AI Structured Summary
Not yet generated for this judgment
Judgment
Biren Vaishnav, J
1 The present Division Bench was constituted in order to answer the questions referred to it by order dated 28.04.2023, which reads as under:
“1. Present petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an Arbitrator as per clause 59 of the agreement entered into between the parties.
It is the case of the petitioner that though clause 59 of the agreement envisaged that any dispute arises, same is required to be referred to Gujarat Public Works Contracts Dispute Arbitration Tribunal established under the provisions of the Gujarat Public Works Contracts Dispute Arbitration Tribunal Act, 1992. The same would not lie in view of the provisions contained in Section 2(1) (i) and (ii) read with Section 2(k) and Section 8 of the Arbitration Tribunal Act.
On the other hand, it is the case of the respondent that the respondent is a company incorporated under provisions of the Companies Act, 1956. However, the respondent being not a local authority, the same is required to be decided by the Tribunal.
Mr. K.G. Sukhwani, learned advocate for the petitioner has relied upon the judgment in the case of Om Construction Company vs. Ahmedabad Municipal Corporation, reported in (2009) 2 SCC 486 and several orders passed by this Court relying upon this judgment.
Whereas, Mr. Prithu Parimal, learned advocate for the respondent has relied upon CAV Judgment dated 23.04.2021 passed by the learned Single Judge in Arbitration Petition No.42 of 2020, by which the learned Single Judge has held that the aforesaid judgment would be applicable only in case where the respondent is a local authority.
Having gone through the judgments relied upon by both the parties and considering the provisions, I am of the opinion that the matter is required to be decided by the Division Bench of this Court. Therefore, the matter is referred to Division Bench to answer the following questions:
(i) Whether a company as defined under Section 3 of the Companies Act, 1956 in which not less than 50% of the paid up share capital as held by the State Government or any company which is a subsidiary (within the meaning of the Act) to the first mentioned company is required to be notified by the State Government in the official gazette?
(ii) Whether the judgment relied upon by Mr. Prithu Parimal in the case of M/s. SMS Infrastructure Limited (supra) would applicable only to the local authority?
Registry to place the matter on administrative side for orders.”
2 These arbitration petitions were filed under the provisions of Sec.11 of the Arbitration and Conciliation Act, 1996. It was the case of the arbitration petitioner, that the Gujarat State Police Housing Corporation Limited had invited tenders for construction of Police Staff Quarters at Akota City Police Line, Vadodara. The arbitration petitioner’s tender was found to be the lowest and work order was issued by the respondents. Disputes arose out of the contractual obligations pursuant to the work order.
2.1 It was the case of the petitioners in a petition filed under Sec.11 of the Arbitration Act that the dispute could be referred to an arbitrator appointed by this Court under Sec.11 thereof. The stand of the respondent – Corporation was that Clause 59.0 of the tender document provided that the disputes relating to the contract were to be referred to the statutory “Gujarat Public Works Disputes Arbitration Tribunal”, Ahmedabad.
2.2 It was argued before the Court taking up arbitration matters that though Clause 59 envisaged reference of disputes to the Public Works Tribunal, the case of the arbitration petitioners was that it was this Court, which in exercise of powers under Sec.11 of the Arbitration Act appointed arbitrators. It was in this background that this Court by its order dated 28.04.2023 referred the matter to the Division Bench. The order has already been quoted hereinabove.
3 Mr.K.G.Sukhwani, learned Counsel appearing for the petitioners would submit that in light of the judgement in the case of Om Construction Company Vs. Ahmedabad Municipal Corporation., reported in (2009) 2 SCC 486, the dispute should be decided by this Court and in absence of any notification under the Gujarat Public Works Contracts Dispute Arbitration Tribunal Act, 1992, it is only this Court which will have jurisdiction under the Arbitration Act and the dispute cannot be referred to the Arbitration Tribunal.
4 Mr.Prithu Parimal, learned counsel appearing for the respondent – Corporation, would submit that the issue is no longer in the realm of dispute as this Court in the case of M/s. SPML Infra Ltd Vs. Gujarat Water Infrastructure Ltd., in Arbitration Petition No. 168 of 2019 dated 06.10.2023, has held that the provisions of the Gujarat Public Works Tribunal Act would prevail, inasmuch as, a public undertaking which is a party to “works contract” would be amenable to dispute being referred to the Tribunal constituted under Sec.3 of the Arbitration Act, 1992.
