MSME Council Award Can Be Challenged Only U/S 34 Of Arbitration Act, Not Under Articles 226 Or 227: Orissa High Court

Background:

The appellant challenged the judgment dated 28.03.2024, in which the Single Judge of the court declined to entertain a challenge to an award passed by the Micro and Small Enterprises Facilitation Council, Cuttack, under Article 226 of the Constitution. The Single judge had held that the award can be challenged only in accordance with the provisions prescribed under Section 34 of the Arbitration and Conciliation Act, 1996 as provided under Section 19 of MSMED Act and not in a proceeding under Article 227.

Contentions:

Mr. Sudipto Sarkar, Senior Counsel appearing on behalf of the Appellant contended that the award made by the Council ought to have been interfered with under Article 226/227 of the Constitution as there was no conciliation held in accordance with the prescribed procedure, which is a condition precedent for initiation of arbitration proceeding under Section 18 (3) of the MSMED Act. Therefore, the arbitration proceeding undertaken by the council was completely beyond jurisdiction and the arbitral award is a nullity. He submitted that the conciliation was purportedly initiated on 17.11.2022 and on the very next date on 27.12.2022, the conciliation was terminated ostensibly on the ground that no proposal was received from the parties. He argued that the Council clubbed the arbitral and conciliation proceedings together, which is impermissible under the MSMED Act.

Mr. Mishra, Senior Counsel appearing on behalf of respondent No.3 submitted that the impugned order did not suffer from any infirmity requiring interference. He submitted that the Council after undertaking the conciliation proceeding had recorded that the conciliation proceeding failed, whereafter the arbitration proceeding was undertaken as prescribed under Section 18 (3) of the Act.

Observations:

The court placed emphasis upon Section 18(3) of the MSMED Act as it existed prior to its amendment, which reads as under:

“Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that Act.”

The court noted that Respondent No.3 would be covered by the provisions of MSMED Act.

The court observed that the Council had terminated the conciliation process under Section 18 (2) of the MSMED Act on 17.11.2022. By the order dated 27.12.2022, the Council declared failure of the conciliation process under Section 18 (2), and thereafter, the arbitration clause was invoked under Section 18 (3) of the Act.

The court also observed that the appellant participated in the arbitration proceeding and didn't raise any issue of non-compliance with Section 18 (2) of the MSMED Act read with Part III of the Arbitration Act.

The court held that the Single Judge rightly declined to interfere with the award which could have been assailed by the appellant under Section 34 of the Arbitration Act. Therefore, it dismissed the appeal.

Case Title: AES India (Pvt.) Ltd. vs. State of Odisha & Ors.

Case Number: W.A No.968 of 2024

Advocates appeared in the case:

For the Appellant: Mr. Sudipto Sarkar, Senior Advocate Mr. S. Satyakam, Advocate Ms. Adyasha Kar, Advocate

For Respondent No.1: Mr. Debakanta Mohanty, Addl. Government Advocate

For Respondent No.3 (M/s Kalinga Insulation): Mr. Manoj Kumar Mishra, Senior Advocate Mr. Digambar Mishra, Advocate

Date of Judgment: 05.11.2024

Click Here To Read/Download The Order