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-Memorandum on behalf of Respondents- Page 1 TEAM NO 22 “7 th College of Legal Studies, University of Petroleum and Energy Studies Intra Moot Court Competition 2012” Before THE HON’BLE HIGH COURT OF UTTRANSH Writ Jurisdiction U/Art.226 &227 W.P. No ---- / 2012 Western Major Ltd. …...………………….………….... Petitioner Vs. J& G Ltd. (Through Managing Director).....……....... Respondent 1 Uttransh Facilitation Council (Through Chairman)....Respondent 2 State of Uttransh (Through Secretary)…………..........Respondent 3 Union of Indiana (Through Secretary)…………..…....Respondent 4

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-Memorandum on behalf of Respondents-

Page 1

TEAM NO 22

“7th

College of Legal Studies, University of Petroleum and Energy Studies Intra Moot

Court Competition 2012”

Before

THE HON’BLE HIGH COURT OF UTTRANSH

Writ Jurisdiction U/Art.226 &227

W.P. No ---- / 2012

Western Major Ltd. …...………………….………….... Petitioner

Vs.

J& G Ltd. (Through Managing Director).....……....... Respondent 1

Uttransh Facilitation Council (Through Chairman)....Respondent 2

State of Uttransh (Through Secretary)…………..........Respondent 3

Union of Indiana (Through Secretary)…………..…....Respondent 4

-Memorandum on behalf of Respondents-

Page 2

TABLE OF CONTENTS

List of Abbreviations......................................................................................... -3-

Index of Authorities.............................................................................................-4-

Statement of Jurisdiction................................................................................... -5-

Statement of Facts................................................................................................-6-

Statement of Issues………………………………………………..….……..…..-7-

Summary of Arguments…………………………………………….....…..……-8-

Arguments Advanced……………………………………………….….....…….-9-

Prayer…………………………………………………….………………......…-22-

-Memorandum on behalf of Respondents-

Page 3

LIST OF ABBREVIATIONS

1. AIR All India Reporter

2. AC Act Arbitration and Conciliation Act, 1996

3. BOMLR Bombay Law Report

4. Edn. Edition

5. Kant Karnataka

6. MSMED Micro, Small and Medium Enterprises Development Act, 2006

7. MSEFC Rules Micro Small and Medium Enterprises Facilitation Council Rules, 2006

8. Ors. Others

9. Raj Rajasthan

10. SC Supreme Court

11. SCC Supreme Court Cases

12. Sec. Section

13. SCW Supreme Court Weekly

14. U/S Under section

15. UOI Union of India

16. v. Versus

-Memorandum on behalf of Respondents-

Page 4

INDEX OF AUTHORITIES

1. A.P.Transco v. Sri Gowri Sankar Cable Industries and others, 2002 (3) ALT 134(D.B.)

2. Anukul Chandra Pradhan v. Union of India, 1997 (6) SCC 1

3. The Managing Director v. Afco Rubbers (p) Ltd, W.P.(C).No. 31131 of 2009

4. Eden Exports v. Union of India & Others MANU/TN/1705/2010

5. Jupiter Alloy v. Union of India & Ors., WP No. 871 of 2011, Kolkata High Court

6. K.S.R.T.C. v. Union of India, 2010(1) KLT65

7. Lucent Technologies Inc. v. ICICI Bank Ltd, MANU/DE/2717/2009

8. Mysore Cement v. Svedala Barmac Ltd, AIR 2003 SC 3493

9. Principal v. Manibhai, 2011 Indlaw GUJ 1292

10. 10.Premier Automobiles v. Kamlekar Shantaram Wadke, 1975 SC 2238

11. Raj Kumar Shivhare v. Assistant Director, Directorate of Enforcement and another,

2010 (4) LW 1

12. Registrar, Cooperative Society v. Krishan Kumar Singhania, 1995(6) S.C.C. 482

13. Sunder v. Union of India, MANU/SC/0573/2001

14. United Electricals Limited v. Symphony Engineers Kollam, W.P.(C).No. 27868 of 2009,

Kerala High Court

15. Welspun v. Micro Small and Medium Enterprises Facilitation Council & Others,

(2012)166PLR195

16. Bengal Jute Mills v. Jewraj, AIR 1943 Cal 13;

17. Prince v. GG Council, AIR 1955 Punj 240

18. Mahomedali v. Charatsingh, 80 IND. Cas 596

-Memorandum on behalf of Respondents-

Page 5

STATEMENT OF JURISDICTION

The Respondents humbly submit before the Hon'ble High Court of Uttransh the memorandum