5 Having considered the submissions made by the learned counsels appearing for the respective parties, what is evident from the decision in the case of SPML Infra Ltd (supra), is that since the respondent falls under the definition of “public undertaking” and dispute pertains to and arose out of a works contract, the dispute which is raised before us in these arbitration petitions, would squarely fall within the jurisdiction of the Gujarat Public Works Contracts Dispute Arbitration Tribunal Act, 1992.
5.1 Reading of the aforesaid judgement would further indicate that it has been held that the provisions of the Arbitration Tribunal Act,1992, would prevail over the Arbitration Act, 1940. The Court, therefore, concluded that the disputes which are “works contract” between a contracting party and a public undertaking, have to be referred to the Tribunal. We also note that the Court, therefore, held that the arbitration petitions are liable to be dismissed. The relevant paragraphs of the decision in the case of SPML Infra Ltd (supra), read as under:
“8. Having heard learned counsels for the parties and perused the record, this Court may first note the arbitration clause 20.3.1 of the Agreement in question as under :-
“Clause 20.3.1 - If a dispute of any kind whatsoever arises between the Employer and the Contractor in connection with, or arising out of, the Contract or the execution of the Works or after their completion and whether before or after the repudiation or other termination of the Contract, including any disagreement by either party with any action, inaction, opinion, instruction, determination, certificate or valuation of the Engineer, the matter in dispute shall be settled by arbitration in accordance with the Indian Arbitration and Conciliation Act, 1996 or any statutory amendment thereof.”
The question as to whether the said clause can be read and interpreted to me that the parties had agreed to submit to the general provisions of the Arbitration Act, 1996 in the matter of appointment of arbitrator, would have to be answered after going through the provisions of both the Acts, namely the Arbitration Tribunal Act, 1992 and the Arbitration Act, 1996. Another question would be as to which of the two provisions will prevail in the matter of appointment of arbitrator. This Court may note, at the beginning, that there is no dispute about the fact that the work in question namely the work of laying of pipelines, awarded by the respondent herein has been notified by the Notification dated 23.09.2003 issued by the State Government, specifying the work of all types of pipelines of the State Government or of all the public undertaking for the purposes of Arbitration Tribunal Act, 1992, being ‘Works Contract’ within the meaning of Section 2(k) of the Arbitration Tribunal Act, 1992. There is also no dispute with respect to the fact that the respondent No.1 namely Gujarat Water Resources and Development Corporation Limited is a Company incorporated under the Companies Act, 1956 with the Government of Gujarat being 100% shareholder in the Company and as such, as per Section 2(i) of the Arbitration Tribunal Act, 1992, respondent No.1 falls under the definition of ‘public undertaking’, for the purposes of said Act. The statement made in this regard in the counter affidavit filed on behalf of the respondent in the Arbitration Petition No.62 of 2020 remained uncontroverted.
XXX XXX XXX
A careful reading of Section 2(1)(a) and Section 21 of the Arbitration Tribunal Act, 1992, in juxtaposition, indicates that the provisions of the Arbitration Tribunal Act, 1992 prevailed over the general provisions of the Arbitration Act, 1940 and the proceedings, if any, pending on the date of promulgation of the Arbitration Tribunal Act, 1992, i.e. 23.03.1992 were to be transferred to the Arbitration Tribunal constituted under Section 3 of the Arbitration Tribunal Act, 1992. The Arbitration and Conciliation Act, 1996 came into force on 16.08.1996 is a general provision, which came to be enacted to consolidate and amend the laws relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. With the enactment of Arbitration Act, 1996, the Arbitration Act, 1940 stood repealed. With the repeal of the Arbitration Act, 1940 by enactment of the Arbitration and Conciliation Act, 1996, the effect of Section 21 of the Arbitration Tribunal Act, 1992 is not diluted rather the provisions of the Arbitration Tribunal Act, 1992, which is a specific law would prevail over the general provisions of the Arbitration and Conciliation Act, 1996, which ceases to apply to any dispute arising from a works contract and all arbitration proceedings in relation to such dispute, shall have to be dealt with by the Arbitration Tribunal constituted under Section 3 of the Arbitration Tribunal Act, 1992.
