Case Note & Summary
The appellant, Jharkhand Urja Vikas Nigam Limited, successor of Jharkhand State Electricity Board, entered into a contract with respondent No.3, M/s. Anamika Conductors Ltd., for supply of ACSR Zebra Conductors. Respondent No.3, claiming to be a small scale industry, approached the Rajasthan Micro and Small Enterprises Facilitation Council (Council) under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) for recovery of Rs.74,74,041/- as principal and Rs.91,59,705.02 as interest. The Council issued summons on 18.07.2012 for appearance on 06.08.2012. The appellant did not appear, and the Council passed an order on 06.08.2012 directing payment within 30 days. The appellant challenged this order by way of writ petition before the Rajasthan High Court, which was dismissed by the Single Judge and confirmed by the Division Bench. Hence, the appeal to the Supreme Court. The Supreme Court held that the Council failed to follow the mandatory procedure under Section 18 of the MSMED Act. Under Section 18(2), the Council must first conduct conciliation; if unsuccessful, under Section 18(3), it must either itself take up the dispute for arbitration or refer it to an institution, and the provisions of the Arbitration and Conciliation Act, 1996 apply. The Council passed the award without any conciliation or arbitration proceedings, merely because the appellant did not appear. The Court noted that the appellant had paid Rs.63,43,488/- after inspecting records, which was accepted without protest. The Court also observed that the award was passed without jurisdiction and in disregard of mandatory provisions, making it a nullity. The Court allowed the appeal, set aside the impugned orders of the High Court and the Council's award, and remitted the matter to the Council to proceed afresh in accordance with law, specifically following the procedure under Section 18 of the MSMED Act.
Headnote
A) Arbitration Law - MSMED Act - Section 18(3) - Mandatory Procedure - Council must first attempt conciliation; if unsuccessful, it must initiate arbitration under Arbitration and Conciliation Act, 1996 - Council cannot pass an award without following arbitration procedure - Held that the order dated 06.08.2012 was passed without giving proper opportunity and in disregard of mandatory provisions, hence a nullity (Paras 5, 8-10).
B) Arbitration Law - Challenge to Award - Section 34 of Arbitration and Conciliation Act, 1996 - Alternative Remedy - Where award is passed without jurisdiction, writ petition under Article 226 is maintainable despite availability of remedy under Section 34 - Held that the High Court erred in dismissing the writ petition on ground of alternative remedy (Paras 5-10).
C) MSMED Act - Section 18 - Jurisdiction - Council's jurisdiction is not ousted by contractual clause conferring jurisdiction on civil courts at Ranchi - However, Council must follow statutory procedure - Held that the Council's order was without jurisdiction as it failed to comply with Section 18(3) (Paras 5, 8-10).
Issue of Consideration
Whether the order/award passed by the Micro and Small Enterprises Facilitation Council on 06.08.2012, without following the mandatory procedure under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 and the Arbitration and Conciliation Act, 1996, is valid and whether the High Court erred in dismissing the writ petition challenging the same.
Final Decision
The Supreme Court allowed the appeal, set aside the impugned orders of the High Court dated 11.12.2017 and the order of the Single Judge, and set aside the award/order dated 06.08.2012 passed by the Rajasthan Micro and Small Enterprises Facilitation Council. The matter was remitted to the Council to proceed afresh in accordance with law, specifically following the procedure under Section 18 of the MSMED Act.
Law Points
- Mandatory procedure under Section 18 MSMED Act
- Conciliation must precede arbitration
- Council cannot pass award without following arbitration provisions
- Award without jurisdiction is nullity
- Writ petition maintainable against award passed without jurisdiction
Case Details
2021 LawText (SC) (12) 29
Civil Appeal No.2899 of 2021
Sri Anup Kumar (for appellant), Dr. Manish Singhvi (for 2nd respondent), Sri Kailash Vasdev (for 3rd respondent)
Jharkhand Urja Vikas Nigam Limited
The State of Rajasthan & Ors.
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Nature of Litigation
Civil appeal against dismissal of writ petition challenging order of Micro and Small Enterprises Facilitation Council directing payment of dues under MSMED Act.
Remedy Sought
Appellant sought to quash the order dated 06.08.2012 passed by the Rajasthan Micro & Small Industries Facilitation Council and the dismissal of its writ petition by the High Court.
Filing Reason
The Council passed an order directing payment without following mandatory conciliation and arbitration procedure under Section 18 of MSMED Act.
Previous Decisions
The Single Judge of Rajasthan High Court dismissed the writ petition; the Division Bench dismissed the intra-court appeal.
Issues
Whether the Council's order dated 06.08.2012 was passed in compliance with Section 18 of MSMED Act and the Arbitration and Conciliation Act, 1996.
Whether the High Court erred in dismissing the writ petition on the ground of alternative remedy under Section 34 of the Arbitration and Conciliation Act, 1996.
Whether the award is a nullity for lack of jurisdiction and non-compliance with mandatory procedure.
Submissions/Arguments
Appellant: Council passed order without giving proper opportunity and in disregard of mandatory provisions of Section 18 MSMED Act and Arbitration and Conciliation Act; order is without jurisdiction as per contract terms; appellant paid Rs.63,43,488/- after inspection.
Respondent No.2 (Council): Appellant failed to challenge award under Section 34 within time; writ petition was belated; no grounds to interfere.
Respondent No.3: Council gave proper opportunity; appellant did not respond; award is valid; MSMED Act is beneficial legislation; appellant partly complied by paying part amount.
Ratio Decidendi
Under Section 18(3) of the MSMED Act, if conciliation fails, the Council must either itself take up the dispute for arbitration or refer it to an institution, and the provisions of the Arbitration and Conciliation Act, 1996 apply. The Council cannot pass an award without following the arbitration procedure. An award passed without jurisdiction and in disregard of mandatory provisions is a nullity and can be challenged by way of writ petition despite availability of alternative remedy under Section 34 of the Arbitration and Conciliation Act.
Judgment Excerpts
Only on the ground that on 06.08.2012 the appellant has not appeared, the order dated 06.08.2012 was passed by the Council directing the appellant to make the payment to the 3rd respondent, as claimed, within a period of thirty days from the date of the order.
As per Section 18(3) of the MSMED Act, if conciliation is not successful, the said proceedings stand terminated and thereafter Council is empowered to take up the dispute for arbitration on its own or refer to any other institution.
The said Section itself makes it clear that when the arbitration is initiated all the provisions of the Arbitration and Conciliation Act, 1996 will apply, as if arbitration was in pursuance of an arbitration agreement referred under sub-section (1) of Section 7 of the said Act.
Procedural History
The 3rd respondent filed a claim before the Rajasthan Micro and Small Enterprises Facilitation Council. The Council issued summons on 18.07.2012 for appearance on 06.08.2012. The appellant did not appear, and the Council passed an order on 06.08.2012 directing payment. The appellant challenged this order by filing Civil Writ Petition No.11657 of 2017 before the Rajasthan High Court, which was dismissed by the learned Single Judge. The appellant then filed D.B. Special Appeal Writ No.1854 of 2017, which was dismissed by the Division Bench on 11.12.2017. The appellant thereafter filed the present Civil Appeal No.2899 of 2021 before the Supreme Court.
Acts & Sections
- Micro, Small and Medium Enterprises Development Act, 2006: Section 17, Section 18, Section 18(2), Section 18(3), Section 18(4)
- Arbitration and Conciliation Act, 1996: Section 7, Section 7(1), Section 34, Section 34(3), Sections 65 to 81
