High Court · 2025

Legal Reasoning

CA-5687-2020IN THE HIGH COURT OF JUDICATURE AT BOMBAY BENCH AT AURANGABADCIVIL APPLICATION NO. 5687 OF 2020 INFIRST APPEAL NO. 3701 OF 20191.Atul Nemichand Dhadiwal2.Microvision Technologies,through its Proprietor,.. Applicants VERSUS1.The Dhule Municipal Corporation DhuleTaluka and District Dhule 2.The Commissioner,Dhule Municipal Corporation Dhule, Taluka and District Dhule.. Respondents...Advocate for applicants : Mr. C.A. Sundaram, Senior Advocate a/w Ms. Mohini Musa i/by Mr. A.S. Bajaj Advocate for respondents No.1 and 2: Mr. P.R. Katneshwarkar, Senior Advocate i/by Mr. Amol S. Sawant... CORAM : MANGESH S. PATIL & PRAFULLA S. KHUBALKAR, JJ.RESERVED ON : 03 MARCH 2025PRONOUNCED ON: 08 APRIL 2025ORDER (MANGESH S. PATIL, J.) :This is a defendants’ first appeal, purportedly preferred undersection 96 of the Code of Civil Procedure, being aggrieved by the final order ofthe learned Civil Judge, Senior Division, Dhule, in final decree proceedingFD/02/2010 dated 22.08.2019. In order to avoid confusion, the parties arereferred to by their status in the suit. 2.By way of this application, the plaintiffs pray that the defendantsbe directed to deposit 75% of the decretal amount as laid down under section19 of the Micro Small Medium Enterprises Development Act, 2006 (hereinafterMSMED Act), else the appeal itself will not be entertainable.1/14 CA-5687-20203.(a)The impugned final decree is a result of a suit for accounts, inrespect of the work for installation of energy savers undertaken by virtue of ajoint venture agreement between parties, with the agreement to share the profitin the form of savings made by the defendants – municipal corporation by suchinstallation, in the proportion of 52% and 48% between the defendants –municipal corporation and the plaintiffs. A preliminary decree was passed on22.07.2011 in Special Civil Suit no. 127 of 2008 which reads as under :-Suit is decreed with the costs as under :-1.Defendants do pay 84,15,444.06 (Rs. Eighty Four Lakh Fifteen₹Thousand Four Hundred Forty Four and six paisa only) toplaintiffs.2. Out of the above amount i.e. 84,15,444.06 (Rs. Eighty Four Lacs₹Fifteen Thousand Four Hundred Forty Four and six paisa)defendants do pay directly to Income Tax Department, Dhule toplaintiff's account an amount of 16,94,484.00 (Rs. Sixteen Lacs₹Ninety Four Thousand Four Hundred Eighty Four only).3. Defendants do pay interest @ 11% p.a. on amount of 84,15,444.06 ( Eighty Four Lacs Fifteen Thousand Four₹₹Hundred Forty Four and six paisa) to the plaintiffs from the date ofsuit till the realization of the decreetal amount.4. Final decree be drawn up after payment of proper Court fees byplaintiffs.(b)Being aggrieved by such preliminary decree, both the sidespreferred their respective first appeals. By the common final order, the HighCourt disposed of the first appeals on 08.12.2017 with following order :-“1. Order passed below Exh. 1 by learned Civil Judge, SeniorDivision, Dhule, in Final Decree No. 02/2010 in Special CivilSuit No. 127/2008 on 22.07.2011, is set aside, and matter isremanded to the Trial Court for its disposal in accordance withlaw.2. The Trial Court shall dispose of the Final Decree No. 02/2010(in Special Civil Suit No. 127/2008) in accordance with law, asearly as possible, preferably within a period of six months.3. The Trial Court shall give opportunity to both the sides to leadtheir evidence in support of their rival claims.2/14 CA-5687-20204. Parties are directed to appear before the Trial Court on10.01.2018.5. Record and proceedings be sent to the Trial Court forthwith.6. First Appeal No. 3502/2011 and 3611/2017 are disposed ofaccordingly.7. As the matter is remanded to the Trial Court, Civil ApplicationNo. 1800/2016 in First Appeal No. 3611/2011, is disposed of.”