IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 2ND DAY OF JUNE 2015

PRESENT

THE HON’BLE MR. JUSTICE N.KUMAR AND

THE HON’BLE MR. JUSTICE B.SREENIVASE GOWDA

WRIT PETITION No.49557/2013 (GM-RES) BETWEEN : M/s Crompton Greaves Ltd., A Company registered under

the provisions of the Indian Companies Act, 1913, having its registered office at CG House, 6th Floor, Dr.Annie Besant Road Worli, Mumbai-400 030.

And also its location at 10A, Jigani Industrial Area, Anekal Taluk, Bangalore Rural District, Bangalore-562 106 Rep. by its General Manager,

Corporate Legal & GPA Holder, Mr.Sushant Arora. ...PETITIONER

(By Sri Udaya Holla, Senior Counsel a/w Sri Vivek Holla, Adv.)

R

2

AND : 1. M/s Annapurna Electronics

No.1/4, B1, NGEF Guest House,

Near ESI Hospital Road, Krishnaiahna Palya, Bangalore-560 038, Rep. by its Proprietor.

2. The Karnataka Industry Facilitation Council

Bangalore, Khanija Bhavana, High Grounds, Bangalore-560 001 By its Chairman/the Commissioner for Industrial Development and Director of Industries Commerce, Bangalore.

3. President, Karnataka Small Scale Industrial Association (KASSIA), No.2/106, 17th Cross, Magadi Chord Road, Vijayanagar, Bangalore-560 040.

4. The General Manager, SLBC,

Syndicate Bank, Regional Office No.69, 9th Main, III Block, Jayanagar, Bangalore-560 011.

5. The Executive Director (Finance)

Karnataka State Financial Corporation, Recovery-II, Head Office, KSFC Bhavan, No.1/1, Thimmaiah Road, Bangalore-560 052. …RESPONDENTS

(By Sri M.G.S.Kamal, Adv. for R-1;

R-2 to R-5 served.)

3

This Writ Petition is filed under Articles 226 & 227 of Constitution of India, praying to set aside the order/judgment dated 20.09.2013, passed by the Hon'ble Prl. City Civil & Sessions Judge at Bangalore

[Bangalore Dist.] in Arbitration Suit No.44/2008, vide Ann-P. This Writ Petition coming on for preliminary hearing this day, N.Kumar J., made the following:

O R D E R This Writ Petition is preferred challenging the

order dated 20.09.2013 passed by the Principal City

Civil and Sessions Judge at Bangalore in Arbitration

Suit No.44/2008 dismissing the suit for non-compliance

of the order dated 20.08.2013 passed in W.P.

No.12465/2010 by this Court.

2. The petitioner is a Public Limited Company

registered under the provisions of the Indian Companies

Act, 1913. The petitioner is carrying on the business

inter alia, of developing, manufacturing and marketing

Telecom products. Respondent No.1 M/s. Annapurna

4

Electronics, a proprietary firm situated at Bangalore, is

carrying on the business inter alia of providing telecom

related services and has its Offices at various strategic

locations for the purposes of servicing of C-Dot Cards

and test equipment procured from different officers of C-

DOT and reputed manufacturers. By an agreement

dated 14th May, 2004 respondent No.1 agreed to provide

services to the petitioner by way of providing its

infrastructure and personnel to support the petitioner

in execution of the Work Order dated 29th April, 2002

awarded by M/s. Bharath Sanchar Nigam Limited in

favour of the petitioner. For the services so rendered,

the petitioner was required to reimburse 76% of the

revenue collected by respondent No.1. However, even

before the BSNL Work Order could be executed in full,

respondent No.1 stopped providing the necessary

services. Thus disputes arose between the parties

relating to their respective rights and obligations under

5

the said agreement dated 14th May, 2004. The

respondent claims that it is a “Supplier” under the

provisions of the repealed Act called “the Interest on

Delayed Payments to Small Scale and Ancillary

Industrial Undertakings Act, 1993. Accordingly, the 1st

respondent initiated proceedings under the provisions of

Section 9 of the said repealed Act by approaching the

Karnataka Industry Facilitation Council. The said Act

was repealed from 2nd October, 2006 and substituted by

Micro, Small and Medium Enterprises Development Act,

2006 (for short hereinafter referred to as the `MSMED’

Act).

3. In the said proceedings, the petitioner was

called upon to file its written statement, which was duly

filed. The petitioner raised a specific stand in the said

objection that the 1st respondent was not covered either

under repealed Act or under the new Act. However,

6

overruling the said objection an award came to be

passed on 14th July, 2008.

4. Aggrieved by the said award, the petitioner filed

an application under Section 34 of the Arbitration and

Conciliation Act, 1996 (for short hereinafter referred to

as ‘the Arbitration Act’) before the Civil Court, which is

numbered as Arbitration Suit No.44/2008. In the said

Arbitration suit, the respondent No.1 filed an

application under Section 19 of the MSMED Act praying

that the Arbitration Suit is not maintainable in view of

non deposit of 75% of the arbitral amount by the

petitioner. The petitioner filed its reply to the above said

Interim application. After hearing the said application,

by an order dated 01.04.2010, the learned City Civil

Judge, Bangalore City ordered that the petitioner shall

deposit 75% of the award amount on or before 12th

7

April, 2010 failing which, further orders would be

passed to reject the Arbitration suit.

