MSME Council Award Passed Without Terminating Conciliation & Following Arbitral Procedure Is A Nullity: Chhattisgarh High Court
The Chhattisgarh High Court has held that an order passed by a Micro and Small Enterprises Facilitation Council (MSEFC) without formally terminating conciliation proceedings and without conducting arbitration in accordance with the Arbitration and Conciliation Act, 1996, is a nullity in the eyes of law. Such an order can be challenged even at the execution stage as a...
The Chhattisgarh High Court has held that an order passed by a Micro and Small Enterprises Facilitation Council (MSEFC) without formally terminating conciliation proceedings and without conducting arbitration in accordance with the Arbitration and Conciliation Act, 1996, is a nullity in the eyes of law. Such an order can be challenged even at the execution stage as a jurisdictional objection.
Justice Ravindra Kumar Agrawal was hearing a petition filed by M/s Jai Balaji Industries Ltd. challenging an order of the Executing Court, which had rejected its objections to the execution of an award passed by the Chhattisgarh Micro and Small Enterprises Facilitation Council. The dispute arose from unpaid dues claimed by Garuda Ispat Pvt. Ltd. under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). The petitioner contended that the Council had proceeded directly to pass an award without formally terminating conciliation proceedings and without initiating independent arbitration proceedings as mandated by law.
The Court examined the scheme of Section 18 of the MSMED Act and observed that it contemplates two distinct stages. Under Section 18(2), the Council must first conduct conciliation in accordance with Sections 65 to 81 of the Arbitration and Conciliation Act, 1996. Only where such conciliation fails and stands terminated without settlement can the Council proceed under Section 18(3) to arbitrate the dispute, following the procedure prescribed under the Arbitration and Conciliation Act.
On examining the record, the Court found that the order sheets did not disclose any order formally recording the failure or termination of conciliation proceedings. More importantly, there was no indication that arbitration proceedings had ever commenced in accordance with the law. The record did not reveal issuance of notice commencing arbitration, filing of a statement of claim and defence, framing of issues, production of evidence, or hearings as contemplated under Sections 23, 24 and 25 of the Arbitration and Conciliation Act.
Relying on precedents, the High Court reiterated that conciliation and arbitration are distinct statutory stages and cannot be clubbed together. Arbitration can commence only after conciliation has failed and been terminated.
The Court rejected the respondent's contention that failure of conciliation can merely be inferred from the subsequent conduct of the Council. It observed that the defect in the case is not confined to the absence of a formal order terminating conciliation but extends to the very foundation of the arbitral process itself.
On the issue of examination of the objections by the executing court, the High Court held that although an executing court ordinarily cannot go behind an arbitral award, it can entertain objections where the award suffers from jurisdictional nullity. It observed:
“The absence of any discernible arbitral procedure, including filing of pleadings, opportunity of evidence and hearing in accordance with law, strikes at the root of the matter and raises a serious issue regarding the very existence of a legally enforceable arbitral award.”
Holding that the Executing Court had failed to examine this foundational jurisdictional issue, the High Court allowed the writ petition, set aside the order dated 07.01.2025 passed by the Executing Court, and remanded the matter for fresh consideration of the petitioner's objections in accordance with law.
Case Title: M/s Jai Balaji Industries Ltd. v. Garuda Ispat Private Limited [WP227 No. 67 of 2025].