Court’s Decision
The Bombay High Court (Justice Somasekhar Sundaresan) dismissed an arbitration appeal filed by Mahindra Defence Systems Ltd. under Section 37 of the Arbitration and Conciliation Act, 1996. The Court upheld concurrent findings of the Facilitation Council and District Court in favour of Ranjana Industries, an MSME, directing payment of ₹16.16 lakh with statutory interest under the MSMED Act. Costs of ₹1.5 lakh were additionally imposed, and the Court ordered release of the mandatory deposit made by Mahindra. Emphasising corporate responsibility, the Court remarked: “Large corporates must set an example by adopting a reasonable litigation policy.”
Facts of the Case
- Mahindra issued purchase orders to Ranjana Industries in January 2017 for supply of “QTTM Assembly Section” tubes.
- Ranjana claimed non-payment of ₹16.16 lakh despite delivery and sought interest under the MSMED Act.
- Mahindra alleged defective supplies, delayed delivery, and claimed to have returned goods in December 2017. It raised a counter-claim of ₹61.48 lakh for refund, liquidated damages, and losses.
- Ranjana denied receipt of returned goods, pointing to absence of debit notes and VAT issues. Sales Tax authorities confirmed Mahindra claimed rejection only in December 2017, inconsistent with its pleadings.
Issues
- Whether Mahindra’s objections to goods were raised within statutory timelines under Section 2(e) MSMED Act.
- Whether the Facilitation Council had jurisdiction, given Mahindra’s argument that the contract was a “works contract.”
- Whether Mahindra proved its counter-claim of damages, refund, and rejection of goods.
- Scope of interference under Sections 34 and 37 of the Arbitration Act.
Petitioner’s Arguments (Mahindra)
- Goods supplied were defective and rejected in February 2017, objections communicated within time.
- Goods returned in December 2017 at Ranjana’s insistence; company incurred losses by engaging another vendor and paying liquidated damages.
- The purchase orders amounted to “works contract” and thus beyond the jurisdiction of the Facilitation Council.
- Limitation barred Ranjana’s claim since reference was made only in 2020.
Respondent’s Arguments (Ranjana Industries)
- No debit notes or contemporaneous records of rejection; goods were never returned.
- Mahindra availed VAT credit, leaving Ranjana to face Sales Tax liability.
- Objections under Section 2(e) were never raised within 15 days, rendering deemed acceptance.
- Mahindra’s counter-claim was unsupported by evidence—no proof of liquidated damages, penalties, or actual alternate vendor engagement.
- Claim filed in 2020 was within limitation, as Mahindra itself was engaging with Ranjana in June 2018 to rectify supplies.
Analysis of the Law
- On statutory objections: Section 2(e) MSMED Act requires objections within 15 days. Tribunal found objections either delayed (Tube No.1) or absent (Tube No.2). The Court held these were mere “observations,” not legal objections, and delivery was deemed accepted.
- On limitation: Since Mahindra engaged with Ranjana until June 2018, claim in 2020 was not barred.
- On works contract objection: Court rejected the contention, holding the arrangement was a supply of goods. It clarified the broader question of arbitrability of works contracts under MSMED Act remains open.
- On counter-claim: No evidence of damages, penalty, or alternate vendor supply. Tribunal rightly rejected the claim.
- On scope of review: Under Sections 34 and 37, Court cannot reappreciate evidence unless award is perverse or patently illegal. Tribunal’s findings were plausible and based on preponderance of probability.
Precedent Analysis
- The Court relied on settled law limiting interference under Sections 34 and 37 of the Arbitration Act, stressing that concurrent arbitral and district court findings must be respected unless patently illegal or perverse.
Court’s Reasoning
- Objections raised by Mahindra were neither timely nor substantive; goods were deemed accepted.
- No evidence supported Mahindra’s claim of rejection or losses; on the contrary, conduct showed continued engagement with Ranjana.
- Facilitation Council’s award was consistent with MSMED Act objectives of protecting MSMEs.
- The District Court rightly upheld the award, and there was no scope for interference under Section 37.
- The Court highlighted the deterrent provisions of Sections 16 and 19 MSMED Act, stressing that large corporates must avoid frivolous litigation to frustrate small enterprises.
Conclusion
The High Court dismissed Mahindra’s appeal, upheld the award of ₹16.16 lakh with statutory interest in favour of Ranjana Industries, imposed costs of ₹1.5 lakh, and ordered release of deposits. The Court observed: “Large corporates… must introspect on what battles to pick and litigate on.”
Implications
- Strengthens MSME protection by affirming strict application of statutory deadlines under MSMED Act.
- Clarifies that mere “observations” cannot substitute legal objections to goods under Section 2(e).
- Demonstrates the judiciary’s intolerance for large corporates frustrating legitimate MSME claims through prolonged litigation.
- Encourages a balanced corporate litigation policy aligned with fairness and responsibility.