The Court mandates adherence to institutional arbitration frameworks, reinforcing the legal protection for micro and small enterprises.
In a landmark judgment, the Himachal Pradesh High Court, presided over by Justice Jyotsna Rewal Dua, has quashed the arbitration award passed against M/s Tynor Orthotics Pvt. Ltd. The Court ruled that the Himachal Pradesh Micro & Small Enterprises Facilitation Council (MSEFC) violated statutory provisions by referring the dispute to an individual arbitrator, instead of an institutional arbitration framework as mandated by the Micro, Small and Medium Enterprises Development Act, 2006.
The case originated from a dispute between M/s Tynor Orthotics Pvt. Ltd. and M/s Kunal Aluminium Company over a recovery claim of Rs.2,60,65,515/-. The MSEFC, after failed conciliation attempts, referred the matter to an arbitrator from a state government panel. This decision was challenged by M/s Tynor Orthotics, leading to the High Court's intervention.
Justice Dua emphasized that under Section 18(3) of the MSMED Act, the MSEFC must either conduct arbitration itself or refer the dispute to a recognized institution or center offering alternate dispute resolution services. The empanelment of individual arbitrators does not suffice for institutional arbitration as required by the Act, rendering the award void ab initio.
Furthermore, the Court highlighted the necessity for the MSEFC to verify the 'supplier' status of the aggrieved party before acting on a reference under Section 18 of the MSMED Act. This verification is crucial to ensure only eligible micro or small enterprises can invoke the Act for dispute resolution.
The judgment sets a precedent reinforcing the legal framework designed to protect micro and small enterprises, ensuring disputes are resolved efficiently and within the scope of institutional arbitration. The Court's decision is expected to influence future arbitration cases under the MSMED Act, promoting adherence to statutory guidelines and safeguarding enterprise rights.
Bottom line:-
The Micro and Small Enterprises Facilitation Council (MSEFC) cannot refer a dispute to an individual arbitrator under Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006. The Council must either itself act as the arbitrator or refer the dispute to an institution or center providing alternate dispute resolution services.
Statutory provision(s): Micro, Small and Medium Enterprises Development Act, 2006 Sections 18(1), 18(2), 18(3); Arbitration and Conciliation Act, 1996 Section 11(3A); Himachal Pradesh Micro and Small Enterprises Facilitation Council Rules, 2018.