for the Respondents in the W.P. -- /-- filed by Western Major Ltd. under Article 226 and 227 of

the Constitution of Indiana, 1950.

The present memorandum sets forth the facts, contentions and arguments in the present case.

-Memorandum on behalf of Respondents-

Page 6

STATEMENT OF FACTS

I

J&G Ltd. is a company incorporated in the state of Uttransh and is a registered small scale

enterprise. Western Major Ltd., a road construction company, is incorporated in Indiana.

II

In the year 2009, the state of Uttransh awarded a major contact to Western Major for the

construction of roads connecting the rural areas to the major cities/towns. Western Major decided

to enter into a contract with J&G Ltd. for supply 20 units of machinery to Western Major at cost

of Rs. 12 Lakhs each unit, via two contracts for 10 units each.

III

A letter of comfort was also issued by state government of Uttransh in favor of Western Major

on behalf J&G Ltd.

IV

Under the first contract (AT-336) on receiving half of the ordered quantity Western Major made

full payment in respect of full contract. While, under the second contract Western Major received

full quantity and was left to make a payment of Rs 40 Lakhs towards the contract.

V

On failure to supply 5 machines by J&G, Western Major took recourse to Clause 23 of the

contract and after adjusting the claim with payment pending under Contract no AT-337 asked for

a claim of Rs, 23, 60,000. Western Limited moved to the Govt. of Uttransh for enforceability of

LOC. But it was rejected.

VI

Meanwhile, J&G received a award in his favor by Facilitation Council on reference made to it

under Section 18 of MSMED Act, 2006.Aggrieved by the said award. The Petitioner filed the

present petition.

-Memorandum on behalf of Respondents-

Page 7

STATEMENT OF ISSUES

1. Whether Petition under Article 226 & 227 of the Constitution of Indiana is maintainable

before this Hon’ble Court?

2. Whether the Arbitral Award passed by the Facilitation Council is liable be set aside?

3. Whether the Facilitation Council is liable to take into account the counter-claim setup by

the petitioner?

4. Whether the Government of Uttransh is liable to pay Rs 23, 60,000 to the Petitioner on

account of Letter of Comfort?

5. Whether the impugned provisions of the MSMED Act, 2006 are ultra vires of the

Constitution of Indiana?

-Memorandum on behalf of Respondents-

Page 8

SUMMARY OF ARGUMENTS

1. Petition under Article 226 & 227 of the Constitution of Indiana is not maintainable

before this Hon’ble Court.

The remedy under Article 226 is a discretionary remedy and the High Court has always the

discretion to refuse the ground of any writ if it is satisfied that the aggrieved party can have an

adequate remedy elsewhere.

2. The Arbitral Award passed by the Facilitation Council is not liable to be set aside.

The Facilitation Council has the jurisdiction to act as an arbitrator by itself, after the failure of

conciliation proceedings.

3. The Facilitation Council does not have the jurisdiction to decide and entertain the

counter claim set up by the Petitioner.

The Facilitation Council has only jurisdiction to hear and adjudicate the matter regarding

payments to the supplies which were made to the buyer as per Section 17 of the Micro, Small

and Medium Enterprises Development Act 2006 and not to decide all the disputes.

4. The Government of Uttransh is not liable to pay Rs 23, 60,000 to the Petitioner on

account of Letter of Comfort.

The Respondent humbly contends that he is not liable to pay any amount to the Petitioner’s as

Letter of Comfort is not a legally binding document.