This issue is no longer res integra with the recent decision of the Apex Court in Gujarat State Civil Supplies Corporation Limited (supra), wherein the Apex Court was faced with the question as to the overriding effect of the provisions of the MSMED Act, 2006 over the provisions of the Arbitration Act, 1996. Having considered the non-obstante clause as contained in Section 18 of the MSMED Act, 2006, has repelled the arguments that non-obstante clause in Section 18 cannot take precedence over an Arbitration Agreement executed between the parties. The contention that Section 18 is a procedural provision and provides merely a procedure/mechanism available to a party under the Act was turned down with the observation that the scheme of the MSMED Act, 2006, is a special scheme, which has an overriding effect on an Arbitration Agreement independently entered into between the parties. Section 18 is a substantive law and not a procedural law, as it provides a right and a remedy on the MSE for resolution of disputes. It was noted that it is trite to say that the provisions of the special statute would override the provisions of the general statute. While determining the effect of a statute overriding the other statute, the purpose and policy underlying the two statutes and the clear intendment conveyed by the language of the relevant provisions therein would be the relevant consideration. When there is apparent conflict between two statutes, the provisions of a general statute must yield to those of a special one. Section 18 of MSMED Act, 2006 starts with a non-obstante clause, i.e. “notwithstanding anything contrary in any other law for the time being in force”. It means that the said provision has been enacted with the aim to supersede other laws for the time being in force. Considering the provisions of MSMED Act, 2006 and the purpose, objects and scheme of the Arbitration Act, 1996, it was held that :-
“41. As against the above position, if the purpose, objects and scheme of the Arbitration Act, 1996 are considered, as stated hereinabove, the said Act was enacted to consolidate and amend the law relating to the domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also to define the law relating to Conciliation. It was enacted taking into account the UNCITRAL Model Law on international commercial arbitration. The main objectives amongst others of the said Act were to make provision for an arbitral procedure which was fair, efficient and capable to meet the needs of the specific arbitration and to minimize the supervisory role of courts in the arbitral process, as also to permit arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings in the settlement of disputes etc. The Arbitration Act, 1996 focuses and covers the law relating to the Arbitration and Conciliation, providing for the requirements of the arbitration agreement, composition of arbitral tribunal, conduct of arbitration proceedings, finality and enforcement of domestic arbitral awards as well as of certain foreign awards, and covers the law relating to Conciliation. Having regard to the entire scheme of the Arbitration Act 1996, it appears that it is a general law relating to the domestic arbitration, international commercial arbitration and for conciliation. It does not specify any specific dispute or specific class or category of persons to which the Act shall apply, as has been specified in the MSMED Act, 2006.
Thus, the Arbitration Act, 1996 in general governs the law of Arbitration and Conciliation, whereas the MSMED Act, 2006 governs specific nature of disputes arising between specific categories of persons, to be resolved by following a specific process through a specific forum. Ergo, the MSMED Act, 2006 being a special law and Arbitration Act, 1996 being a general law, the provisions of MSMED Act would have precedence over or prevail over the Arbitration Act, 1996. In Silpi Inustries case (supra) also, this Court had observed while considering the issue with regard to the maintainability and counter claim in arbitration proceedings initiated as per Section 18(3) of the MSMED Act, 2006 that the MSMED Act, 2006 being a special legislation to protect MSME’s by setting out a statutory mechanism for the payment of interest on delayed payments, the said Act would override the provisions of the Arbitration Act, 1996 which is a general legislation. Even if the Arbitration Act, 1996 is treated as a special law, then also the MSMED Act, 2006 having been enacted subsequently in point of time i.e., in 2006, it would have an overriding effect, more particularly in view of Section 24 of the MSMED Act, 2006 which specifically gives an effect to the provisions of Section 15 to 23 of the Act over any other law for the time being in force, which would also include Arbitration Act, 1996.
The court also cannot lose sight of the specific non obstante clauses contained in sub-section (1) and sub-section (4) of Section 18 which have an effect overriding any other law for the time being in force. When the MSMED Act, 2006 was being enacted in 2006, the Legislative was aware of its previously enacted Arbitration Act of 1996, and therefore, it is presumed that the legislature had consciously made applicable the provisions of the Arbitration Act, 1996 to the disputes under the MSMED Act, 2006 at a stage when the Conciliation process initiated under sub-section (2) of Section 18 of the MSMED Act, 2006 fails and when the Facilitation Council itself takes up the disputes for arbitration or refers it to any institution or centre for such arbitration. It is also significant to note that a deeming legal fiction is created in the Section 18(3) by using the expression ‘as if’ for the purpose of treating such arbitration as if it was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of the Arbitration Act, 1996. As held in K. Prabhakaran v. P. Jayarajan, a legal fiction presupposes the existence of the State of facts which may not exist and then works out the consequences which flow from that state of facts. Thus, considering the overall purpose, objects and scheme of the MSMED Act, 2006 and the unambiguous expressions used therein, this court has no hesitation in holding that the provisions of Chapter-V of the MSMED Act, 2006 have an effect overriding the provisions of the Arbitration Act, 1996.
