Supreme Court Cases related to MSEFC

1. Extracts from the Affidavit filed on 28.01.2016by Ministry of MSMEin the matter of

MIs Annapurna Electronics (Petitioner) Vs.MIs Crompton Greaves Ltd. & Others(Respondents)

Special Leave Petition (C) No. 21680 of 2015

Ministry ofMSME - Respondent No 6

1. The Micro, Small & Medium Enterprises Development Act, 2006 (hereinafter referred as"MSMED" was enacted with the object to facilitate the promotion and development to enhance thecompetitiveness of Micro, Small & Medium Enterprises Development and for matters connectedtherewith or incidental thereto. The Section 19 of the MSMED Act, ensures finality of awards passedunder section 36, in time bound manner.

2. The buyers with the malafide intention to delay the execution of the awards are resorting todifferent kinds of litigations by filing Sec. 34 applications and writ petition without depositing 75% asmandated at Section 19 of MSMED Act, though not maintainable, against the orders/awards madeby the respective Facilitation Councils set up under the Act in different States. The buyers byresorting to the aforesaid illegal and unlawful tactics are not only delaying the release of payment butare also defeating the very purpose behind the enacting of MSMED Act of timely payment andpenalty awards. The MSMED Act has been enacted with the purpose and intention to promote thesmall scale industries and protection of their legal rights by assuring timely execution of awards incase if failure of payment within stipulated statutory period of time. The present matter and othersimilarly situated cases, pending before Supreme Court, are the glaring examples, as to how thebuyers escape away from the mandatory provisions of Section 19 of the MSMED Act and able toavoid the timely payment to the suppliers.

3. The objective of MSMED Act 2006 are as follows:i) Statutorily bind the buyer to pay the SME supplier within the statutory due date.ii) Provide for penal interest statutorily in case buyer defaults in making payment.iii) Provide for efficient statutory mechanism for expeditious resolution of supply and

payment related disputes.iv) Statutorily ensure to recover at least 75% of the due amount along with interest for

disbursal of finance to the SME supplier to keep it viable in case buyer appeals incourt

4. The objective of the remedy at Section 19 incorporating mandatory deposit of 75% amountin terms of the award to entertain the appeal/ contest by the buyer under Section 34 of ArbitrationAct by the buyer in the court is in order to ensure timely flow of finance to SME supplier so as toremain viable in the event of delay, default or dispute regarding payment by the buyer. The object ofeffective and expeditions remedy incorporated at Section 18(5) and section 19 of MSMED Act 2006is to be appreciated by reading together with Section 34(3) and Sec. 36 of Arbitration Act. Theremedy and relief can be fairly deducted to securing at least 75% amount and disbursing thatamount through Court to SME supplier within Six months with the intent to retain its viability andfinancial health and to reduce incipience of sickness.

5. Whenever the MSEFC has passed an Award, no application shall be entertained by theHon'ble Courts unless the purchaser deposits 75% of the amount in terms of the decree/award passedagainst him. In the given case on hand, it is evident from the records that Mis. Crompton Greaves­Respondent No. 1 herein has not deposited such amount while filing Arbitration Suit in 44/2008 inthe City Civil Court as against the award dated 14.7.2008 passed by the MSEFC.

6. Question of law raised by the petitioner herein as to whether the writ petition ismaintainable against an order passed dismissing the petition under Section 34 of the Act 1996 forfailure to comply with the requirements of Section 19 of the MSMED Act 2006 is to be consideredin the back drop of requirement of Section 19. of MSMED Act 2006 and also the scope of appealprovided under section 37 of Arbitration Act 1996. The provision of MSMED Act 2006 and theprovision of Arbitration and Conciliation Act 1996 are required to be considered in a harmoniousmanner in order to understand the intention of the legislature.

7. It is most humbly submitted herein that in para 28 of the impugned order the Division BenchofHon'ble High Court of Karnataka, it is observed as follows:

The application for setting aside the award is in time. Because the requirement of Section19(1) of the MSMED Act is not complied, the application is not entertained. Once the requirementis complied with it dates back to the date of application. If the application had been entertained aftercomplying with the requirement of Section 19(1) of the MSMED Act if for disposal of suchapplication considerable time has been spent, the petitioners were not expected to pay 75% of theinterest accrued from time to time to make the said application maintainable and therefore, thecontention that the amount already deposited would not fulfil the requirement of Section 19(1) of theMSMED Act cannot be accepted.