(c)As is evident, the matter was remanded and after extending anopportunity of being heard, by the impugned judgment and order, the finaldecree proceeding was disposed of, operative part of which read as under:-“The suit is decreed with costs as under :-1. The defendant is liable to pay to plaintiff amount arrived with asfollows:-a) On 1 March 2011, the liability of the defendant is to pay1,85,40,444.39 (Rupees One Crore Eighty Five Lakh Forty₹Thousand Four Hundred Forty Four and Thirty Nine Paise only)b) Defendant shall pay 1,85,40,444.00 (Rupees One Crore₹Eighty Five Lakh Forty Thousand Four Hundred Forty Fouronly) and further interest thereon from 1st March 2011 till actualrealization as per MSMED Act 2006; adjusting the payment of71,25,000.00 (Rupees Seventy One Lakhs Twenty Five₹Thousand only) on 03.12.2014 (and not that on 1 March 2011)as per Section 16 of the MSMED Act 2006 to be calculated asper Court Commissioner report.2. Out of the above amount, the defendant should pay directly tothe Income Tax department, to plaintiffs account an amount of 16,94,484.00 (Rupees Sixteen Lakhs Ninety Four Thousand₹Four Hundred Eighty Four only). As per Section 23 of theMSMED Act 2006, the plaintiff is not liable to pay any IncomeTax on decreetal amount except 16,94,484.00 (Rupees₹Sixteen Lakhs Ninety Four Thousand Four Hundred EightyFour only).3. Final Decree be drawn up after considering already paid courtfees and payment of proper court fees if found short by theplaintiffs.”(d)It is necessary to note that while disposing of the final decreeproceeding by the impugned order, an issue was also framed as to whether theplaintiffs were entitled to claim interest under the provisions of the MSMED Act.3/14 CA-5687-2020Answering the issue in the affirmative, the afore-mentioned direction wasissued under section 16 of that Act, awarding interest and holding the plaintiffsnot liable to pay income tax on the decretal amount, under Section 23, exceptRs.16,94,484/-.4.The application is opposed by the defendants – municipalcorporation by filing affidavit in reply.5.We have heard learned senior advocate Mr. C.A. Sundaram forthe plaintiffs and Mr. P.R. Katneshwarkar, learned senior advocate for thedefendants.6.Mr. Sundaram would submit that section 19 of the MSMED Act ismandatory and without compliance with the proviso thereto, by way of depositof 75% of the decretal amount, the appeal is not entertainable. He would takeus through the scheme of the MSMED Act and would emphasize that theprovisions thereof provide for a special status to the MSMEs to facilitate themin carrying the businesses. There is no escape from complying with section 19of the MSMED Act, which is a condition precedent for entertainment of theappeal. He would refer to several decisions to demonstrate that the word‘entertainment’ would, in the context, means ‘admit to consideration’. Hewould refer to following decisions :-i) Lakshmi Rattan Engineering Works Ltd. Vs. Asstt. Commr. SalesTax, Kanpur and another; AIR 1968 SC 488;ii)Gujarat State Disaster Management Authority Vs. Aska Equipments Ltd.;(2022) 1 SCC 61iii)India Glycols Ltd. and another Vs. Micro and Small Enterprises FacilitationCouncil, Medchal – Malkajgiri and others; 2023 SCC OnLine SC 1852iv)Goodyear India Limited Vs. Norton Intech Rubbers Private Limited andanother; (2012) 6 SCC 345v) Snehadeep Structures Private Limited Vs. Maharashtra Small ScaleIndustries Development Corporation Limited; (2010) 3 SCC 34.4/14 CA-5687-20207.He would submit that in a different proceeding, between the sameparties, arising out of an award dated 13.02.2025 passed by the facilitationcouncil under the MSMED Act in petition no. 8 of 2011, the defendants –municipal corporation had preferred writ petition no. 10764 of 2015 and by thejudgment and order dated 18.08.2011, the single judge of this Court, hasallowed the writ petition, set aside the award of the facilitation council, holdingthat the plaintiff was not an MSME and the facilitation council, therefore, hadno jurisdiction to pass the award. However, on a challenge in SLP (Civil) Diaryno. 24820 of 2024, by the order dated 28.02.2025, operation of the judgmentand order of the learned Single Judge has been stayed. He, would, therefore,submit that the defendant – municipal corporation is not entitled to bank uponthe judgment of the learned Single Judge.8.In response to our query as to if the plaintiff can be allowed torake up this issue regarding pre-deposit under the proviso to section 19 of theMSMED Act, when it had chosen to approach the civil Court for recovery of theamount, applied for and obtained a final decree and put it to execution beforethe civil court, and as to whether the defendant – municipal corporation couldhave challenged the judgment and decree of the civil court, not under section96 of the Code of Civil Procedure but under section 19 of the MSMED Act,Mr. Sundaram answered in the affirmative. He would emphasize