5. Aggrieved by the said order, the petitioner filed

a writ petition before this Court in W.P.

No.12465/2010. This Court by an order dated

16.04.2010, which was a consent order directed the

petitioner herein to furnish a Bank guarantee to the

tune of 75% of the award amount. The said order was

challenged by the 1st respondent in Writ Appeal

No.2432/2010. The Division Bench of this Court, by its

order dated 29th July, 2010 set-aside the order dated

16.04.2010 passed by the learned Single Judge and

requested the learned Single Judge to reconsider the

matter afresh in accordance with law. After

reconsideration, by an order dated 20.08.2013, the

learned Single Judge dismissed the writ petition.

8

6. Against the said order of dismissing the writ

petition, petitioner preferred writ appeal No.5780/2013

challenging the order of the learned Single Judge. In

the meanwhile, respondent No.1 filed one more

application in Arbitration suit No.44/2008 for dismissal

of the suit for non-compliance of the requirement of

75% deposit. Though the learned City Civil Judge was

informed about the already filed W.A. No.5780/2013

and the fact that it was pending for admission before

the Hon’ble High Court, the impugned order came to be

passed dismissing the arbitration suit for non-

compliance of the order passed by this Court in W.P.

No.12465/2010. Aggrieved by the said order, this writ

petition is filed.

7. The learned Senior Counsel appearing for the

petitioner, assailing the impugned order urged that the

award, which is the subject matter of the proceedings

9

before the Civil Court under Section 34 of the

Arbitration Act is one without jurisdiction. It is void as

the statutory requirements as contemplated under the

Arbitration Act is not followed. That is why there was

no obligation on the part of the petitioner to deposit

75% of the award amount. However, by virtue of the

interim order passed by this Court on 25.04.2014 a

sum of Rs.6,93,00,000/- has been deposited before this

Court. This is in addition to the amount of

Rs.4,07,00,000/- provided by way of Bank Guarantee

issued by Union Bank of India, Mumbai. The said

amount, in terms of the order, has been kept in Fixed

Deposit in a Nationalized Bank. Therefore, he submits

that as the requirement as contemplated under Section

19 of the MSMED Act has been complied with, the

impugned order requires to be set-aside. The

application under Section 34 is to be restored to its

original file and the said application should be decided

10

on merits. He submits that as the Civil Court has not

passed any order on merits rejecting the application

under Section 34 of the Arbitration Act, no appeal lies

under Section 37 of the Arbitration Act. The only

remedy available to the petitioner is to challenge the

said order by way of a writ petition and therefore, the

writ petition is maintainable.

8. Per contra, the learned counsel for the 1st

respondent submitted that the impugned order is

passed under Section 34 of the Arbitration Act. The

reason for dismissal of the application is immaterial.

Once an order is passed by a Civil Court, in exercise of

the power conferred under Section 34 of the Arbitration

Act, a statutory appeal is provided under Section 37 of

the Arbitration Act, then writ petition is not

maintainable. Even otherwise, he submits that if the

application is to be restored by setting-aside the

11

impugned order, the petitioner should be directed to pay

75% of the amount due as on the date of restoration

and if that is taken into consideration, the amount

already deposited would not satisfy the requirement of

Section 19 of the MSMED Act. Therefore, the impugned

order cannot be set-aside and no order of restoration of

the application could be passed.

9. In the light of the aforesaid facts and rival

contentions, the points that arise for our consideration

in this writ petition is as under:

(1) Whether a writ petition is maintainable

against the order passed dismissing the

petition under Section 34 of the

Arbitration Act for failure to comply with

the requirements of Section 19 of the

MSMED Act?

12

(2) If such a writ petition is maintainable,

whether a case for interference of the

impugned order is made out?

Point No. (1)

10. The Parliament enacted the Micro, Small and

Medium Enterprises Development Act, 2006 for

facilitating the promotion and development and

enhancing the competitiveness of micro, small and

medium enterprises and for matters connected

therewith or incidental thereto which came into force

from 2.10.2006. It repealed the Interest on Delayed

Payments to Small Scale and Ancillary Industrial

Undertakings Act, 1993. Chapter V of the MSMED

Act deals with delayed payments to micro and small

enterprises. Section 15 of the MSMED Act prescribes a

maximum of 45 days for payment of the amounts due to

the supplier under the Act. In the event the amount is

13

not paid within the aforesaid period, Section 16 of the

MSMED Act provides for payment of compound interest

with monthly rests to the supplier. Section 17 provides

for recovery of the amount due. Section 18 provides for

the forum where the claim for recovery of the amount

could be initiated. In fact, sub-section (5) of Section 18

mandates that the reference under Section 18 to the

Micro and Small Enterprises Facilitation Council shall

be decided within a period of 90 days from the date of

making such a reference. Once the said Council passes

a decree or an order or an award, Section 19 of the

MSMED Act provides for an appeal. However, keeping

in mind the object with which the Act was enacted,

deposit of 75% of the amount in terms of the decree,

award or order, is made a condition precedent. The

proviso to Section 19 makes a provision for payment of

a portion of the amount so deposited to the supplier.

