I. Case Reference
| Case Citation | : | (2023) ibclaw.in 807 HC |
| Case Name | : | Steel Authority of India Ltd. Vs. F. Harley and Company Pvt. Ltd. |
| Appeal No. | : | AP 471 of 2022 IA No: GA 1 of 2023 |
| Judgment Date | : | 12-Oct-23 |
| Court/Bench | : | High Court of Calcutta |
| Present for Petitioner(s) | : | Mr. Mohit Gupta, Adv. Mr. A.P. Agarwalla, Adv. |
| Present for Respondent(s) | : | Mr. Suddhasatva Banerjee, Adv. Mr. Chayan Gupta, Adv. Mr. Pourush Bandopadhyay, Adv. Mr. Dwip Raj Basu, Adv. |
| Coram | : | Justice Moushumi Bhattacharya |
| Original Judgment | : | Download |
II. Brief about the decision
Facts of the case
- The learned Arbitrator was appointed by an order of Court dated 7.5.2018.
- The applicant had claimed interest under section 16 of Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).
- The petitioner herein (the respondent in the arbitration) had opposed the claim of interest under section 16 of the MSMED Act on the argument that the said Act was not applicable to the facts before the learned Arbitrator. According to the petitioner, the contract was not for supply of goods or for rendering of services.
- The arbitrator was of the view that the special provisions under the MSMED relating to interest cannot be ignored or bypassed. The arbitrator was however disinclined to decide the question of interest and accordingly left the decision to be taken under the MSMED Act.
Decision of the High Court
The issue which falls for adjudication is whether the last line of the extracted portion of the award recording that the Tribunal was not inclined to decide the question of the claimant’s entitlement to interest under the MSMED Act can be read as a “decision” or not. If yes, then the petitioner, as the award-debtor, has the right to challenge the decision in the section 34 petition (which the petitioner has). On the other hand, if it is held not to be a decision, then the applicant award-holder must be seen as entitled to move the Facilitation Council.
The Hon’ble High Court held that:
- A logical deduction of the relevant part of the award would be that leaving the issue on the question of interest undecided would also amount to a “decision”.
Example: To use a simplistic example, if A wants Rs. 2 lacs instead of Rs. 2000/- and B opposes A’s claim for Rs. 2 lacs and the arbitrator says that the arbitrator cannot decide B’s objection to A’s claim of Rs. 2 lacs because the claim would have to be decided by another forum, that would amount to B’s objection being left undecided by the arbitrator. The direct result of this may be that A will approach the other forum for a decision on its claim for Rs. 2 lacs. The example has been used to match the facts in the present case where B (the petitioner award-debtor) has also challenged the applicability of the MSMED Act under which the applicant (‘A’ in the example given) seeks to take recourse on the issue of interest. The more important issue is B has challenged the lack of a decision on B’s objection before a higher forum.(p15)
- The fact of the refusal of the arbitral tribunal to decide on the question of interest being a decision is fortified from the consequence of the ‘indecision’. The applicant has approached the Facilitation Council under the MSMED Act after the award. This means that the applicant took advantage of the decision of the arbitrator that the MSMED Act cannot be bypassed and/or would be applicable. This goes to the root of the petitioner’s opposition to the applicability of the MSMED Act taken before the arbitrator.(p16)
- The refusal/disinclination/failure of the learned arbitrator to decide on this question amounts to a decision.(p19)
- It is also correct that the issue of interest is an inseparable part of the award and cannot be divorced from the latter. To carry the happy analogy forward, an award is indisputably a marriage of the principal amount + the interest component. The Supreme Court in Hyder Consulting (UK) Ltd. v. Governor, State of Orissa; (2017) ibclaw.in 610 SC held that pre-award interest is not independent of the “sum” awarded.(p20)
- Naturally, if the arbitrator refused to decide on the interest component, as claimed by the applicant, the section 34 Court would be called upon to decide the legality of that decision either on an application filed by the applicant or by the petitioner award-debtor herein. Since the petitioner award-debtor has grounded its challenge to the award also on the issue of interest and the applicability of the MSMED Act, the issue requires adjudication by the Court.(p20)
- The only recourse available to the petitioner against the lack of a finding (the petitioner having sought for a finding) was to file an application under section 34 of the 1996 Act and for the Court to bring closure to that issue in the said application.(p21)
- Although the applicant has prayed for a clarification that there is no impediment on the Facilitation Council in proceeding with the applicant’s reference; what the applicant really wants is for this Court to return a finding that the MSMED Act would apply on the issue of interest. This Court is not inclined to (no double offence here) give that finding when the entire spectrum of challenge in the section 34 application is before the Court in AP 471 of 2022. Further the Court also cannot return a finding in this application on the justification of including Grounds XLV and XLVI in the A.P as that would be a matter of arguments in the A.P.(p24)
- GA 1 of 2023 is accordingly dismissed without any order as to costs.(p25)
III. Full text of the judgment
Moushumi Bhattacharya, J.
