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Jharkhand High Court
Divakar Kumar Singh vs Jharkhand Micro And Small Enterprises … on 10 June, 2025
Bench: Sujit Narayan Prasad, Rajesh Kumar
( 2025:JHHC:15000-DB )
IN THE HIGH COURT OF JHARKHAND AT RANCHI
L.P.A. No. 28 of 2024
----
Divakar Kumar Singh, M/s Jagapati Engineers Pvt. Ltd,
aged about 53 years, S/o Ram Nandan Singh, R/O A-15,
T.R.F., Co-operative Colony, Harharguttu, Jamshedpur,
P.O.: Harhargutu, P.S. Baghbera, Distt: East Singhbhum,
Jharkhand.
... Respondent/ Appellant
Versus
1.Jharkhand Micro and Small Enterprises Facilitation
Council (JHMSEFC) through its Under Secretary-cum-
Member Secretary having its office at Nepal House, P.O.:
Doranda, P.S.: Doranda, Distt: Ranchi, Jharkhand.
... ... Respondent/Respondent
2.M/s TRF Limited, a TATA Enterprise and Company
incorporated under the Companies Act, 1956, having its
registered office at 11, Station Road, Burmamines, P.O.:
Burmamines, P.S.: Burmamines, Distt: Jamshepdur, East
Singhbhum, Jharkhand through its authorized signatory,
namely, Srehan Siddhartha, aged about 33 years, S/o Sri
Deepak Kumar Singh, R/o Bhadraghat, P.O. Gulzarbagh,
P.S. Alamganj, Distt: Patna, 800007.
...Petitioner/Respondent
with
L.P.A. No. 29 of 2024
----
Divakar Kumar Singh, M/s Jagapati Engineers Pvt. Ltd;,
aged about 53 years, S/o Ram Nandan Singh, R/O A-15,
T.R.F. Co-operative Colony, Harharguttu, Jamshedpur, P.O.:
Harharguttu, P.S. Baghbera, Distt: East Singhbhum,
Jharkhand.
... Respondent/Appellant
Versus
1.Jharkhand Micro and Small Enterprises Facilitation
Council (JHMSEFC) through its Under Secretary-cum-
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Member Secretary having its office at Nepal House, P.O.:
Doranda, P.S.: Doranda, Distt: Ranchi, Jharkhand.
... ... Respondent/Respondent
2.M/s TRF Limited, a TATA Enterprise and Company
incorporated under the Companies Act, 1956, having its
registered office at 11, Station Road, Burmamines, P.O.:
Burmamines, P.S.:Burmamines, Distt: Jamshepdur, East
Singhbhum, Jharkhand through its authorized signatory,
namely, Shrehan Siddhartha, aged about 33 years, S/o Sri
Deepak Kumar Singh, R/o Bhadraghat, P.O. Gulzarbagh,
P.S. Alamganj, Distt: Patna, Bihar-800007.
...Petitioner/Respondent
with
L.P.A. No. 30 of 2024
----
Divakar Kumar Singh, M/s Jagapati Engineers Pvt. Ltd;,
aged about 53 years, S/o Ram Nandan Singh, R/O A-15,
T.R.F., Co-operative Colony, Harharguttu, Jamshedpur,
P.O.: Harhargutu, P.S. Baghbera, Distt: East Singhbhum.,
Jharkhand. ...Respondent/Appellant
Versus
1.The State of Jharkhand through its Secretary, Department
of Industries having its office at 3rd Floor, Nepal House, P.O.
& P.S: Doranda, Distt: Ranchi, Jharkhand.
... ... Respondent/Respondent
2.Jharkhand Micro and Small Enterprises Facilitation
Council (JHMSEFC) through its Under Secretary-cum-
Member Secretary having its office at Nepal House, P.O.:
Doranda, P.S.: Doranda, Dist.: Ranchi, Jharkhand.
... ... Respondent/Respondent
3.M/s TRF Limited, a TATA Enterprise and Company
incorporated under the Companies Act, 1956, having its
registered office at 11, Station Road, Burmamines, P.O.:
Burmamines, P.S.:Burmamines, Distt: Jamshepdur, East
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Singhbhum, Jharkhand through its authorized signatory,
namely, Shrehan Siddhartha, aged about 33 years, S/o Sri
Deepak Kumar Singh, R/o Bhadraghat, P.O. Gulzarbagh,
P.S. Alamganj, Distt: Patna, Bihar-800007.
...Petitioner/Respondent
-------
CORAM: HON'BLE MR. JUSTICE SUJIT NARAYAN PRASAD
HON'BLE MR. JUSTICE RAJESH KUMAR
------
For the Appellant(s) : Mr. Ajit Kumar, Sr. Advocate
Mr. Anil Kumar, Advocate
Mr. Arpit Kumar, Advocate
Mr. Divyanshu Singh, Advocate
For the Res. No. 2 : Mr. Indrajit Sinha, Advocate
Mr. Ankit Vishal, Advocate
--------
C.A.V. on 30.04.2025 Pronounced on 10 /06/2025
Per Sujit Narayan Prasad, J.
1. All the appeals since arises out of the common
order/judgment dated 22.12.2023 passed in W.P.(C) No.
928 of 2023; W.P.(C) No. 923 of 2023; and W.P.(C) No.
925 of 2023; as such they were tagged together and have
been heard together and are being disposed of by this
common order/judgment.
Prayer:
2. The instant intra-court appeals, under Clause 10 of the
Letters Patent, have been directed against common
order/judgment dated 22.12.2023 passed by learned
Singh Judge in W.P.(C) No. 923 of 2023 [subject matter of
LPA No. 28 of 2024]; W.P.(C) No. 925 of 2023 [subject
matter of LPA No. 29 of 2024] and W.P.(C) No. 928 of
2023 [subject matter of LPA No. 30 of 2024] whereby and
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( 2025:JHHC:15000-DB )whereunder the writ petitions preferred by the writ
petitioner (respondent no. 2 herein i.e. M/s TRF Limited)
have been disposed of by setting aside the Award dated
12.09.2022 passed by Jharkhand Micro and Small
Enterprise Facilitation Council (in short ‗Facilitation
Council’) and the matter was remitted back to the
Facilitation Council to pass order/Award afresh within
three months with a direction to the writ petitioner(s)
[TRF Limited] and respondent no. 2-Divakar Kumar Singh
to appear before the Jharkhand MSME Facilitation
Council on 8th January, 2024 and present their written
submissions, as directed vide order dated 12.09.2022 by
the Facilitation Council.
Factual Aspect:
3. Since the issues involved in all these Letters
Patent Appeals are identical in nature, as such, for the
sake of convenience and with the consent of learned
counsel for the parties, the fact involved in one of the
cases, i.e W.P.(C) No. 923 of 2023 [subject matter of LPA
No. 28 of 2024] is being taken up.
4. The facts, in brief, as mentioned in the writ
petition, are that the Petitioner-Company (TRF)
[respondent no. 2 herein] issued purchase orders
towards Fabrication & Erection Work DVC,
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( 2025:JHHC:15000-DB )Raghunathpur, Purulia, West Bengal. The purchase
orders mandated Respondent No. 2 to take all necessary
precaution/care in ensuring that no financial loss is
caused to the petitioner due to the act of Respondent and
further, it provided that the bill raised should be
supported by documentary proof bearing the joint
signature of both the parties.
5. It is stated that pursuant to the issuance of the
work order by the petitioner (respondent no.2 herein), the
respondent no.2 (appellant herein) did not act in terms of
the purchase orders.
6. The Respondent No. 2-M/s Jagpati Engineers Pvt.
Ltd. through its Director Divakar Kumar Singh (appellant
herein) filed an online application before the Jharkhand
Small and Medium Enterprises Facilitation Council
(Established under Section 20 of Micro, Small and
Medium Enterprises Development Act, 2006) on
12.12.2020 for the realization of the outstanding
payment balance of Rs 62,14,082.38/- plus accrued
interest against Purchase Orders being
4640001643/0811/BMHS, 4740001564,
4640003092/60/BMHS & 4640001346/93/BMHS dated
11.04.2016, 28.06.2016, 12.09.2018 and 01.07.2016
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respectively towards Fabrication and Erection work at
DVC, Raghunathpur Purulia, West Bengal.
7. It is stated that the reference filed by Respondent
No. 2 (Jagapati Engineers Pvt. Ltd. (JEPL)) before the
Council was registered as Case No. JHMSEFC-09/2021
(New Case No. JH/06/M/JKH/00261).
8. The Director of Industries, Government of
Jharkhand-cum-Chairman, JHMSEFC informed the writ
Petitioner (TRF) about the case and directed them to
appear in the matter.
9. Pursuant to the aforesaid notice, the petitioner
appeared in Case No. JHMSEFC-09/2021 (New Case No.
JH/06/M/JKH/00261) before the Council and disputed
the claim of the Appellant herein as there is allegedly no
outstanding payable.
10. It is further stated that the case was admitted by
the Facilitation Council on 23.02.2021. Thereafter, on
17.08.2021 the Council directed both the parties to
jointly reconcile the dues and dispute within 15 days.
Again on 15.12.2021, the Council directed the matter to
be referred to Conciliation in terms of Section 18(2) of
MSMED Act and the matter was deferred by the Council
awaiting the conciliation report between the parties.
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11. It is further stated that on 12.09.2022, the
Council held that mediation has failed and the
conciliation process has also failed. Time was granted to
submit written submission within fifteen (15) days and
after the given time frame, the award may be passed. The
petitioner filed a reply dated 27.09.2022 before the
Facilitation Council in Case No. JHMSEFC-09/2021
(New Case No. JH/06/M/JKH/00261).
12. It is the case of the petitioner that on 12.09.2022,
the writ petitioner appeared with the belief that since the
attempt made by the parties to reconcile the dispute
among themselves has failed the Facilitation Council
would initiate steps in terms of the Arbitration &
Conciliation Act, 1996 to conciliate the disputes between
them in terms of Part III of the above said Act of 1996.
But without resorting to the provisions of Part III of the
Arbitration and Conciliation Act, 1996 and also without
following the procedure established by Part I, Chapter V
of the Arbitration and Conciliation Act, 1996, the Council
informed the parties that since the dispute has not been
settled, necessary order will be passed on the materials
available on record.
13. It has further been stated that no further date of
hearing was given and the Council, in gross
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contravention of the Statute, passed order granting the
claim of Respondent No 2/Appellant herein.
14. It is alleged that the Facilitation Council without
considering the fact that in order to conduct an
arbitration proceeding the provisions of Chapter V, Part 1
of the Arbitration & Conciliation Act, 1996, have to be
followed and the parties must file the statement of claim
and defence and then hearing in terms of section 24 of
the Arbitration & Conciliation Act, 1996, has to be
conducted, passed the impugned award without there
being any statement of claim and statement of defence or
without permitting any party to lead evidence.
15. The petitioner stated that the MSME Council
passed the impugned award/decree dated 12.09.2022 in
Case No. JHMSEFC-09/2021 (New Case No.
JH/06/M/JKH/00261) as contained in Memo No. 28
dated 05.01.2023 issued by the Under Secretary-cum-
Member Secretary, MSME Council whereby and
whereunder, the petitioner was directed to pay the
principal outstanding amount along with the accrued
interest thereon to be compounded by the
Claimant/Respondent No. 2 (Appellant) through a
Chartered Accountant, within 30 days from the date of
receipt of the order, failing which the
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Claimant/Respondent No. 2 would be entitled to realize
the amount through the process of law.
16. The petitioner aggrieved thereof has approached
the writ Court questioning the act of the Facilitation
Council in passing the impugned award without following
the procedure established by law.
17. Before the learned writ Court, the writ
petitioner/respondent no.2 has taken the ground that
the Facilitation Council did not follow the provisions of
Chapter V, Part-I of the Arbitration and Conciliation Act,
1996, which requires the statement of claim and defence
and then hearing in terms of Section 24 of the
Arbitration & Conciliation Act, 1996. Further ground has
been taken that the manner in which the award under
challenge has been passed by the Facilitation Council
cannot be said to be an award in terms of the Arbitration
& Conciliation Act, 1996 and hence, the recourse against
the said award cannot be taken under Section 34 of the
Arbitration & Conciliation Act, 1996. Further, the
arbitration proceedings before the Council has been
followed in perfunctory manner in which on one day, 21
matters were disposed of, in a span of one and half
hours.