14

Section 20 provides for establishment of Micro and

Small Enterprises Facilitation Council.

11. Therefore, under the scheme of the MSMED

Act once an award is passed, though the said award or

order could be challenged by filing an application,

deposit of 75% of the amount in terms of the decree, is

made a condition precedent as is clear from Section 19

which reads as under : -

“19. Application for setting aside

decree, award or order.—No application for

setting aside any decree, award or other

order made either by the Council itself or by

any institution or centre providing alternate

dispute resolution services to which a

reference is made by the Council, shall be

entertained by any court unless the appellant

(not being a supplier) has deposited with it

seventy-five per cent of the amount in terms of

the decree, award or, as the case may be, the

15

other order in the manner directed by such

court:

Provided that pending disposal of the

application to set aside the decree, award or

order, the court shall order that such

percentage of the amount deposited shall be

paid to the supplier, as it considers

reasonable under the circumstances of the

case subject to such conditions as it deems

necessary to impose”.

12. In fact emphasizing the importance of this

enactment, the Apex Court in the case of SNEHADEEP

STRUCTURES PRIVATE LIMITED vs MAHARASHTRA

SMALL SCALE INDUSTRIES DEVELOPMENT

CORPORATION LIMITED [(2010) 3 SCC 34] observed

as under :-

“47. The requirement of predeposit of interest

is introduced as a disincentive to prevent

dilatory tactics employed by the buyers against

16

whom the small-scale industry might have

procured an award, just as in cases of a decree

or order. Presumably, the legislative intent

behind Section 7 was to target buyers, who,

only with the end of pushing off the ultimate

event of payment to the small-scale industry

undertaking, institute challenges against the

award/decree/order passed against them.

Such buyers cannot be allowed to challenge

arbitral awards indiscriminately, especially

when the section requires predeposit of 75%

interest even when appeal is preferred against

an award, as distinguished from an order or

decree.”

13. Sub-section (3) of Section 18 makes the

provisions of the Arbitration Act apply to the dispute as

if the arbitration was in pursuance of an arbitration

agreement referred to in sub-section (1) of 7 of the Act.

In view of the aforesaid provision, an application to be

filed for setting aside the decree, order or award is

17

under Section 34 of the Arbitration Act to a Court as

defined under the Arbitration and Conciliation Act,

1996. It is in pursuance of the aforesaid provision,

being aggrieved by the award passed by the Micro and

Small Enterprises Facilitation Council, the petitioner

filed an application under Section 19 of the MSMED Act

read with Section 34 of the Arbitration Act before the

Civil Court seeking for setting aside of the award on the

grounds mentioned in the said application. In view of

Section 19(1) of the MSMED Act, the petitioner ought to

have deposited 75% of the amount awarded which was

not done. Therefore, on an application filed by the

respondent, the Court directed the petitioner to deposit

75% of the amount awarded. Challenging the said

order, the petitioner preferred a Writ Petition. In spite

of that order, the amount was not deposited. Therefore,

the impugned order came to be passed dismissing the

arbitration suit on the ground of non-compliance of the

18

High Court order in the Writ Petition. It is that order

which is now challenged in this Writ Petition. If the

impugned order is to be treated as an order under

Section 34 of the Arbitration Act, Section 37 provides for

an appeal to this Court. In that view of the matter,

normally this Court would not decline to entertain a

Writ Petition under Article 226 of the Constitution on

the ground of availability of an alternate remedy.

However, Writ Petition is not a bar. This point has been

agitated in various Courts both under the present

Arbitration Act and also under the repealed Arbitration

Act.

14. A Division Bench of the Bombay High Court

in the case of STATE OF MAHARASHTRA AND

ANOTHER vs RAMDAS CONSTRUCTION CO AND

ANOTHER [2006 (6) MH.L.J. 678 dealing with rejection

of a petition filed under Section 34 (3) of the Arbitration

19

Act on the ground of bar by limitation was called upon

to decide whether an appeal under Section 37 of the

Arbitration Act is maintainable. Dealing with the said

question, it was held as under :

“6. .It is not in dispute that by the

impugned order the lower Court has dealt with

the issue relating to the delay in filing

application for setting aside the award, as to

whether such delay should be condoned and

whether the application for setting aside the

award should be entertained. The issue as to

whether the arbitral award should be set

aside or not has not been dealt with under the

impugned order.

7. Section 37(1) clearly provides that an

appeal shall lie from the orders passed either

granting or refusing to grant any measure

under Section 9, or setting aside or refusing to

set aside an arbitral award under Section 34

of the Act. Undisputedly, therefore, whenever

there is order passed either for setting aside of

the award or refusing to set aside the arbitral

20

award and such order is passed in exercise of

powers under Section 34, the same would be

appealable under Section 37(1)(b) of the Act. In

the case in hand, since it is not in dispute nor

it can be disputed that the impugned order

does not deal with the issue as to whether the

arbitral award should be set aside or not and

it merely deals with the issue in relation to the

delay in filing an application for setting aside

of the award, evidently the impugned order

cannot be said to be an appealable order

within the meaning of the said expression

under Section 37(1)(b) of the Act.