5. Sections 15, 18 and 19 of the MSMED Act, 2006 are constitutionally valid.

It is submitted that the impugned provisions of the MSMED Act, 2006, are well within the scope

of the Constitution.

-Memorandum on behalf of Respondents-

Page 9

ARGUMENTS ADVANCED

1. Petition under Article 226 & 227 of the Constitution of Indiana is not maintainable in

this Hon’ble Court.

The High Courts should exercise the jurisdiction under Article 226 in accordance with judicial

considerations and well established principles. Any exercise of jurisdiction based on irrelevant or

extraneous considerations shall be invalid.1 The remedy in Article 226 is a discretionary remedy

and the High Court has always the discretion to refuse the ground of any writ if it is satisfied that

the aggrieved party can have an adequate remedy elsewhere.2

1.1. Availability of an alternative remedy acts as a bar to file a petition in the Hon’ble

High Court.

The impugned Award made by the Facilitation Council, being an Arbitral Award, as per the

provisions of sub-section (3) of Section 18 of the MSMED Act, could be challenged by the

petitioner before the District Court, under the provisions of Section 34 of the Arbitration and

Conciliation Act, 1996. It is thus contended that as there is an efficacious, alternative statutory

remedy, the petition may not be entertained.

The Kerala High Court in K.S.R.T.C. v. Union of India,3 held that

“When a Statute provides for the appellate remedy, such a remedy cannot be avoided or

bypassed, on the ground that certain statutory conditions imposed for availing the same, are

1 Union of India v. WN Chadha, AIR 1993 SC 1082

2 Rashid Ahmed v. Municipal Board, AIR 1950 SC 163; C.A. Abraham v. ITO, AIR 1961 SC 609; S.Jagadeesan

v. Ayya Nadar Janaki College, (1984) 1 SCC 158

3 2010(1) KLT65

-Memorandum on behalf of Respondents-

Page 10

onerous. An appeal is a statutory remedy and not a fundamental right, and merely because the

remedy is a conditional one, does not mean that it should be ignored, as has been done by the

petitioner, by invoking the writ jurisdiction of this Court.”

Further in Eden Exports v. Union of India & Others4 the Madras High Court held that, in any

event, the question is once the petitioner had participated in the proceedings before the

Facilitation Council, then any resultant order will have to be challenged before the appropriate

court and certainly the jurisdiction under Article 226 of the Constitution cannot be invoked that

too for commercial cause where the right of parties were governed by the contract and intervened

by MSMED Act.

The Apex Court in Raj Kumar Shivhare v. Assistant Director, Directorate of Enforcement and

another5 held that;

“ If the appellant in this case is allowed to file a writ petition despite the existence of an

efficacious remedy by way of appeal under Section 35 of FEMA this will enable him to defeat

the provisions of the Statute which may provide for certain conditions for filing the appeal, like

limitation, payment of court fees or deposit of some amount of penalty or fulfillment of some

other conditions for entertaining the appeal. It is obvious that a writ court should not

encourage the aforesaid trend of by-passing a statutory provision.”

Thus, it is a well settled principle of law that a writ petition should not be allowed when the

statue itself provides for an efficacious remedy.

4 MANU/TN/1705/2010

5 2010 (4) LW 1

-Memorandum on behalf of Respondents-

Page 11

Further in Jupiter Alloy v. Union of India & Ors.6 the Hon’ble Calcutta High court held that;

“Even if it is accepted that Facilitation Council gave the award without following the procedure

under the Act, 2006, may at best lead to a conclusion that the award is vitiated either by an

illegality or by a material irregularity, and in such case the question of remand to the Council

will arise. There is no reason to permit the petitioners to approach the Writ Court for the

purpose.”

In United Electrical Limited7 and The Managing Director v. Afco Rubbers (p) Ltd.

8 the Kerala

High Court rejected the writ petitions under Article 226 challenging the Award by the facilitation

Council on the ground of availability of an efficacious alternative remedy under Section 34 of the

AC Act, 1996.

