In a recent legal case, the court analyzed the arbitration order passed by the Council and found it to be in violation of mandatory provisions of the Arbitration and Conciliation Act, 1996. The court’s decision emphasizes the significance of following proper legal procedures in arbitration proceedings. Let’s delve into the details of this important ruling.
Facts
- The writ petition challenged the order dated 06.08.2012 passed by the Rajasthan Micro & Small Industries Facilitation Council.
- The order directed the appellant to make payment to the 3rd respondent within thirty days, as claimed.
- The appellant, successor of Jharkhand State Electricity Board, had a contract with M/s. Anamika Conductors Ltd. for the supply of ACSR Zebra Conductors.
- Respondent No.3, a small scale industry, claimed an amount of Rs.74,74,041/- principal and Rs.91,59,705.02 interest before the Council.
- Summons were issued for the appellant’s appearance on 06.08.2012, due to non-response to earlier notices.
- Intra-court appeal by the appellant ended in dismissal.
- Appellant filed a writ petition challenging the order, which was dismissed by a learned Single Judge in Civil Writ Petition No. 11657 of 2017.
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Arguments
- The appellant argues that the order passed by the Council was in violation of the mandatory provisions of the Arbitration and Conciliation Act, 1996.
- The appellant contends that the dispute was subject to the jurisdiction of civil courts at Ranchi as per the contract terms, and the 3rd respondent had agreed to this.
- It is argued that the Council’s order was without jurisdiction and contrary to the agreement’s terms and conditions.
- The appellant was not given an opportunity to participate in the arbitration proceedings before the impugned order was passed.
- The appellant claims that after the Council’s order, they inspected the records and paid the due amount to the 3rd respondent.
- The 3rd respondent later filed an execution case which was dismissed on grounds of maintainability.
- According to Section 18(3) of the MSMED Act, when conciliation fails, the Council is required to initiate arbitration proceedings.
- The appellant failed to respond to various notices/summons issued by the Council, leading to the Council passing the award.
- The awarded amount was not fully paid, leading to the 3rd respondent filing an execution case in Ranchi.
- The execution case was dismissed for lack of territorial jurisdiction, as the award was passed in Jaipur.
- The MSMED Act is a beneficial legislation for small and medium enterprises.
- The appellant had the opportunity to challenge the award under Section 34 of the Arbitration and Conciliation Act within a specified period but failed to do so.
- The appellant challenged the award by way of writ petition, which was rightly dismissed by the High Court.
- The 3rd respondent approached the Council seeking directions for payment of delayed bill amounts along with interest under the MSMED Act.
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Analysis
- The order dated 06.08.2012 is considered patently illegal as it did not follow the proper procedure for conciliation and arbitration.
- The Facilitation Council did not initiate arbitration proceedings as per the relevant provisions of the Arbitration and Conciliation Act, 1996, rendering any potential arbitral award invalid.
- There is a clear distinction between conciliation and arbitration, with arbitration involving adjudication by an Arbitral Tribunal or arbitrator.
- The order passed without recourse to arbitration and in disregard of the Arbitration and Conciliation Act, 1996, means Section 34 of the Act would not be applicable.
- The delay in filing a writ petition and subsequent attempt to execute the order resulted in dismissal for want of territorial jurisdiction in a separate case.
- It is emphasized that under the MSMED Act, conciliation is the first step to assist parties in reaching an amicable settlement, with arbitration as a subsequent option if conciliation fails.
- The Council is empowered to either conduct arbitration or refer the proceedings to a specified institution as per Section 18(3) of the MSMED Act.
- Challenging an arbitral award is typically done through an application under Section 34 of the Arbitration and Conciliation Act, 1996.
- Conciliation initiated under sub-section (2) can lead to arbitration if unsuccessful.
- Jurisdiction granted to Micro and Small Enterprises Facilitation Council or alternate dispute resolution services for arbitration.
- Provisions of the Arbitration and Conciliation Act, 1996 apply to disputes referred under this section.
- Reference to the Micro and Small Enterprises Facilitation Council for disputes regarding amounts due under section 17.
- Council can conduct conciliation or refer to an institution for the same.
- If conciliation fails, the Council can proceed to arbitration or refer to another institute for settlement.
- Council can act as arbitrator for dispute resolution if needed.
- Order of 06.08.2012 was passed contrary to Section 18(3) of the MSMED Act and the Arbitration and Conciliation Act, 1996.
- Judgments cited by respondents do not support their case due to the above-mentioned legal violations.
- Appellant has not lost the right to question the order despite already paying Rs. 63,43,488 to the respondent.
- No abnormal delay and laches on the part of the appellant in approaching the High Court.
Decision
- The Council must follow the provisions of the Arbitration and Conciliation Act, 1996 for arbitration before passing any award.
- The order/award dated 06.08.2012 passed by the 2nd respondent is quashed.
- The civil appeal is allowed, and the impugned judgment and order are set aside.
- The 2nd respondent-Council has the option to take up the dispute for arbitration on its own or refer it to any institution providing alternate dispute resolution services.
- Subsequently, a civil writ petition was filed questioning the order dated 06.08.2012 before the Rajasthan High Court.
Case Title: JHARKHAND URJA VIKAS NIGAM LIMITED Vs. THE STATE OF RAJASTHAN (2021 INSC 898)
Case Number: C.A. No.-002899-002899 / 2021