8. Section 34(1) of the Act provides that

recourse to a Court against an arbitral award

may be made only by an application for

setting aside such award in accordance with

Sub-section (2) and Sub-section (3). In other

words an application for setting aside of

award should satisfy the requirements of

Subsection (2) as well as Sub-section (3) of

Section 34 of the Act. Merely because the

application satisfies the requirements of any

21

one of Sub-sections (2) and (3) of Section 34 of

the Act, it cannot be said that it is a valid and

lawful application under Section 34(1) of the

Act. Such application has necessarily to

satisfy the requirements of both the Sub-

sections.

9. Sub-section (3) of Section 34 of the Act

provides that an application for setting aside

may be made after three months have elapsed

from the date on which the party making such

application had received the arbitral award or,

if a request had been made under Section 33,

from the date on which that request had been

disposed of by the arbitral tribunal, provided

that if the Court is satisfied that the applicant

was prevented by sufficient cause from

making the application within the said period

of three months, it may entertain the

application within a further period of thirty

days, but not thereafter. This provision of law

expressly reveals that the legislature has

provided a specific period of limitation for filing

an application for setting aside of the award

22

and simultaneously the Court has been given

discretion to extend such period only by thirty

days, and not beyond the said period of thirty

days. The provision is very clear in that

regard. However, the scope of enquiry under

Sub-section (3) is restricted to the cause for

delay in filing the application but it does not

relate to the merits of the application for

setting aside of the award. Being so, a order

which is to be passed in exercise of powers

under Sub-section (3) of Section 34 of the Act

cannot extend to the subject matter of the

application for setting aside of the award but

has to restrict to the aspect of delay in filing

such application only. Such an order is not

contemplated to be an appealable order within

the meaning of the said expression under

Section 37 of the Act. It is very clear from the

fact that Section 37 refers to the orders

dealing with the aspect of setting aside or

refusing to set aside an arbitral award. It does

not refer to the proceedings preceding the

enquiry in relation to the issue of setting aside

23

or refusing to set aside an arbitral award. The

subject-matter of delay in filing an application

and the condonation thereof relates to the

proceedings preceding the enquiry for setting

aside or refusing to set aside an arbitral

award. Once it is clear that Section 37(1)(b)

does not contemplate any order passed in

such proceeding relating to the matter

preceding the enquiry in relation to setting

aside or refusing to set aside an arbitral

award, such an order cannot be considered as

an appealable order within the meaning of the

said expression under Section 37 of the Act.

10. Undoubtedly the impugned order while

rejecting the application for condonation of

delay, clearly observes:

“Consequently, application under

Section 34 of the Arbitration and

Conciliation Act, 1996 for setting

aside the award is also rejected

being barred by time.”

24

In other words, the Court has not dealt

with the application for setting aside of the

award on merits and the same has been

disposed of solely as a consequence of

rejection of the application for condonation of

delay and there has been no enquiry as

regards the rights of the parties on the issue of

setting aside of the award. The appealable

order which is contemplated for the purpose of

exercise of appellate jurisdiction is the one

which deals with the merits of the case in

relation to the claim for setting aside or

refusing to set aside an arbitral award. As

already stated above, the appellate powers

under Section 37 are not in relation to the

proceedings which precedes the enquiry

regarding setting aside or refusing to set aside

an arbitral award. Being so, the consequence

of the order of dismissal of the application for

condonation of delay cannot itself amount to

an appealable order under Section 34(1) for

the purpose of appeal under Section 37(1) of

the Act.”

25

15. The Lucknow Bench of the Allahabad High

Court in the case of UNION OF INDIA AND OTHERS vs

RADHA KRISHNA SETH AND ANOTHER [2006 (2)

ARBLR441 (ALL) again dealing with an order passed

under Section 34 (3) of the Arbitration Act held as

under:-

“18. Rejection of application under Section 5

of the Limitation Act for condonation of delay

can be challenged only in revision. No appeal

lies against the impugned order because

under Section 37 of the Act an appeal lies

against the following orders only:

(a) granting or refusing to grant any

measure under Section 9;

(b) setting aside or refusing to set aside an

arbitral award under Section 34.

An appeal shall also lie to a court from an

order of the arbitral tribunal:

(a) accepting the plea referred to in Sub-

section (2) or Sub-section (3) of Section

16; or

26

(b) granting or refusing to grant an interim

measure under Section 17.”

16. Per contra, the learned counsel for the first

respondent relying on a judgment of the Apex Court in

the case of ESSAR CONSTRUCTIONS vs N.P. RAMA

KRISHNA REDDY [(2000) 6 SCC 94] held as under :

“19. The section makes it clear that

limitation may be a ground for rejecting a suit

already instituted, an appeal preferred and, in

the context of this case, most importantly, an

application already made. What is before the

Court is the substantive application when the

question of limitation is decided.

20. Limitation, like the question of

jurisdiction may be provided for in a separate

statute but it is a defence available in the suit,

appeal or application. When the defence is

upheld it is the suit or the appeal or the

application itself which is dismissed. Of

course, the question as far as appeals are

concerned may be debatable having regard to

27

the provisions of Order 41 of the Code of Civil

Procedure relating to admission of appeals as

an appeal may not be admitted at all because

it is barred by limitation. We express no final

view in the matter. But there is no

corresponding requirement for admission of

applications or suits after overcoming the

barriers of limitation. A suit which is

dismissed on the ground of limitation may be

appealed against as a decree. By the same

token an application under Section 30 which is

dismissed on the ground of limitation is a

refusal to set aside the award.