Thereby, it is submitted that the writ petition shall not be entertained by this High Court as the

above submissions clearly negate the essential requirements for the admissibility of any petition

by the High Court exercising its jurisdiction under Article 226 of the Constitution.

2. The Arbitral Award given by Facilitation Council is not liable to be set aside.

The Award passed by the Facilitation Council is valid and according to the provisions of law.

The MSMED Act, 2006 confers absolute power to the Council to act as arbitrator in all the cases.

The intent of the legislation is to provide an adequate and speedy forum to small scale industries

so as to protect them from big industries. This intent further made explicit by Section 24 of

MSMED Act, 2006.

6 WP No. 871 of 2011

7 United Electricals Limited v. Symphony Engineers Kollam, W.P.(C).No. 27868 of 2009

8 W.P.(C).No. 31131 of 2009

-Memorandum on behalf of Respondents-

Page 12

2.1 The Facilitation Council has the jurisdiction to act as an arbitrator.

The Respondent contends that the Facilitation Council has the jurisdiction to act as an arbitrator

by itself, after the failure of conciliation proceedings.

Section 18(3) of MSMED Act, 2006 clearly lays down that, “Where the conciliation initiated

under sub-section (2) is not successful and stands terminated without any settlement between the

parties, the Council shall either itself take up the dispute for arbitration or refer it to any

institution or centre providing alternate dispute resolution services for such arbitration.”

The Hon’ble Punjab & Haryana High Court, in Welspun v. Micro Small and Medium

Enterprises Facilitation Council & Others9 held that;

“Section 18(3) provides that where a conciliation initiated under Section 18(2) is not successful

and stands terminated without any settlement between parties, the Council shall itself take up the

dispute for arbitration. If Section 18 of the Act, 2006 provides for a mode of resolution of a

dispute wherein this Council is to adjudicate acting as an arbitrator in terms of the Act, 1996, it

would not be open for any party to oust the said jurisdiction of this Council which has been

vested in terms of Section 18(3) of the Act, 2006 merely by creating a mutual agreement.”

Thereby, it is clear that after the conciliation proceedings fail, the Facilitation Council has the

power, either to act as an arbitrator by itself or refer the matter to an institute for arbitration.

9 (2012)166PLR195

-Memorandum on behalf of Respondents-

Page 13

2.2 The provisions of the MSMED Act, 2006 have an overriding effect over the terms of

the contract and any other law in force.

It is pertinent to note that MSMED Act, 2006 is a special Act of the legislature. It is an Act to

provide for facilitating promotion and development and for enhancing the competitiveness of

micro, small and medium enterprises and for matters connected therewith or incidental thereto10

.

Section 24 of the Act, 2006 gives an over-riding effect to the provisions of the Act. It lay down: -

“The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent

therewith contained in any other law for the time being in force.”

In Welspun11

, the Punjab & Haryana High Court explaining the procedure under Section 18 held

that:

“Section 18(3) provides for two procedures: (i) on termination of conciliation, it can either take

up the arbitration itself or (ii) refer the matter to arbitration as though there is an arbitral

agreement between the parties. It is possible for a Council to make a reference to arbitration

even in the absence of an arbitration agreement. If there is an arbitration agreement between the

parties, it only means that the power is still available when the Council, without invoking its own

powers.”

Thereby, the Facilitation Council’s power to act as an arbitrator after conciliation proceedings

have failed is absolute and unfettered.

Moreover, there are at least twenty five central enactments, which contain provisions for

statutory arbitrations. The reference to statutory arbitration and the primacy that it obtains over

10

Supra note 3, 4, See Also Principal v. Manibhai, 2011 Indlaw GUJ 1292

11 Supra note 9

-Memorandum on behalf of Respondents-

Page 14

contractual reference to independent modes of resolution of disputes had come before Hon'ble

the Supreme Court in several cases.

In Registrar, Cooperative Society v. Krishan Kumar Singhania12

, the Supreme Court dealt with

a conflict between the statutory arbitration contained under West Bengal Cooperative Societies

Act, 2006 and Arbitration and Conciliation Act, 1996 and provided for a primacy of application

of the State Act.

