Citation codes: 2024 SCC OnLine Del 1080
Date of Judgement: 16th February 2024
Court: Delhi High Court
Coram: Hon’ble Mr. Justice Subramonium Prasad
Factual Background
Executive Engineer (hereinafter “Petitioner”) invited bids for the construction of a barrage on a river, for which the Bholasingh Jaiprakash Construction Ltd (hereinafter “Respondent”), an MSME (Micro, Small and Medium, Enterprise), became the successful bidder and was awarded the tender on 20 August 2005.
A formal agreement for the completion of work within 18 months from the order of commencement of work was entered between the Petitioner and Respondent on 27 August 2005. The order of commencement was given to the Petitioner on 1 August 2006. The deadline to complete construction was extended to 31 July 2008. Due to the addition of more work, the completion date was extended to 15 September 2017, and the project was completed on that day.
Respondent raised the bill of payment, which was disputed by Petitioner. Upon this, Respondent approached the MSME Facilitation Council under the MSMED Act (Micro, Small and Medium Enterprise Development Act, 2006) for conciliation but the proceedings failed, and the matter was referred to the Sole Arbitrator.
Respondent filed its statement of claim and Petitioners were notified to file a reply. The Award was passed on 02 January 2023. Following this, Petitioners approached the Delhi High Court under Article 226 of the Constitution of India challenging the arbitral award.
Issue involved in the case
Whether the writ jurisdiction of the High Court under Article 226 of the Constitution can be invoked by a party to set aside an arbitral award, upon failing to do so under Section 34 of the Arbitration and Conciliation Act?
Petitioner’s Position
Petitioners contended that MSMED Act applies only to contracts relating to goods and services and work contracts are not covered. They relied on Delhi High Court judgement of M/s Shree Gee Enterprises vs Union of India and Bombay High Court Judgement of Sterling & Wilson (P) Ltd. vs Union of India, wherein it was observed that Micro, Small and Medium Enterprises Procurement Policy 2012 is not applicable on works contract. Moreover, reliance was placed on TATA Power Company Limited vs Genesis Engineering Company, wherein the Delhi High Court held that works contracts are not amenable to the jurisdiction of the Facilitation Council under MSME.
Petitioners highlighted that the contract was executed before the Respondent had registered under the MSMED Act and hence it does not apply in the present case. Reliance was placed on the Supreme Court’s judgements in Silpi Industries vs Kerala State Road Transport Corporation and Gujarat State Civil Supplies Corporation vs Mahakali Foods Pvt. Ltd., wherein it was observed that to seek the benefit of provisions under the MSMED Act, the seller should have been registered as on the date of entering into the contract.
Lastly, Petitioners argued that a writ petition against the award is maintainable when there is a lack of jurisdiction. Reliance was placed on JSW Steel case, Whirlpool Corporation case, Kiran Singh case, Embassy Property Development case and Arun Kumar case, wherein courts observed that the writ petition is maintainable wherein it is shown that authority had no jurisdiction. Since provisions of the MSMED Act could not be invoked, the arbitration proceedings should be quashed.
Respondent’s Position
The Respondent argued that the Statement of Claim was notified to the Petitioner meaning that he was aware of the proceedings. Furthermore, a copy of the Award was also given to the Petitioner. The writ petition should not be allowed on account of the failure of the Petitioners to challenge the reference to arbitration under the MSMED Act and the award within statutory limits, as it would amount to bypassing the provisions of the Arbitration and Conciliation Act.
Moreover, the remedy under Article 226 is equitable and discretionary and it should not be exercised given the above circumstances.
Judgement and Reasoning
The Delhi High Court, after perusing the material on record observed that despite repeated reminders being sent to the Petitioners, they refused to participate in the Arbitral proceedings claiming lack of jurisdiction. The petitioner did not challenge the proceedings and Arbitral award in any court within the stipulated time as per the Arbitration and Conciliation Act. The nature of the remedy under Article 226 is extraordinary and it cannot be invoked where an alternate efficacious remedy was available, and Petitioners failed to invoke that.
Observing on the MSMED Act, the court noted that under section 18 of the MSMED Act, disputes can be referred to the MSME Conciliation Council and further, the Council can refer the dispute to any other institution as well. In the present matter, it was only after the failure of the Conciliation proceedings that the matter was referred to the Sole Arbitrator. Once an award is passed, it can only be challenged by filing an application under Section 34 of the Arbitration and Conciliation Act or by filing an application under Section 19 of the MSMED Act within the period stipulated.
The court chided the Petitioners by emphasizing that they come within the ambit of the State under Article 12 of the Constitution of India. There has been deliberate inaction by the State in challenging the Arbitral Award and in fact, it chose not to participate in the proceedings. The state is not a helpless and unaware litigant and hence, Article 226 cannot be invoked by someone who has knowingly failed to avail any remedies in the law. As a result, the Writ Petition was dismissed.
Conclusion
In a nutshell, a party cannot challenge an arbitral award by invoking the writ jurisdiction after the statutorily stipulated time to challenge it has elapsed. By dismissing the petition, the court emphasized that when adequate statutory remedies were available, but the party fails to avail them then Article 226 cannot be invoked to circumvent statutes. This decision also emphasized the role of the MSMED Act in protecting the rights of MSMEs and the elaborate process for dispute resolution provided therein. It offers a critique of the inaction of the State in participating in the arbitral proceedings and its failure to avail themselves of the remedies timely.
Author(s)
Saumya Tripathi
Student at RMLNLU, Lucknow