21. Section 39 (1)(vi) of the Arbitration Act,

1940 does not indicate the grounds on which

the court may refuse to set aside the award.

There is nothing in its language to exclude a

refusal to set aside the award because the

application to set aside the award is barred by

limitation. By dismissing the application albeit

under Section 5, the assailability of the award

is concluded as far as the Court rejecting the

application is concerned. Ultimately therefore,

28

it is an order passed under Section 30 of the

Arbitration Act though by applying the

provisions of the Limitation Act.

31. Besides Madanlal case was decided in

the context of the Indian Limitation Act, 1908

when the provisions of Section 5 were

inapplicable to applications under Section 30

of the Arbitration Act. The period prescribed

under Article 158 of the 1908 Act for

challenging an award was absolute. It was

therefore held that an objection filed more than

30 days after the notice

“could not be treated as an

application for setting (aside)(sic),

the award for it would then be

barred by limitation. The position

thus is that in the present case

there was no application to set

aside the award on grounds

mentioned in Section 30 within the

period of limitation.”

It was also observed that even the Court could

not set aside an award suo motu under

29

Section 30 beyond the period of limitation for if

that were so the limitation provided under

Article 158 of the Limitation Act would be

completely negatived.

32. Apart from the decision not being

relevant to the issue before us, it is entirely

distinguishable in law. Section 5 of the

Limitation Act, 1963 is now applicable to all

applications under the Arbitration Act.

Provided that the delay is sufficiently

explained, there is no such compulsion on the

Court to reject an application filed beyond the

prescribed period of limitation nor is there any

question of the prescribed period of limitation

being negatived by entertaining an application

under Section 30 beyond the period of

limitation.

33. We therefore conclude that the order of

the Senior Civil Judge rejecting the application

of the respondent under Section 5 was

appealable under the 1940 Act. The

application under Section 115 of the Code

30

therefore did not lie. Despite the fact that this

issue was neither raised before nor considered

by the High Court, we cannot take a blinkered

view of the situation in law. Had the issue

been raised, it would have been open to the

High Court to have converted the revision

petition into an appeal.

34. To set aside the order of the High Court

on this technical ground and to remand it for

a reconsideration of the sufficiency of the

cause shown by the respondent, would be an

unnecessary exercise. In the view we have

taken, the High Court had the jurisdiction to

reappraise the evidence and condone the

delay. It has given its reasons for doing so. It

cannot, in the circumstances, take a different

view on the merits of the respondent’s case

on the question of delay if the matter were to

be remanded. In our opinion, this would be an

appropriate case for us to exercise our powers

under Article 142 of the Constitution and

decide on the merits of the sufficiency cause

shown”.

31

17. The Lucknow Bench of the Allahabad High

Court in the case of U.P. CO-OPERATIVE SUGAR

FACTORIES FEDERATION LIMITED, LUCKNOW AND

OTH`ERS vs M/S P.S.MISRA, GORAKHPUR AND

ANOTHER [AIR 2003 ALLAHABAD 123] held as

under:-

“18. Learned District Judge refused to

entertain the application under Section 34 of

the Act on the ground that in view of Clause33

of the agreement, jurisdiction of Lucknow

Courts stands excluded and construed it to be

a clause ousting the jurisdiction of Lucknow

Courts and confining it to the jurisdiction of

Gorakhpur Courts and the application of the

appellants has been rejected. In our opinion,

the view taken by the learned District Judge

cannot be upheld, as the jurisdiction clause,

for the reasons stated above, cannot be

construed to mean that it ousts the jurisdiction

of Lucknow Courts.

32

19. Another argument was raised against the

maintainability of the appeal by the learned

counsel for respondent No. 1 on the ground

that the present judgment and order is an

order by means of which the application of the

appellants moved under Section 34 has been

rejected for want of jurisdiction and, therefore,

in view of the provisions of Section 37 of the

1996 Act, the appeal would not be

maintainable, as no such appeal is envisaged

under the said provision. We are unable to

accept the submission made by the learned

counsel for respondent No. 1 in view of the

specific provisions of Section 37 of the Act.

Section 37 of the Act, occurring in Chapter IX

of the Act, deals with appeals and provides as

under :

37. "(1) An appeal shall lie from the

following orders (and from no others) to

the Court authorised by law to hear

appeals from original decrees of the

Court passing the order, namely-

33

(a) granting or refusing to grant any

measure under Section 9;

(b) setting aside or refusing to set aside

an arbitral award under Section 34.

(2) An appeal shall also lie to a Court

from an order of the arbitral Tribunal-

(a) accepting the plea referred to in sub

Section (2) or Sub-section (3) of Section

16; or

(b) granting or refusing to grant an

interim measure under Section 17,

(3) No second appeal shall lie from an

order passed in appeal under this

section but nothing in this section shall

affect or take away any right to appeal

to the Supreme Court.