8. It is most respectfully submitted herein that when Section 34 of the Arbitration andConciliation is in application, provision of Section 34(3) of the Arbitration and Conciliation Actautomatically gets applied. This settled principle of law laid down by the Apex Court is required tobe considered. Provision of Section 34(3) getting automatically applied under Section 34, isprovided in the legislature in order to provide time bound relief to SSI/SME suppliers.

The provision of Section 19 makes it very clear that the award passed by the MSMED cannotbe set aside or even considered for setting aside unless the buyer deposits 75% of the Awardamount. In case on hand it would be seen from the chronological dates and events provided atVolume-I that SME supplier is not provided relief in spite of securing an award in its favour on14.07.2008 due to series of litigation by the buyer time and again refusing to make mandatorydeposit under Section 19 of the Act. The buyer thus succeeded in staying the execution of theaward in Ex. 2586 of 2013 subsequent to dismissal of its Section 34 suit on 20.09.2013 defeating thefinality under Section 19 of the MSMED Act.

Proviso to Section 19 indicates that even during the pendency of proceedings against theAward or order passed by the Council, the deposited amount by the buyer shall be paid to thesupplier to keep the small supplier viable during litigation. Thus this vital objective behind theMSMED Act 2006 gets defeated if time is extended without there being any statutory provision underlaw. It is in the back ground of the above mentioned facts, the Ministry of MSME most humblyprays that Hon'ble Court be pleased to kindly provide the interpretation in consonance with theintent of the act while disposing the above Special Petition to Appeal so that large number of SMEswho are suppliers across India will know the intention of the legislature in uniformity and withoutconfusion, in the interest of justice.

2

ITEM NO.47 COURT NO.5 SECTION IVA

SUPREME COURT OF INDIARECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (C) No(s). 21680/2015

(Arising out of ~pugned final judgment and order dated 02/06/2015in WP No. 49557/2013 passed by the High Court Of Karnataka AtBangalore)

M/S. ANNAPURNA ELECTRONICS ETC Petitioner(s)

VERSUS

M/S. CROMPTON GREAVES LTD. AND ORS ETC Respondent(s)

(with appln. (s) for permission to place addl. documents on recordand inter~ relief and office report)(For Final Disposal)

Date: 09/03/2016 This petition was called on for hearing today.

CORAM :HON'BLE MR. JUSTICE J. CHELAMESWARHON 'BLE MR. JUSTICE ABHAY MANOHAR SAPRE

For Petitioner(s)

For Respondent(s)

Si9M. re i alidgtE~DY KHANIDate16:3 TR"

Mr. Gurukrishna Kumar, Sr. Adv.Mr. Devashish Bharuka,Adv.Mr. Ravi Bharuka, Adv.

Mr. Shyam Divan, Sr. Adv.Mr. Ramesh Singh, Adv.Mr. Pankaj Jain, Adv.Mr. Bijoy Kumar Jain,Adv.

Ms. Madhvi Dewan, Adv.Mr. Neeraj Kumar. Sharma, Adv.Mr. Abhinav Mukherji, Adv.Mr. Subas C. Acharya, Adv.Mr. Vikas Bansal, Adv.Mr. Kaushal Yadav,Adv.

Mr. Praveen Agrawal,Adv.

Mr. Sanjay Hegde, Sr. Adv.Ms. Anitha Shenoy,Adv.Ms. Vishruti Vijay, Adv.

-2-

UPON hearing the counsel the Court made the followingo R D E R

Leave granted.

The matter arises on interest on the delayed payments

to Small Scale and Ancillary Industrial Undertakings Act,

1993. It appears that there is an award passed under the

above-mentioned Act in favour of the appellant herein on

14th July, 2008, the relevant portion of this reads as

follows:-

"The IFC hereby directs the respondent topay the total dues of Rs. 5,19,37,281.00 (RupeesFive Crores Nineteen Lakhs Thirty SevenThousand Two Hundred and Eighty One only) whichinclude Rs. 4,25,84,796.00 towards balance duesas indicated as per TDS certificates andRs. 78,51,471.00 towards short bookings andunaccounted sales for which the petitioner hasbills along with simple interest @ 14% foroutstanding dues bill wise since the date ofthe bills as due under the MSMED Act 2006, andRs. 15,01,015.00 paid by the petitioner to~ardsEMDs along with a s:imple interest @ 6% withinninety days from the date of issue of thisorder i.e., before 14th day of October 2008failing which the interest shall be compoundedwith monthly rests until the date when the duesidentified under these proceedings is paid infull, to the petitioner as per the MSMED Act2006."