The submissions made on behalf of the counsel for the Buyers that a conscious omission of the word “agreement” in subsection (1) of Section 18, which otherwise finds mention in Section 16 of the MSMED Act, 2006 implies that the arbitration agreement independently entered into between the parties as contemplated under Section 7 of the Arbitration Act, 1996 was not intended to be superseded by the provisions contained under Section 18 of the MSMED Act, 2006 also cannot be accepted. A private agreement between the parties cannot obliterate the statutory provisions. Once the statutory mechanism under subsection (1) of Section 18 is triggered by any party, it would override any other agreement independently entered into between the parties, in view of the non obstante clauses contained in sub-section (1) and sub-section (4) of Section 18. The provisions of Sections 15 to 23 have also overriding effect as contemplated in Section 24 of the MSMED Act, 2006 when anything inconsistent is contained in any other law for the time being in force. It cannot be gainsaid that while interpretating a statute, if two interpretations are possible, the one which enhances the object of the Act should be preferred than the one which would frustrate the object of the Act. If submission made by the learned counsel for the buyers that the party to a dispute covered under the MSMED Act, 2006 cannot avail the remedy available under Section 18(1) of the MSMED Act, 2006 when an independent arbitration agreement between the parties exists is accepted, the very purpose of enacting the MSMED Act, 2006 would get frustrated.
There cannot be any disagreement to the proposition of law laid down in various decisions of this Court, relied upon by the learned counsel for the buyers that the Court has to read the agreement as it is and cannot rewrite or create a new one, and that the parties to an arbitration agreement have an autonomy to decide not only on the procedural law to be followed but also on the substantive law, however, it is equally settled legal position that no agreement entered into between the parties could be given primacy over the statutory provisions. When the Special Act i.e., MSMED Act, 2006 has been created for ensuring timely and smooth payment to the suppliers who are the micro and small enterprises, and to provide a legal framework for resolving the dispute with regard to the recovery of dues between the parties under the Act, also providing an overriding effect to the said law over any other law for the time being in force, any interpretation in derogation thereof would frustrate the very object of the Act.
The submission therefore that an independent arbitration agreement entered into between the parties under the Arbitration Act, 1996 would prevail over the statutory provisions of MSMED Act, 2006 cannot countenanced. As such, subsection (1) of Section 18 of the MSMED Act, 2006 is an enabling provision which gives the party to a dispute covered under Section 17 thereof, a choice to approach the Facilitation Council, despite an arbitration agreement existing between the parties. Absence of the word ‘agreement’ in the said provision could neither be construed as casus omissus in the statute nor be construed as a preclusion against the party to a dispute covered under Section 17 to approach the Facilitation Council, on the ground that there is an arbitration agreement existing between the parties. In fact, it is a substantial right created in favour of the party under the said provision. It is therefore held that no party to a dispute covered under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Facilitation Council under Section 18(1) thereof, merely because there is an arbitration agreement existing between the parties.”
