- The Delhi High Court has ruled that an order issued by the Facilitation Council under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) following the termination of conciliation proceedings, without referring the dispute to an institution or centre for arbitration, is void and does not constitute an arbitral award.
- As a result, the Court ruled that it could not be enforced under Section 36 of the 1996 Arbitration and Conciliation Act (A&C Act).
- The Single Bench of Justice Prateek Jalan reiterated that the conciliation and arbitration proceedings cannot be combined.
- The petitioner M/S. Unicon Engineers received a work order from the respondent M/S. Jindal Steel and Power Ltd. After the respondent failed to pay the petitioner's debts, the petitioner filed a complaint with the Facilitation Council under Section 18 of the MSMED Act.
- The Council issued an order directing the respondent to pay the petitioner a certain sum plus interest. The respondent paid the said sum to the petitioner; however, the respondent failed to pay the interest amount as directed by the Council.
- The petitioner petitioned the Delhi High Court for execution of the Facilitation Council's order under the MSMED Act, claiming that the order constituted an arbitral award subject to execution under Section 36 of the A&C Act.
- The respondent, M/S. Jindal Steel and Power Ltd., argued before the High Court that the execution proceedings were unconstitutional because the order in question was not an executable arbitral award.
- According to Section 18(1) of the MSMED Act, a party to a dispute may refer the matter to the Micro and Small Enterprises Facilitation Council (MSEFC).
- The Court ruled that the Council had violated Section 18(3) of the MSMED Act by failing to follow the procedure.
- The Court noted that the order sought to be executed was issued by the Facilitation Council in relation to a portion of the petitioner's claim without referring it to an institution or centre for arbitration.
- The Court went on to say that even if the Council did arbitrate and issue an award, the relevant procedure outlined in Sections 20, 23, 24, and 25 of the A&C Act should have been followed.
- As a result, the Court ruled that because the Council's procedure was contrary to the mandate, the Facilitation Council's order is null and void and does not constitute an arbitral award.
- The Court noted that the Apex Court in Jharkhand Urja Vikas Nigam Limited (2021) held that when an order is passed without recourse to arbitration and in complete disregard of the provisions of the A&C Act, Section 34 of the A&C Act does not apply, and thus an appeal against the said order cannot be rejected solely on the basis that the appellant did not avail of the remedy under Section 34.
- As a result, the Court ruled that the enforcement proceedings could not be continued.
"Loved reading this piece by Twinkle Madaan?
Join LAWyersClubIndia's network for daily News Updates, Judgment Summaries, Articles, Forum Threads, Online Law Courses, and MUCH MORE!!"
Join LAWyersClubIndia's network for daily News Updates, Judgment Summaries, Articles, Forum Threads, Online Law Courses, and MUCH MORE!!"