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18. Further ground has been taken that under
Section 25 of the Arbitration and Conciliation Act, 1996,
after failure of the conciliation, it was incumbent on the
part of the Council to have entered into arbitration
proceedings in terms of Section 18 of the MSMED Act,
2006.
19. The respondent/appellant has appeared before
the writ Court has taken the ground that in the Award
itself there is specific reference vide Letter No.22 dated
04.01.2022 whereby, the matter was referred to JHALSA
for fresh conciliation and mediation under Section 18(2)
of the MSMED Act and on its failure, arbitration was
taken up by the Council. JHALSA vide Letter Nos.1990
&1991, dated 25.07.2022 intimated about the failure of
conciliation/ mediation. This has been noted in the said
Award that conciliation process had failed and accepted
by the parties on which they were asked to submit their
written submissions within 15 days. Further, the stand
of the writ petitioner has been recorded in details in the
said Award which will go to show that petitioner(s) had
sufficient opportunity to present its case in the arbitral
proceeding, therefore, it is not correctly stated on the
part of the writ petitioner that procedure has not been
followed.
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20. The learned writ Court while taking into
consideration the aforesaid factual aspect has disposed
of the writ petition vide order dated 22.12.2023 and set
aside the award dated 12.09.2022 and has observed that
before invoking Section 19 of the said Act, 2006, there
should be a formal arbitral award. The writ Court further
directed both the writ petitioner/respondent and
respondent/appellant to appear before the MSME
Council and filed their written submission.
21. The order dated 22.12.2023 passed by the learned
writ Court has been challenged by filing the instant
appeals.
22. It is evident from the factual aspect that the
appellant-Divakar Kumar Singh, Director, M/s Jagapati
Engineers Pvt. Ltd., entered into agreement with
respondent no. 2-M/s TRF Limited for purchase orders
towards Fabrication & Erection Work DVC,
Raghunathpur, Purulia, West Bengal. The dispute arose
with respect to the stale monetary claim, which having
not been resolved, the Respondent No. 2 [appellant
herein] filed an online application before the Jharkhand
Small and Medium Enterprises Facilitation Council on
12.12.2020 for the realization of the outstanding
payment balance plus accrued interest against Purchase
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Orders. The reference filed by Respondent No. 2 (JEPL)
before the Council was registered as Case No. JHMSEFC-
09/2021 (New Case No. JH/06/M/JKH/00261).
23. Accordingly, the Director of Industries,
Government of Jharkhand-cum-Chairman, JHMSEFC
directed them to appear. Pursuant to the aforesaid
notice, the writ petitioner appeared before the Council
and disputed the claim of the appellant herein as there is
allegedly no outstanding payable.
24. Thereafter, again on 17.08.2021 the Council
directed both the parties to jointly reconcile the dues and
dispute within 15 days and on 15.12.2021, the Council
directed the matter to be referred to Conciliation in terms
of Section 18(2) of MSMED Act and the matter was
deferred by the Council awaiting the conciliation report
between the parties.
25. It is alleged that on 12.09.2022, the Council held
that mediation has failed and the conciliation process
has also failed. Time was granted to submit written
submission within fifteen (15) days. The petitioner filed a
reply dated 27.09.2022 before the Facilitation Council.
26. However, it is stated that without resorting to the
provisions of the Arbitration and Conciliation Act, 1996,
the MSME Council passed the impugned award/decree
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dated 12.09.2022 whereby and whereunder, the
petitioner was directed to pay the principal outstanding
amount along with the accrued interest thereon to be
compounded by the Claimant/Respondent No. 2
(appellant) through a Chartered Accountant, within 30
days from the date of receipt of the order, failing which
the Claimant/Respondent No. 2 would be entitled to
realize the amount through the process of law.
27. Accordingly, the writ petitions were filed under
Article 226 of the Constitution of India questioning the
said award on the ground of procedural lapses since
opportunity of hearing is required to be there, has not
been followed.
28. The respondent no. 2 (appellant herein) appeared
before the writ Court and has though raised the issue of
maintainability of the writ petitions, as would be evident
from order 18th July, 2023 passed by this Court and has
defended the order passed by the Council and submitted
that there is no error in the Award passed by the Council
since all the procedures, as down under the statutory
provision, has been followed. The proceeding commenced
after sending the matter before the JHALSA for its
conciliation and when conciliation failed thereafter the
award was passed.
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29. The learned Single Judge, however, has disagreed
with the grounds taken by the respondent no.2/
appellant on the ground that the award cannot be said to
be award in the eye of law and disposed of the writ
petitions by quashing and setting aside the order/award
and the matter was remitted back to the Facilitation
Council to pass order/Award afresh within three months
from the date of passing of said order with a direction to
the writ petitioner/respondent and respondent no. 2/
appellant to appear before the Jharkhand MSME
Facilitation Council on 8th January, 2024 and present
their written submissions, as directed vide order dated
12.09.2022 by the Facilitation Council, which is the
subject matter of present intra-court appeals.
Submission on behalf of appellant-respondent no. 2:
30. Mr. Ajit Kumar, learned senior counsel assisted
by Mr. Anil Kumar, learned counsel for the appellants
has assailed the impugned order on the following
grounds.
31. Submission has been made that it is incorrect on
the part of the writ petitioner-respondent to take the
ground that the procedure as laid down under Section 18
of the Micro, Small and Medium Enterprises
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Development Act, 2006 [in short ‗Act, 2006′] has not been
followed.
32. It has been contended that the award has been
passed in strict compliance of provision as contained
under Section 18 of the Act, 2006 i.e., when the reference
was drawn, then after appearance of the parties, the
same was sent for conciliation in view of provision of
Section 18(2) of the Act, 2006 by sending the party before
JHALSA for providing alternate dispute resolution. But
the conciliation failed, as resorted to under Section 18(2)
of the Act, 2006, the Council proceeded for adjudication
of the matter. The writ petitioner-respondent did not
raise any grievance before the Council rather as directed
has filed written notes of argument thereafter the Award
has been passed. Hence, before passing award in the
light of provision as contained under Section 18(3) of the
Act, 2006, the process as laid down under Section 18(2)
of the Act, 2006 was followed, therefore, the ground
cannot be taken that the award in the eye of law is not
the award, i.e., is in terms of Act, 2006.
33. But the learned Single Judge has not appreciated
the aforesaid fact and come to the conclusion that the
Award cannot be said to be award in the eye of law,
hence, the writ petition has been entertained without
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relegating the party before the appellate forum in view of
provision as contained under Section 19 of the Act, 2006.
34. It has further been contended that the appeal
could have been filed in view of the provision of Section
19 of the Act, 2006 but purposely the appeal has not
been filed since there is pre-requisite condition under the
provision of Section 19 of the Act, 2006 for deposit of
75% of the decreetal award. But the learned Single Judge
did not consider the aforesaid facts into consideration
while passing the impugned order and ignored the law
laid down in the case of Tirupati Steels Vs. Shubh
Industrial Component & Ors [(2022) 7 SCC 429] and
Gujarat State Disaster Management Authority Vs.
Aska Equipments Ltd. [(2022) 1 SCC 61].
35. It has also been contended that the issue of
maintainability has not been decided by the learned writ
court, however, the specific ground has been agitated by
filing Interlocutory Application being I.A. No. 7319 of
2023, so far writ petition being W.P. (C) No. 928 of 2023
is concerned taking the ground that without exhausting
the alternate and efficacious statutory remedy, as
available under Section 19 of the Act, 2006, the writ
petition has been filed. Therefore, submission has been
made that the learned Single Judge has erred in
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entertaining the writ petition in utmost disregard of the
binding and statutory remedy provided under Section 34
of the Arbitration and Conciliation Act, 1996 [in short
‗Act, 1996′] in particular Section 34(2)a(iii).
36. Argument has been advanced that the learned
Single Judge has travelled on the premise that the award
is not an award in the eye of law and has come to the
conclusion on the presumption that the process as
stipulated under Section 18(3) of the Act, 2006 has not
been followed.
37. Learned counsel for the appellant in support of its
case has referred the judgments rendered by Hon’ble
Apex Court in the case of India Glycols Limited and
Another Vs. Micro and Small Enterprises Facilitation
Council & Ors. [(2023) SCC OnLine SC 1852]; Bhaven
Construction Vs. Sardar Sarovar Nigam Limited &
Anr. [(2022) 1 SCC 75] and Deep Industries Ltd. Vs.
ONGC & Anr. [(2020) 15 SCC 706].
Submission behalf of writ petitioner/respondent no. 2
38. Per contra, Mr. Indrajit Sinha, learned counsel for
the respondent-writ petitioner has taken the following
grounds in defending the order passed by the learned
Single Judge.
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39. Submission has been made that there is no error
in the order/judgment passed by the learned Single
Judge on the ground that after sending the matter for
conciliation in the light of provision as contained under
section 18(2) of the Act, 2006, thereafter proper
procedure as stipulated under section 18(3) of the Act,
2006 has not been followed rather without providing an
opportunity of hearing, the award has been prepared,
said to be passed in the light of provision as contained
under Section 18 of the Act, 2006.
40. The writ petition therefore was filed on the ground
that if any award has been passed under the provisions
of Act, 2006 and if it is not in consonance with the
provisions as contained under Section 18 of the Act,
2006, on being referred in view of provision as contained
under Section 18 of the Act 2006 before the Council,
then the writ petition will be maintainable.
41. The learned Single Judge on the aforesaid
premise has entertained the writ petition and after taking
into consideration the entire aspect of the matter, the
award has been quashed and set aside.
42. It has been contended that the award is dated
12.09.2022 while on the same date the Council has
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proceeded to adjudicate the issue after receiving failure
report of conciliation from the JHALSA.
43. It has further been contended that the learned
Single Judge has also taken into consideration the fact
that before invoking Section 19 of the said Act, 2006,
there should be a formal arbitral award and in the
instant case, on 12.09.2022, the Council directed both
the parties to submit their final written submissions
within 15 days and on the very same day, the Award has
been passed.
44. The argument has been advanced that the written
submission was also filed on 12.09.2022 but the award
itself was prepared on 12.09.2022. Hence, the procedure
as stipulated on the one hand has not been followed
while on the other hand, the Council has not considered
the written note of submission filed on behalf of writ
petitioner.
45. Hence, the mandate of Section 18 as stipulated in
Act 2006 has not been followed in entirety and further
the Council has not considered the written note of
submission filed on behalf of writ petitioner/respondent
which is in utter violation of principle of natural justice.
46. Learned counsel has argued that since herein the
provision as contained under Section 18(3) of the Act
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2006 has not been followed and further in view of the
Judgment passed by Hon’ble Apex Court in the case of
JUVNL Limited vs. State of Rajasthan and Ors,2021
SCC OnLine SC 1257, the award has been confined to
be not proper, hence, if in that premise, the writ petition
has been entertained, the same cannot be said to suffer
from an error.
47. Mr. Sinha, learned counsel for the respondent-
writ petitioner has further submitted that the in the
present pretext, the issue of maintainability of the writ
petition, has though been considered in the case of India
Glycols Limited & Anr. Vs. Micro and Small
enterprises Facilitation Council (supra) but in the
facts of the present case, the ratio of the said judgment is
not applicable herein.
Response by learned counsel for the appellant:
48. Mr. Ajit Kumar, learned senior counsel appearing
for the appellant-in response has submitted that the
factual aspect of India Glycols Limited & Anr. Vs.
Micro and Small Enterprises Facilitation Council
(supra), upon which, reliance has been placed on behalf
of appellant is very much applicable, if the factual aspect
revolving the said case will be taken into consideration,
then it would be evident that the writ petition would not
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lie since it has been dealt with in the aforesaid judgment
that the writ petition can be entertained if the award is
depending upon the circumstances whether the award
has been passed without asking the parties for
conciliation in the light of provision as contained under
Section 18(2) of the Act, 2006.
49. Herein, the factual aspect is quite different since
the recourse has been asked to be taken by the parties
by relegating them for conciliation in view of provision of
Section 18(2) of the Act, 2006. Hence, only in order to
giving go by to the statutory command of deposit of
statutory amount, as provided under Section 19 of the
Act, 2006, the writ petition has been preferred as such it
is not to be entertained.
50. The argument has been advanced that the said
issue has also been dealt with by the Hon’ble Apex Court
in the case of Jharkhand Urja Vikas Nigam Limited
Vs. State of Rajasthan & Ors. [(2021) 19 SCC 206];
Duro Shox Private Limited Vs. State of Maharashtra
& Ors. [2024 OnLine Bom 3416] and the State
Trading Corporation of India Ltd. Vs. Micro and
Small Enterprises Facilitation Council and Anr.
