Court finds procedural lapses in transitioning from conciliation to arbitration, declares award null and void.
In a significant ruling, the Chhattisgarh High Court has set aside the arbitral award passed by the Micro and Small Enterprises Facilitation Council in favor of Garuda Ispat Private Limited against M/s Jai Balaji Industries Ltd. The judgment, delivered by Justice Ravindra Kumar Agrawal, found the award dated December 27, 2022, to be null and void due to non-compliance with the mandatory statutory procedures prescribed under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, and the Arbitration and Conciliation Act, 1996.
The dispute originated from several purchase orders placed by Jai Balaji Industries on Garuda Ispat for the supply of steel materials. Contentions arose over the quality of the supplied materials and the payments due. Garuda Ispat, seeking recovery of Rs. 9,63,968, invoked Section 18 of the MSMED Act and approached the Facilitation Council. An award was eventually passed, directing Jai Balaji Industries to pay Rs. 28,05,929, inclusive of interest.
However, Jai Balaji challenged the proceedings, claiming that the Council failed to adhere to the statutory requirements of conducting a proper conciliation followed by arbitration. The petitioner argued that the Council neither formally terminated the conciliation proceedings nor initiated separate arbitration proceedings as required by law, rendering the award procedurally defective.
The High Court observed that there was no formal order terminating the conciliation, nor any record of arbitration proceedings being conducted in compliance with Sections 23, 24, and 25 of the Arbitration and Conciliation Act. The Court highlighted that such procedural lapses result in a jurisdictional nullity, allowing challenges even at the execution stage, as per the precedents set by the Supreme Court.
Consequently, the Court remitted the case to the Facilitation Council for fresh proceedings, emphasizing the need to follow the statutory processes strictly. The judgment underscores the importance of compliance with legal procedures in arbitration matters, especially under the MSMED Act, which aims to provide a speedy and effective dispute resolution mechanism for small enterprises.
The ruling also highlights the supervisory role of the High Court under Article 227 of the Constitution in ensuring justice and adherence to legal norms without delving into the merits of the case.
Bottom line:-
Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 - Arbitration and Conciliation Act, 1996 - Proceedings under Section 18 of MSMED Act must strictly comply with statutory requirements governing conciliation and arbitration - Absence of compliance renders the award a nullity and non-enforceable.
Statutory provision(s):
Micro, Small and Medium Enterprises Development Act, 2006 Section 18, Arbitration and Conciliation Act, 1996 Sections 23, 24, 25, 34, Constitution of India, 1950 Article 227
