Case Note & Summary
The petitioner, Indian Oil Corporation Limited, challenged an arbitral award passed by the Maharashtra Micro and Small Enterprises Facilitation Council (Respondent No.1) in favor of ChemCleanzio India Pvt. Limited (Respondent No.2) under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act). The dispute arose from a contract for decontamination work at Haldia Refinery. The petitioner contended that the Council failed to conduct proper conciliation proceedings as mandated under Section 18 of the MSME Act and did not provide the petitioner with an opportunity of being heard before passing the award. The High Court examined the procedural requirements under the MSME Act and found that the Council had not followed the mandatory conciliation process and had violated principles of natural justice. The court held that the award was liable to be set aside and remanded the matter back to the Council for fresh consideration in accordance with law. The court directed the Council to conduct conciliation proceedings and, if necessary, arbitration after giving both parties a fair hearing.
Headnote
A) MSME Act - Conciliation - Mandatory Pre-Arbitration Conciliation - Section 18 of Micro, Small and Medium Enterprises Development Act, 2006 - The Council must conduct conciliation proceedings before referring the matter to arbitration. Failure to do so vitiates the arbitral proceedings. (Paras 10-12)
B) Natural Justice - Right to be Heard - Section 19 of MSME Act, 2006 read with Section 24 of Arbitration and Conciliation Act, 1996 - The Council must give the parties an opportunity of being heard before passing an award. Non-compliance with principles of natural justice renders the award invalid. (Paras 13-15)
C) MSME Act - Arbitral Award - Setting Aside - Section 34 of Arbitration and Conciliation Act, 1996 - An award passed without following the mandatory procedure under Section 18 of the MSME Act and in violation of natural justice is liable to be set aside. (Paras 16-18)
Issue of Consideration
Whether the Micro and Small Enterprises Facilitation Council could proceed to arbitration and pass an award without proper conciliation proceedings and without giving the petitioner an opportunity of being heard.
Final Decision
The High Court allowed the writ petition, set aside the arbitral award dated 23rd April, 2019, and remanded the matter back to the Micro and Small Enterprises Facilitation Council for fresh consideration in accordance with law, directing the Council to conduct conciliation proceedings and, if necessary, arbitration after giving both parties a fair hearing.
Law Points
- Section 18 of MSME Act
- 2006
- conciliation mandatory before arbitration
- natural justice
- right to be heard
- Section 19 of MSME Act
- Section 24 of Arbitration and Conciliation Act
- 1996
Case Details
2024 LawText (BOM) (02) 140
WRIT PETITION NO.6201 OF 2019
G. S. KULKARNI, FIRDOSH P. POONIWALLA
Mr. Shubham Sawant with Ms. Tanhishtha Singh, Mr. Harshit Trivedi and Mr. Sagar Satam i/b. Meharia & Co., for the Petitioner. Ms. Kausar Banatwala with Mr. Vandit Joshi i/b. Tushar Goradia, for Respondent No.2.
Indian Oil Corporation Limited
Maharashtra Micro and Small Enterprises Facilitation Council, Konkan Region, Thane & ChemCleanzio India Pvt. Limited
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Nature of Litigation
Writ Petition under Article 226 of the Constitution of India challenging an arbitral award passed by the Micro and Small Enterprises Facilitation Council under the MSME Act.
Remedy Sought
The Petitioner sought to set aside the arbitral award and for a direction to the Council to conduct proper conciliation proceedings and provide an opportunity of hearing.
Filing Reason
The Petitioner alleged that the Council failed to conduct mandatory conciliation proceedings and passed the award without giving the Petitioner an opportunity of being heard, violating principles of natural justice.
Previous Decisions
The Council had passed an arbitral award in favor of Respondent No.2 on 23rd April, 2019, after conciliation proceedings failed on 5th March, 2019.
Issues
Whether the Council conducted proper conciliation proceedings as required under Section 18 of the MSME Act before proceeding to arbitration?
Whether the Council violated principles of natural justice by not giving the Petitioner an opportunity of being heard before passing the award?
Submissions/Arguments
The Petitioner argued that the Council did not provide Roznama/order-sheets of conciliation proceedings and that the conciliation was not properly conducted.
The Petitioner contended that the award was passed without giving them a hearing, violating Section 19 of the MSME Act and Section 24 of the Arbitration and Conciliation Act.
Respondent No.2 argued that the conciliation proceedings were conducted and the matter was referred to arbitration after failure of conciliation.
Ratio Decidendi
The Council under the MSME Act must mandatorily conduct conciliation proceedings before referring the matter to arbitration, and must adhere to principles of natural justice by giving parties an opportunity of being heard. Failure to do so renders the arbitral award invalid and liable to be set aside.
Judgment Excerpts
The Council must conduct conciliation proceedings before referring the matter to arbitration. Failure to do so vitiates the arbitral proceedings.
The Council must give the parties an opportunity of being heard before passing an award. Non-compliance with principles of natural justice renders the award invalid.
Procedural History
The Petitioner issued a tender on 24th October, 2013, and awarded the work to Respondent No.2 on 19th November, 2013. Disputes arose, and Respondent No.2 filed a petition under Section 18 of the MSME Act before the Council on 16th December, 2016. Conciliation proceedings were held, and on 5th March, 2019, the Council declared conciliation failed and referred the matter to arbitration. On 23rd April, 2019, the Council passed an arbitral award. The Petitioner filed the present writ petition challenging the award.
Acts & Sections
- Micro, Small and Medium Enterprises Development Act, 2006: 18, 19
- Arbitration and Conciliation Act, 1996: 24, 34
- Constitution of India: 226