[2024 SCC OnLine Del 979].
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Analysis
51. This Court has heard learned counsel for the
parties and gone through the rival submissions advanced
on behalf of parties as also the pleading available in the
memo of appeal(s) and the writ petition(s).
52. The issue which has been raised in the facts and
circumstances of the present case is with respect to the
issue of maintainability of the writ petition, which has
been entertained by the learned Single Judge by
interfering with the award.
53. It is evident from the record that admittedly
herein the issue of maintainability has been raised on
behalf of appellant by filing Interlocutory Application but
the same has not been decided by the learned Single
Judge rather the learned Single Judge after allowing the
writ petition has only passed order on the Interlocutory
Application to the effect that pending Interlocutory
Application stands disposed of.
54. It is bounden duty of the court that if any issue
said to be the preliminary in nature has been agitated by
either of the party then it is to be decided first.
Particularly herein the issue of maintainability has been
raised but the same has not been considered, since, no
finding is available on the face of the order passed by
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learned writ court and simply the Interlocutory
Application has been said to be disposed of. The learned
Single Judge ought to have taken into consideration the
issue of maintainability first.
55. Since the aforesaid issue has specifically been
raised by the appellant; as such, the issue is being
considered herein.
56. Learned Single Judge has interfered with the
impugned award and as would be evident from the
finding so recorded that there should be a formal arbitral
award and only then the Court or Council has to be
approached in the light of the provision as contained
under Section 19 of the Act, 2006 by fulfilling the
statutory requirement of depositing 75% of the award
amount. But according to learned Single Judge, the
conciliation having been failed and on 12.09.2022, the
direction was there by the Council to both the parties to
submit their written note of submission within 15 days
and on the very same day the award was pronounced,
hence, the learned Single Judge has come to the
conclusion that the same cannot be said to be an arbitral
award, against which, an appeal can be preferred.
57. The learned Single Judge on the aforesaid
premise has entertained the writ petition.
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58. This Court in view of aforesaid finding needs to
refer herein that even the learned Single Judge has not
disagreed with the issue of maintainability of writ
petition rather the writ petition is to be entertained under
Article 226 of the Constitution of India against the award
said to be passed by the Council, if such award is not
construed to be an arbitral award in the light of the
provision as contained under Section 18(3) of the Act,
2006.
59. This Court before proceeding further needs to
refer herein Section, 17, 18 and 19 of the Act, 2006,
which reads as under:
Section 17: Recovery of amount due:
For any goods supplied or services rendered by the supplier,
the buyer shall be liable to pay the amount with interest
thereon as provided under section 16.
Section 18: Reference to Micro and small Enterprises
Facilitation Council.
(1) Notwithstanding anything contained in any other law for
the time being in force, any party to a dispute may, with
regard to any amount due under section 17, make a reference
to the Micro and Small Enterprises Facilitation Council.
(2) On receipt of a reference under sub-section (1), the Council
shall either itself conduct conciliation in the matter or seek the
assistance of any institution or centre providing alternate
dispute resolution services by making a reference to such an
institution or centre, for conducting conciliation and the
provisions of sections 65 to 81 of the Arbitration and
Conciliation Act, 1996 (26 of 1996) shall apply to such a
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dispute as if the conciliation was initiated under Part III of that
Act.
(3) 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 ittoany 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.
(4) Notwithstanding anything contained in any other law for
the time being in force, the Micro and Small Enterprises
Facilitation Council or the centre providing alternate dispute
resolution services shall have jurisdiction to act as an
Arbitrator or Conciliator under this section in a dispute
between the supplier located within its jurisdiction and a buyer
located anywhere in India.
(5) Every reference made under this section shall be decided
within a period of ninety days from the date of making such a
reference.
Section 19: Application for setting aside decree, award
or order.
No application for setting aside any decree, award or other
order made either by the Council itself or by any institution or
centre providing alternate dispute resolution services to which
a reference is made by the Council, shall be entertained by
any court unless the appellant (not being a supplier) has
deposited with it seventy-five per cent. of the amount in terms
of the decree, award or, as the case may be, the other order in
the manner directed by such court:
Provided that pending disposal of the application to
set aside the decree, award or order, the court shall order that
such percentage of the amount deposited shall be paid to the
supplier, as it considers reasonable under the circumstances of
– 25 –
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the case, subject to such conditions as it deems necessary to
impose.
60. It is evident from Section 17 that for any goods
supplied or services rendered by the supplier, the buyer
shall be liable to pay the amount with interest thereon as
provided under section 16.
61. Section 18 in particular sub-section (1) thereof
provides that any party to a dispute may, with regard to
any amount due under section 17, make a reference to
the Micro and Small Enterprises Facilitation Council.
Sub-section (2) provides that the Council, on receipt of a
reference under sub-section (1), shall either itself
conduct conciliation in the matter or seek the assistance
of any institution or centre providing alternate dispute
resolution services by making a reference to such an
institution or centre, for conducting conciliation and the
provisions of sections 65 to 81 of the Arbitration and
Conciliation Act, 1996 (26 of 1996) shall apply to such a
dispute as if the conciliation was initiated under Part III
of that Act. Section 18(3) of the Act, 2006 provides that
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 it to any
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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. Sub-
Section (4) provides anything contained in any other law
for the time being in force, the Micro and Small
Enterprises Facilitation Council or the centre providing
alternate dispute resolution services shall have
jurisdiction to act as an Arbitrator or Conciliator under
this section in a dispute between the supplier located
within its jurisdiction and a buyer located anywhere in
India. Sub-Section (5) of Section 18 of the Act, 2006
provides that every reference made under this section
shall be decided within a period of ninety days from the
date of making such a reference.
62. Section 19 of the Act, 2006 provides that no
application for setting aside any decree, award or other
order made either by the Council itself or by any
institution or centre providing alternate dispute
resolution services to which a reference is made by the
Council, shall be entertained by any court unless the
appellant (not being a supplier) has deposited with it
– 27 –
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seventy-five per cent of the amount in terms of the
decree, award or, as the case may be, the other order in
the manner directed by such court.
63. Meaning thereby the forum available to the party
aggrieved not being a supplier to approach the court
against the arbitral award passed under Section 18(3) of
the Act, 2006, which can be only be taken recourse
subject to deposit of 75% of amount in terms of the
decree. The stipulation so made in Section 19 of the Act,
2006 clarifies that the aforesaid provision is mandatory
since the word begins that „….no application shall be
entertained by any court unless the appellant deposits 75
of the amount in terms of the decree, award or, as the
case may be, the other order in the manner directed by
such court‟. The significance of the word decree, award
or, as the case may be, the other order in the manner
directed by such court is having bearing.
64. It is, thus, evident that the Act, 2006, which has
primarily made to protect the interest of small-scale
industries in order to extent policy support for the small-
scale enterprises so that they are enable to grow into
medium once, got better and higher level of technology
and achieve higher productivity to remain competitive in
fast globalization area.
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65. The MSME bills, so enacted, aims at facilitating
the promotion, development and enhancement of the
competitiveness of small and medium enterprises and
seeks to (a) provides for statutory definition of small
enterprises and even medium enterprises; (b).provides for
full establishment of a national board for micro, small
and medium enterprises, high level forum consisting of
stake holders for participating review of and making
recommendations on the policy and programme for the
development of small and medium enterprises;
(c).provides for classification of micro, small and medium
enterprises on the basis of investment in the plant and
machinery or equipment and establishment of advisory
committee to recommend on the related matter;
(d).empower the central government to notify programme,
guideline or instructions for facilitating the promotion
and development and enhancing the competitiveness of
small and medium enterprises.
66. The expeditious disposal of the money dispute
has also been considered to be one of the basic object
and that is the reason the Act, 2006 has been enacted,
which would be evident from sub-section (5) of the
Section 18 of the Act, 2006 wherein time-frame has been
given of final decision to be taken on reference to be
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made, which is directed to be decided within a period of
ninety days from the date of making such reference.
67. The MSME Act 2006 is the special legislation to
protect and further the interest of the MSME that provide
for a dedicated dispute resolution mechanism under
Section 18 of the Act, 2006 to ensure that the interest of
the MSME be protected and without previous challenge
to an award passed by the Facilitation Council under
Section 18 of the Act, 2006 the statute has put in a
caveat; any challenge to such an award is entertained
only upon deposit of 75% of the awarded amount.
68. It also requires to refer herein that the provision
as contained in MSME Act, 2006 with the aid of Act,
1996 are self-contained Act, providing therein the
detailed mechanism for conciliation and arbitration. It is
also provided therein that the award passed by the
Facilitation Council shall be deemed to be an award
passed by the Arbitration Tribunal and the same can be
assailed under the MSME Act read with the provision of
Act, 1996.
69. This Court also thought it proper to refer the
object and aim of Arbitration and Conciliation Act, 1996
[hereinafter referred to as ‗Act, 1996′]. The main
objectives of the Arbitration and Conciliation Act, 1996
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are to consolidate and amend the law relating to
domestic and international arbitration, to define the law
of conciliation, and to ensure enforcement of arbitral
awards. The Act also aims to create a fair, efficient, and
flexible procedure for arbitration, minimizing court
intervention and encouraging amicable settlement
through mediation or conciliation.
70. The day when the Arbitration and Conciliation
Act, 1996 was enacted the issue of disposal of the money
claim, which is to be adjudicated by the arbitral tribunal
under the provision of Act, 1996 was not available and
therefore to make the system more effective and further,
in order to decide the commercial dispute at an early
date, the Commercial Courts Act, 2015 was enacted.
71. The difference in between the MSME, 2006 and
Arbitration and Conciliation Act, 1996 read with the
Commercial Courts Act, 2015 is that if the claim has
been referred before the Facilitation Council, the same is
to be decided within a period of 90 days from the date of
framing reference so as to take care of early disposal of
claim in order to protect the interest of the small
enterprises.
72. The other underlying principle to protect the
interest of the small enterprises is the specific provision
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having been inserted by way of Section 19 providing a
forum to challenge the arbitral award before the court of
law, which has been made mandatory to be entertained
by any court subject to deposit of 75 % of the claim
amount. The deposit of 75% of the claim amount is
primarily to secure the money which is to be paid
depending upon the final adjudication of the lis in favour
of the small enterprises.
73. The reference of that is available in paragraph 9
and 10 of the judgment by Hon’ble Apex Court in the
case of India Glycols Limited & Anr. Vs. Micro and
Small Enterprises Facilitation Council, Medchal-
Malkajgiri and Others (supra). For ready reference,
paragraph 9 and 10 of the said judgment is quoted as
under:
“9. Section 19 provides recourse against an award of the
Facilitation Council in the following terms:
“19. Application for setting aside decree, award
or order– No application for setting aside any
decree, award or other order made either by the
Council itself or by any institution or centre providing
alternate dispute resolution services to which a
reference is made by the Council, shall be entertained
by any court unless the appellant (not being a
supplier) has deposited with it seventy-five per cent.
of the amount in terms of the decree, award or, as the
case may be, the other order in the manner directed
by such court:
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Provided that pending disposal of the application to
set aside the decree, award or order, the court shall
order that such percentage of the amount deposited
shall be paid to the supplier, as it considers
reasonable under the circumstances of the case,
subject to such conditions as it deems necessary to
impose.”
10. In terms of Section 19, an application for setting aside
an award of the Facilitation Council cannot be entertained
by any court unless the appellant has deposited seventy-
five per cent of the amount in terms of the award. In view of
the provisions of Section 18(4), where the Facilitation
Council proceeds to arbitrate upon a dispute, the provisions
of the Act of 1996 are to apply to the dispute as if it is in
pursuance of an arbitration agreement under sub-section (1)
of Section 7 of that Act. Hence, the remedy which is
provided under Section 34 of the Act of 1996 would govern
an award of the Facilitation Council. However, there is a
super added condition which is imposed by
Section 19 of MSMED Act, 2006 to the effect that an
application for setting aside an award can be entertained
only upon the appellant depositing with the Council
seventy-five per cent of the amount in terms of the award.
Section 19 has been introduced as a measure of security for
enterprises for whom a special provision is made in the
MSMED Act by Parliament. In view of the provisions of
Section 18(4), the appellant had a remedy under Section 34
of the Act of 1996 to challenge the award which it failed to
pursue.”
74. The issue of entertaining a writ petition has also
been taken into consideration by Hon’ble Apex Court in
the case of Jharkhand Urja Vikas Nigam Limited Vs.
