Arbitration Appeal Nos. 74 of 2014 and 75 of 2014; Kerala State Road Transport Corporation v M/s Asiatic Rubro Complex Development Area; The Micro and Small Enterprises Facilitation Council

# **IN THE HIGH COURT OF KEARLA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR.JUSTICE C. JAYACHANDRAN WEDNESDAY, THE 23[RD] DAY OF NOVEMBER 2022/2ND AGRAHAYANA, 1944 ARB.A NO. 74 OF 2014** **AGAINST THE ORDER IN OPARB 378/2010 OF DISTRICT COURT,** ## **TRIVANDRUM** ## **APPELLANT/PETITIONER/RESPONDENT:** KERALA STATE ROAD TRANSPORT CORPORATION REPRESENTED BY THE MANAGING DIRECTOR, TRANSPORT BHAVAN, EAST FORT, THIRUVANANTHAPURAM. BY ADV SRI.P.C.CHACKO, SC, KERALA STATE ROAD TRANSPORT CORPORATION ## **RESPONDENTS/RESPONDENTS/APPLICANT:** 1 M/S.ASIATIC RUBRO COMPLEX DEVELOPMENT AREA, AROOR, ALLEPPEY -688 534. 2 THE MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL, THIRUVANANTHAPURAM, REPRESENTED BY ITS SECRETARY -695 001. BY ADV M/S.ASIATIC RUBRO COMPLEX(Party-In-Person) ## **OTHER PRESENT:** GP SRI.T K VIPIN DAS THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 21.11.2022, ALONG WITH Arb.A.75/2014, THE COURT ON 23.11.2022 DELIVERED THE FOLLOWING: Arb.Appeal.Nos.74 and 75 of 2014 2 **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR.JUSTICE C. JAYACHANDRAN WEDNESDAY, THE 23[RD] DAY OF NOVEMBER 2022/2ND AGRAHAYANA, 1944 ARB.A NO. 75 OF 2014** **AGAINST THE ORDER IN OP(ARB). No. 380/2010 OF DISTRICT COURT,** ## **TRIVANDRUM** ## **APPELLANT/PETITIONER/RESPONDENT:** KERALA STATE ROAD TRANSPORT CORPORATION REPRESENTED BY THE MANAGING DIRECTOR, TRANSPORT BHAVAN, EAST FORT, THIRUVANANTHAPURAM. BY ADV SRI.P.C.CHACKO, SC, KERALA STATE ROAD TRANSPORT CORPORATION ## **RESPONDENTS/RESPONDENTS/APPLICANT:** 1 M/S. ASIATIC RUBRO COMPLEX DEVELOPMENT AREA, AROOR, ALLEPPEY - 688 534. THE 1ST RESPONDENT IS PERMITTED TO BE REPRESENTED BY ARUN K.GEORGE, BEING THE PRESENT SOLE PROPRIETOR OF THE FIRM AS PER ORDER DATED 31.10.19 IN IA 1/19 IN RP 928/17. 2 THE MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL, THIRUVANANTHAPURAM, REPRESENTED BY ITS SECRETARY - 695 002. BY ADVS. M/S. ASIATIC RUBRO COMPLEX(Party-In-Person) GOVERNMENT PLEADER : SRI T.K.VIPINDAS THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 21.11.2022, ALONG WITH Arb.A.74/2014, THE COURT ON 23.11.2022 DELIVERED THE FOLLOWING: Arb.Appeal.Nos.74 and 75 of 2014 3 **'C.R.'** **K.VINOD CHANDRAN & C.JAYACHANDRAN, JJ -----------------------------------Arbitration Appeal Nos.74 and 75 of 2014 -------------------------------------Dated this the 23[rd] day of November, 2022** **C O M M O N J U D G M E N T** ## Jayachandran, J. **1.** Both these appeals stem from a common order of the District Court, Thiruvananthapuram dated 05.08.2014, of which, the appeal first above referred challenges the order in O.P.(Arbitration) No.378 of 2010 and the second, in O.P(Arbitration) No.380 of 2010. Both these appeals were earlier disposed of by a Division Bench of this Court along with connected appeals, as per judgment dated 11.08.2017. However, the first respondent in the appeal preferred review petitions as R.P.No.928/2017 in Arb.Appeal.No.75/2014 and R.P.No.933/2017 in Arb.Appeal.No.74/2014, on the premise that the connected appeals were disposed of on the question of limitation, as also, the maintainability of a Arb.Appeal.Nos.74 and 75 of 2014 4 counter claim, which contentions does not arise in the two appeals above referred, wherefore, those appeals are to be disposed of on merits. The contention of the review petitioner was accepted and the review was allowed as per order dated 31.10.2019, recalling the common judgment with respect to the two arbitration appeals above referred. Accordingly, the matter was heard by us and reserved for judgment. **2.** A meticulous scan of the pleadings and facts involved in these appeals is not required, since the fate of these appeals centers around a specific issue as regards the applicability of the Micro, Small and Medium Enterprises Development Act, 2006 ['MSMED Act', for short] in the given facts. However, the essential facts to be noted are as follows: The appellant [first respondent in the O.P. (Arbitration)] in both these appeals is the Kerala State Road Transport Corporation. The first Arb.Appeal.Nos.74 and 75 of 2014 5 respondent herein is a small scale enterprise in the name and style, M/s.Asiatic Rubro Complex and the second respondent is the Facilitation Council under the MSMED Act. The appellant/Corporation invited tender for supply of tread rubber. On the quote made by the first respondent herein, four purchase orders were issued by the appellant/Corporation. 