The instant appeal arises out of the said award.

Without going into the further details, we may state that,

as on today, respondent no. 1 deposited an amount of

Rs. 6.93 crores and gave a bank guarantee for an amount of

Rs. 4.07 crores pursuant to interim orders of the High

Court dated 16thApril, 2010 and 25thApril, 2014.

-3-

In the circumstances, we deem it appropriate to

per.mitthe appe11ant(s) to withdraw the cash, either in its

entirety or part of it, deposited by respondent no. 1

amounting to Rs. 6.93 crores after providing an appropriate

immovab1e property security to the satisfaction of the

Registrar of the Karnataka High Court.

List the matter on s= August, 2016.

(DEEPAK MANSUKHANI)COURT MASTER

(INDU BALA KAPUR)COURT MASTER

Case Details

STATUS PENDING

Petitioner

~VES LTD.AND ORSETC

KA

Subject MatterListing Details

ARBITRATioN MAnER

IN THE SUPREME COURT OF INDIA(Civil Appellate Jurisdiction)

Special Leave Petition (C) No.21680 of 2015

IN THE MATTER OF: "Mis Annapurna Electronics' ,,,Petitioner

Versus

Crompton Greaves, Karnataka 'Industries Facilitation Council s Ors. ,,'Respondents

AFFIDAVIT ON BEHALF OF RESPONDENTNO. 6 (MSMED)

"."_

I, Anshuman Mohanty S/o Manmath Kumar Mohanty

,aged about 41 years, posted as, Director, Office of DC(MSME);

Ministry of MSME, Govt. of India, Oelh'i,do hereby solemnly affirm,

'and declare as under:

t.That I have read the SLP and List of dates and understood the, , '~';'~::~;:.,.

>/,,::,':::;,: i •••.• :_\., \\same well and am filing [this counter affidavit in my above saidto( :,'" .",. <: :,~'.\. ~J""~\:;:' -, ", t.: \':c'apacity, limited to the leQal position under the MSMEO, Act 2006,

"r' ,,", ./ 'in v'iew of the order dated l>7.-n·t.'& this Hon'ble Court,;- !.•~ :.

~'~,':·3::)~That the Micro, Smail & Medium Enterprises Development ActI

competitiveness of Micro, Small &' Medium Enterprises

2006 (hereinafter referred as "MSMEO") was enacted With the

object to facilitate the promotion and development to enhance the

~ Development and for matters connected therewith or incidental-,(............. '"

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thereto. The Section 19 of the MSMEO Act, ensures finality of

awards passed under section 36, in time bound manner.

3. That as per the scheme of the MSMED Act, payments for

procurement of goods and services has to be paid in a timely

manner to the Micro Small & Medium Enterprises. The Chapt~r V

of the MSMED Act deals with the Micro Small & Medium:

Enterprises and provides that in case of delay in payment of more,

than 45 days, Micro Small & Medium suppliers may approach the

Micro & Small Enterprises Facilitation Council (hereinafter referred

to as "the MSEFC"). It is relevantto point out here that the MSMEQ

Act further provides that no application for setting aside the decree

or award made by MSEFC, (except made by the supplier) shall be. :,:.

entertained except for the deposit of 75% of the award or decree',

amount within 90 days and in the grace period of 30 days fro'm the " "

date of receipt of the award which is in supplier's favour and not "," .....

" t~ereafter, so as to allow execution of the decree.

4/ That the buyers with the malafide intention to delay the r-, :\ ,

, ':i" execution of the awards are resorting to different kinds of litigations '

'" ',:/ by filing Sec 34 applications and writ petitions without dllpositing" \.

75% as mandated at Section 19 of MSMED Act, though hot Imaintainable, against the orders/awards made by the respective:;-' \ (, ~

, .~.

buyers by resorting to the aforesaid illegal and unlawful tactics are ,

not only delaying the release of payment but are .also defeatinq the'

very purpose behind the enacting of MSMED Act of timely payment,

and. finality of awards. The MSMED Act has been enacted with the,

purpose and intention to promote the small scale industries and

:t'~§Y

protection of their legal rights by ensuring timely ex~cution of ,

awards in case of failure of payment within the stipulated statutory /

period of time.