State of Rajasthan & Ors. [(2021) 19 SCC 206].
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75. In the said case it has been stated therein that
the reference had been made in the Council and
thereafter, notice was issued but the respondent has
not responded to the said notice, as such the Council
issued summons for appearance of the appellant,
namely, Jharkhand Urja Vikas Nigam Limited before the
Council on a particular date but the Jharkhand Urja
Vikas Nigam Limited-the appellant of the said case has
again not appeared and in the aforesaid situation the
order was passed on 06.08.2012 directing the appellant-
Jharkhand Urja Vikas Nigam Limited to make payment
to the 3rd respondent, as claimed within a period of 30
days.
76. The said order was challenged before the High
Court by filing writ petition which was dismissed; hence,
the intra-court appeal was preferred which was also
dismissed, hence, the appeal before the Hon’ble Apex
Court.
77. The Hon’ble Apex Court in the light of the
aforesaid factual background has taken into
consideration the purport of Section 18 of the Act, 2006
and while considering the aforesaid, it has been referred
at paragraph 14 that Section 18(2) and 18(3) of the Act,
2006, the Council is obliged to conduct conciliation for
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which the provisions of Sections 65 to 81 of the
Arbitration and Conciliation Act, 1996 would apply, as if
the conciliation was initiated under Part III of the said
Act. Under Section 18(3), when conciliation fails and
stands terminated, the dispute between the parties can
be resolved by arbitration.
78. It has further been held at paragraph 15 of the
said judgment, by referring the fundamental difference in
between the conciliation and arbitration, that in
conciliation, the conciliator assists the parties to arrive at
an amicable settlement, in an impartial and independent
manner. In arbitration, the Arbitral Tribunal/arbitrator
adjudicates the disputes between the parties. The claim
has to be proved before the arbitrator, if necessary, by
adducing evidence, even though the rules of the Civil
Procedure Code or the Evidence Act may not apply.
Unless otherwise agreed, oral hearings are to be held.
79. The Hon’ble Apex Court considering the facts
revolving the said case has held at paragraph 16 of the
said judgment that if the appellant had not submitted its
reply at the conciliation stage, and failed to appear, the
Facilitation Council could, at best, have recorded the
failure of conciliation and proceeded to initiate
arbitration proceedings in accordance with the relevant
– 35 –
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provisions of the Arbitration and Conciliation Act, 1996,
to adjudicate the dispute and make an award.
Proceedings for conciliation and arbitration cannot be
clubbed. For ready reference, paragraphs 15 to 18 of the
judgment are quoted as under:
“15. There is a fundamental difference between conciliation
and arbitration. In conciliation, the conciliator assists the
parties to arrive at an amicable settlement, in an impartial
and independent manner. In arbitration, the Arbitral
Tribunal/arbitrator adjudicates the disputes between the
parties. The claim has to be proved before the arbitrator, if
necessary, by adducing evidence, even though the rules of
the Civil Procedure Code or the Evidence Act may not apply.
Unless otherwise agreed, oral hearings are to be held.”
16. If the appellant had not submitted its reply at the
conciliation stage, and failed to appear, the Facilitation
Council could, at best, have recorded the failure of
conciliation and proceeded to initiate arbitration
proceedings in accordance with the relevant provisions of
the Arbitration and Conciliation Act, 1996, to adjudicate the
dispute and make an award. Proceedings for conciliation
and arbitration cannot be clubbed.”
17. In this case, only on the ground that the appellant had
not appeared in the proceedings for conciliation, on the very
first date of appearance, that is, 6-8-2012, an order was
passed directing the appellant and/or its predecessor
Jharkhand State Electricity Board to pay Rs 78,74,041
towards the principal claim and Rs 91,59,705 odd towards
interest. As it is clear from the records of the impugned
proceedings that the Facilitation Council did not initiate
arbitration proceedings in accordance with the relevant
provisions of the Arbitration and Conciliation Act, 1996.
18. The order dated 6-8-2012 is a nullity and runs contrary
not only to the provisions of the MSMED Act but contrary to
various mandatory provisions of the Arbitration and
– 36 –
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Conciliation Act, 1996. The order dated 6-8-2012 is patently
illegal. There is no arbitral award in the eye of the law. It is
true that under the scheme of the Arbitration and
Conciliation Act, 1996, an arbitral award can only be
questioned by way of application under Section 34 of the
Arbitration and Conciliation Act, 1996. At the same time,
when an order is passed without recourse to arbitration
and in utter disregard to the provisions of the Arbitration
and Conciliation Act, 1996, Section 34 of the said Act will
not apply. We cannot reject this appeal only on the ground
that the appellant has not availed the remedy under Section
34 of the Arbitration and Conciliation Act, 1996.”
80. It also appears from the judgment rendered by
Hon’ble Apex Court in the case of India Glycols Limited
& Anr. Vs. Micro and Small Enterprises Facilitation
Council, Medchal-Malkajgiri and Others (supra)
passed by three-judges Bench of Hon’ble Apex Court,
wherein also the issue has been taken into consideration
regarding the maintainability of the writ petition.
81. The Hon’ble Apex Court in the said case has laid
down the proposition while taking into consideration the
factual aspects of the said case wherein the Facilitation
Council decreed the claim in the principal sum of Rs.
40,29,862/- along with interest. The aforesaid award was
challenged by filing writ petition in exercise of power
conferred under Articles 226/227 of the Constitution.
82. The learned Single Judge of the High Court of
Telengana vide judgment and order dated 14th September
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2022, allowed the writ petition and set aside the award
on the ground that the claim was barred by limitation.
The second respondent preferred intra-court before the
Division Bench. The Division Bench reversed the view of
learned Single Judge by coming to the conclusion that
the writ petition instituted by the appellant was not
maintainable in view of the specific remedies which are
provided under the special statute. The High Court has
further held that the appellant ought to have taken
recourse to the remedy under Section 34 of
the Arbitration and Conciliation Act, 1996 and having
failed to do so, a writ petition could not be entertained.
83. The matter travelled before the Hon’ble Apex
Court. The Hon’ble Apex Court, after hearing the parties,
has referred the provisions of Section 18 (3) and 19 of the
Act, 2006 and held that in terms of Section 19, an
application for setting aside an award of the Facilitation
Council cannot be entertained by any court unless the
appellant has deposited seventy-five per cent of the
amount in terms of the award. In view of the provisions
of Section 18(4), where the Facilitation Council proceeds
to arbitrate upon a dispute, the provisions of the Act of
1996 are to apply to the dispute as if it is in pursuance of
an arbitration agreement under sub-section (1) of Section
– 38 –
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7 of that Act. Hence, the remedy which is provided under
Section 34 of the Act of 1996 would govern an award of
the Facilitation Council. However, there is a super added
condition which is imposed by Section 19 of MSMED Act,
2006 to the effect that an application for setting aside an
award can be entertained only upon the appellant
depositing with the Council seventy-five per cent of the
amount in terms of the award. Section 19 has been
introduced as a measure of security for enterprises for
whom a special provision is made in the MSMED Act by
Parliament. In view of the provisions of Section 18(4), the
appellant had a remedy under Section 34 of the Act of
1996 to challenge the award which it failed to pursue.
84. The Hon’ble Apex Court has also considered the
judgment rendered in the case of Gujarat State Civil
Supplies Corporation Limited Vs. Mahakali Foods
Private Limited (Unit 2) & Anr. [(2023) 6 SCC 401], a
two-Judge Bench of the Hon’ble Apex Court wherein, it
has been held that :..―The proceedings before the
Facilitation Council/institute/centre acting as an
arbitrator/Arbitral Tribunal under Section 18(3) of
the MSMED Act, 2006 would be governed by
the Arbitration Act, 1996.‖
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85. The Hon’ble Apex Court has come to the
conclusion that the appellant failed to avail the remedy
under Section 34. If it were to do so, it would have been
required to deposit seventy-five per cent of the decretal
amount. This obligation under the statute was sought to
be obviated by taking recourse to the jurisdiction under
Articles 226/227 of the Constitution, which was held to
be impermissible.
86. The argument which was raised on behalf of
appellant to the effect that the provisions of Limitation
Act, 1963 has no application, which has been affirmed by
the Division Bench in the impugned judgment suffers
from perversity and hence a petition under Article 226 of
the Constitution could have been entertained. The
aforesaid submission was not accepted by Hon’ble Apex
Court for the reason that Section 18 of the MSMED Act,
2006 provides for recourse to a statutory remedy for
challenging an award under the Act of 1996. However,
recourse to the remedy is subject to the discipline of
complying with the provisions of Section 19 of the Act,
2006. The entertaining of a petition under
Articles 226/227 of the Constitution, in order to obviate
compliance with the requirement of pre-deposit under
Section 19, would defeat the object and purpose of the
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special enactment which has been legislated upon by
Parliament.
87. Accordingly, the Hon’ble Apex Court affirmed the
impugned judgment of the High Court of Telangana by
affirming the finding that the petition which was
instituted by the appellant to challenge the award of the
Facilitation Council was not maintainable, in view of the
provisions of Section 34 of the Act of 1996.
88. For ready reference, the paragraph 11 to 17 of the
judgment is quoted as under:
“11. In the judgment of this Court in Gujarat State Civil
Supplies Corporation Limited (supra), a two-Judge Bench of the
Court has observed, in the course of drawing its conclusions,
that:
“The proceedings before the Facilitation Council/institute/
centre acting as an arbitrator/Arbitral Tribunal under
Section 18(3) of the MSMED Act, 2006 would be governed
by the Arbitration Act, 1996.”
12. The appellant failed to avail of the remedy under Section
34. If it were to do so, it would have been required to deposit
seventy-five per cent of the decretal amount. This obligation
under the statute was sought to be obviated by taking
recourse to the jurisdiction under Articles 226/227 of
the Constitution. This was clearly impermissible.
13. For the above reasons, we are in agreement with the view
of the Division Bench of the High Court that the writ petition
which was instituted by the appellant was not maintainable.
14. Mr. Parag P Tripathi, senior counsel appearing on behalf of
the appellant sought to urge that the view of the Facilitation
Council to the effect that the provisions of the Limitation Act,
1963 have no application, which has been affirmed by the
Division Bench in the impugned judgment, suffers from a
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perversity, and hence a petition under Article 226 of
the Constitution ought to have been entertained. We cannot
accept this submission for the simple reason that Section 18 of
the MSMED Act, 2006 provides for recourse to a statutory
remedy for challenging an award under the Act of 1996.
However, recourse to the remedy is subject to the discipline of
complying with the provisions of Section 19. The entertaining of
a petition under Articles 226/227 of the Constitution, in order
to obviate compliance with the requirement of pre-deposit
under Section 19, would defeat the object and purpose of the
special enactment which has been legislated upon by
Parliament.
15. For the above reasons, we affirm the decision of the
Division Bench by holding that it was justified in coming to the
conclusion that the petition under Articles 226/227 of
the Constitution instituted by the appellant was not
maintainable. Hence, it was unnecessary for the High Court,
having come to the conclusion that the petition was not
maintainable, to enter upon the merits of the controversy which
arose before the Facilitation Council.
16. Mr. Parag P Tripathi, senior counsel then submitted that
the appellant would move proceedings under Section 34 of the
Act of 1996 and this Court may direct that they may be
disposed of expeditiously. Having come to the conclusion that
the remedy which was adopted by the appellant was
thoroughly misconceived, it is not necessary for this Court to
make any observation on what course of action should be
adopted by the appellant. Were the appellant at this stage to
take recourse to the proceedings under Section 34 of the Act of
1996, it would be open to the second respondent to object on
all counts which are available in law.
17. For the above reasons, we affirm the impugned judgment
of the High Court of Telangana dated 21 March 2023 by
affirming the finding that the petition which was instituted by
the appellant to challenge the award of the Facilitation Council
was not maintainable, in view of the provisions of Section 34 of
the Act of 1996.”
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89. The Hon’ble Apex Court again in the case of
Gujrat State Disaster Management Authority Vs.
Aska Equipments Limited [(2022 1 SCC 61], has held
the issue of deposit of the amount under Section 75% of
the awarded amount to be mandatory.