80% of the total bill amount due on pre-cured tread rubber has to be paid on delivery and the remaining 20% will be retained towards mileage guarantee. As per the agreement, 20% of the retention amount will be released within one year from the date of last supply, subject to the performance/mileage guarantee. The compass of controversy in Arbitration Appeal No.75/2014 is with respect to the said 20%, while that of Arbitration Appeal No.74/2014 is with respect to the 80%. In Arbitration Appeal No.75/2014, there were four purchase orders dated 21.06.2006, 28.06.2006, 28.07.2006 and 09.10.2006. The last supply as against each purchase order was made on 30.06.2006, 22.07.2006, 09.10.2006 and Arb.Appeal.Nos.74 and 75 of 2014 6 13.11.2006 respectively. According to the appellant in Arbitration Appeal No.75/2014, the first respondent could not satisfy the performance/mileage guarantee, wherefore, the appellant is not liable to release the retention amount. Per contra, it is the first respondent's case that the tread rubber supplied by it was of the stipulated and standard quality, which satisfied the condition as regards performance guarantee and they are entitled to get the amounts released. As could be seen from the number and year of the O.A. [O.A.No.5 of 2008], the first respondent approached the Facilitation Council only in the year 2008. **3.** In Arbitration Appeal No.74/2014, there is only one purchase order dated 09.10.2006. The date of last supply against the said purchase order is not decipherable from the award of the Facilitation Council dated nil, though the award directs payment of 80% of the bill amount, together with interest at the rate specified from the date of last supply. The Arb.Appeal.Nos.74 and 75 of 2014 7 respondent herein would contend that the 80% of the bill amount, which was payable at the time of delivery, has not been paid without assigning any valid reason, except that the appellant/Corporation had suffered huge loss due to poor mileage performance of tyres. As could be seen from the number and year of the O.A. [O.A.No.26 of 2007], the first respondent approached the Facilitation Council only in the year 2007. **4.** Both the O.As were allowed by the Micro, Small and Medium Enterprises Facilitation Council, Thiruvananthapuram ['Facilitation Council', for short]. The awards were challenged before the District Court, Thiruvananthapuram in O.P. (Arbitration) No.378/2010 and O.P.(Arbitration) No. 380/2010. Both Arbitration O.Ps were dismissed, against which, the present Arbitration Appeals were filed. **5.** Heard Sri.P.C.Chacko, learned Standing Council Arb.Appeal.Nos.74 and 75 of 2014 8 for the appellant/Corporation and the first respondent, who appeared as party-in-person. Perused the records. **6.** Learned counsel for the appellant in both these cases contended that the first respondent entity has not filed a memorandum in terms of Section 8 of the MSMED Act, wherefore, it cannot seek the benefit of the provisions under the MSMED Act. Learned counsel would elaborate that this contention was raised before the District Court in the Arbitration O.Ps afore-referred, but was dismissed by the District Court vide the impugned common order, finding estoppel by conduct. The District Court found that the applicability of the MSMED Act for want of memorandum being filed was not raised as a ground before the Facilitation Council and also in the various proceedings which ensued thereafter before the High Court and the Supreme Court. Learned counsel would submit that, if the invocation of the relief under a specific Statute is subject to a Arb.Appeal.Nos.74 and 75 of 2014 9 pre-condition, as in the form of filing a memorandum under Section 8 of the MSMED Act, non-compliance of such pre-condition can be raised at any stage, for, it is akin to that of lack of inherent jurisdiction. It was also contended that, there cannot be any estoppel against Statute and if the MSMED Act itself is not applicable, then the relief granted under that Act will become non-est in law. As regards the proposition that one cannot seek the benefit of the provisions of the MSMED Act, except with a memorandum filed in terms of Section 8, learned counsel relied upon the judgment of the Honourable Supreme Court in **Silpi Industries v. Kerala State Road Transport Corporation** , [2021(4) KLT 242(SC)]. **7.