1. The respondent award-holder has filed the present application in AP 471 of 2022 for a clarification that there is no embargo on the Micro and Small Enterprises Facilitation Council to proceed with the adjudication of the respondent’s application before the Council by reason of the pendency of AP 471 of 2022.
2. The applicant is the respondent in AP 471 of 2022 – filed by the award-debtor (petitioner in the AP) – for setting aside of an award dated 11.12.2021. The impugned award was passed by a learned Sole Arbitrator as corrected by the award dated 23.3.2022.
3. The applicant/respondent in the AP was the claimant in the arbitration.
4. A brief background is necessary to understand the context in which the present application has been made.
5. The learned Arbitrator was appointed by an order of Court dated 7.5.2018. The applicant filed its statement of claim praying for an award for approximately Rs. 77.74 lacs on account of the applicant’s/claimant’s unpaid dues, charges for extra work and overstay compensation. The applicant also prayed for an award of Rs. 50,000/- on account of the expenses incurred by the applicant in connection with the proceedings filed under section 11 of The Arbitration and Conciliation Act, 1996 wherein the learned Arbitrator was appointed.
6. The part of the award which is relevant for the purpose of the present adjudication relates to the applicant’s claim for interest under the provision of The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). The applicant had claimed interest under section 16 of the said Act.
7. The petitioner before this Court (the respondent in the arbitration) had opposed the claim of interest under section 16 of the MSMED Act on the argument that the said Act was not applicable to the facts before the learned Arbitrator. According to the petitioner, the contract was not for supply of goods or for rendering of services.
8. To clarify, the petitioner’s (the respondent buyer in the arbitration) resistance to the claim for interest under section 16 was based on the requirement on a buyer to pay compound interest with monthly rests to the supplier on the unpaid amount from the appointed day at three times of the bank rate notified by the Reserve Bank. Incidentally, the petitioner has paid the entire awarded amount to the respondent/applicant without prejudice to its right as would be evident from a letter dated 16.4.2022 issued by the petitioner to the respondent/applicant.
9. The arbitrator considered the issue of the applicant’s claim for interest under the provisions of the MSMED Act and made the following observations.
“31.(b). It will appear from Section 18 of the said MSMED Act that any party to a dispute “may”, with regard to any amount due under Section 17, make a reference to the Micro and Small Enterprises Facilitation Council. It was argued on behalf of the Claimant that the word “may” in Section 18 indicates that the reference to the Facilitation Council is optional. This Tribunal is of the view that the word “may” in the said Section 18 indicates that it may be optional for a party to claim interest but if a party decides to claim interest under the MSMED Act then that party has to approach the appropriate forum, that is, the said Facilitation Council as mentioned in the special provisions of the said MSMED. In the present case the Claimant has claimed interest under the MSMED Act and, as such, the special provisions made for reference to the Facilitation Council cannot be ignored and/or bypassed. In such circumstances, this Tribunal is not inclined to decide the question as to whether or not the Claimant is entitled to any interest under the provisions of the said MSMED Act.”
The Court does not wish to use the words “finding” or “conclusion” or any other word with similar import since the question before the Court precisely relates to the said issue – as will unfold in the paragraphs below.
10. Learned counsel appearing for the applicant/award-holder relies on the extract to urge that the award does not restrict the right of the applicant to approach the MSME Council which the applicant has done soon after passing of the award and before filing of AP 471 of 2022. Counsel submits that the Tribunal has declined to go into the merits of the applicant’s claim for interest under the MSMED Act which would be evident from the extracted portion and that the petitioner/award-debtor is precluded from challenging the award on the ground that the Facilitation Council cannot proceed with the adjudication of the applicant’s claim.
11. In essence, the submission is that the arbitrator was not required to answer on the merits of the applicant’s claim for interest once the arbitrator held that he does not have jurisdiction to grant certain claims.
12. Learned counsel appearing for the petitioner award-debtor opposes the prayer in the application for permitting the applicant to proceed before the MSME Council primarily on the ground that the petitioner has assailed the award on the arbitrator not deciding the claim of interest in grounds XLV and XLVI. According to counsel, the respondent’s/applicant’s entitlement to interest under the MSMED Act was directly and substantially in issue in the arbitration and that the claim of interest is consequential upon the impugned award being sustained.
13. The issue which falls for adjudication is whether the last line of the extracted portion of the award recording that the Tribunal was not inclined to decide the question of the claimant’s entitlement to interest under the MSMED Act can be read as a “decision” or not. If yes, then the petitioner, as the award-debtor, has the right to challenge the decision in the section 34 petition (which the petitioner has). On the other hand, if it is held not to be a decision, then the applicant award-holder must be seen as entitled to move the Facilitation Council.
