Pendency Of Conciliation Proceedings Before Facilitation Council Under MSMED Act Doesn’t Debar The Court From Appointing Arbitrator Under S. 11 Of Arbitration Act: Calcutta High Court
The Calcutta High Court has held that a prior reference to the Facilitation Council under Section 18(1) of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), which is still at the stage of conciliation, does not debar the Court from passing an order under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) for appointment of arbitrator on the...
The Calcutta High Court has held that a prior reference to the Facilitation Council under Section 18(1) of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), which is still at the stage of conciliation, does not debar the Court from passing an order under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) for appointment of arbitrator on the basis of an independent arbitration clause between the parties.
The court ruled that the bar contemplated under Section 24 of the MSMED Act only comes into operation if and when there is anything inconsistent between Sections 15 to 23 of the MSMED Act and any other law for the time being in force.
The bench of Justice Sabyasachi Bhattacharyya remarked that there is no inconsistency per se between Section 11 of the A&C Act and the reference to conciliation under Section 18(1) and (2) of the MSMED Act, to attract the rigour of Section 24.
The court added that the inconsistency or conflict envisaged under Section 24 will not arise until and unless the arbitration stage begins under the MSMED Act, after the failure and termination of the conciliation proceedings.
Section 18(1) of the MSMED Act provides that any party to a dispute may make a reference to the Facilitation Council under the Act. Under Section 18(2), the Facilitation Council shall either itself conduct conciliation proceedings or seek the assistance of any institution or centre. Section 18(3) provides that where the conciliation initiated under Section 18(2) is not successful and is terminated, the Facilitation Council may either itself take up the dispute for arbitration or refer the matter to any institution or centre for arbitration.
The petitioner, Essar Oil and Gas Exploration and Production Ltd, filed a petition before the Calcutta High Court under Section 11 of the A&C Act seeking appointment of arbitrator to adjudicate the dispute between the parties under a contract.
The respondent, Gargi Travels Private Limited, argued that due to the pendency of the reference made before the Facilitation Council under Section 18 of the MSMED Act, the court cannot pass an order under Section 11 of the A&C Act, in view of the bar contained in Section 24 of the MSMED Act.
To this, the petitioner, Essar Oil and Gas, pleaded that since the reference to the Facilitation Council was still at the initial stage of conciliation and had not ripened into the stage of arbitration as contemplated under Section 18(3), there was no bar to proceed with the appointment of arbitrator under Section 11 of the A&C Act.
Section 24 of the MSMED Act, which gives overriding effect to the provisions of the MSMED Act, states that the provisions of Sections 15 to 23 shall have effect notwithstanding anything inconsistent contained in any other law for the time being in force.
Referring to the provisions of the MSMED Act and the A&C Act, and the decision of the Supreme Court in Gujarat State Civil Supplies Corporation Ltd vs. Mahakali Foods Pvt Ltd (Unit 2) & Anr, 2022 SCC OnLine SC 1492, the High Court observed that the Apex Court has upheld the overriding effect of Section 24 of the MSMED Act.
The bench, however, reckoned that Section 18(1) and (2) of the MSMED Act merely envisages the conciliation stage, which is distinct and different from the arbitration stage and precedes the latter.
Perusing Section 18(3) of the MSMED Act, the court concluded, “It is crystal-clear that only after the failure of the conciliation proceeding and termination thereof, the procedure governing arbitration under the 1996 Act can be invoked by the Council, either by resolving the disputes itself or by referring the dispute to an Arbitral Tribunal.”
The bench thus held that the stage when arbitration commences is reached only after the termination of the conciliation proceedings under the MSMED Act. “Hence, the provisions governing arbitration, including Section 11 of the 1996 Act, do not come into play at all up to the stage of Section 18(2) of the 2006 Act,” the court said.
Noting that the matter had merely been referred to the Facilitation Council for conciliation, which was still pending, the court remarked that since the matter had not reached the stage of arbitration under Section 18(3) of the MSMED Act, the bar under Section 24 was not attracted at all.
While holding that Section 24 envisages overriding effect of the MSMED Act only where there is anything inconsistent between the MSMED Act and any other law, the court said, “Such inconsistency or conflict does not arise at all until and unless the arbitration stage begins within the contemplation of Section 18(3) of the 2006 Act, after conciliation fails.”
The court thus allowed the petition, appointed an arbitrator and referred the parties to arbitration.
Case Title: Essar Oil and Gas Exploration and Production Ltd vs Gargi Travels Pvt Ltd
Citation: 2023 LiveLaw (Cal) 114
Dated: 20.04.2023
Counsel for the Petitioner: Mr. Tridib Bose with Mr. V.V.V. Sastry, Advs.
Counsel for the Respondent: Mr. Tanmoy Mukherjee with Mr. Amal Saha, Mr. Iresh Paul, Mr. Souvik Das, Mr. K.R. Ahmed, Mr. Rudranil Das & Mr. Soumyadip Panda, Advs.