** Per contra, it is argued by the first respondent who appeared as party-in-person that the requirement to file a memorandum under Section 8 is optional/discretionary, in so far as a micro or small enterprise, like the first respondent, is concerned, wherefore, depriving the benefit of the Arb.Appeal.Nos.74 and 75 of 2014 10 MSMED Act for want of memorandum being filed will frustrate the very purpose of the Act, that is to say, to facilitate the promotion and development and enhancing the competitiveness of micro, small and medium enterprises. It was also pointed out that, if filing of memorandum under Section 8 is insisted with to seek the benefits of the Act, the specific discretion/option afforded to micro and small enterprises – in contradistinction to a medium enterprise in respect of an industry specified in the I[st] schedule to the Industries (Development and Regulation) Act, 1951 – would be rendered nugatory/otiose. In answer to the contention based on want of memorandum being filed under the MSMED Act, a notification, which was produced as Annexure-10 in the list of documents dated 20.10.2021, was pressed into service. Clause (4) of the notification dated 18.09.2015 bearing no.SO2756(E) exempted existing enterprises having registration as a small scale industry prior to the coming into force of the MSMED Act from the Arb.Appeal.Nos.74 and 75 of 2014 11 requirement to file Udyog Aadhar Memorandum. It was further contended that, inapplicability of the MSMED Act to a small scale enterprise for want of memorandum being filed was neither canvassed before the Facilitation Council, nor before the High Court and the Supreme Court in the various proceedings, wherefore, rejection of that ground by the District Court, finding estoppel by conduct, is well-nigh sustainable. **8.** Having heard the respective parties, we find that the precise issue fell for consideration before the Honourable Supreme Court in **Silpi Industries** supra. Silpi Industries is the respondent in one of the arbitration O.Ps disposed of by the common judgment dated 05.08.2014 by the District Court, Thiruvananthapuram, as also, in the appeals which arose therefrom and disposed of by a Division Bench of this Court as per judgment dated 11.08.2017. It could thus be seen that, **Silpi Industries** supra is a case, where the issue similar to that of the instant Arb.Appeal.Nos.74 and 75 of 2014 12 case, on more or less similar facts, arose. Paragraph 26 of the judgment in **Silpi Industries** is extracted here below: “Though the appellant claims the benefit of provisions under MSMED Act, on the ground that the appellant was also supplying as on the date of making the claim, as provided under Section 8 of the MSMED Act, but same is not based on any acceptable material. The appellant, in support of its case placed reliance on a judgment of the Delhi High Court in the case of GE T&D India Ltd. v. Reliable Engineering Projects and Marketing(2017(1) KLT Online 2232(Del.) = 2017 SCC Online Del.6978), but the said case is clearly distinguishable on facts as much as in the said case, the supplies continued even after registration of entity under Section 8 of the Act. In the present case, undisputed position is that the supplies were concluded prior to registration of supplier. The said judgment of Delhi High Court relied on by the appellant also would not render any assistance in support of the case of the appellant. In our view, to seek the benefit of provisions under MSMED Act , the seller should have registered under the provisions of the Act, as on the date of entering into the contract. In any event, for the supplies Arb.Appeal.Nos.74 and 75 of 2014 13 pursuant to the contract made before the registration of the unit under provisions of the MSMED Act, no benefit can be sought by such entity, as contemplated under MSMED Act. While interpreting the provisions of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, this Court, in the judgment in the case of Shanti Conductors Pvt. Ltd. & Anr. etc. v. Assam State Electricity Board & Ors. Etc. (2019(1) KLT Online 3359 (SC) = (2019)19 SCC 529) has held that date of supply of goods/services can be taken as the relevant date, as opposed to date on which contract for supply was entered, for applicability of the aforesaid Act. Even applying the said ratio also, the appellant is not entitled to seek the benefit of the Act. There