2.3 The Arbitration Award has been passed according to the procedure laid down in the

MSMED Act, 2006.

The Respondent humbly submits that MSMED Act, 2006 is a special Act, therefore, the

provisions of the said Act would prevail over any other law. As conciliation initiated under

Section 18(3) was not successful, the Council itself took up the dispute for arbitration, in

exercise of jurisdiction vested in it under the provisions of Section 18(1) of the MSMED Act.

Further, Section 18 does not require that a formal order should be passed regarding the failure

of conciliation and reference of the dispute to itself, for arbitration, by the Council.

The Hon’ble High Court of Gujarat in Principal v. Manibhai13

, explaining the procedure to be

followed by Facilitation Council while acting as arbitrator held;

“If the provisions of sub-s.(3) of S. 18 are perused carefully, it is clear from the plain reading

thereof that there is no requirement of making a formal order to the effect that conciliation has

failed and that the dispute is to be taken up by the Council, itself, for arbitration.”

Thereby, the award passed by Facilitation Council is valid and according to the provisions of

12 1995(6) S.C.C. 482

13 2011 Indlaw GUJ 1292

-Memorandum on behalf of Respondents-

Page 15

law.

3. The Facilitation Council does not have the jurisdiction to decide and entertain the

counter claim set up by the Petitioner.

The Respondent humbly submits that the Facilitation Council has no jurisdiction to hear the

counter claim. The Facilitation Council has only jurisdiction to hear and adjudicate the matter

regarding payments to the supplies which were made to the buyer as per Section 1714

of the

Micro, Small and Medium Enterprises Development Act 2006.

It is pertinent to note that the Council has very limited jurisdiction and the Act never empowered

the Council to consider and decide the counter claim of buyer.

Since the arbitral proceedings are under MSMED Act, 2006 the scope of arbitration is limited to

the dispute, which has been referred as per Section 1815

and no other issue beyond the said

reference can be examined by the Arbitrator. The authority of the Council is limited to the

adjudication of the reference made under Section 18. Counter claim is to be adjudicated by civil

court or other arbitration as per the agreement.

14

17. Recovery of amount due: For any goods supplied or services rendered by the supplier, the buyer shall be

liable to pay the amount with interest thereon as provided under section 16.

15 18. Reference to Micro and Small Enterprises Facilitation Council: 1) Notwithstanding anything contained in

any other law for the time being in force, any party to a dispute may, with regard to any amount due under section

17, make a reference to the Micro and Small Enterprises Facilitation Council.

-Memorandum on behalf of Respondents-

Page 16

3.1 Arbitrator cannot go beyond the scope of reference.

An Award is bad if the Arbitrators go beyond the scope of reference and decide disputes not

submitted to them.16

If an Award extends to the matters not within the scope of the

submission it must be held to be void to the extent that is in excess of submission.17

An Arbitrator derives its powers from preference which establishes the source and prescribes the

limit of authority. He is bound to make an Award in conformity with it both, in substance and in

form.18

Thereby, it is submitted that both the contracts entered between the respondent No.1 and the

petitioner are independent contracts and have the capacity to stand and be fulfilled according to

the conditions laid down in them respectively.

Moreover, it is submitted that from the plain reading of the marginal note of Chapter V19

of the

MSMED Act, 2006, it can be inferred that the Facilitation Council adjudicating any matter

referred to it, either in the capacity of a conciliator or an Arbitrator, has the authority to only deal

with the issue of the delayed payments.

16 Jagat Hari v. Moran, 26 IND. Cas 73; Bolak v. Ram, 158 IND. Cas. 11; Bengal Jute Mills v. Jewraj, AIR 1943

Cal 13; Mohinder v. Raminder, AIR 1944 P.C 83.

17 Prince v. GG Council, AIR 1955 Punj 240.

18 Duttaram v. Harjimal, AIR 1930 Sindh 170; Mahomedali v. Charatsingh, 80 IND. Cas 596; Juggobandhu

v.Chand Mohan, 31 IND.Cas 33.