90. The Hon’ble Apex Court referring to Section 19 of
the Act, 2006 has held that considering the language
used in Section 19 of the MSME Act, 2006 and the
object and purpose of providing deposit of 75% of the
awarded amount as a pre-deposit while preferring the
application/appeal for setting aside the award, it has to
be held that the requirement of deposit of 75% of the
awarded amount as a pre-deposit is mandatory. For
ready reference, paragraph 15 of the judgment is quoted
as under:
“15. In view of the above and considering the language
used in Section 19 of the MSME Act, 2006 and the object
and purpose of providing deposit of 75% of the awarded
amount as a pre-deposit while preferring the
application/appeal for setting aside the award, it has to be
held that the requirement of deposit of 75% of the awarded
amount as a pre-deposit is mandatory. Therefore, as such,
both the High Court as well as the learned Additional
District Judge (Commercial), Dehradun were justified in
directing the appellant to deposit 75% of the awarded
amount as a pre-deposit.”
91. Similar issue fell for consideration before the
Hon’ble Apex Court in the case of Silpi Industries and
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ors Vs. Kerala State Road Transport Corporation &
Anr. [(2021) 18 SCC 790]. The factual background
involved in the case is that the respondent-Kerala State
Road Transport Corporation (for short ―KSRTC‖), invited
tenders for supply of thread rubber for tyre rebuilding.
The appellants, who were the claimants before the
arbitrator, were given purchase orders. As per the terms
of the purchase order, 90% of the total purchase price
was payable to the appellants/claimants on supply of
materials and the balance 10% was to be paid subject to
final performance report. When the 10% balance amount
was not paid as per the purchase order, the
appellants/claimants herein have approached the
Industrial Facilitation Council. As the conciliation failed,
the claims made by the appellants herein were referred to
arbitration under provisions of the 1996 Act. The awards
were passed in favour of the claimants and such awards
were challenged by way of applications for setting aside
the same under Section 34 of the 1996 Act. When their
applications were dismissed, the respondents have
carried the matter by way of appeals under Section 37 of
the 1996 Act before the High Court of Kerala at
Ernakulam, where the issues were framed as to – (a)
Whether the Limitation Act, 1963 applies to arbitration
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proceedings held under the IDPASC and the MSMED Acts?;
(b) Which is the starting point of limitation to raise claim
for the 10% unpaid purchase price?; And (c) Whether
counterclaim is entertainable in the arbitration
proceedings held pursuant to the provisions of
the IDPASC and the MSMED Acts?‖
92. The High Court, after considering the
submissions of the parties and by referring to various
provisions of the Arbitration and Conciliation Act, 1996
and the provisions of the Limitation Act, 1963, has
answered the issue of limitation and held that the
Limitation Act, 1963 is applicable to the proceedings
under the 1996 Act arising out of the MSMED Act. While
answering the third question with regard to
maintainability of counterclaim, the High Court has held
that in view of Section 23(2-A) of the 1996 Act, the
―counterclaim‖ and ―set-off‖ are maintainable. Aggrieved
by the findings recorded by the High Court on the
applicability of the Limitation Act, 1963 and
maintainability of counterclaim, the claimants have filed
these appeals on various grounds.
93. In second set of appeals, the factual background
of the case is that the appellant and the respondent
herein have entered into a contract for supply and
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installation of hydro-mechanical equipments. The parties
have signed an agreement on 27-3-2011, containing
various clauses. It is the case of the appellant that it has
completely executed the contract and the project was
commissioned on 27-6-2015. The appellant herein
alleging that, though it has fulfilled all its obligations
under the contract, the respondent has refused to make
payments as per the contract, has filed a claim petition,
before the Micro and Small Enterprises Facilitation
Council constituted under the provisions of
the MSMED Act, on 20-3-2017. The claim was filed in
respect of supply of goods and services rendered to the
respondent Company. It is the case of the appellant that
pursuant to notice issued by Facilitation Council, the
respondent appeared before the Council. Thereafter the
respondent has filed OP No. 617 of 2017 before the High
Court of Judicature at Madras. The said application was
filed under Section 11(6) of the 1996 Act praying for
appointment of a second arbitrator to decide upon
disputes that have arisen between the parties pursuant
to the breach of terms and conditions of contract for
supply of hydro-mechanical equipments. The said
application filed by the respondent herein, is opposed by
the appellant mainly on the ground that it has already
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moved the Micro and Small Enterprises Facilitation
Council for resolution of disputes, as such, the
respondent as well participate in the proceedings before
the Council, prayed for dismissal of application filed
under Section 11(6) of the 1996 Act. Before the High
Court, it was the case of the respondent that the
Facilitation Council has been constituted primarily to
deal with the disputes that are raised by the supplier and
does not envisage the laying of counterclaim by other
party to a contract, as such it can seek appointment of
arbitrator under Section 11(6) of the 1996 Act. The High
Court, while considering the definition of ―supplier‖
under Section 2(n) of the MSMED Act and also by placing
reliance on Sections 17 and 18 of the MSMED Act, has
allowed the application and appointed Mr Justice K.
Gnanaprakasam, former Judge of the Madras High Court
as 2nd arbitrator. The said order has been challenged
before the Hon’ble Apex Court.
94. The Hon’ble Apex Court, after hearing the parties
has framed following two issues:
(i) Whether the provisions of the Limitation Act, 1963 is
applicable to arbitration proceedings initiated under
Section 18(3) of the Micro, Small and Medium
Enterprises Development Act, 2006?
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(ii) Whether, counterclaim is maintainable in such
arbitration proceedings?
95. The Hon’ble Apex Court, however, before
answering those issues has first gone into the object and
intent of enactment of Micro, Small and Medium
Enterprises Development Act, 2006 as also Ancillary
Industrial Undertakings Act, 1993, which was repealed
by virtue of Section 32 of the Act, 2006. For ready
reference, paragraph 19 to 23 of the judgment is quoted
as under:
“19. Act 32 of 1993 was an outcome pursuant to a policy
statement on small scale industries made by the
Government in Parliament. It was felt that, inadequate
working capital in small scale or an ancillary industrial
undertaking causes serious and endemic problems affecting
the health of such undertaking. The Small Scale Industries
Board, which was an apex advisory body on policies
relating to small scale industrial units with representatives
from all the States, governmental bodies and industrial
sector was also of the same view. Therefore, it was felt that
prompt payments of money by buyers should be statutorily
ensured and mandatory provisions for payment of interest
on outstanding money, in case of default, should be made.
20. The “appointed day”, as defined under Section 2(b) of
the said Act, means–the day following immediately after
the expiry of the period of thirty days from the day of
acceptance or the day of deemed acceptance of any goods
or any services by a buyer from a supplier. Therefore, a
liability to make payment by the buyer was made under
Section 3 of the said Act mandating that buyer shall make
payment before the agreed date by the parties, where there
is no agreement, before the appointed day. In case of failure
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to make payment by the buyer within the stipulated time as
per Section 3, buyer was made to pay interest at one and a
half time of prime lending rate charged by the State Bank of
India. There was also a mechanism for recovery and
created Industry Facilitation Council, as primary body and
appellate authority was notified under Section 7 of the said
Act. Under Section 10 of the said Act, Act 32 of 1993 was
given overriding effect.
21. The Micro, Small and Medium Enterprises Development
Act, 2006 was enacted to provide, for facilitating the
promotion and development and enhancing the
competitiveness of micro, small and medium enterprises
and for matters connected therewith or incidental thereto.
By bringing the aforesaid Act (Act 27 of 2006) w.e.f. 16-6-
2006, the earlier Act, namely, Interest on Delayed
Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993 was repealed by virtue of Section
32 of the 2006 Act. Prior to the enforcement of Act 32 of
1993, the small scale industry was defined only by
notification under Section 11-B of the Industries
(Development and Regulation) Act, 1951. As per Section 29-
B of the said Act, notifications were being issued notifying
reservation of items for exclusive manufacture in small
scale industry sector. Except the abovesaid two provisions,
as there was no legal framework for the small scale
industry, and by noticing that the small scale industry is
the dynamic and vibrant sector of the country’s economy, it
was felt to bring a comprehensive Central enactment to
provide appropriate legal framework for the sector to
facilitate its growth and development.
22. It is also clear from the Statement of Objects and
Reasons of the Act, that the need which was felt to extend
policy support for small scale sector so that they are
enabled to grow into medium ones and to adopt better and
higher levels of technology and achieve higher productivity
to remain competitive in fast globalisation period. It was
also noticed that medium industry or enterprise was not
defined by any law. From the Statement of Objects and
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Reasons, it is clear that the said Act was enacted to provide
statutory definitions to “small enterprise” and “medium
enterprise”; to provide for establishment of National Small
and Medium Enterprises Board; provide for classification of
small and medium enterprises on the basis of investment in
plant and machinery; empower the Central Government to
notify programmes, guidelines for enhancing the
competitiveness of small and medium enterprises; to make
provisions for ensuring timely and smooth flow of credit to
small and medium enterprises to minimise the incidence of
sickness; empower the Central and State Governments to
notify preference policies in respect of procurement of goods
and services; empowering the Central Government to create
a Fund or Funds for facilitating promotion and development
and enhancement of the competitiveness of small
enterprises and medium enterprises; to make further
improvements in the Interest on Delayed Payments to Small
Scale and Ancillary Industrial Undertakings Act, 1993 and
to make that enactment a part of the proposed legislation
and to repeal the enactment, etc.
23. From the Statement of Objects and Reasons of both the
above legislations, it is clear that the earlier legislation i.e.
Act 32 of 1993 was confined only with regard to delayed
payments to small scale and ancillary industrial
undertakings but by subsequent enactment of 2006, a
comprehensive legislation was brought covering the micro,
small and medium enterprises. Under the new Act, there is
a provision for establishment of Board by the Central
Government, namely, National Board for Micro, Small and
Medium Enterprises. The “enterprises” were classified
under Chapter III of the 2006 Act into micro, small and
medium enterprises. Liability of buyer and the mechanism
in the event of default is by various provisions under
Chapter V of the Act.”
96. Thereafter, the Hon’ble Apex Court has dealt with
the different provisions of Act, 2006 and then dealt with
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the first issue of applicability of Limitation Act, 1963 and
a discussion has been held that we hold that the
provisions of the Limitation Act, 1963 will apply to the
arbitrations covered by Section 18(3) of the 2006 Act. For
ready reference, paragraph 25 to 27 of the judgment is
quoted as under:
25. With regard to the first issue, namely, applicability of
Limitation Act, 1963 to the arbitration proceedings initiated
under the provisions of Micro, Small and Medium Enterprises
Development Act, 2006, we need to notice certain relevant
sections of the Act. As per Section 15 of the said Act, where
supplier supplies any goods or renders any services to any
buyer, the buyer shall make payment on or before the agreed
date between the parties in writing or where there is no
agreement, before the appointed day. Section 16 deals with
date from which and rate of interest payable in the event of not
making the payment. The recovery mechanism for the amount
due is covered by Sections 17 and 18 of the said Act. If any
party has a dispute with regard to amount due under Section
17, a reference is required to be made to the Micro and Small
Enterprises Facilitation Council. On such reference, the Council
is empowered to conduct conciliation in the matter or seek
assistance of any institution or centre providing alternate
dispute resolution services by making a reference to such
institution for conducting conciliation. If the conciliation is not
successful, as contemplated under Section 18(2) of the said
Act, same stands terminated under Section 18(3) of the said
Act. Thereafter, the Council shall either itself take up the
dispute for arbitration or refer it to any institution or centre
providing alternate dispute resolution services for such
arbitration and the provisions of the Arbitration and
Conciliation Act, 1996 are made applicable as if the arbitration
was in pursuance of arbitration agreement between the
parties, under sub-section (1) of Section 7 of the 1996 Act.
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26. Applicability of the Limitation Act, 1963 to the arbitrations
is covered by Section 43 of the 1996 Act. The High Court, while
referring to abovesaid provisions and the judgment of this
Court in A.P. Power Coordination Committee v. Lanco
Kondapalli Power Ltd. [A.P. Power Coordination
Committee v. Lanco Kondapalli Power Ltd., (2016) 3 SCC 468]
has held that the Limitation Act, 1963 is applicable to the
arbitrations covered by Section 18(3) of the 2006 Act. A
reading of Section 43 itself makes it clear that the Limitation
Act, 1963 shall apply to the arbitrations, as it applies to
proceedings in court. When the settlement with regard to a
dispute between the parties is not arrived at under Section 18
of the 2006 Act, necessarily, the Micro and Small Enterprises
Facilitation Council shall take up the dispute for arbitration
under Section 18(3) of the 2006 Act or it may refer to institution
or centre to provide alternate dispute resolution services and
provisions of the Arbitration and Conciliation Act, 1996 are
made applicable as if there was an agreement between the
parties under sub-section (1) of Section 7 of the 1996 Act.