is no acceptable material to show that, supply of goods has taken place or any services were rendered, subsequent to registration of appellant as the unit under MSMED Act, 2006. By taking recourse to filing memorandum under - sub section (1) of Section 8 of the Act, subsequent to entering into contract and supply of goods and services, one cannot assume the legal status of being classified under MSMED Act, 2006, as an enterprise, to claim the benefit retrospectively from the date on which appellant entered into contract Arb.Appeal.Nos.74 and 75 of 2014 14 with the respondent. The appellant cannot become micro or small enterprise or supplier, to claim the benefits within the meaning of MSMED Act 2006, by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods and services. If any registration is obtained, same will be prospective and applies for supply of goods and services subsequent to registration but cannot operate retrospectively. Any other interpretation of the provision would lead to absurdity and confer unwarranted benefit in favour of a party not intended by legislation.” (underlined by us for emphasis) **9.** True, there is an option available to the micro, small and medium enterprises; except that specified under clause (c), from filing a memorandum under Section 8 of the MSMED Act; which exercise of option is mandatory for the enterprise to avail the speedy remedy provided under the enactment. There is no question of the purpose of the statute being rendered nugatory or the scheme otiose; since it is for the enterprises to file a memorandum, a requirement under the statute, which the respondent Arb.Appeal.Nos.74 and 75 of 2014 15 had not exercised. In the given facts, the first respondent took registration under the MSMED Act only on 05.09.2007, which fact is not in dispute before us. Therefore, it goes without saying that the first respondent had no registration under the Act, either as on the dates of entering into the contract or on the date of supply of goods/services, referred to in paragraph no.2 of this judgment. **10.** In the light of the above authoritative pronouncement of the Honourable Supreme Court, we are not in a position to appreciate the contentions of the first respondent as regards the discretion/option claimed based on Section 8. We also notice that Section 15 which deals with the liability of the buyer to make payment, as also, Section 16 which stipulates payment of compound interest, both, employ the term 'supplier'. 'Supplier' is defined in Section 2(n) of the MSMED Act to mean a micro or small enterprise which has filed a memorandum in terms of Section 8(1) of the Arb.Appeal.Nos.74 and 75 of 2014 16 Act. Therefore, a reference under Section 18 to the Facilitation Council can only be in respect of an amount due by and between a 'supplier' and 'buyer'. The notification bearing no.SO2756(E) sought to be pressed into service cannot govern the instant facts as the same is dated 18.09.2015. As regards estoppel by conduct found by the learned District Judge, we are not in a position to endorse. It is trite that, there cannot be any estoppel against Statute. The principle of estoppel cannot be invoked to defeat the plain provisions of a Statute. Where a Statute imposes a duty by a positive action, estoppel cannot prevent it. Estoppel is only a rule of evidence incapable of relieving a party from the obligation to comply with the Statute [See in this regard **Dr.H.S.Rikhy v. The New Delhi Municipal Committee** [AIR 1962 SC 554]. **11.** We, therefore, find that the arbitration awards in question of the Facilitation Council under the MSMED Act and the orders of the District Court, Arb.Appeal.Nos.74 and 75 of 2014 17 Thiruvananthapuram confirming the awards, both, cannot be sustained. **12.** In the result, Arbitration Appeal Nos.74 and 75 of 2014 are hereby allowed, setting aside the orders dated 05.08.2014 of the District Court, Thiruvananthapuram in O.P(Arbitration) Nos.378 of 2010 and 380 of 2010. We however leave open the first respondent's option to seek civil remedy in respect of the amounts allegedly due from the appellant/Corporation, subject to just exceptions, if any, in law, for, we are of the _prima facie_ opinion that the first respondent is entitled to exclusion under Section 14 of the Limitation Act, in as much as the cause was being prosecuted before the wrong forum. Sd/- **K.VINOD CHANDRAN** **JUDGE** Sd/- ## **C.JAYACHANDRAN** **JUDGE** **Sbna/**