.[7] The MSMED Act, is inconsistent with the Act of 1996, thus, distinction had also been drawn between the provisions of the MSMED Act and the Act of 1996, to highlight the following inconsistencies between the two Acts:a. Section 18 (4) of the MSMED Act allows the same person to act either as Conciliator or Arbitrator. However, there is no such provision in the Act of 1996; b. Section 19 of the MSMED Act, prescribes for predeposit of the amount awarded, while Section 34 of the Act of 1996 does not have such provision; c. Moreover, Section 19 of the MSMED Act sets out a procedure vis-à-vis a decree, award or other orders made either by the counsel or any other institution or centre providing the alternative dispute resolution services to which reference has been made. While Section 34 of the Act of 1996 only allows challenge to an award and that too by the Arbitrator so chosen by the parties; d. Further Section 19 of the MSMED Act allows filing of the petition to challenge a decree / award or other order in ‘any court’ while Act of 1996 mandates such challenge to be made in the ‘the Court’only. e. Furthermore, Section 19 of the MSMED Act reads as ‘Application for setting aside decree / award or order’, while Section 34 of the Act of 1996 merely reads as ‘Application for setting aside arbitral award’; f. In the terms of mandate of Section 2(4) of the Act of 1996, the challenge procedure given in Section 34 of the Act of 1996 is inconsistent with the challenge procedure given in Section 19 of the MSMED Act. So, it is his submission that the MSMED Act will definitely have precedence over the Act of 1996. g. Even otherwise, the concept stipulated under Section 24 of the MSMED Act makes it clear that the provisions of the MSMED Act, override any other provision which is found to be inconsistent with them. h. So, it was his submission that the jurisdiction for adjudication of the disputes arising out of the facts of the instant FAO should be governed by the provisions of the MSMED Act, specifically, Section 19 of the same, which stipulates that ‘any Court’ having the jurisdiction can entertain an application filed under it for setting aside a decree, award or order.

4. So, on the basis of the afore-mentioned grounds, the appellant is seeking that the impugned order be set aside.

5. On the other hand, the submissions made by Mr. Vilas Sharma, learned counsel appearing on behalf of the respondent, before the learned District Judge, have been reiterated in the following manner: 5.[1] That the agreement executed between the parties herein, does not have the arbitration clause. 5.[2] That since the supplier/respondent herein, is located in Kanpur and the award was rendered by the Facilitation Council at Kanpur, the seat of arbitration would be at Kanpur. So, as a corollary, the challenge to the arbitral award should be filed before the Court in Kanpur. 5.[3] That since the seat of arbitration was at Kanpur, as per the ratio laid down by the Supreme Court in the cases of BGS SGS SOMA JV (supra) and Hindustan Construction Company Ltd. (supra), the Court of place where the seat is designated, shall have the territorial jurisdiction to entertain the challenge against the arbitral award. 5.[4] That the District Judge was right, to put reliance upon the order dated July 06, 2021, passed in FAO (COMM) 103/2021 titled as Bhartia Non Conventional Products (Jamshedpur) (supra) for directing the appellant herein to release the pre-deposit amount in favour of the respondent herein, on the ground that the District Judge did not have the territorial jurisdiction to entertain the challenge filed against the arbitral award passed by the Facilitation Council at Kanpur.

6. So, on the basis of the aforesaid submissions, Mr. Sharma has prayed that the impugned order passed by the District Judge should not be interfered with.

ANALYSIS

7. Having heard the learned counsel for the parties and perused the record, the short issue which arises for consideration is whether the learned District Judge was right in rejecting the petition filed by the appellant challenging the award dated January 09, 2022 passed by the Facilitation Council at Kanpur, whereby the learned Arbitrator has awarded an amount of ₹63,35,077/- in favour of the respondent herein on the ground that the learned District Judge does not have the territorial jurisdiction to entertain the petition. Suffice to state that the District Judge has come to such a finding only on the basis of the fact that the arbitration proceedings which were held in terms of the provisions of MSMED Act, took place under the aegis of the Facilitation Council at Kanpur.

8. The relevant clause in the agreement entered between the parties herein is reproduced as under: “JURISDICTION The contract shall in all respect be construe and operative in conformity with the Indian Law and be subject to the jurisdiction of Delhi Courts (India).”

9. Mr. Kumar, had relied upon the Judgment of the Supreme Court in the case of Gujarat State Civil Supplies Corporation Ltd. (supra), to contend that the issue is entirely covered by the said Judgment inasmuch as the jurisdiction of the Facilitation Council which overrides the agreement executed between the parties is only with regard to the conduct of proceedings of the Facilitation Council and in no way shall affect the jurisdiction of Courts in Delhi to entertain a petition challenging the award under Section 34 of the Act of 1996, in view of clear stipulation in the agreement wherein the parties have conferred exclusive jurisdiction to the Courts in Delhi.

10. The plea of the learned counsel for the respondent is otherwise, inasmuch as the Facilitation Council being based in Kanpur, it would be the exclusive jurisdiction of the Court in Kanpur to entertain a petition under Section 34 of the Act of 1996. This he says, on the premise, the award has been rendered by the Facilitation Council based in Kanpur. In other words, it is his plea, the cause of action having arisen within the jurisdiction of Kanpur, it is the Court in Kanpur which shall have a jurisdiction to entertain a petition challenging the arbitral award. He submits that the learned District Judge has rightly relied upon the judgments of the Supreme Court in the case of BGS SGS SOMA JV (supra) and Hindustan Construction Company Ltd. (supra), to come to the conclusion that the Court in Kanpur shall have the jurisdiction to entertain a challenge against the award rendered by the Facilitation Council at Kanpur.