27. In view of the express provision applying the provisions of
the Limitation Act, 1963 to arbitrations as per Section 43 of the
Arbitration and Conciliation Act, 1996, we are of the view that
the High Court has rightly relied on the judgment in A.P. Power
Coordination Committee [A.P. Power Coordination
Committee v. Lanco Kondapalli Power Ltd., (2016) 3 SCC 468]
and held that the Limitation Act, 1963 is applicable to the
arbitration proceedings under Section 18(3) of the 2006 Act.
Thus, we are of the view that no further elaboration is
necessary on this issue and we hold that the provisions of the
Limitation Act, 1963 will apply to the arbitrations covered by
Section 18(3) of the 2006 Act. We make it clear that as the
judgment of the High Court is an order of remand, we need not
enter into the controversy whether the claims/counterclaims
are within time or not. We keep it open to the primary authority
to go into such issues and record its own findings on merits”
97. So far as the second issue regarding
maintainability of counter claim in the arbitration
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proceedings initiated as per Section 18(3) of the Act 2006
is concerned, it has been held that when there is a
provision for filing counterclaim and set-off which is
expressly inserted in Section 23 of the 1996 Act, there is
no reason for curtailing the right of the respondent for
making counterclaim or set-off in proceedings before the
Facilitation Council. For ready reference, paragraph 33
and 34 of the judgment is quoted as under:
“33. From a reading of Section 18(3) of the 2006 Act it is
clear that when the conciliation initiated under sub-section
(2) of Section 18 of the said Act is not successful, the
Council shall either itself take up the dispute for arbitration
or refer to any institution for arbitration. Further Section
18(3) of the said Act also makes it clear that the provisions
of 1996 Act are made applicable as if there is an agreement
between the parties under sub-section (1) of Section 7 of the
1996 Act. Section 23 of the 1996 Act deals with the
statement of claim and defence. Section 23(2-A), which
gives a right to the respondent to submit a counterclaim or
plead set-off with regard to claims within the scope of the
arbitration agreement, is brought into statute by Amending
Act 3 of 2016. If we look at the Statement of Objects and
Reasons of the Amending Act, same is also enacted to
provide for speedy disposal of cases relating to arbitration
with least court intervention. Clause 11 of the Bill, by which
sub-section (2-A) was proposed to be inserted, states that
sub-section (2-A) was intended to give an opportunity to the
respondent, in support of his case, to submit counterclaim
or a set-off if such counterclaim or set-off falls within the
scope of arbitration agreement. When Section 18(3) makes it
clear that in the event of failure by the Council under
Section 18(2) if proceedings are initiated under Section 18(3)
of the 1996 Act, the provisions of 1996 Act are not only
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made applicable but specific mention is made to the effect
as if the arbitration was in pursuance to an arbitration
agreement referred to in sub-section (1) of Section 7 of the
1996 Act. When there is a provision for filing counterclaim
and set-off which is expressly inserted in Section 23 of the
1996 Act, there is no reason for curtailing the right of the
respondent for making counterclaim or set-off in
proceedings before the Facilitation Council.
34. It is also further to be noted that if we do not allow the
counterclaim made by the buyer in the proceedings arising
out of claims made by the seller, it may lead to parallel
proceedings before the various fora. On one hand, in view
of beneficial legislation, seller may approach the Facilitation
Council for claims, in the event of failure of payment by the
buyer under provisions of 2006 Act, at the same time, if
there is no separate agreement between the parties for any
arbitration in a given case, buyer may approach the civil
court for making claims against the seller, or else if there is
an agreement between the parties for arbitration in the
event of dispute between the parties, parties may seek
appointment of arbitrator. At the same time if the seller is
covered by definition under micro, small and medium
enterprises, seller may approach the Facilitation Council for
making claims under the provisions of Micro, Small and
Medium Enterprises Development Act, 2006. In such event,
it may result in conflicting findings, by various forums.”
98. The Hon’ble Court has further held that when
there are two legislations, the provisions of MSMED Act
will prevail since it being a special statute and held that
it will have an overriding effect vis-à-vis Arbitration and
Conciliation Act, 1996, which is a general Act. The
relevant paragraph of the judgment is quoted as under:
“39. Thus, it is clear that out of the two legislations, the
provisions of the MSMED Act will prevail, especially when it
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has overriding provision under Section 24 thereof. Thus, we
hold that the MSMED Act, being a special statute, will have
an overriding effect vis-à-vis the Arbitration and Conciliation
Act, 1996, which is a general Act. Even if there is an
agreement between the parties for resolution of disputes by
arbitration, if a seller is covered by Micro, Small and
Medium Enterprises Development Act, 2006, the seller can
certainly approach the competent authority to make its
claim. If any agreement between the parties is there, same
is to be ignored in view of the statutory obligations and
mechanism provided under the 2006 Act. Further, apart
from the provision under Section 23(2-A) of the 1996 Act, it
is to be noticed that if counterclaim is not permitted, buyer
can get over the legal obligation of compound interest at 3
times of the bank rate and the “75% pre-deposit”
contemplated under Sections 16 and 19 of the MSMED Act.‖
99. Reliance since has been placed upon the
judgment rendered in the case of Duro Shox Private
Limited Vs. State of Maharashtra & Ors [2024 SCC
OnLine Bom 3416], and State Trading Corporation of
India Ltd vs. Micro and Small Enterprises
Facilitation Council & Anr. [2024 SCC OnLine Del
979], as such the same are also being referred herein.
100. The factual aspect involved in the case of Duro
Shox Private Limited Vs. State of Maharashtra &
Ors (supra) is that the petitioner which is a private
limited company entered into a supplier agreement with
Respondent 3 effective from 12-4-2019. The petitioner,
also entered into separate agreements i.e. duroshox
supplier agreement and duroshox supplier quality
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agreement dated 7-5-2019 as reflected in e-mail dated
03-06-2019 and 22-10-2019 and other correspondence
between the parties, which includes supply manual and
other forms of binding contracts between the parties. It is
contended that the petitioner later on realised that the
material supplied by Respondent 3 was lacking in quality
and faulty in nature and the same was duly
communicated to Respondent 3 along with the demand
of undertaking corrective measures. As Respondent 3
failed to replace defective supplies, the petitioner was
exposed to incur huge remediation costs, cost for
replacement of materials, transportation cost and cost for
packaging. Respondent 3 being a medium and small-
scale industry under Section 18 of the MSMED Act filed a
claim i.e. application No. UDYAM-HM-04-
0017041/s/00002, thereby demanding an outstanding
amount of Rs 4,53,87,615 (Rupees four crores fifty-three
lakhs eighty-seven thousand six hundred and fifteen)
and the interest of Rs 31,46,612 (Rupees thirty-one lakhs
forty-six thousand six hundred twelve). The petitioner in
response to the claim filed the details reply and a
counterclaim as also an application under Section 25 of
the Arbitration and Conciliation Act. Thereafter, the
Respondent 2 after giving sufficient opportunity to the
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party to respond passed final order dated 2-2-2024,
ordering the petitioner to pay outstanding amount of Rs
4,53,87,615 amongst other directions. Aggrieved thereof,
the petitioner preferred the writ petition. Before the writ
court, the respondent 3, took the ground that there is
statutory remedy of appeal available to challenge the
impugned order and that the present is not the case for
invoking the writ jurisdiction of the court as the
judgment is passed by the authority constituted under
the MSMED Act.
101. The writ court, therefore, first considered the
issue that arises for consideration before this Court is,
“whether the jurisdiction of the High Court under
Articles 226/227 of the Constitution of India can be
invoked to set aside an “award” passed under Section 18
of the MSMED Act, as being ex facie illegal and not being
an “award” in the eyes of law.” The writ Court, after
discussing the provisions of law and judicial
pronouncements has come at conclusion at paragraph
18, which is quoted as under:
“18. Considering the above judgments i.e : (1) Jharkhand
Urja Vikas Nigam Ltd. case; (2) Bhaven Construction case;
(3) SBP & Co. case and (4) India Glycols Ltd. case, the law
on the subject of entertainment the petition by the High
Court under Articles 226/227 of the Constitution of India to
challenge an “award” or orders passed by the Facilitation
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Council/Arbitral Tribunal under the MSMED Act is
summarised as under:
(1) The power of the High Court under Article 226 of
the Constitution of India to issue writs/directions is a basic
feature of the Constitution and cannot be curtailed by
parliamentary legislation L. Chandra Kumar v. Union of
India. However, the High Court under
Articles 226 and 227 of the Constitution of India would
interfere rarely in exceptional circumstances in the arbitral
proceedings, when the order passed by the Facilitation
Council/Arbitral Tribunal is perverse and patently lacking
in inherent jurisdiction and, when there is no semblance of
“Award” as contemplated under Section 18 of
the MSMED Act.
(2) India Glycols Ltd. case, does not overrule Jharkhand
Urja Vikas Nigam Ltd. case1. India Glycols Ltd. case, should
be construed as imposing a higher bar to invoke jurisdiction
of the High Court under Article 226 of the Constitution of
India, as it is held that entertaining a petition under
Articles 226/227 of the Constitution of India, in order to
obviate compliance with the requirement of predeposit
under Section 19, would defeat the object and purpose of
the special enactment which has been legislated upon by
Parliament.
(3) When the “award” is made by the Facilitation
Council/Tribunal by exercising jurisdiction vested in it,
however erroneous the “award” may be, the same has to be
challenged only by invoking Section 34 of the Arbitration
Act, and this Court would not exercise jurisdiction under
Articles 226 and 227 of the Constitution of India, only to
avoid the aggrieved party from the hardship of deposit of
75% of the award amount in terms of Section 19 of
the MSMED Act
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102. After answering the issue of maintainability, the
learned writ court has gone into the merit of the issue
and has come to the conclusion as under:
“22. Unlike Jharkhand Urja Vikas Nigam Ltd. case, in the
instant case, parties are heard by the Facilitation
Council/Tribunal. However, I cannot go into the issue whether
sufficient opportunity was given to the petitioner to lead
evidence or whether the Tribunal could have passed the
impugned “award” based on admission made by way of
ledger confirmation. The impugned “Award” is passed under
Section 18 of the MSMED Act. Detail discussion of the award is
avoided so as not to prejudice the case of the parties before the
court where the award may be challenged. The aggrieved
party may challenge the award before the court under Section
34 of the Arbitration Act. In view of the judgment of the India
Glycols Ltd. case10, this Court would not exercise the writ
jurisdiction to obviate the requirement of deposit as
contemplated under Section 19 of the MSMED Act.
23. All the grounds raised in the present petition can be taken
up before the court under Section 34 of the Arbitration Act. All
contentions are left open. The observations made in this
petition is limited for the purpose of deciding this petition and
should not be taken into consideration for any purpose by the
court if award is challenged under Section 34 of the Arbitration
Act. The petitioner is left with the remedy as available in law.
24. In view of the same, the writ petition stands dismissed
with liberty being reserved to the petitioner to pursue the
remedy as available in law.”
103. The factual background involved in the case of
State Trading Corporation of India Ltd. (supra) is
that the writ petition was filed by the Appellant therein
challenging the Award dated 1st December, 2012,
whereby the learned Arbitrator awarded a sum of Rs.
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7,21,10,729/- to the Respondent No. 2 along with
pendente lite and future interest as per the Micro, Small
and Medium Enterprises Development Act,
2006 (‗MSMED Act‘) and litigation costs of Rs. 50,000/-
on the ground that the Award is non-est in law and
deserves to be set aside on ground of lack of inherent
jurisdiction. The writ petition was dismissed, as such the
writ petitioner preferred intra-court appeal contending
that since, at the time of execution of contract and/or at
the time of concluding of supplies thereunder i.e., in the
year 1991, the Respondent No. 2 was not registered
under the MSMED Act, which itself was enacted in the
year 2006 and therefore, the said Act is not applicable to
the transactions/contracts entered into before enactment
of said Act.