the wordingof section 19 of the MSMED Act, to buttress his stand and particularly referringto the use of word ‘decree’ therein. He would submit that a decree can bepassed only by a civil court. There will not be any occasion if MSME resorts toa recovery proceeding under the MSMED Act and approaches the facilitationcouncil which can only pass an award and not a decree. He would submit that5/14 CA-5687-2020the legislature in its wisdom has used the word ‘decree’. It would becomeotiose if it is to be overlooked, as rightly laid down in the matter of SaryuPlastics Pvt. Ltd. and another V. Gujarat Water Supply and SwerageBoard; AIR 2018 Guj 57, which in turn referred to with emphasis the judgmentof the learned single judge of the Gujarat High Court in the matter of JMCProjects (India) Limited V. Mech Tech Engineers, SCA/14629/2010 dated10.01.2011.9.Mr. Katneshwarkar, learned Senior advocate for the defendantswould submit that once having filed the suit in a civil court and having obtainedthe final decree for recovery of money, the objection being raised by theplaintiffs regarding entertainment of this appeal for want of deposit, as laiddown under the proviso to Section 19 of the MSMED Act, is nothing butapprobation and reprobation. The final decree in a suit filed before the civilcourt/commercial court can only be challenged by resorting to provisions ofSection 96 of the Code of Civil Procedure/Section 13 of the Commercial CourtsAct. Section 19 of the MSMED Act is applicable only in respect of applicationspreferred against the orders passed by the facilitation council under Section 18of that Act. It is illogical and illegal to resort to the provisions of the MSMEDAct, that too calling upon compliance with the proviso to Section 19 even whenthe first appeal is preferred under Section 96 of the Code of CivilProcedure/Section 13 of the Commercial Courts Act. It is only when a decisionof a facilitation council under the MSMED Act is challenged under Section 19of that Act that the proviso would apply. Merely because the trial court byresorting to Section 23 of the MSMED Act has awarded interest, expecting thedefendants to comply with Section 19 of the MSMED Act does not make it a6/14 CA-5687-2020challenge as contemplated under Section 19.10.Mr. Katneshwarkar would submit that merely because thelegislature has used the word ‘decree’ in Section 19 of the MSMED Act thatipso facto would not attract the provisions of that Act so as to regulate andgovern the mechanism for preferring appeal against the final decree passed bya civil court/commercial court. Without there being any such challenge to anyorder or award under Section 18 and when the defendants are merely puttingup a challenge to the final decree passed by a civil court/commercial courtunder Section 96 of the Code of Civil Procedure/Section 13 of the CommercialCourts Act, the provisions of MSMED Act will not be applicable.11.Mr. Katneshwarkar would fairly concede that whether in the factsand circumstances of the case the plaintiff is a micro or small enterprise(supplier) as defined under Section 2(n) of the MSMED Act raked up by thedefendants in Writ Petition No.10764/2015 is subjudice before the SupremeCourt and the operation of the order of this Court dated 18.08.2021 has beenstayed.12.Mr. Katneshwarkar would submit that the decision in the matter ofSaryu Plastics Pvt. Ltd. (supra) of the Gujarat High Court is not applicable tofacts and circumstances of this case. In that case, the arbitrator was privatelyappointed by the parties. The award was passed and it was challenged in theform of application under Section 34 of the Arbitration and Conciliation Act,1996 (the Arbitration Act). The application seeking waiver of pre-deposit of75% was allowed and the issue was, whether the award passed by privatelyappointed arbitrator was challenged by resorting to Section 34 of theArbitration Act, pre-deposit under Section 19 was mandatory for entertainment7/14 CA-5687-2020of application under Section 34. He would submit that the facts in the matter inhand are quite peculiar and not analogues to the one obtaining before thedivision bench of the Gujarat High Court.13. We have considered the rival submissions and perused thepapers.14.Admittedly, the plaintiffs filed a suit for recovery of money andobtained a preliminary decree. A final decree application was moved