Disclosure Of Impartiality By Arbitrator Appointed Under MSMED Act Not Against Spirit Of Section 24, Provisions Of A&C Act Shall Apply: Calcutta HC

Justice Subhasis Dasgupta also held that that an Arbitrator appointed under Section 18(3) of the MSMED Act has the power to decide all disputes referred to it, as if such arbitration was in pursuance of arbitration agreement referred to Sub-Section (1) of Section 7 of the Arbitration Act, and consequently, all the trappings of the Arbitration & Conciliation Act, 1996 would apply to such arbitration proceedings.

Facts

The instant proceedings arose out of a revisional application filed by Security Hitech Graphics Private Limited against an order of July, 2022 passed by an Arbitrator appointed under MSMED Act in connection with the dispute between the petitioner and LMI India Private Limited. 

The Arbitrator in the order passed on July 5 had said the 5th, 6th and 7th Schedules of the Arbitration and Conciliation Act, 1996 were inapplicable to the arbitration proceedings under the MSMED Act.

Submissions of Parties

The counsels for the petitioner submitted that while the Arbitrator was appointed under the MSMED Act, the Arbitrator was obligated to disclose his independence or impartiality as required under the 6th Schedule S. 12(1)(2) of Arbitration Act, 1996.

It was further submitted that the mandatory requirement as to the disclosing the independence and impartiality of an Arbitrator where impartiality of such Arbitrator was doubted, could not be given a go-by on the simpliciter score that the Arbitrator had been appointed by Delhi Arbitration Centre under the MSMED Act.

The petitioner also argued that since the provisions of the MSMED Act were not in contrast with S. 12 of the Arbitration and Conciliation Act, the mandatory requirement of disclosure as contained within Section 12 r/w 6th Schedule of the 1996 Act could not be disregarded holding the same to be inapplicable under MSMED Act.

The counsel for the respondent objected to the maintainability of revisional application by contending that Article 227 could not have been resorted to without taking recourse to Section 19 and Section 24 of the MSMED Act.

It was further contended that as the MSMED Act was a special legislation, it would override provisions of the Arbitration Act, 1996 by virtue of S. 24 of the MSMED Act. The counsel further submitted that as there was no apparent conflict between the two statutes, provisions of MSMED Act were to be given precedence over the instant arbitration proceedings thereby restricting application of Section 12 of the Arbitration and Conciliation Act, 1996.

Analysis

The court said the only point requiring address is whether an Arbitrator, appointed, under the provisions of M.S.M.E.D. Act, 2006, is required to disclose his independence, impartiality in the instant arbitration proceedings to clear justifiable doubts of the parties to arbitration proceedings, doing strict adherence to 6th Schedule, in aid of Section 12 (1) (2) of the Arbitration and Conciliation Act, 1996 or not.

On the question whether the provisions contained in Chapter – V of M.S.M.E.D. Act, 2006, with regard to the belated payments to Micro and Small Enterprises would have the precedence over the provisions contained in the Arbitration Act, 1996, the court said there cannot be any controversy with regard to the settled proposition of law that special statute would override the provisions of the general statute.

As per Section 24 of MSMED Act, the provisions of Section 15 to 23 shall have have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

The court took note of Section 18 (3) of the MSMED Act as per which "in the event of unsuccessful conciliation, there may be arbitration conducted with the appointment of Arbitrator, when the provisions of Arbitration and Conciliation Act shall apply to the dispute, as if the Arbitration Act was in pursuance of arbitration agreement, referred to in Sub-Section (1) of Section 7 of Arbitration and Conciliation Act, 1996."

"Therefore, the Arbitrator though appointed by the Delhi Arbitration Centre under M.S.M.E.D. Act, shall have all powers to decide the disputes referred to it, as if such arbitration was in pursuance of arbitration agreement referred to Sub-Section (1) of Section 7 of the Arbitration Act, 1996, and as a corollary all the trappings of the Arbitration Act, 1996 would apply to such arbitration"

The court said Section 18(3) of M.S.M.E.D. Act has taken care of the mode and manner of conducting the arbitration by the Arbitrator by laying down that the provisions of Arbitration and Conciliation Act shall apply to disputes to the arbitration, as if it was an arbitration in pursuance of an arbitration agreement referred to Sub-Section (1) of Section 7 of the Act.

It added that since the petitioner has doubted the credibility of the Arbitrator, there appears to be no wrong in the process of dispensation of justice, if the Arbitrator discloses his impartiality and independence, doing adherence to Section 12(1) (2) read with Schedule 6th of Arbitration Act, 1996.

"Therefore, for abundant precaution, if the provisions of Section 12 (1)(2) read with 6th Schedule of Arbitration and Conciliation Act pertaining to disclosure of impartiality of Arbitrator with regard to subject of arbitration are given effect by the Arbitrator at any stage of proceedings to establish his more and more credibility, independence and impartiality, that would not frustrate the object of M.S.M.E.D. Act, 2006," said the court.

It added that appointment of the Arbitrator being subject to the disclosure of Schedule 6th of Arbitration Act, 1996, can never be construed to be coming in the way against the spirit of Section 24 of M.S.M.E.D. Act. 

"The overriding provisions of Section 15 to 23 of M.S.M.E.D. Act, thus cannot be deemed to be an absolute bar making Section 12 of Arbitration Act, 1996 inapplicable in case of arbitration, conducted under the M.S.M.E.D. Act, with appointment of Arbitrator, thereby not strictly prohibiting Arbitrator from making disclosure of his independence and impartiality to the arbitration proceedings in aid of Schedule 6th of Arbitration and Conciliation Act."

The court further said that since, under Section 12(2) of Arbitration and Conciliation Act, 1996 an Arbitrator is under obligation to disclose in writing, doing adherence to 6th Schedule, immediately after the time of his appointment, or throughout the arbitral proceedings, "therefore declaration of impartiality and independence of Arbitrator under Section 12 of 1996 Act, if not already disclosed, may be disclosed at the earliest so as to ensure his fairness, credibility, impartiality and independence beyond all shadow of doubt."

It directed the Arbitrator to ensure declaration of his independence, impartiality, as mentioned in Section 12(1)(2) read with Schedule 6th of Arbitration and Conciliation Act, 1996, at the earliest, if not already disclosed, to eliminate and/or dispel the doubt to any of the parties as regards impartiality and his independence to the arbitration proceedings.

Case: Security Hitech Graphics Private Limited v.. LMI India Private Limited, CO No. 1931 of 2022

Date: 20.12.2022

Citation: 2022 LiveLaw (Cal) 378  

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