19 DELAYED PAYMENTS TO MICRO AND SMALL ENTERPRISES

-Memorandum on behalf of Respondents-

Page 17

4. The Government of Uttransh is not liable to pay Rs 23, 60,000 to the petitioner on

account of Letter of Comfort.

The Respondent No.3 humbly contends that there is no liability to pay any amount to the

petitioner’s as Letter of Comfort is not a legally binding document.

Black's Law Dictionary20

defines Letter of Comfort as a letter from a parent corporation on

behalf of a subsidiary, stating its support (but short of guarantee) for the activities and

commitments of another corporation. Chitty on Contrac21

t clearly states that a Letter of Comfort

“would not convey contractual intention.”

In Mysore Cement v. Svedala Barmac Ltd.22

where letter of comfort was sought to be legally

enforced the Apex Court held that;

“Letter of Comfort fall short of the essential legal prerequisites to be satisfied for being assigned

any such status, despite endeavor to view them with a liberal approach in the background of the

objects and purposes underlying conciliation, arbitration and alternative mode of settlement of

disputes.”

Further, in Lucent Technologies Inc. v. ICICI Bank Ltd23

where one of the questions which had

arisen for consideration before the Delhi High Court related to the construction and legal impact

of what has been termed 'a letter of comfort'.

20 Black’s Law Dictionary, Standard Ninth Edition, Bryan A. Garner, 2008

21 Chitty on Contract, 31st Edition, Sweet & Maxwell, Vol. 2, 2008

22 AIR 2003 SC 3493

23 MANU/DE/2717/2009

-Memorandum on behalf of Respondents-

Page 18

The Court held that the communications placed before the Court (one of them being a comfort

letter) did not contain the kind of assent required to make for a binding contract. Applying the

legal principles laid down in the several judgments, the Court held that the circumstances and

documents did not indicate that the parties intended to create any legal relations.

In a latest judgment24

, the Karnataka High Court relying on definition of “letter of comfort” as

found in P. Ramanatha Aiyar's Advanced Law Lexicon25

, which read as, “Letter of Comfort is a

document that indicates one party's intention to try to ensure that another party complies with

the terms of a financial transaction without guaranteeing performance in the event of default.”

Held that, letter of comfort merely indicates the Appellant's assurance that the Respondent No. 2

would comply the terms of a financial transaction without guaranteeing performance in the event

of default.

5. Sections 15, 18 and 19 of the MSMED Act, 2006 are constitutionally valid.

It is submitted that the impugned provisions of the MSMED Act, 2006, are well within the scope

of the Constitution. The contention raised by the petitioner regarding the impugned provisions of

the said Act being ultra vires cannot be accepted.

The division bench of the Andhra Pradesh High Court in A.P.Transco v. Sri Gowri Sankar

Cable Industries and others26

rejected both grounds including the contention regarding

discrimination.

24 United Breweries Ltd v. Karnataka State Industrial Investment, AIR2012Kant65

25 P. Ramanatha Aiyar's Advanced. Law Lexicon, 3rd edition, 2005

26 2002 (3) ALT 134(D.B.)

-Memorandum on behalf of Respondents-

Page 19

Article 14 of the Constitution although proclaims equality before law and equal protection of law

does not forbid reasonable classification. Equality clause cannot be enforced in abstract. All laws

cannot have universal application. Varying needs of different classes of people require different

treatment. A benefit granted to a particular class of industries having regard to the capital they

may invest if treated to be forming a separate class or category no exception thereto can be taken.

The small scale and ancillary industries having regard to the policy decision of the Central

Government as stated in the Parliament stand on a separate footing. If certain protections had

been granted for the purpose of realization of the dues, the same can neither be said to be

unreasonable nor discriminatory. Small scale and ancillary industries form a class by themselves.

Moreover in Anukul Chandra Pradhan v. Union of India27

the Apex Court held that;

Mere hardship as is well known cannot be a ground to strike down an otherwise valid Act. The

said provisions, therefore, are not ultra vires Article 14 of the Constitution of India.