20. Sub-section 1 (b) of Section 37 specifically

makes such an order appealable, which either

set aside or refuse to set aside the arbitration

award under Section 34. The rejection of the

application moved under Section 34 of the Act

of the appellants would fall within the

aforesaid clause and it would be immaterial

34

as to whether the application under Section 34

has been rejected for want of jurisdiction or

otherwise on merit. The said provision does

not clarify anywhere that if an application

under Section 34 is rejected on merits alone,

only then the appeal would lie. The ground of

rejection may be multifarious but it is only the

rejection of application, which would give a

right to the appellant to file an appeal. The

argument of the learned counsel for

respondent No. 1 attempts to create artificial

classification with respect to the orders

passed on the application under Section 34

which classification is neither provided in the

aforesaid provisions of the Act nor can be

imported nor infused in the specific provisions.

The application of the appellants having been

rejected, the appellants have rightly filed an

appeal under Section 37 of the Act.”

18. The Madhya Pradesh High Court in the case

of BISLERI INTERNATIONAL PRIVATE LIMITED AND

OTHERS vs SUN PETPACK JABALPUR PRIVATE

35

LIMITED AND ANOTHER [2010 (1) MPHT200] dealing

with the case arising under the Act itself after referring

to Sections 34 and 37 of the Arbitration Act, held as

under : -

“It is apparent that under Section 37(1)(b) of

the Act of 1996 every order is appealable

setting aside or refusing to set aside an

arbitral award under Section 34 of the Act of

1996. The effect of non-compliance of order

passed under Section 19 of the Act 2006 in the

instant case is that main application under

Section 34 of the Act of 1996 stands

dismissed in which prayer was made to set

aside the award. Such an order in our

considered opinion would be appealable

within provision of Section 37(1)(b) of the Act of

1996. Refusal may be on some other ground

also. The matter is not res integra, the Apex

Court in Essar Constructions v. N.P.Rama

Krishna Reddy (supra), has held that the

outcome of an order dismissing an application

for condonation of delay in filing an

36

application under Section 30, Arbitration Act,

1940 for setting aside an award, held, in

effect is that the prayer for setting aside the

award has been refused on the ground of

delay, such an order is ultimately, therefore,

an order under Section 30 and so appealable

under Section 39 of the Arbitration Act, 1940.

We do not find any ground under the scheme

of the new Act, 1996 to hold that such order

would not be appealable under Section 37.”

19. From the aforesaid judgments, we find two

divergent views on the subject. The first view is that, if

an application under Section 34 is dismissed under

Section 34 (3) of the Arbitration Act or under the old

Arbitration Act if an application under Section 5 of the

Limitation Act is dismissed, consequently the award

passed by the arbitrator is affirmed, it is not a case of

the Court either setting aside the award or refusing to

set aside the award on merits and, therefore, the

37

statutory appeal provided under the statute is not

attracted. Such an order is to be challenged by way of a

revision or a Writ Petition. The other view is, whatever

may be the reason for not entertaining an application

under Section 34 of the Act, the ultimate result is the

application is dismissed and the award passed by the

arbitrator stands affirmed. Therefore, an appeal lies

under Section 37 of the Act. In this background, let us

look into Section 34 of the Act.

20. Section 34 of the Arbitration and Conciliation

Act, 1996 reads as under : -

“34 Application for setting aside arbitral

award. —

(1) Recourse to a Court against an arbitral

award may be made only by an application

for setting aside such award in accordance

with sub-section (2) and sub-section (3).

38

2) An arbitral award may be set aside by the

Court only if—

(a) the party making the application

furnishes proof that—

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid

under the law to which the parties have

subjected it or, failing any indication thereon,

under the law for the time being in force; or

(iii) the party making the application was not

given proper notice of the appointment of an

arbitrator or of the arbitral proceedings or

was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute

not contemplated by or not falling within the

terms of the submission to arbitration, or it

contains decisions on matters beyond the

scope of the submission to arbitration:

Provided that, if the decisions on matters

submitted to arbitration can be separated

from those not so submitted, only that part of

the arbitral award which contains decisions

39

on matters not submitted to arbitration may

be set aside; or

(v) the composition of the arbitral Tribunal or

the arbitral procedure was not in accordance

with the agreement of the parties, unless

such agreement was in conflict with a

provision of this Part from which the parties

cannot derogate, or, failing such agreement,

was not in accordance with this Part; or

(b) the Court finds that—

(i) the subject-matter of the dispute is not

capable of settlement by arbitration under the

law for the time being in force, or

(ii) the arbitral award is in conflict with the

public policy of India.

Explanation. —Without prejudice to the

generality of sub-clause (ii) it is hereby

declared, for the avoidance of any doubt, that

an award is in conflict with the public policy

of India if the making of the award was

induced or affected by fraud or corruption or

was in violation of section 75 or section 81.

40

(3) An application for setting aside may not

be made after three months have elapsed

from the date on which the party making that

application had received the arbitral award

or, if a request had been made under section

33, from the date on which that request had

been disposed of by the arbitral Tribunal:

Provided that if the Court is satisfied that the

applicant was prevented by sufficient cause

from making the application within the said

period of three months it may entertain the

application within a further period of thirty

days, but not thereafter.