Following the above stated ratio, coming back to the instant case, we may note at the cost of reiteration that the Arbitration Tribunal Act, 1992 has been enacted on 23.03.1992, at the time when the Arbitration Act, 1940 was in existence, for a specific purpose to provide for the constitution of a Tribunal to arbitrate any dispute arising from works contract to which the State Government or a public undertaking is a party. Section 8(1) provided that irrespective of whether such works contract contains an arbitration clause or not, any dispute arises between the parties to the works contract shall be referred to the Tribunal for arbitration, within one year from the date when the dispute has arisen. The Tribunal is empowered to make an interim award under Sub-section (5) of Section 8 of the Arbitration Tribunal Act, 1992, and the award made by the Tribunal including an interim award as confirmed or varied by an order, if any made under Section 11 or 12, shall be deemed to be decree within the meaning of Section 2 of the Code of Civil Procedure, 1908, of the Principal Court of original jurisdiction within whose local limit the award or the interim award has been made, and is made executable accordingly. Section 10 confers powers of the Civil Court upon the Tribunal in respect of the matters provided therein, for the purposes of exercise of its jurisdiction under the Act. Section 11(1) confers power of review of the award or interim award made by the Tribunal. Section 12, as noted herein before, provides for exercise of revisional powers by the High Court. Section 13 bars the jurisdiction of the Civil Court. The constitution of Tribunal as provided in Section 3(2) is to be decided by the Government, which shall consists of the Chairman and such number of other members as may be appointed by him. The Chairman of the Tribunal has to be qualified for appointment as a Judge of High Court and the other members of Tribunal shall possess the qualification prescribed in clause (b) of Sub-section (3) of Section 3, which may be of District Judge; Secretary of the Government of Gujarat; or the Chief Engineer of the Government of Gujarat. Section 21 as noted hereinabove states that the provisions of the Arbitration Act, 1940 insofar as they are inconsistent with the provisions of the Arbitration Tribunal Act, 1992, cease to apply to any dispute arising from a works contract and all arbitration proceedings in relation to such dispute, pending before an arbitrator, umpire, court or authority shall have to be transferred to the Tribunal. The Arbitration Tribunal Act, 1992 being a special statute dealing with the disputes arising from a works contract entered into with the State Government or a public undertaking, in view of the overriding effect given by Section 21 of the Arbitration Tribunal Act, 1992 would prevail over the general law governing the Arbitration and Conciliation under the then Arbitration Act, 1940, repealed and substituted by the Arbitration Act, 1996. The specific nature of disputes arising between specific categories of persons is to be resolved by a specific process through a specific forum as observed by the Apex Court in Gujarat State Civil Supplies Corporation Limited (supra). Being a specific law, the provisions of the Arbitration Tribunal Act, 1992, would have precedence over or prevail over the Arbitration Act, 1996.
Taking clue from the above decision, we may note that the Arbitration Act, 1996 does not specify any specific dispute or specific class or category of persons to which the Act shall apply, as has been specified in the Arbitration Tribunal Act, 1992. Overriding effect given by the Legislature to the Arbitration Act, 1940, which was in existence at the time of enactment of the Arbitration Tribunal Act, 1992 by virtue of Section 21 of the said Act, shall continue, to prevail over the subsequent enactment of replacement of the then Arbitration Act, 1940, which is the Arbitration Act, 1996. As noted above, the Arbitration Act, 1996 was enacted to consolidate and amend the law relating to the arbitration and conciliation and the Arbitration Act, 1940 stood repealed and substituted by the Arbitration Act, 1996. The result is that though being a subsequent enactment in point of time, the effect of Section 21 of the Arbitration Tribunal Act, 1992 over the then Arbitration Act, 1940 would continue over the Arbitration Act, 1996.
Insofar as the arguments of the learned counsel for the petitioner based on Clause 20.3.1 of the Agreement that the parties agreed to the dispute resolution mechanism under the Arbitration Act, 1996 and the Arbitration Agreement entered into between the parties under the Arbitration Act, 1996 would prevail over the statutory provisions of the Arbitration Tribunal Act, 1992, suffice it to note that Sub-section (1) of Section 8 provides choice or confers right upon a party to the dispute, irrespective of the agreement to the contrary, despite of existence of an arbitration clause in the Arbitration Agreement between the parties, to approach the Tribunal constituted under the Arbitration Tribunal Act, 1992 for arbitration. The substantive right created under Sub-section (1) of Section 8 of a party to approach the Tribunal for arbitration cannot be precluded because of the arbitration clause existing in the agreement arrived between the parties. Sub- section (1) of Section 8 would prevail over the Clause 20.3.1 of the Arbitration Agreement pressed into service before us to assail the applicability of the Arbitration Tribunal Act, 1992.
For the above discussion, the arguments made by the learned counsel for the petitioner that in view of Clause 20.3.1 of the Arbitration Agreement, arrived between the parties, the provisions of the Arbitration Tribunal Act, 1992 would not be attracted, is found to be misconceived.”
5.2 Accordingly, the questions referred to us by the order dated 28.04.2023 are answered in light of the decision in the case of SPML Infra (supra), that the disputes referred to in the arbitration petitions on hand can only be decided by the Arbitration Tribunal in accordance with the provisions of Sec.8 of the Arbitration Tribunal Act, 1992.
6 We remit the matters to the Court taking up arbitration matters after answering the aforesaid question, so that they can be disposed of in light of the order dated 06.10.2023 passed in SPML Infra (supra), based on which we have answered the reference.