5. That the present matter and other similarly situated cases,

pending before this Hon'ble court, are the glaring examples, as to

how the buyers escape away from the mandatory provisions of the

',",

','

Section 19 of the MSMED Act and able to avoid the timely paymeet ".'"

to the suppliers.l In the present case buyer has been litigating for"

the past nearly 8 years defeating the intent of the.

6.lt is most respectfully submitted herein thatte o.bjectlve of

MSMED Act 2006 are as follows:

'1 ) Statutorily bind the buyer to pay the SME supplier

within the statutory due date.,.

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Provide for penal interest statutorily in case buyer

defaults in making payment.-::-, I_ ,"f ;.'.

.' ••.• J

3) Provide for efficient statutory mechanism for

expeditious resolution of supply and payment

related disputes.

4) Statutorily ensure to recover at least 75% of the

due amount along with interest after adjudication .:_ .. :J..I_:._rt. ._LI_- _L_I:_ .. 1.. '.-

2'A~

for disbursal of finance to the SME supplier to

keep it viable in case buyer appeals in court.

The objective of the remedy at Section 19 incorporating

mandatory deposit of 75% amount in terms of the award to

entertain the appeal/contest by the buyer under SectionSd of

Arbitration Act by the buyer in the court is in order to ensure timely

flow of finance to SME supplier 'so'as to remain viable in the event, .

of delay, default or dispute regarding payment by the buyer. The

object of effective and expeditions remedy incorporated at Section.

18(5) and Section.19 of the MSMED Act 2006 is to be appreciated" .

by reading together with Section 34(3) and Sec.36 of Arbitration

Act. The remedy and relief can be: fairly deduced to securing at

least 75% amount and disbursing that amount through court to

SME supplier within Six months with the intent to retain its viability

and financial health and to reduce incipience of sickness .

.. \~: It is respectfully submitted herein thatrenever the MSEFC

has passed an Award, no application shall be entertained by the

.Hon'ble Courts unless the purchaser deposits 75% of the amount,J '

in terms of the decree/award passed against him. In the given·",.~,.,..~- . ,..~.,.

case on hand, it is evident from the records that Mis. Crompton.

~ ~ Greaves - Respondent No.1 herein has not deposited such". -.\>, "~)~/ // amount while filing Arbitration Suit in 4412008 in thE$City Civil

Court as against the award dated 14.7.2008 passed by the

MSEFC.

... :....... '.~

8, Question of law raised by the petitioner herein as to whether ....

the writ petition is maintainable .aqainst an order passed dismissing .

the petition under Section 34 of the Act 1996 for failure to comply

with the requirements of Section 19 of the MSMED Act 2006 is to

be considered in the back drop of requirement of Section 19 of· ; @MSMED Act 2006 and also the scope of appeal provided under

Section 37 of Arbitration Act 1996. The provision of MSMED Act

2006 and the provision of Arbitration and Conciliation Act 1996 are:

required to be considered in a harmonious manner In order to

understand the intention of the legislC3ture.It·

9. It is most humbly submitted herein that in para 28 of the

impugned order the Division' Bench of Hon'ble High Court of

Karnataka, it is observed as follows:

The application for setting aside the award is in

time. Because the requirement of Section 19 (1) of the

MSMED Act is not complied. the application is not

entertained. Once the requirement is complied with it

dates back to the date of application, If the application

had been entertained after complying with the

requirement of Section 19 (1) of the MSED Act if for

disposal of such application considerable time ~9S

been spent, the petitioners were not expected to pay

75% of the interest accrued from time to time to make

the said application maintainable and therefore, the

contention that the amount already 'deposited would not

fulfil the requirement of Section 19 (1) of the MSMED

Act cannot be accepted.

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"' ...,.6'»:If this inference is accepted it would totally defeat

the requirement of deposit under Section 19 of the

MSMED Act 2006, which mandates deposit of 75% in

terms of the award has to be made at the time of filing

Arbitration suit under Section 34 of the Arbitration Act

to entertain such application.

10. It is most respectfully submitted herein that this would virtually

amount to application of Doctrine of relation back which is virtually

a fictional positional in the given case on hand. If this Doctrine is

applied or made applicable in case as that of the case of

respondent No.1 herein it would defeat the relevant provisions ~f

MSMED Act 2006 pertaining to delayed payment. Delayed deposit

also has consequence. Application under Section 34 is to be

considered as .a valid application as and when it is filed in

accordance with law which includes pre-deposit of 75% of the

amount. If such deposit is made belatedly, the application would

become valid excepting for th'e effect of provision of limitation Act.

