Malani Construction Company v. Delhi International Arbitration Centre and Ors

12. This judgment in Silpi Industries(supra) has been subsequently considered by the Supreme Court, recently, in ‘Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Ltd.(Unit 2) & Anr’, the operative portion for which reads - “33.Following the above stated ratio, it is held that a party who was not the “supplier” as per Section 2(n) of the MSMED Act,2006 on the date of entering into the contract, could not seek any benefit as a supplier under the MSMED Act,2006. A party cannot become a micro or small enterprise or a supplier to claim the benefit under the MSMED Act,2006 by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods or rendering services. If any registration, is obtained subsequently,the same would have the effect prospectively and would apply for the supply of goods and rendering services subsequent to the registration. The same cannot operate retrospectively. However, such issue being jurisdictional issue, if raised could also be decided by the Facilitation Council/Institute/Centre acting as an arbitral tribunal under the MSMED Act, 2006.

34. The upshot of the above is that-… …(vi) A party who was not the ‘supplier’ as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract cannot seek any benefit as the ‘supplier’ under the MSMED Act, 2006.If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration...”

13. The ratio of these two judgments is clear to the effect that if the registration under the MSMED Act, 2006 was obtained subsequently, the benefits under the said Act would not apply. Even in a situation where some portion of the goods/services are supplied prior to registration and some are supplied post registration, the Act would apply, depending on the facts, only qua the goods and services which are supplied subsequent to the registration.

14. The Supreme Court has further clarified that this issue can be decided by the MSEFC or the institution acting as an arbitral tribunal under the MSMED Act, 2006.

15. In the facts of these cases, the clear position that emerges is that, in both cases, the registration was subsequent to the last invoice raised by the Respondent. Though, this Court is exercising jurisdiction under Article 227, in view of the decision in ‘Surender Kumar Singhal & Ors. v. Arun Kumar Bhalotia & Ors’, [2021 SCC OnLine Del 3708: (2021) 279 DLT 636] the position that emerges is that if there is complete lack of jurisdiction in the arbitral tribunal, the writ petition would be maintainable. “Maintainability

18. Dealing with the first aspect, the law is well settled that Arbitral tribunals are a species of tribunals over which the High Court exercises writ jurisdiction. Challenge to an order of an arbitral tribunal can be raised by way of a writ petition. In Union of India v. R. Gandhi, President Madras Bar Association (supra) the Supreme Court observed on the question as to what constitutes ‘Courts’ and ‘Tribunals’ as under: “38. The term ‘Courts’ refers to places where justice is administered or refers to Judges who exercise judicial functions. Courts are established by the state for administration of justice that is for exercise of the judicial power of the state to maintain and uphold the rights, to punish wrongs and to adjudicate upon disputes. Tribunals on the other hand are special alternative institutional mechanisms, usually brought into existence by or under a statute to decide disputes arising with reference to that particular statute, or to determine controversies arising out of any administrative law. Courts refer to Civil Courts, Criminal Courts and High Courts. Tribunals can be either private Tribunals (Arbitral Tribunals), or Tribunals constituted under the Constitution (Speaker or the Chairman acting under Para 6(1) of the Tenth Schedule) or Tribunals authorized by the Constitution (Administrative Tribunals under Article 323A and Tribunals for other matters under Article 323B) or Statutory Tribunals which are created under a statute (Motor Accident Claims Tribunal, Debt Recovery Tribunals and consumer fora). Some Tribunals are manned exclusively by Judicial Officers (Rent Tribunals, Motor Accidents Claims Tribunal, Labour Courts and Industrial Tribunals). Other statutory Tribunals have Judicial and Technical Members (Administrative Tribunals, TDSAT, Competition Appellate Tribunal, Consumer fora, Cyber Appellate Tribunal, etc).”

19. Similar observations were made by the Supreme Court in SREI Infrastructure Finance Limited (supra) as under:

20. Thus, the Supreme Court held that arbitral tribunals are private tribunals unlike those tribunals set up under the statute or specialized tribunals under the Constitution of India. Thus, a Petition under Article 227 challenging orders of an Arbitral Tribunal would be maintainable. …Scope and Extent of interference

21. Coming now to the question as to what would be the scope of interference under Article 226/227 against orders passed by the Arbitral Tribunals, though a number of judgements have been cited by both parties, recent decisions of the Supreme court and of this Court have settled the issue…. …25. A perusal of the above-mentioned decisions, shows that the following principles are well settled, in respect of the scope of interference under Article 226/227 in challenges to orders by an arbitral tribunal including orders passed under Section 16 of the Act.

(i) An arbitral tribunal is a tribunal against which a petition under Article 226/227 would be maintainable;

(ii) The non-obstante clause in section 5 of the Act does not apply in respect of exercise of powers under Article 227 which is a Constitutional provision;

(iii) For interference under Article 226/227, there have to be `exceptional circumstances’;

(iv) Though interference is permissible, unless and until the order is so perverse that it is patently lacking in inherent jurisdiction, the writ court would not interfere;

(v) Interference is permissible only if the order is completely perverse i.e., that the perversity must stare in the face

(vi) High Courts ought to discourage litigation which necessarily interfere with the arbitral process;

(vii) Excessive judicial interference in the arbitral process is not encouraged;

(viii) It is prudent not to exercise jurisdiction under

(ix) The power should be exercised in `exceptional rarity’ or if there is `bad faith’ which is shown;

(x) Efficiency of the arbitral process ought not to be allowed to diminish and hence interdicting the arbitral process should be completely avoided.;”

16. In these facts and circumstances, therefore, the reference to the DIAC, in both cases, would not be sustainable. The same is accordingly, set aside. The Respondent is permitted to avail of its remedies in accordance with law. Insofar as the period during which the Reference was sought and remained pending, is concerned, the claim of the Respondent, if filed before the proper forum, would not be liable to counted for the purposes of determining limitation. Considering that the matter has remained pending before either the MSEFC or before this Court for a substantial period, if the commercial suit which is to be filed by the Respondent No.3, is filed, by 31st March, 2023, the period from 22nd November 2018 till date of filing of suit, shall be excluded while calculating limitation. At this stage, Mr. Gupta, ld. Counsel submits that the issue of the claim being barred by limitation was raised before the MSEFC itself. Thus, Insofar as the period between April, 2015 to 22nd November, 2018, is concerned, the case of the Petitioner is that the claim is barred as it was lodged after three years which is the prescribed limitation period. This issue of limitation is being left open to be adjudicated in accordance with law by the competent forum.

17. Insofar as the other submission qua the MSEFC disposing off references expeditiously under Section 18(5) of the MSMED Act is concerned, the same shall be considered in the remaining matters of the batch cases.

18. The petitions, along with all pending applications, are accordingly disposed of.

PRATHIBA M. SINGH, JUDGE MARCH 16, 2023 dj/rp