resultingin passing of a final decree, which is a subject matter of challenge in this firstappeal under Section 96 of the Code of Civil Procedure read with Section 13 ofthe Commercial Courts Act. This very fact, in our considered view, isdemonstrative of the fact that the plaintiffs themselves had resorted to theremedy of approaching the civil court by filing a civil suit, which ultimatelyculminated in passing of the impugned final decree. This according to us is asalient feature of the matter in hand which distinguishes it from the decisionsreferred to by the learned Senior advocate Mr. Sundaram, in the matter ofSnehadeep Structures Vs. Maharashtra Small-Scale IndustriesDevelopment Corporation; (2010) 3 SCC 34 and Saryu Plastics Pvt. Ltd.(supra).15.In order to appreciate the controversy, it is imperative tounderstand the legislative history. The interest on Delayed Payments to SmallScale and Ancillary Industrial Undertakings Act, 1993 (hereinafter the 1993 Act)was the first enactment which provided for and regulated payment of intereston delayed payments to small scale and ancillary industrial undertakings, withthe object and reason of ensuring prompt payments of money by buyers to thesmall industrial units and provided for payment of interest on the outstanding8/14 CA-5687-2020monies. The object was to deter the buyers from the small scale and ancillaryindustrial undertakings from withholding the payments. Section 3 provided forliability of the buyer to make the payment within a stipulated time. Section 4provided for payment of interest on failure to make the payment by the buyer.Section 5 further declared it to be a compound interest. Section 6 permittedthe small scale and ancillary industrial undertakings to recover such interest byfiling a suit or other proceeding. Sub-Section 2 of Section 6 permitted a partyto the dispute to make a reference to Industry Facilitation Council seekingarbitration or conciliation. Section 7, which is relevant and analogous toSection 19 of the MSMED Act, required a pre-deposit for entertaining anappeal against a decree, award or other order. Section 7 read thus :“7. Appeal - No appeal against any decree, award or other ordershall be entertained by any court or other authority unless theappellant (not being a supplier) has deposited with it seventy-fiveper cent of the amount in terms of the decree, award or, as thecase may be, other order in the manner directed by such court or,as the case may be, such authority."16.It is to be noted that filing a suit was one of the remediesavailable to the supplier and obviously, there was a reference to ‘decree’ inSection 7 which provided an appeal against any decree, award or order.17.By way of amendment existing Section 6 was renumbered asSub-Section (1) and Sub-Section (2) was added with effect from 10.09.1998. Itprovided that ‘any party’ to the dispute could make a reference to IndustryFacilitation Council for acting as an arbitrator or conciliator and made theprovisions of the Arbitration and Conciliation Act, 1996 applicable thereto.18.The MSMED Act, repealed the 1993 Act with effect from02.10.2006. Section 15 thereof pertains to liability of a buyer to makepayment. Section 16 imposes liability on the buyer to pay interest at a9/14 CA-5687-2020prescribed rate. Section 18 provides for a reference of a dispute to Micro andSmall Enterprises Facilitation Council and reads as under :“18.Reference to Micro and Small Enterprises Facilitation Council. - - (1) Notwithstanding anything contained in any other law for the time being inforce, any party to a dispute may, with regard to any amount due undersection 17, make a reference to the Micro and Small EnterprisesFacilitation Council.(2) On receipt of a reference under sub-section (1), the Council shall eitheritself conduct conciliation in the matter or seek the assistance of anyinstitution or centre providing alternate dispute resolution services bymaking a reference to such an institution or centre, for conductingconciliation and the provisions of sections 65 to 81 of the Arbitration andConciliation Act, 1996 (26 of 1996) shall apply to such a dispute as if theconciliation was initiated under Part III of that Act.