MSME Act | Council Cannot Entertain Application For Maintainability Of Reference At Conciliation Stage: Orissa High Court

“The question of maintainability can only be adjudicated if arbitration is taken up by the Council. Since the impugned order has been passed before taking up the conciliation proceeding, the same is without jurisdiction and is not sustainable. It would have been proper for the Council to entertain the application challenging the maintainability of the reference, if arbitration of the dispute is taken up under Section 18 (3) of the Act.”

Brief Facts:

The matter pertained to the challenge of an order, issued by the Micro & Small Enterprises Facilitation Council, Cuttack (“Council”). The order directed the parties to participate in conciliation proceedings after entertaining an application by the Petitioner questioning the maintainability of the reference. The Petitioner argued that according to Section 2(n) of the Micro, Small And Medium Enterprises Development Act, 2006 (“MSME Act”), the Petitioner, being the National Small Industries Development Cooperation, qualifies as a supplier, not a buyer. The Petitioner claimed to be a facilitator aiding manufacturers or suppliers in marketing their products, thus disputing being labelled a buyer under Section 2(d) of the MSME Act. It urged for setting aside the order, emphasizing misinterpretation of Section 2(n) by the Council.

In response, Opposite Party, contended that the Petitioner itself instigated the impugned order by challenging the reference's maintainability without participating in the conciliation process. It argued that the Petitioner's role aligned with Section 2(d) of the MSME Act, designating it as a buyer. It asserted that the Council's determination of the petitioner as a buyer was correct and justified.

Observations by the High Court:

The High Court held that the conciliation process, as mandated by Section 18(2) of the MSME Act, was not initiated by the Council. It held that Section 18(2) specifies that upon receipt of a reference, the Council must either conduct the conciliation itself or seek assistance from an institution providing alternate dispute resolution services. In this context, the High Court emphasized that the Council's jurisdiction does not extend to entertaining applications challenging the maintainability of the reference prior to commencing arbitration proceedings. It held that the proper course of action would have been for the Council to address issues of maintainability if arbitration were initiated under Section 18(3) of the MSME Act. Therefore, it held that the impugned order issued by the Council, predating the conciliation process, lacked jurisdiction and cannot be sustained.

Furthermore, the High Court observed that the Council's directive for both parties to engage in conciliation within one month disregarded the mandatory stipulation of Section 18(2) of the MSME Act. This section explicitly requires the Council to either conduct conciliation itself or seek assistance from an appropriate institution or center providing alternative dispute resolution services. The Council's failure to adhere to this requirement underscored a procedural flaw in its actions.

Consequently, the High Court set aside the impugned order and remanded the matter to the Council for proper adjudication. The Council was instructed to proceed with conciliation either independently or by referring the matter to a suitable institution or center for alternative dispute resolution services.

Case Title: National Small Scale Industries Corporation Limited vs State of Odisha and others.

Case Number: W.P.(C). NO.10410 OF 2014.

Advocate for the Petitioner: Mr. Jagannath Pattanaik, Senior Advocate, being assisted by Ms. Soma Pattanaik, Advocate and Mr. Smita Ranjan Pattanaik, Advocate

Advocate for the Respondent: Mr. Prasanna Kumar Parhi, DSGI along with Mr. Achyutananda Routray, Sr. panel Counsel Mr. Saswat Kumar Acharya, Advocate along with Mr. K.R. Thakker, Advocate (For Opp. Party No.4).