Section 18 of the MSMED Act, 2006, whereof a statutory Tribunal known as Facilitation Council

(hereinafter referred to as the Council) was constituted to act as an arbitrator. Creation of Courts

and tribunals by the State Legislature comes within the purview of Entry 11-A of List III of VII

Schedule to the Constitution of India. The Tribunal is merely in the nature of arbitral tribunal.

The State has constituted such tribunal. Creditor may only exercise its right of option. The

interests of the parties are protected by making a provision to prefer an appeal against the order

of the Tribunal. In a given case, even the power of judicial review can be exercised by the High

Court under Article 226 of the Constitution of India. The ambit and scope of two remedies is

27 1997 (6) SCC 1

-Memorandum on behalf of Respondents-

Page 20

essentially the same viz., to recover the amount. Thus, the doctrine of election would apply as the

two remedies are essentially not different in its ambit and scope.28

.

In, Premier Automobiles v. Kamlekar Shantaram Wadke29

, Apex Court observed that;

“The right to recover an amount from the supplier is common law right. Right to claim interest in

terms of a statute is a substantive right. Such a right can be enforced both in a Civil Court as

also a Tribunal constituted under a special Act. In a case of this nature, the jurisdiction of the

Court and the Tribunal are co-extensive. By reason of the said Act, apart from interest, no right

under the said Act to recover the money has been created. Retaining of jurisdiction of the Civil

Court and at the same time providing an additional forum, which is in the nature of an

arbitration Tribunal, in our opinion, cannot be said to be bad in law.”

Subsequently, Section 19 of the MSMED Act came to be challenged before the High Court of

Kerala. A division bench of the Kerala High Court vide its judgment in K.S.R.T.C. v. Union of

India30

upheld the validity of Section 19. It was stated that even otherwise there is no guarantee

for an unrestricted fundamental right to carry on trade and it is always subjected to reasonable

restrictions found under the Article 19(6) of the Constitution.

Moreover, the Parliament has ample power to restrict such contract. The fixing of time limit is to

save the Micro and Small Enterprises from going out of existence due to wanton delay in

payments by the buyers. To that extent, right to enter into contract can be curtailed. Such

curtailment cannot be said to be either arbitrary or unconstitutional.

28

A.P. State Financial Corpn. v. Gar Re-Rolling Mills, 1994 (2) SCC 647

29 1975 SC 2238

30 Supra note 3

-Memorandum on behalf of Respondents-

Page 21

The Act nowhere interferes with the other terms of the contract. In effect, the Act is not a

substantial provision to interfere with the right to enter into a contract, but it only regulate the

time for payment. It cannot be said to be either discriminatory or arbitrary so as to infringe the

constitutional guarantee provided under Part III of the Constitution. Therefore, the argument that

it curtails the free right to enter into contracts is hereby rejected.

It is interesting to note that a constitution bench of the Apex Court in Sunder V. Union of

India31

has held that a person who commits defaults and suffers an order or award or decree

from the Facilitation Council alone is bound to pay such interest and such order if found

erroneous can be corrected by judicial review by an appropriate legal forum.

Thereby, it is contended that the Hon’ble Court shall not entertain the petition as the impugned

Act is not violative of the provisions of the constitution.

31 MANU/SC/0573/2001

-Memorandum on behalf of Respondents-

Page 22

PRAYER

In the light of the arguments advanced and authorities cited, the respondent humbly submits that

the Hon’ble Court be pleased to adjudge, adjudicate and declare that:

1) The Arbitral Award passed by the Facilitation Council is not liable to be set aside.

2) Respondent No. 3 is not liable to pay Rs 23, 60,000 to the petitioner.

3) Sections 15, 18 and 19 of the Micro, Small and Medium Enterprises Development, Act

2006, are constitutionally valid.

And/ or Pass any other order/ decree/judgment as this Hon’ble High Court may deem fit in order

to achieve the ends of Justice, Equity and Good Conscience.

For this act of kindness, the Respondent shall duty bound forever pray.

Sd. /- (Counsels for the Respondents)