(3) Where the conciliation initiated under sub-Section (2) is not successfuland stands terminated without any settlement between the parties, theCouncil shall either itself take up the dispute for arbitration or refer to itany institution or centre providing alternate dispute resolution servicesfor such arbitration and the provisions of the Arbitration and ConciliationAct, 1996 (26 of 1996) shall then apply to the dispute as if the arbitrationwas in pursuance of an arbitration agreement referred to in sub-section(1) of section 7 of that Act.(4) Notwithstanding anything contained in any other law for the time being inforce, the Micro and Small Enterprises Facilitation Council or the centreproviding alternate dispute resolution services shall have jurisdiction toact as an Arbitrator or Conciliator under this section in a disputebetween the supplier located within its jurisdiction and a buyer locatedanywhere in India.(5) Every reference made under this section shall be decided within aperiod of ninety days from the date of making such a reference."19. Section 19 of the MSMED Act, which is analogous to Section 7 of1993 Act reads as under :"19. Application for setting aside decree, award or order. - - Noapplication for setting aside any decree, award or other order madeeither by the Council itself or by any institution or centre providingalternate dispute resolution services to which a reference is made bythe Council, shall be entertained by any court unless the appellant(not being a supplier) has deposited with it seventy-five per cent ofthe amount in terms of the decree, award or, as the case may be, theother order in the manner directed by such court: Provided that pending disposal of the application to set asidethe decree, award or order, the court shall order that such percentageof the amount deposited shall be paid to the supplier, as it considersreasonable under the circumstances of the case subject to suchconditions as it deems necessary to impose." 10/14 CA-5687-202020.Section 23 of MSMED Act exempts the MSMEs from payment ofIncome Tax. Section 24 by use of a non obstante clause declares that theprovisions of Section 15 to 23 would have supremacy against any other law forthe time being in force.21.A careful understanding of the provisions of the 1993 Act injuxtaposition to that of the MSMED Act and particularly the wording of Section7 of the former and Section 19 of the latter would make it clear that under the1993 Act, a small scale and industrial undertaking had remedy of filing a suit orany other proceeding for recovery of dues from the buyers. Obviously, sinceeven a suit could be filed under Section 6(1), Section 7 provided and used theword ‘decree’ simultaneously with words ‘award’ or ‘other order’, providing thatthose would not be entertained unless there was a pre-deposit of 75% of theamount of decree or award in the manner directed by such ‘decree’. The shiftin the mechanism under the MSMED Act is evident.22.Under the MSMED Act, there is conspicuous absence of remedyof preferring an appeal, which was there under Section 7 of the 1993 Act.Under the MSMED Act the only remedy for a micro and small enterprise is ofapproaching a facilitation council by way of reference under Section 18. Thelegislature in its wisdom has done away with a remedy for a micro and smallenterprise of approaching the civil court and to have a decree. The consciousshift in such mechanism makes it abundantly clear that a resolution in respectof claim of a micro and small enterprise can be only in the form of a referenceto the facilitation council which can undertake conciliation or seek assistance ofany institution or centre providing for alternate dispute resolution or on failureof conciliation, itself can undertake arbitration or arbitration by any other11/14 CA-5687-2020institution or centre, making it abundantly clear that the provisions of theArbitration and Conciliation Act, 1996 would be applicable. Sub-Section 3 ofSection 18 makes it clear that even in the absence of any arbitrationagreement, the facilitation council can assume existence of such agreementunder Section 7(1) of the Arbitration Act and refer the dispute for settlement. Itis quite apparent that in spite of such peculiar change in the mechanismprovided for a micro and small enterprise to recover money from its buyer, andfiling of suit as a remedy has been done away with under the MSMED Act,Section 19 continues to use the word ‘decree’.23.In light of the submission of Mr. Sundaram that use of the word‘decree’ as defined under