Case Note & Summary
The petitioner, M/s Enmas GB Power Systems Projects Ltd., a private company providing solutions for infrastructure, power, and industrial sectors, had issued a purchase order to the second respondent, Lotus Power Gear Private Ltd., a supplier. A dispute arose regarding payment, and the second respondent approached the first respondent, the Micro and Small Enterprises Facilitation Council (MSEFC), under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act). The MSEFC passed an award dated 14.03.2017 (Annexure-L) without issuing any notice to the petitioner or providing an opportunity of hearing. The petitioner challenged this award by filing a writ petition under Articles 226 and 227 of the Constitution of India, seeking to quash the award and direct the Council to conduct proceedings in the manner stipulated under Section 18(3) of the MSME Act. The petitioner argued that the Council failed to follow the mandatory procedure under Section 18(3), which requires the Council to first conduct conciliation between the parties, and only if conciliation fails, to refer the matter to arbitration. The Council directly proceeded to arbitration without any conciliation attempt, and also did not issue any notice to the petitioner, violating principles of natural justice. The Court, after hearing the petitioner's counsel (Sri. Sunil P.P.) and the second respondent's counsel (Sri. Suresh P), noted that the award was passed without notice and without following the mandatory conciliation process. The Court held that the Council's failure to comply with Section 18(3) and principles of natural justice rendered the award void ab initio. Consequently, the Court quashed the award and directed the Council to conduct fresh proceedings in accordance with law, starting with conciliation as required under Section 18(3) of the MSME Act.
Headnote
A) MSME Act - Conciliation Mandatory - Section 18(3) of Micro, Small and Medium Enterprises Development Act, 2006 - The Facilitation Council must first conduct conciliation before referring the matter to arbitration; failure to do so vitiates the entire proceedings and the award is void ab initio. (Para 4) B) Natural Justice - Notice and Opportunity of Hearing - The Council must issue notice to the buyer and provide an opportunity of hearing before proceeding; non-compliance with principles of natural justice renders the award liable to be quashed. (Para 4) C) Writ Jurisdiction - Quashing of Award - Articles 226 and 227 of Constitution of India - The High Court can quash an award passed by the Facilitation Council if it is contrary to the statutory mandate and principles of natural justice. (Para 4)
Issue of Consideration
Whether the Micro and Small Enterprises Facilitation Council can proceed to arbitration without first attempting conciliation as mandated under Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006, and whether the award passed without such conciliation and without proper notice to the petitioner is liable to be quashed.
Final Decision
The writ petition is allowed. The award dated 14.03.2017 passed by the first respondent is quashed. The matter is remitted back to the first respondent to conduct fresh proceedings in accordance with law, starting with conciliation as required under Section 18(3) of the MSME Act.
Law Points
- Conciliation is mandatory before arbitration under Section 18(3) of MSME Act
- 2006
- Failure to conduct conciliation renders award void
- Natural justice requires notice and opportunity of hearing
- Writ petition maintainable under Articles 226 and 227 of Constitution of India