14. It would be clear from the extracted portion of the award that the arbitrator was of the view that the special provisions under the MSMED relating to interest cannot be ignored or bypassed. The arbitrator was however disinclined to decide the question of interest and accordingly left the decision to be taken under the MSMED Act.
15. A logical deduction of the relevant part of the award would be that leaving the issue on the question of interest undecided would also amount to a “decision”. To use a simplistic example, if A wants Rs. 2 lacs instead of Rs. 2000/- and B opposes A’s claim for Rs. 2 lacs and the arbitrator says that the arbitrator cannot decide B’s objection to A’s claim of Rs. 2 lacs because the claim would have to be decided by another forum, that would amount to B’s objection being left undecided by the arbitrator. The direct result of this may be that A will approach the other forum for a decision on its claim for Rs. 2 lacs. The example has been used to match the facts in the present case where B (the petitioner award-debtor) has also challenged the applicability of the MSMED Act under which the applicant (‘A’ in the example given) seeks to take recourse on the issue of interest. The more important issue is B has challenged the lack of a decision on B’s objection before a higher forum.
16. The fact of the refusal of the arbitral tribunal to decide on the question of interest being a decision is fortified from the consequence of the ‘indecision’. The applicant has approached the Facilitation Council under the MSMED Act after the award. This means that the applicant took advantage of the decision of the arbitrator that the MSMED Act cannot be bypassed and/or would be applicable. This goes to the root of the petitioner’s opposition to the applicability of the MSMED Act taken before the arbitrator.
17. The applicant’s argument that the arbitrator was not required to answer on the merits of the claim would be contrary to the applicant’s subsequent conduct of not filing a section 34 application for setting aside the award and instead approaching the Facilitation Council for an adjudication.
18. Furthermore, the petitioner has taken the arbitral tribunal’s failure to adjudicate on the issue of interest in Grounds XLV and XLVI of the AP which are reproduced below:
“XLV. FOR THAT the Learned Arbitral Tribunal erred in failing to appreciate that MSME interest is only applicable in case of arbitrations initiated by and before the MSME Facilitation Council and in respect of other arbitrations the interest is not payable according to the MSMED Act, 2006 and also erred in permitting the respondent to ledge separate claim before the MSME Facilitation Council for interest.
XLVI. FOR THAT the Learned Arbitral Tribunal erred in failing to appreciate that the respondent is not entitled to interest under the MSMED Act.”
19. The above grounds are directly relatable to what the petitioner had argued before the learned arbitrator and is premised on the arbitrator refusing to decide on this question. Undoubtedly then, the refusal/disinclination/failure of the learned arbitrator to decide on this question amounts to a decision.
20. It is also correct that the issue of interest is an inseparable part of the award and cannot be divorced from the latter. To carry the happy analogy forward, an award is indisputably a marriage of the principal amount + the interest component. The Supreme Court in Hyder Consulting (UK) Limited v. Governor, State of Orissa; (2015) 2 SCC 189 held that pre-award interest is not independent of the “sum” awarded. Naturally, if the arbitrator refused to decide on the interest component, as claimed by the applicant, the section 34 Court would be called upon to decide the legality of that decision either on an application filed by the applicant or by the petitioner award-debtor herein. Since the petitioner award-debtor has grounded its challenge to the award also on the issue of interest and the applicability of the MSMED Act, the issue requires adjudication by the Court.
21. The only recourse available to the petitioner against the lack of a finding (the petitioner having sought for a finding) was to file an application under section 34 of the 1996 Act and for the Court to bring closure to that issue in the said application.
22. In the words of Wanchoo C.J in Anraj v. Bijairaj; AIR 1957 Rajasthan 131, if the decision is wrong, or if for some reason or other no decision is given as seems to be the case in the present facts, the remedy of the person who complains against the decision is to file an appeal or revision or take such other action as the law may provide to correct the error.
23. The question of whether the applicant has jettisoned the stages under section 18 of the MSMED Act is not relevant since the Court is of the view that the arbitrator’s failure to decide the issue is a decision which is amenable to challenge in AP 471 of 2022.
24. Although the applicant has prayed for a clarification that there is no impediment on the Facilitation Council in proceeding with the applicant’s reference; what the applicant really wants is for this Court to return a finding that the MSMED Act would apply on the issue of interest. This Court is not inclined to (no double offence here) give that finding when the entire spectrum of challenge in the section 34 application is before the Court in AP 471 of 2022. Further the Court also cannot return a finding in this application on the justification of including Grounds XLV and XLVI in the A.P as that would be a matter of arguments in the A.P.
25. GA 1 of 2023 is accordingly dismissed without any order as to costs.
26. The AP will be listed in the usual course.
Urgent Photostat certified copies if applied for be supplied to the parties upon fulfillment of requisite formalities.
(Moushumi Bhattacharya, J.)
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