In order to overcome the effect of limitation Act, there is no other

statutory provision provided. It is under these circumstances, a

comprehensive look at the provision of MSMED Act 20Q6

Arbitration and Conciliation Act 1996, Limitation Act requires to be '

considered. If Section 5 of the Limitation Act is applied then

Section 34 (3) of the Arbitration and C.o.nciliationAct will become

,virtually redundant and if Section 5 of the Limitation Act is applied,

then the purpose of significance of the requirement of pre-deposit

under Section 19 of the MSMED Act will be defeated.

11. It is most respectfully submitted herein that when Section 34

of the Arbitration and Conciliation is in application, provision of

Section 34 (3) of the Arbitratio'n and Conciliation Act automatically

gets applied. This settled principle of law laid down by the 'Apex

Court is required to be considered. Provision of Section 34 (3). . "':,

getting automatically applied under :Section 34, is provided inthe

legislature in order to provide time bound relief to SSI/SME

suppliers.

12. The 'provision of Section 19 makes it very. clear that the

award passed by. the MSMED cannot be set aside or even .. .' . .

considered for setting aside unless the buyer deposits 75% of the

- - .~.,. award amount.-,;.\,. '\ ....' .,\\Inthe case on hand it would be seen from the chronological dates

l,

~n'd events provided at Volume-I that SME supplier is not provided '.

.' ':.' , . 'relief in spite of securing an award in its favour on 14-'07-2008 due

.... to series of litigation by the buyer time and again refusing to make

mandatory deposit under Section 19 of the Act.The buyer thus ..'

succeeded in staying the execution of the award in Ex.2586 of ..

2013 subsequent to dismissal of its.Section 34 suit on 20.09.2013

defeating the finality under Section 19 of the MSMED Act.

13. Section 19 of the MSMED Act 2006 reads as follows:

. I. /.J/

. .. ~~ .....

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19. Application for setting aside decree,award. or order:-, No application tor setting aside anydecree, award ~r otner order mede either by theCouncil itself or by any institution or centre providingalternate. dispute resolution services to which a

. ..... . .reference is made by the Council, shall be entertainedby any Court unless, the appellant (not being asupplier) has deposited with it seventy-five percent ofthe amount in terms of the decree, award or, as thecase may be, the other order in the manner directed bysuch court:

'1 :

Provided that pending disposal of the appli~ationto set aside the decree, award or other, the Court shallorder that such percentage of the amount dep01itedshall . be paid to the. supplier, as it considersreasonable, under the circumstances of the case,subject to such conditions as it deems necessary toImpose.

.._'.'

14. Proviso to Section 19 indicates that even during the Tpendency of proceedings against the Award or order passed by

supplier to keep the small supplier viable during litigation. Thus this

the Council, the deposited amount by the buyer shall be paid to the

·.':yitalobjective behind the MSMED Act 2006 gets defeated if time is

,e~<tendedwithout there being any statutory provision under law. It

..is in the back ground of the above mentioned facts, this····. .

", '.

to kindly provide the interpretation in consonance with the intent of

'" ".,..

'. /;Respondent most humbly prays that this Hon'ble Court be pleased

\ \\_<:_ ;,/.__:). //

the act while disposing the above Special Petition to Appeal so that

large number of SMEs who are suppliers across India will know the

intention of the . legislature in uniformity and without confusion, In

the interest of justice.

.... #

That no facts which are not -pleaded before the courts below are::: .

pleaded in the present affidavit.

.~~ '11~ IANSHUMAN.MO~ANT k~. ~ I DireClor ~

""-- ~ ~ I.Govl. of India ,......I~""." 3mI'ffi (\1.0 Flo ~ 1'!0 '\3'1l""I) lin

O'llice aline pev. Commr. IM.SME)'11"1, c:rq ~ 1'!iJ1l! '\3'1l""I 'I!;m;{lI

Minlltry plMI(ro. Small & Medium Enlerpnses Deponent~ \{lA, ~ ~-l~o,oa :Nlrman B!".awa'l New Oe1h,.\10108

Verified on this 28.01,20161 at New Delhi that the contents of para

1 to 14 of my affidavit are true and correct to .the best of my

knowledge and nothing material has been concealed therefrom,

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