Can't Maintain Proceedings U/S 34 Arbitration Act Before Two Fora: Gujarat High Court

The brief facts of the case were that the Petitioner had challenged the order of the Chairman of Micro and Small Enterprise Facilitation Council, Gandhinagar wherein it was observed that the arbitration proceedings under Sec 18(3) of the MSMED Act, 2006 would be strictly conducted as per the provisions of the Arbitration and Conciliation Act, 1996. The arbitral award was passed in September 2021. The Petitioner challenged the award under Sec 34 of the Act vide an application before the District Court, Gandhinagar. The Coordinate Bench of the High Court rejected the request of the Petitioner for staying the proceedings of the arbitration, as well. Thereafter, the Petitioner being aggrieved by this order, filed an LPA in 2021 which was disposed of with the observation that the appeal had become infructuous since the Arbitral Tribunal had passed the award. Consequently, the Petitioner withdrew the LPA before the Division Bench since it had become infructuous and instead, challenged the award under Sec 34 before the District Court. It also initiated proceedings against the award before the instant Bench consisting of Justice A Supehia.

The chief contentions of the Petitioner were that Sec 18 of the MSMED Act provided for Micro and Small Enterprises Facilitation Council wherein the Council should either itself conduct conciliation in the matter or seek assistance of any institution and sec 65 of the Arbitration Act would apply to such a dispute. Further, per Sec 18(3) where the conciliation initiated was unsuccessful, the Council would either take up the dispute for arbitration itself or refer it to some institution under the Arbitration Act. Thus, once the conciliation proceedings were initiated by the Council, it was not permissible for the Council to have acted as an arbitrator under Sec 18(3) of the Act.

Per contra, the Respondent emphasised that the Petitioner could not be permitted challenge the Arbitral award since the same was being challenged before the District Court under Sec 34. The Petitioner responded that the original order of 2020 was null and hence, the writ petition was maintainable.

Justice Supehia while rejecting the petition noted the observation of the Coordinate Bench of the Gujarat which rejected the stay of proceedings in the following manner:

"Therefore, the contention raised by the learned advocate for the petitioner that once the Council has acted as a conciliator under the provisions of sub-section (2) of Section 18, and since, the provisions of Sections 65 to 81 of the Act of 1996 are applicable, the restriction contained in Section 80 of the Act of 1996 would apply and the Council cannot act as an arbitrator under sub-section (3) of Section 18 of the Act of 2006, does not deserve to be accepted and is hereby rejected."

As regards the dual nature of proceedings initiated by the Petitioner, the Bench opined:

"The very contention which are raised before this Court, has been rejected by the interim order, the challenge in Letters Patent Appeal is also withdrawn. Thus, the interim order rejecting the contention which is raised before this Court, has become final. After the interim order and the aforementioned proceedings are undertaken. The arbitration proceedings are over, the arbitral award dated 03.09.2021 / 12.10.2021 is passed. The same is challenged by way of proceedings being Civil Misc. Application No.66 of 2022 before the District Court at Gandhinagar, the same is still pending and hence, the present writ petition, will not survive in view of the action of the petitioner in undertaking proceedings under Section 34 of the Act and the withdrawal of the Letters Patent Appeal."

Case No.: C/SCA/12639/2021

Case Title: M/S SANGANER ENVIRO PROJECT DEVELOPMENT v/s STATE OF GUJARAT

Citation: 2022 LiveLaw (Guj) 280