Supplying Copies Of Award Certified By MSME Council To The Parties, Not Fair: Himachal Pradesh High Court

The Himachal Pradesh High Court has ruled that it is the bounden duty of the Arbitrator appointed by the Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) to issue signed copies of the arbitral award to the parties irrespective of the fact whether the parties have contested the proceedings or were proceeded ex-parte.

The court has deprecated the practice of the Facilitation Council of supplying a copy of the award certified by the Council itself to the concerned parties. The court said that the same is not in consonance with the procedure mandated under Section 31(5) of the Arbitration and Conciliation Act, 1996 (A&C Act) as well as the MSMED Act. It added that the arbitral award is to be made available to the parties by the Arbitrator himself in accordance with the provisions of Section 31(5) of the A&C Act.

The bench of Justice Jyotsna Rewal Dua was hearing a petition seeking a direction to the Facilitation Council to issue the signed copy of the arbitral award passed against the petitioner under the MSMED Act. It was the case of the petitioner/ award debtor that only a photocopy of the award was supplied to it by the Council.

The court held that once the matter is referred for arbitration under Section 18(3) of the MSMED Act, the provisions of the A&C Act, including Section 31, become applicable. Thus, the parties are to be provided signed copies of the arbitral award by the Arbitrator himself, the court said.

The respondent, Symbiosis Pharmaceuticals Pvt Ltd, made a reference before the Facilitation Council for recovery of certain amount from the petitioner, M/s Sterkem Pharma Pvt Ltd, in accordance with the provisions of Section 18 of the MSMED Act. The parties failed to reconcile in the conciliation proceedings held before the Facilitation Council. Accordingly, the Council referred the matter for arbitration. The Sole Arbitrator appointed by the Chairman of the Council passed an ex-parte award in favour of the respondent/ claimant.

Thereafter, the petitioner challenged the award by filing a petition under Section 34 of the A&C Act before the District Court. However, the petition was not held to be duly constituted as the signed copy of the award was not placed on record by the petitioner.

Since the signed copy of the arbitral award was not received by the petitioner, it filed a petition before the Himachal Pradesh High Court seeking a direction to the Facilitation Council to issue the same.

The High Court reckoned that Section 18(3) of the MSMED Act provides that where the conciliation initiated under Section 18(2) fails and is terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution/centre providing alternate dispute resolution services. The court noted that in such a case, the A&C Act will apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in Section 7(1) of the said Act. “Once the provisions of 1996 Act become applicable, obviously provisions of Section 31 of that Act would also become applicable,” the court said.

Section 31 of the A&C Act, which pertains to the form and contents of arbitral award, provides in sub-section (5) for supply of the signed copy of the arbitral award to each party after the arbitral award is made.

The court found that the legal position with respect to supply of signed copy of the award to parties has been settled by the Apex Court in various decisions. The top court in Union of India vs Tecco Trichy Engineers & Contractors (2005) 4 SCC 239, had held that delivery of an arbitral award under Section 31(5) is not a matter of mere formality, it is a matter of substance. It is only after the stage under Section 31 has passed that the stage of termination of arbitral proceedings within the meaning of Section 32 of the A&C Act arises, the Supreme Court had ruled.

The High Court added that proper compliance with Section 31 (5) would mean the delivery of a signed copy of the award on the party itself. The bench said that the expression ‘party’, as defined under Section 2(1)(h) of the A&C Act, indicates a person who is a party to an arbitration agreement. The said definition is not qualified in any way so as to include the Advocate or agent of the party to such an agreement, the court said.

Referring to the facts of the case, the bench noted that after signing the award, the Arbitrator dispatched the entire case file including the original award to the Chairman of the Facilitation Council for supplying the copies of the award to the concerned parties. The Facilitation Council, thereafter, supplied a copy of the award certified by the Council itself, to the parties. The bench, however, took note that according to the petitioner, only a photocopy of the award was supplied to it by the Council.

The court concluded that the procedure adopted by the Facilitation Council for supplying the copies of the arbitral award to the parties, was not in consonance with the procedure mandated under the A&C Act.

“It is admitted case of respondent No.3 (MSME Facilitation Council) that signed copy of the arbitral award was not supplied to the petitioner and only a copy of the award certified by it (MSME Council) was supplied. Hence, there is no escape from the conclusion that provisions of Section 31(5) of the 1996 Act have not been complied with,” the court said.

The bench further took note that the Facilitation Council had admitted that the same procedure was being adopted by it for supplying the arbitral award in other cases as well. “Such practice, being not in consonance with the mandate of the 2006 Act as well as the 1996 Act, cannot be countenanced,” the court remarked, adding that the parties are to be provided signed copies of the arbitral award.

“The arbitral award is to be made available to the parties by the Arbitrator himself in accordance with the provisions of Section 31(5) of the 1996 Act,” the court said.

To this, the Council referred to the Himachal Pradesh Micro and Small Enterprises Facilitation Council Rules, 2018. It placed reliance on Rule 4 (x), which provides that the Council, after finalizing the award or receiving the award from the Institution, “shall consider the case and pass an appropriate final order in the matter”.

The court, however, ruled that passing of an appropriate final order in the matter cannot be construed to mean that the Council is to pass an order different from the award passed by the Arbitrator. It added that the Council cannot sit over the award passed by the Arbitrator.

“Harmonious construction of provisions of the 1996 Act, the 2006 Act and 2018 Rules would lead to only one conclusion that where the award is passed by the Arbitrator, then, upon receiving a communication in that regard from the Arbitrator, the MSME Council is to pass appropriate order regarding conclusion of the arbitral proceedings and nothing more than that,” the court said.

It added: “The 2018 Rules cannot be construed and interpreted to mean that the MSME Council or for that matter the appointed Arbitrator can sit over the mandate of Section 31(5) of the 1996 Act to deny supply of signed copies of the arbitral award to the parties.”

The bench thus directed the Facilitation Council to call for duly signed copies of the award passed by the Arbitrator and supply the same to the parties.

Case Title: M/s Sterkem Pharma Private Limited vs Symbiosis Pharmaceuticals Private Limited and Ors.

Citation: 2023 LiveLaw (HP) 42

Dated: 16.06.2023

Counsel for the Petitioner: Mr. Suneet Goel, Mr. Sunil Mohan Goel and Mr. Raman Jamalta, Advocates.

Counsel for the Respondent: Mr. Y.P.S. Dhaulta and Mr. Rupinder Singh Thakur, Additional Advocates General with Ms. Seema Sharma, Deputy Advocate General, for respondent No.3.

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