Section 2(2) of the Code of Civil Procedure can onlybe understood as a decree of a civil court, when a micro and small enterprisecan no longer approach a civil court by filing a suit, it does appear that the useof expression ‘decree’ in Section 19 does not aptly fit into the scheme providedfor recovery of money under the MSMED Act and may look superfluous.24.It is pertinent to note that the suit in the matter in hand was filedon 08.09.2008, after coming into force of the MSMED Act. A division bench ofthis Court, in the matter of M/S. Steel Authority of India Ltd. and Anr. Vs.Micro Small Enterprises Facilitation Council, Nagpur; AIR 2012 Bom 178,has held that the remedy of approaching civil court by filing a civil suit is nolonger available in the wake of Section 18 of the MSMED Act. It is not a casethat the suit was filed prior to coming into force of the MSMED Act but thedecree was passed thereafter. In such a case, a peculiar fact situation could beeasily comprehended. If a micro and small enterprise was to recover the duesfrom the buyer and could have filed a suit for its recovery under the 1993 Act,12/14 CA-5687-2020which is not the case in the matter in hand, it could be assumed that thelegislature was conscious of occurrence of such peculiar state of affairs where,a micro and small enterprise which had filed a suit under the 1993 Act whichwas pending on the date the MSMED Act came into force, but a decree waspassed by a civil court after coming into force of MSMED Act. Whether such adecree can be challenged by resorting to Section 96 of the Code of CivilProcedure is the moot question which may have to be gone into. Indeed thiswould be an anomalous situation, inasmuch as, when a remedy of suit wasavailable under 1993 Act, but the decree is passed therein after enforcement ofthe MSMED Act, as to whether the appeal against the decree could be underSection 96 read with Section 7 of 1993 Act and not under MSMED Act, whichdoes not expressly save the suits pending on the date when it was brought intoeffect by repealing the 1993 Act, in spite of the fact that Section 7 of the 1993Act provided an appeal but the MSMED Act does not contemplate any appeal.25.The cardinal principle of interpretation of statute is, as far aspossible resort must be had to the plain meaning and if there is someambiguity or incompatibility, the provisions have to be construed harmoniouslyso as to attribute meaning to every word used by the legislature to the extentpossible.26.To our mind, the aforementioned peculiar facts andcircumstances leave a legitimate doubt as to whether a decree passed by acivil court in a suit filed by micro and small enterprise after coming into force ofthe MSMED Act, can be challenged under Section 96 of the Code of CivilProcedure. Certainly this would be an issue which will have to be consideredand decided while hearing the first appeal.13/14 CA-5687-202027.We are at a stage when after grant of the ad interim relief in theform of stay to the execution of the final decree under challenge, the presentapplication has been moved seeking a direction to the defendants to deposit75% of the decreetal amount as a precondition for entertaining the appeal.28.In Snehadeep Structures and Saryu Plastics Pvt. Ltd. (supra),the challenge was under Section 34 of the Arbitration Act and it was heldmandatory to deposit 75% of the amount under Section 19. When no suitunder MSMED Act is possible to be filed by a small and micro enterprise forrecovery of its dues, in our considered view, an appeal would lie under Section96 of the Code of Civil Procedure there being a final decree passed by a civilcourt in a suit. Only if a suit was filed when 1993 Act was in force but a decreewas passed after coming into force of the MSMED Act, a harmoniousconstruction in such circumstances could be resorted to. Section 19 of theMSMED Act refers to a challenge to a decision of the facilitation council andstill refers to and uses the word ‘decree’. If one has to give effect to thelegislative intent of consciously using the word ‘decree’ that can possibly beonly in such cases. The plaintiffs having chosen to file a suit after coming intoforce of the MSMED Act and have obtained a decree cannot fall back toSection 19 and cannot insist for pre-deposit.29.The application is rejected. [ PRAFULLA S. KHUBALKAR] [ MANGESH S. PATIL ] JUDGE JUDGEarp/-14/14