(4) On receipt of an application under sub-

section (1), the Court may, where it is

appropriate and it is so requested by a party,

adjourn the proceedings for a period of time

determined by it in order to give the arbitral

Tribunal an opportunity to resume the arbitral

proceedings or to take such other action as in

the opinion of arbitral Tribunal will eliminate

41

the grounds for setting aside the arbitral

award.”

21. Sub-section (2) of Section 34 of the

Arbitration Act provides that, an arbitral award may be

set aside by the Court only if the party making the

application furnishes proof of the grounds set out in the

said application. Therefore, only if the aforesaid

statutory ground is made out, the Court gets the

jurisdiction to set aside the award. Otherwise the

question of setting aside the award would not arise.

Sub-section (3) of Section 34 provides the period of

limitation within which an application for setting aside

the said award is to be made. Even if such an

application is made the Court is to be satisfied that the

applicant was prevented by sufficient cause from

making the application, within a period of three months,

to condone the delay. The Court has the discretion to

42

condone the delay and entertain the application and

decide the application on merits. Then the question of

setting aside the award, on the grounds mentioned

under sub Section (2) arises. If the delay is not

condoned, the application for condonation of delay is

dismissed, consequently the application under sub–

section (1) of Section 34 of the Arbitration Act, also

stands dismissed. The resultant position is that the

court is declining to set aside the award. The other

scenario is that if the application is not made within the

prescribed period, an application for setting aside the

award under Section 34 is not maintainable, and

consequently the application stands dismissed.

22. Section 37 of the Arbitration Act provides for

a statutory appeal. It reads as under:-

“37. Appealable orders.—

(1) An appeal shall lie from the following

orders (and from no others) to the Court

43

authorised by law to hear appeals from

original decrees of the Court passing the

order, namely:—

(a) granting or refusing to grant any measure

under section 9;

(b) setting aside or refusing to set aside an

arbitral award under section 34.

(2) An appeal shall also lie to a Court from an

order of the arbitral tribunal.—

(a) accepting the plea referred to in sub-

section (2) or sub-section (3) of section 16; or

(b) granting or refusing to grant an interim

measure under section 17.

(3) No second appeal shall lie from an order

passed in appeal under this section, but

nothing in this section shall affect or take

away any right to appeal to the Supreme

Court.

23. The opening words of sub-section (1) of

Section 37 of the Arbitration Act makes the intention of

the legislature clear, without any ambiguity. Appeal is a

statutory remedy. A right of appeal has to be construed

44

strictly. The right of appeal which is a statutory right

can be conditional or qualified. The right of appeal

being a creature of the statute, its scope must be

determined by reference to the provisions of the statute

conferring it. The appellate Court can exercise only

such powers as are confided in it. Beyond what is

provided, there is no right of appeal. Sub-section (1)

sets out the orders from which the appeal lies. It does

not stop there. It also explicitly states an appeal shall

not lie from no other orders. Section 37 refers to the

orders passed setting aside or refusing to set aside an

arbitral award. It does not refer to the proceedings

preceding the enquiry in relation to the issue of setting

aside or refusing to set aside an arbitral award.

Therefore, while interpreting Section 37, this legislative

mandate has to be kept in mind. When the object of the

Arbitration Act is to minimize judicial intervention in an

arbitration proceedings and the award passed, in such

45

proceedings, by providing a remedy by way of statutory

appeal, they did not want to open the flood-gates of

litigation.

24. Clause (b) of sub-section (1) of Section 37 of

the Arbitration Act makes it clear that, an appeal shall

lie from an order setting aside or refusing to set aside an

arbitral award under Section 34. A conjoint reading of

Sections 34 and 37 of the Arbitration Act makes it clear

that, a Court can decline to set aside an arbitral award

if the applicant fails to furnish proof of the grounds

mentioned in sub-section (2) of Section 34 or if the

application is not made within the time prescribed

under sub-section (3) of Section 34. In either of these

circumstances, an appeal under Section 37 of the

Arbitration Act can be made. Section 37 of the

Arbitration Act does not apply to a case where a pre-

deposit of a portion of the amount awarded is not made

46

and consequently the application is dismissed. Because

such an order would not fall either under Section 34 (2)

or Section 34 (3) of the Arbitration Act. Only against the

order passed under Section 34 of the Arbitration Act,

appeal lies under Section 37. The Court is declining to

entertain an application as the statutory requirement

under Section 19 of the MSMED Act is not complied

with. Having regard to the language employed in

Section 19 of the MSMED Act, no application for setting

aside any decree, award or other order made either by

the Council itself or by any institution or centre shall be

entertained by any Court unless the appellant has

deposited with it 75% of the amount in terms of the

decree, award, as the case may be. Therefore, there is a

threshold bar for entertaining an application under

Section 19 of the MSMED Act read with Section 34 of

the Arbitration Act. If the Court declines to entertain

the application for non-compliance of the said statutory

47

requirement, the question of such a Court refusing to

set aside the arbitral award under Section 34, i.e., the

grounds mentioned under Section 34 (2) or 34(3) would

not arise. Therefore, an order passed dismissing an

arbitration suit for non-compliance of Section 19 would

not fall within the mischief of Section 34 of the

Arbitration Act. Though the effect of non-compliance of

an order passed under Section 19 of the MSMED Act is

that the main application under Section 34 of the

Arbitration Act stands dismissed in which prayer was

made to set aside the award, it cannot be construed as

an order passed under Section 34 of the Arbitration Act.

