Isabella Mariam

The High Court of Himachal Pradesh Single Bench of Justice Sandeep Sharma dismissed a railway procurement authority’s challenge to an arbitral award requiring it to pay a supplier enterprise for goods supplied under purchase orders, and declined to set aside the award. The buyer had withheld payment after alleging that supplies were overpriced and initiating investigative action. It argued that the supplier could not invoke the MSME facilitation mechanism because it had not filed the Entrepreneurs Memorandum within 180 days of the MSMED Act’s commencement and that the claim was time-barred. The Court held that, for micro and small enterprises, filing the Entrepreneurs Memorandum is discretionary, as clarified by a 2007 notification, and treated the award as enforceable.

The enterprise registered itself with the District Industries Centre on 22.12.2004 and started production from 30.04.2005. Purchase orders were placed through limited tender during March/May 2007. In June/July 2007, instructions were issued to stop payment against purchase orders (including for supplied material) on the ground that material was supplied at a much higher rate; vigilance proceedings followed and the matter was later investigated by the CBI. A closure report filed by the CBI was accepted by the competent court on 07.01.2012. The enterprise thereafter repeatedly sought release of payments (w.e.f. 05.11.2012 to 21.02.2014) and later filed an online complaint through CPGRAM on 05.05.2015; a detailed reply dated 02.09.2015 denied release of payment stating appropriate action would be taken once investigation was brought to a logical conclusion.

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A petition/reference under Section 18(1) of the MSMED Act was filed on 01.10.2016 for due payment. The award under challenge was dated 05.03.2018 (published on 19.03.2018), awarding Rs. 55,18,44,524/- with further components noted in the award portion. The buyer challenged the award under Section 34, including on limitation and on the contention that EM-II (filed on 10.03.2008 and granted on 23.10.2008) was beyond 180 days and therefore the enterprise was not a “supplier” under the MSMED Act.

The Court recorded that “scope of interference by this Court while exercising power under Section 34 of the Act is very very limited” and that “Courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exists”; instead, courts “should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Act.” It also extracted the principle that “Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction” and that the mandate is “to respect the finality of the arbitral award and the party autonomy”; interference on factual aspects in the usual course would frustrate the commercial choice of ADR.

On the petitioner’s grounds, the Court noted that the challenge was primarily that “reference was filed nine years after cause of action arose” and that claims were “hopelessly time barred”, along with the supplier-status objection based on EM-II timing. On the EM-II point, the Court recorded the statutory backdrop that the proviso to Section 8 uses the expression “may at his discretion” with reference to filing within 180 days, and then relied on the notification dated 01.08.2007 which clarified that for micro and small enterprises “there is no limitation of 180 days from 02.10.2006 for filing of the EM, rather it is voluntary for them and they can file EM anytime they decide to do.” It concluded: “filing of the EM-II registration within a period of 180 days was not a mandatory requirement… the award does not suffer with any sort of infirmity or perversity on the afore count.”

On limitation, the Court noted the stop-payment instructions in June/July 2007, the vigilance/CBI investigation, and that the closure report was accepted on 07.01.2012. It recorded that after CPGRAM, the buyer’s detailed reply dated 02.09.2015 was the first refusal and that “Since on 2.9.2015, for the first time, petitioner refused to release the payments, cause of action accrued” for MSMED proceedings. The Court further stated that by the 02.09.2015 communication, the petitioner “acknowledged the existence of the claim” and therefore it “does not see any reason to find any fault with the finding returned by learned Arbitrator… [that] claim… are not barred by limitation.”

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The Court held that “under no circumstances, it can be said that claim petition dated 1.10.2016… is barred by law of limitation.” After examining the impugned award and claims, it stated: “this Court sees no reason to interfere in the same” and that the petitioner failed to demonstrate that the awarded amount was outside the ambit of the purchase order or that the award was in contravention of Section 34; the award “being strictly in conformity with substantive law in force deserves to be upheld.” It concluded: “this Court finds no merit in the present case and as such, same is dismissed being devoid of any merit.”

Advocates Representing the Parties

For the Petitioner: Mr. Vir Bahadur Verma, learned Senior Panel Counsel
For the Respondents: Mr. Sunil Mohan Goel, learned Senior Advocate with Mr. Vibhu Anshuman, Mr. Raman Jamalta, and Mr. Vipul Sharda, Advocates

Case Title: Controller of Stores, Northern Railway v. M/s CBM Industries Pvt. Ltd. and Anr.

Neutral Citation: 2025: HHC:39166

Case Number: CARBC No. 6 of 2018

Bench: Justice Sandeep Sharma