104. The Division Bench, after hearing the parties, has
come to the conclusion that the writ petition filed by the
Appellant under Articles 226/227 of the Constitution for
setting aside the Award was not maintainable and the
learned Single Judge has rightly dismissed the writ
petition. The relevant concluding paragraph of the
judgment is quoted as under:
13. With respect to the objection taken by the Appellant to
the effect that the MSEFC does not have inherent
jurisdiction to make a reference to arbitration under the
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provisions of MSMED Act and therefore a writ petition
would be maintainable, is also misconceived. In similar
facts, the Supreme Court in Gujarat State Civil Supplies
Corporation Ltd. v. Mahakali Foods (P) Ltd.4 has
categorically held that such an issue of lack of inherent
jurisdiction can be decided by the Arbitral Tribunal
appointed under the said Act, which by virtue of Section
18(3) of MSMED Act is competent to rule on its own
jurisdiction as also the other issues in view of Section 16 of
the Act of 1996. The sequitur is that, the decision of the
Arbitral Tribunal on the issue of jurisdiction would be
amendable to challenge under Section 34 of the Act of
1996.
14. In light of the aforesaid judgments of the Supreme
Court and more specifically the judgment India Glycols
Ltd. v. MSEFC, Medchal-Malkajgiri (supra) we are of the
considered opinion that the judgment of the learned Single
Judge of this Court in Malani Construction Company (supra)
holding that a writ petition under Article 227 of
the Constitution can be maintained, is not the correct view.
15. The Appellant has already taken recourse to the
proceedings under Section 34 of the Act of 1996 and has
raised the objection of lack of jurisidiction of the Arbitrator
in the said petition. The contention of the Appellant that the
obligation to comply with the condition of pre-deposit under
Section 19 of the MSMED Act is onerous, is without any
merit. The mandatory nature of Section 19 of the MSMED
Act has been pronounced upon by the Supreme Court
in Gujarat State Disaster Management Authority v. Aska
Equipments Ltd.5 and the same cannot be circumvented by
the Petitioner by filing the present petition. The Petitioner
admittedly has sufficient annual income of Rs. 62 crores
and hardship, if any, in making the deposit is an issue
which can be raised before the competent Court in terms of
the observations made by the Supreme Court in Tirupati
Steels v. Shubh Industrial Component.
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16. In view of the aforesaid observation, the present appeal
is without any merit and is accordingly, dismissed along
with pending applications.”
105. Similar issue fell for consideration before the
Hon’ble Apex Court in the case of Heavy Engineering
Corportion Limited Vs. State of Jharkhand & Ors
[2023 SCC OnLine Jhar 2779], wherein the factual
background of the case is that pursuant to tender notice
dated 13th August 2010 issued by the Corporation for
supply of fabricated items an offer was made by M/s.
National Small Industries Corporation Limited (in short,
NSICL) which was accepted by M/s. Heavy Engineering
Corporation Limited (in short, the Corporation) and a rate
contract was signed on 23rd November 2010. Pursuant
thereto, purchase order was issued by the Corporation
for supply of fabricated items as per the drawings of the
Corporation. According to the Corporation, there were
delays in supply of the fabricated items and the
Corporation was entitled to invoke the liquidated
damages clause and to adjust such amount from the bills
of NSICL. Aggrieved thereby, the industry filed a petition
before the Facilitation Council at Cuttack under section
18 of the MSME Act which was registered as MSEFC
Case No. 13 of 2015. Accordingly, award was passed by
the Facilitation Council. Ultimately, the Corporation filed
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WP(C) No. 3533 to set aside the impugned order dated
02.06.2018 as also to quash the entire proceeding of
Commercial Execution Case No. 03 of 2018, as contained
in execution petition filed under Order-XXI, Rule-11
of Civil Procedure Code, 1908, to execute the aforesaid
Award dated 07.02.2017, pending in the Court of Shri
Rajeev Anand, the learned Presiding Officer, Commercial
Court, Ranchi. The writ Court considered the scheme
under the Micro, Small and Medium Enterprises
Development Act, 2006 (in short, MSMED Act) and came
to a conclusion that the statutory regime under the
MSMED Act which requires a pre-deposit of 75% of the
decreetal/awarded amount is a mandatory requirement
for entertaining the writ petition and, that, section 19 of
the MSMED Act shall prevail upon the general provisions
under section 35 of the AC Act. The writ Court held that
the requirement of pre-deposit under section 19 of the
MSMED Act having not been complied, W.P.(C) No. 3533
of 2019 cannot be entertained and, accordingly,
dismissed the same vide order dated 22nd October 2019.
106. Aggrieved thereof, the matter came before the
Division Bench, wherein affirming the order passed by
the learned writ Court, it has been held at paragraph 16
as under:
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“16. The well-recognized exception to a statutory
alternative remedy of appeal does not take into its
fold all kinds of cases and merely by raising a
contentious issue the Corporation cannot support
maintainability of the writ petition to challenge the
award dated 7th February 2017. In a situation like
the present one which would involve a strenuous
exercise by the writ Court to examine the facts of the
case and interpret the definition of „buyer‟ and
„supplier‟, the writ Court shall not exercise its powers
under Article 226 of the Constitution of India. The
writ Court shall definitely exercise its powers to
entertain a challenge to the award/decree which on
the face of it and, without any enquiry into the facts
of the case, appears to be a nullity. Therefore, the
aggrieved party must demonstrate on the face of the
award a prima facie case for entertaining the writ
petition filed under Article 226 of the Constitution of
India – the present one is not such a case. The
question raised by the Corporation before the writ
Court could have very well been raised and
established by it in a proceeding under section 34 of
the AC Act. The award dated 7th February 2017
takes note of history of the case, objections taken by
opposite party nos. 1 and 2 and the rejoinder
affidavits dated 19th October 2015 and
21st December 2015. The award made by the
Facilitation Council specifically records that the
parties were present in the 48th sitting of the
Facilitation Council held on 29th September 2016 but
NSICL did not evince any interest for amicable
settlement of the case. There are references of further
sittings of the Facilitation Council held on
30th December 2016 and 7th February 2017.
Therefore, the rival claims on adherence/non-
adherence of the provisions under section 18(2) by
the Facilitation Council also could have been decided
in a section 34 petition where the parties would have
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supported their rival stands with reference to the
materials on record. Now in a case which involves a
host of disputed questions of fact and an
interpretation of various clauses of the MSMED Act
including the expressions „buyer‟ and „supplier‟, in
our opinion, the writ Court has rightly stayed away
from entering into the realm of factual dispute and
dismissed the writ petition on the ground that no
appeal has been preferred under section 19 of the
MSMED Act.”
107. At this juncture, it requires consideration by this
Court that since argument has been advanced that the
law laid down by the Hon’ble Apex Court in the case of
Jharkhand Urja Nigam Ltd. has been referred to the
larger Bench, as such the same has got no binding effect.
108. In the aforesaid context it needs to refer herein
the settled position of law that merely by referring an
issue decided by the Hon’ble Apex Court before the larger
Bench, the ratio decidendi of the judgment which has
been referred before the larger Bench for its
consideration will not lose its force.
109. The Hon’ble Apex Court in the case of Rajnish
Kumar Rai v. Union of India & Ors., (2023) 14 SCC
782 has observed that it cannot ignore the ratio laid
down in an earlier judgment merely because the same
stands referred to a larger Bench. The Hon’ble Apex
Court further observed that judicial propriety did not
permit it ignoring the ratio laid down in the earlier
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judgement as no decision regarding the same had come
out from the larger Bench. For ready reference the
relevant paragraph of the aforesaid judgment is being
quoted as under:
“4. The learned counsel appearing for the petitioner
has brought to our notice a coordinate Bench decision
of this Court in Union of India v. Sanjiv
Chaturvedi [Union of India v. Sanjiv Chaturvedi, (2023)
5 SCC 706 : (2023) 2 SCC (L&S) 181] in which the
point of law laid down in the earlier judgment passed
by this Court in Alapan Bandyopadhyay [Union of
India v. Alapan Bandyopadhyay, (2022) 3 SCC 133 :
(2022) 1 SCC (L&S) 504] has been referred to a larger
Bench. But so far as this Bench is concerned, we do
not think judicial propriety permits ignoring the ratio
laid down by the coordinate Bench
in AlapanBandyopadhyay [Union of India v. Alapan
Bandyopadhyay, (2022) 3 SCC 133 : (2022) 1 SCC
(L&S) 504] as no decision has come as yet from the
larger Bench on the point of territorial jurisdiction of
the High Court in a similar context. If we were to take a
different view, the only course open for us would have
been to refer the petition to the Hon’ble the Chief
Justice for being adjudicated by a larger Bench, as has
been done in Sanjiv Chaturvedi [Union of India v. Sanjiv
Chaturvedi, (2023) 5 SCC 706 : (2023) 2 SCC (L&S)
181] . No argument has been raised before us that the
decision in Alapan Bandyopadhyay [Union of
India v. Alapan Bandyopadhyay, (2022) 3 SCC 133 :
(2022) 1 SCC (L&S) 504] is per incuriam.
110. The Hon’ble Apex Court in the case of UT of
Ladakh & Ors. v. Jammu & Kashmir National
Conference & Ors. 2023 SCC OnLine SC 1140 has
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observed that the High Courts will proceed to decide
matters on the basis of the law as it stands and it is not
open, unless specifically directed by this Court, to await
an outcome of a reference and it is also not open to a
High Court to refuse to follow a judgment by stating that
it has been doubted by a later Coordinate Bench. For
ready reference the relevant paragraph is being quoted as
under:
“35. We are seeing before us judgments and orders by
High Courts not deciding cases on the ground that the
leading judgment of this Court on this subject is either
referred to a larger Bench or a review petition relating
thereto is pending. We have also come across examples
of High Courts refusing deference to judgments of this
Court on the score that a later Coordinate Bench has
doubted its correctness. In this regard, we lay down the
position in law. We make it absolutely clear that the
High Courts will proceed to decide matters on the basis
of the law as it stands. It is not open, unless specifically
directed by this Court, to await an outcome of a
reference or a review petition, as the case may be. It is
also not open to a High Court to refuse to follow a
judgment by stating that it has been doubted by a later
Coordinate Bench. In any case, when faced with
conflicting judgments by Benches of equal strength of
this Court, it is the earlier one which is to be followed by
the High Courts….”
111. Thus, merely by referring an issue decided by the
Hon’ble Apex Court before the larger Bench, the ratio
decidendi of the judgment which has been referred before
the larger Bench for its consideration will not lose its
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force rather the ratio decided by the Hon’ble Apex Court
having been sent for its consideration will have the
binding precedence so long as it is not being reversed by
the larger bench of the Hon’ble Apex Court.
112. Now coming to the issue involved in this case, this
Court, after having referred the aforesaid judicial
pronouncements/legal issues which has been referred
hereinabove, is of the considered view that there is no
dispute that the award passed under Section 18 of the
Act, 2006 can be entertained in writ jurisdiction but the
circumstances, which is required to be taken into
consideration by the writ Court that the award is not the
award in the light of provision as contained under
Section 18(3) of the Act, 2006 read with Arbitration and
Conciliation Act, 1996.
113. Further as per the mandate of Section 19 of the
Act 2006 the award, if passed by the Council under
Section 18(3) of the Act, 2006 then the same is to be
assailed by challenging the same, subject to deposit of
75% of the awarded amount by the Council.
114. In the aforesaid backdrop this Court is now
proceeding to examine the factual aspect of the instant
case as to whether the award which has been passed by
the Council is construed to be arbitral award said to be
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passed in light of provision as contained under Section
18 of the Act, 2006, therefore, this Court once again
needs to refer herein the provision of Section 18 (2) and
(3).
115. As per provision, as contained under sub-section
(2) of Section 18, the Council on receipt of a reference,
under sub-section (1), shall either itself conduct
conciliation or seek the assistance of any institution or
centre providing alternate dispute resolution services by
making a reference to such an institution or centre, for
conducting conciliation and the provisions of sections 65
to 81 of the Arbitration and Conciliation Act, 1996 (26 of
1996) shall apply to such a dispute as if the conciliation
was initiated under Part III of that Act. And in the
eventuality of failure of such conciliation, sub-section (3)
thereof comes to play, which says that 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 it to any institution
or centre providing alternate dispute resolution services
for such arbitration.
116. It has been admitted that after the reference of
the claim under Section 18(1) of the Act, 2006 before the
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Council, the recourse has been taken by the Council for
conciliation in the light of provision as contained under
Section 18(2) of the Act, 2006 by sending the matter
before the JHALSA since Section 18(2) of the Act, 2006
provides that the Council shall either itself conduct
conciliation or seek the assistance of any institution or
centre providing alternate dispute resolution services by
making a reference to such an institution or centre, for
conducting conciliation.
117. Herein, the Council has thought it proper to send
the reference to the JHALSA for its conciliation. Both the
parties have agreed for conciliation by expressing their
wish to appear before the JHALSA for the purpose of
conciliation in the light of provision as contained under
Section 18(2) of the Act, 2006. All the documentations
were made before the conciliator, JHALSA, but the
conciliation failed and the failure report was submitted
before the Council.