For the Court to pass an order under Section 34 of the

Arbitration Act, the Court should first entertain the

application. It should assume jurisdiction over the said

matter. Then only can it pass an order under Section

34 of the Arbitration Act. When the threshold bar is

entertaining the application itself, for non-payment of

48

the amounts mentioned in Section 19 (1) of the MSMED

Act , the question of the Court exercising power under

Section 34 of the Arbitration Act would not arise. In

that view of the matter, the contention that the

petitioner has an alternative and efficacious remedy by

way of a statutory appeal under Section 37 of the

Arbitration Act and accordingly the Writ Petition is not

maintainable, is without any substance. In fact, the

impugned order in this case reads as under : -

“Sri DGP files memo of appearance for

R4. Sri RL for NSB/for petitioner present,

compliance of the order passed by the

Hon’ble High Court W.P. 12465/10 dated

20.8.2013 is not complied. Hence the appeal

is dismissed for non-prosecution”.

25. Therefore, this is not a case where the Court

declined to set aside or refused to set aside an arbitral

award under Section 34 of the Arbitration Act on the

49

ground that the applicant failed to furnish proof of the

grounds mentioned in sub-section (2) of Section 34 or

on the ground of bar of limitation as provided under

sub-section (3) of Section 34 and, therefore, the Writ

Petition is maintainable.

POINT No. (2)

26. The arbitral award directs the respondent to

pay the total dues of Rs. 5,19,37,281/- with simple

interest at 6% within 90 days from the date of issue of

the order i.e., before 14th day of October 2008 failing

which the interest shall be compounded with monthly

rests until the date when the dues identified under

these proceedings is paid in full, to the petitioner as per

MSMED Act. The petitioner preferred an application

under Section 19 of the MSMED Act read with Section

34 of the Arbitration Act on 13.10.2008. The petitioner

ought to have deposited a sum of Rs.6,28,74,436/- on

50

the date of application. Admittedly, the said amount

was not paid. Now, it is not in dispute that in terms of

the order passed in W.P. No. 5780/2013 on 25.4.2014 a

sum of Rs.6,93,00,000/- has been deposited before this

Court in addition to the amount of Rs.4,07,00,000/-

provided by way of bank guarantee with Union Bank of

India, Mumbai. The said bank guarantee is kept alive.

Thus, the said requirement of law is now fulfilled. The

learned counsel for the respondent contends that, when

the said amount was not deposited along with the

application, in the eye of law there was no application at

all. Even if this Court were to set aside the impugned

order and direct restoration of the application, then the

petitioner has not deposited 75% of the amount due in

terms of the award. In other words, from the date of

filing of the application till today for nearly 7 years

interest is accumulated and 75% of interest also should

be deposited. If the application were to be restored

51

today in view of Section 34(1) of the Arbitration Act as

interpreted by the Apex Court the question of

condonation of delay in filing the application under

Section 34(1) of the Arbitration Act beyond the period

prescribed under Section 34 (3) of the Arbitration Act

would not arise and therefore, he submits that the

aforesaid reasons either for an order of restoration to be

passed and even passed it would be barred by

limitation.

27. We do not find any substance in this

contention.

28. 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

52

requirement of Section 19(1) of the MSMED Act, if for

disposal of such application considerable time has 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 fulfill the

requirement of Section 19(1) of the MSMED Act, cannot

be accepted.

29. The effect of setting aside the order passed by

the trial Court coupled with the fact that the amount as

prescribed under Section 19(1) of the MSMED Act which

is now deposited, the application filed on 13.10.2009 is

filed well within time and the Court has to consider the

said application on merits and in accordance with law.

30. The petitioner is contending that the award,

which is impugned before the Civil Court, is an award

passed without jurisdiction void-ab-initio and the

53

prescription of the Act is not followed, therefore, that is

a matter to be inquired into by the Civil Court. In that

view of the matter, the impugned order is to be set aside

and the application filed under Section 19(1) of the

MSMED Act read with Section 34(1) of the Arbitration

Act is to be restored. Hence, we pass the following

order:

O R D E R

(a) The writ petition is allowed.

(b) The impugned order is hereby set aside.

(c) The application filed under Section 19(1) of

the MSMED Act read with Section 34(1) of the

Arbitration Act is restored to its original file.

(d) As parties are agitating in various forums

for the last seven years, without going into

the merits of the claim, it is proper in the facts

of this case, having regard to the object with

which the Act is enacted that the Civil Court

54

has to take up this matter out of turn, hear

the matter on day to day basis and shall

decide the application on merits and in

accordance with law within three months

from the date of appearance of the parties.

The parties shall appear before the Civil

Court on 22.06.2015.

It is made clear the trial Court shall decide the

case on merits and in accordance with law un-

influenced by any of the observations made by this

Court in the aforesaid proceedings.

No costs.

Sd/- JUDGE

Sd/- JUDGE

SPS/ckl/VK

2015-06-18T11:50:42+0530S P SUDHAnew