118. The moment the failure report was submitted by
the conciliator before the Council the provision of Section
18(2) of the Act, 2006 will be said to be fulfilled.
Thereafter, as per mandate of the Section 18(3) of the Act
2006 the Council is to adjudicate on its own or by
sending it before the alternate dispute system. Council in
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the present case has decided to adjudicate the claim on
its own, as would appear from order passed on various
dates.
119. It is evident from the record, part of which has
been made available in record, that on 12.09.2022 the
Council has directed the party to file written note of
submission. The writ petitioner-respondent has filed
written note of submission on 27.09.2022. The said fact
is admitted since the written note of argument has been
made part of the paper book. It further appears from the
record that the writ petitioner-respondent has not raised
any objection by filing any application before the Council
to have opportunity required to be given under the
statute rather in pursuance to order passed by the
Council written submission was filed on 27.09.2022.
120. The Council has closed the hearing on 12.09.2022
with liberty to the writ petitioner-respondent to file
written submission. The same has been filed. Thereafter
the award was passed and communicated to the writ
petitioner-respondent on 05.01.2023.
121. The ground, which has been raised on behalf of
writ petitioner-respondent, is that the procedure as laid
down under the Act, ought to have been followed but not
followed, hence, the award cannot be construed to be
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award in the eye of law, hence, the writ petition is well
maintainable.
122. It is evident from the argument that there is no
issue of participation in the proceeding; and even there is
no issue that the adjudication has not been made by the
Council which was made in the light of provision as
contained under section 18(3) of the Act, 2006, rather,
the ground has been taken that the procedure which
ought to have been followed for the purpose of
adjudication to be made by the arbitrator has not been
followed.
123. The procedure said to be not followed is the main
ground agitated on behalf of writ petitioner – respondent
before the learned writ Court in challenging the arbitral
award.
124. Thus, the procedure followed or not followed can
be a ground to entertain the writ petition that is the
question which is also to be considered herein.
125. Further, question arises herein that merely
because the procedure even if it is accepted has not been
followed by the Council, the provision of Section 19 of the
Act, 2006 will be allowed to be go by maintaining the writ
petition.
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126. The Hon’ble Apex Court has considered the
implication of Section 19 of the Act, 2006 in the
judgment referred hereinabove and had concluded that
provision of Section 19 of the Act 2006 is mandatory.
127. It needs to refer herein that it is true that Article
226 of the Constitution of India being constitutional
provision would not be subject to rigor of Section 19 of
Act 2006 but for the application the Article 226 the
circumstances should be there.
128. There is no dispute that the constitution is the
supreme in our country and in the Constitution itself,
the parliament has power to make legislation. The
moment the legislation is being made is also equally
important to follow the legislative mandate. Even under
Article 226 of the Constitution of India the stipulation
has been made that the writ petition under Article 226
will be entertained for the purpose of issuance of
appropriate writ for availing efficacious remedy. Article
226 of the Indian Constitution grants the High Court
broad jurisdiction to impose orders and writs on any
individual or entity but before the court can grant a writ
or issue an order, the party filing the petition must show
that his rights are being illegally violated. The High
Court’s authority to grant writs is also subject to a
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number of limitations if the petitioner is entitled to
pursue other equally effective alternative remedies. The
High court consider a number of deliberations before
using its extraordinary constitutional jurisdiction and the
High Court relief may refuse to grant relief if there is a
remedy available and send the party to the proper forum
to seek relief but it is a self-imposed guideline rather
than a jurisdictional one for considering writ petitions.
Therefore, even though there is an alternative remedy
available, in extraordinary circumstances, a writ may be
issued.
129. Thus, the power under Article 226 of the
Constitution to issue writs can be exercised not only for
the enforcement of fundamental rights, but for any other
purpose as well and the High Court has the discretion
not to entertain a writ petition if there is an effective
alternate remedy available to the aggrieved person.
130. Thus, merely because a statutory provision has
been made by the parliament by way of alternative
forum, the same cannot be construed to abridge the
power conferred to this Court under Article 226 of the
Constitution of India in order to secure the basic
structure of the Constitution.
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131. However, it needs to refer herein that the Hon’ble
Apex Court in the case of Sterling Industries Vs.
Jayprakash Associate Limited & Ors. (2021) 18 SCC
367 has clearly disapproved the stand approved by some
high court that any order passed by an arbitral tribunal
capable of being corrected by the high court under Article
226/227 of the Constitution of India. Further, the
Hon’ble Apex Court adverting to Section 34 of the Act,
1996 and taking in to consideration the ratio of the
judgment rendered by in the case of SBP & Co. v. Patel
Engg. Ltd., (2005) 8 SCC 618 has held that intervention
by the high court under Article 226 or 227 of the
Constitution of India in an arbitral award is not
permissible. For ready reference the relevant paragraph
is being quoted as under:
3. This Court in SBP & Co. v. Patel Engg. Ltd. [SBP &
Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] in para 45 held
as follows : (SCC p. 663)
“45. It is seen that some High Courts have proceeded on the
basis that any order passed by an Arbitral Tribunal during
arbitration, would be capable of being challenged under
Article 226 or 227 of the Constitution of India. We see no
warrant for such an approach. Section 37 makes certain
orders of the Arbitral Tribunal appealable. Under Section
34, the aggrieved party has an avenue for ventilating his
grievances against the award including any in-between
orders that might have been passed by the Arbitral Tribunal
acting under Section 16 of the Act. The party aggrieved by
any order of the Arbitral Tribunal, unless has a right of
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appeal under Section 37 of the Act, has to wait until the
award is passed by the Tribunal. This appears to be the
scheme of the Act. The Arbitral Tribunal is, after all, a
creature of a contract between the parties, the arbitration
agreement, even though if the occasion arises, the Chief
Justice may constitute it based on the contract between the
parties. But that would not alter the status of the Arbitral
Tribunal. It will still be a forum chosen by the parties by
agreement. We, therefore, disapprove of the stand adopted
by some of the High Courts that any order passed by the
Arbitral Tribunal is capable of being corrected by the High
Court under Article 226 or 227 of the Constitution of India.
Such an intervention by the High Courts is not permissible.”
132. Herein the issue of procedure which has been
alleged to be not followed is the basis to call the arbitral
award, not an award in the eye of law i.e., under the Act,
1996, then the question would be that if such notion of
the writ petitioner/respondent will be accepted and if any
procedure has not been followed by the arbitrator in view
of provision as contained under Section 11(6) of the Act,
1996 then in such circumstance can the writ petition be
entertained.
133. The answer of this Court will be in „absolute
negative‟ since if the provision of Section 34 of the
Arbitration and Conciliation Act, 1996 will be taken into
consideration then it would be evident that the ground to
challenge the award has been referred under Section 34
of the Act,1996, as would be evident from Section 34(2),
wherein it has been provided that an arbitral award may
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be set aside by the court only if — (a) the party making
the application establishes on the basis of the record of
the arbitral tribunal that– (i) a party was under some
incapacity; or (ii) the arbitration agreement is not valid
under the law to which the parties have subjected it or,
failing any indication thereon, under the law for the time
being in force; or (iii) the party making the application
was not given proper notice of the appointment of an
arbitrator or of the arbitral proceedings or was otherwise
unable to present his case; or (iv) the arbitral award
deals with a dispute not contemplated by or not falling
within the terms of the submission to arbitration, or it
contains decisions on matters beyond the scope of the
submission to arbitration: or (v) the composition of the
arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties, unless
such agreement was in conflict with a provision of this
Part from which the parties cannot derogate, or, failing
such agreement, was not in accordance with this Part; or
(b) the Court finds that– (i) the subject-matter of the
dispute is not capable of settlement by arbitration under
the law for the time being in force, or (ii) the arbitral
award is in conflict with the public policy of India.
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134. It is evident from Section 34(2)(iii) that the arbitral
award can be questioned on the ground of giving no
proper notice of the appointment of an arbitrator or of
the arbitral proceedings or was otherwise unable to
present his case. The inclusion of the phrase ‗was
otherwise unable to present his case’ is have bearing in
the present case since herein also the bone of contention
is that the due procedure as provided under the
Arbitration and Conciliation Act has not been followed.
Therefore, the mandate as contained under Section
32(2)(iii) making available the ground to challenge the
award by taking recourse of Section 34 of the Arbitration
and Conciliation Act, 1996 is required to be taken. Even
in the arbitral award passed under the Arbitration and
Conciliation Act, 1996 read with Commercial Courts Act,
2015, the arbitral award cannot be entertained in a
proceeding filed under Article 226 of the Constitution of
India, rather, the forum is Section 37 of the Act, 1996
read with Section 13-IA of the Commercial Courts Act,
2015. Further, the appellate Court is to exercise the
power of appeal in order to interfere with the impugned
order having with the very limited scope i.e., only on the
ground of perversity.
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135. Accepting the argument advanced by learned
counsel for the respondent/appellant that award which
is to be passed under Section 18(3) of the Act, 2006 is
treated to be an award passed under the Arbitration and
Conciliation Act, 1996 and the said argument is in
consonance with the mandate of Section 18(2) and 18(3)
of the Act, 2006 wherein the award is to be passed by
following the procedure as laid down under the
Arbitration and Conciliation Act, 1996 particularly as
under part (iii) and only difference by creating a forum by
way of Facilitation Council is expeditious disposal of the
claim i.e., within the period of 90 days, as per the
provision contained under Section 18(5) of the Act, 2006,
this Court, is of the view that when the award which is
being passed under the Arbitration and Conciliation Act,
1996 by the arbitral tribunal and the same is being
challenged by filing an application under Section 34 of
the Act, 1996 before the appropriate court depending
upon the availability of the condition as stipulated under
the said provision, then against the award passed by the
Council under Section 18 (3) of the Act, 2006, how the
writ petition will lie, even if there is a procedural lapses
since in view of insertion of particular condition to
challenge the award by filing an application before the
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court under Section 34, as per the ground available
under Section 34(2) (a)(iii) of the Act, 1996.
136. Therefore, the contention of the writ petitioner
/respondent that since the procedures having not been
followed and therefore, the arbitral award is not to be
termed as arbitral award, hence, the writ petition will lie,
the same according to our considered view cannot be
said to be permissible, rather, as per the settled position
of law that the forum is available by way of filing an
application under Section 34 of the Act 1996 invoking
the jurisdiction conferred under Section 19 of the Act
2006 but subject to deposit of 75% of the total awarded
amount(except supplier)
137. This Court, after having discussed the aforesaid
legal issues and factual aspect, adverting to the order
passed by learned Single Judge has found therefrom that
the aforesaid issues have not been taken into
consideration in entirety and without considering the
mandate as provided under Section 19 of the Act, 2006
in full horizon has observed that the arbitral award not
to be construed to be an arbitral award and while
observing the aforesaid the learned single Judge has
exercised the power conferred under Article 226 of the
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Constitution of India, which cannot said to be correct
approach.
138. Further, the learned Single Judge has also not
specifically taken into consideration that, then only in
order to frustrate the statutory mandate of deposit of
75% of the total amount which is to provide security to
the small enterprises to be handed over in favour of the
small enterprises depending upon the final outcome and
as such in that view of the matter also, the judgment
passed by learned Single Judge is not to be approved.
139. The matter would have been different if the award
would have been passed under Section 18(3) of the Act,
2006 without taking recourse of Section 18(2) then the
award could not have been said to be arbitral award
rather the same would have been said to be passed
contrary to the statutory mandate under Section 18(2) of
the Act, 2006, then certainly the writ petition is to be
entertained but that is not the fact herein, as per the
admitted case of the party herein.
140. Accordingly, the impugned order/judgment dated
22.12.2023 passed by learned Single Judge in W.P.(C)
No. 928 of 2023; W.P.(C) No. 923 of 2023; and W.P.(C)
No. 925 of 2023 is hereby quashed and set aside.
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141. In the result, the writ petitions stand dismissed
reserving liberty with the writ petitioner-respondent to
avail the remedy available under the statute for
consideration of the issue, if the party so wishes.
142. With the aforesaid direction and observation, the
instant intra-court appeals stand disposed of.
143. Pending Interlocutory Application(s), if any,
stands disposed of.
I Agree (Sujit Narayan Prasad, J.)
(Rajesh Kumar, J.) (Rajesh Kumar, J.)
Alankar/
A.F.R
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