90-Day Timeline In Section 18(5) Of MSME Act Is Directory : Calcutta High Court

The Calcutta High Court bench comprising Justice Sabyasachi Bhattacharyya has held that the 90-day timeline for completion of the arbitral proceeding under Section 18(5) of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) is directory, not mandatory, and does not terminate or affect the validity of mandate of the MSME Facilitation Council as Arbitrator. It further held that the Court does not have jurisdiction to substitute the Council or its nominee by another Arbitrator under Section 18(3) of the MSME Act, as the Act confers exclusive jurisdiction on the Facilitation Council and overrides Section 29A(6), Section 14(1) and Section 15(2) of the Arbitration and Conciliation Act, 1996 (1996 Act). Background Facts Porel Dass Water & Effluent Control Pvt. Ltd. (the petitioner) had initiated an arbitral proceeding under the MSME Act. The petitioner sought an extension of the mandate of the Council acting as arbitrator after the arbitration proceedings exceeded the statutory period of 90 days under Section 18(5) of the MSME Act. The petitioner filed the application under Section 29A of the Arbitration and Conciliation Act, 1996 for extending the mandate. Issues Whether Section 18 of the MSME Act stands amended by Section 62 of the Mediation Act, 2023; Whether the Court having jurisdiction over an arbitral proceeding under the MSME Act has the authority/jurisdiction to substitute the Council or its designated nominee as Arbitrator in an arbitration under Section 18 of the MSME Act; and Whether the mandate of the Council or its nominee under Section 18(3) of the MSME Act terminates after the expiry of 90 days from the date of making the reference. Arguments The Counsel for the petitioner made the following arguments: Section 62 of the Mediation Act, 2023 has amended the MSME Act in the manner specified in the Seventh Schedule, replacing conciliation under Section 18(2) and (3) of the MSME Act with pre-arbitration mediation by the MSME Facilitation Council.Section 18(4) of the MSME Act now allows for arbitration by the Council or an ADR institution if the mediation stands terminated. The previous sub-section (5) of Section 18, which provided that every reference under Section 18 shall be decided within a period of 90 days from the date of making such a reference has been deleted. Thus, there is no longer any statutory time frame for the completion of arbitral proceedings by the Council.As the 90-day period expired on 08.05.2023, the Court can extend the Council's mandate under Section 29A of the 1996 Act by virtue of Section 18(4) of the MSME Act. Even if Section 62 of the Mediation Act is inapplicable, the original Section 18 of MSME Act remains, and Section 29A of the 1996 would apply to MSME arbitrations. The 90-day period under Section 18(5) is directory, as held in GPT Infra Projects Ltd. v. Miki Wire Works Pvt. Ltd. [2023 SCC OnLine Cal 595].Section 18(4) confers exclusive jurisdiction on the Council for arbitration. Section 18(1) and (4) contain non obstante clauses. Thus, there cannot be any substitution of the Council even if the mandate expires, within the contemplation of either Section 29A or Section 15 of the 1996 Act. As the MSME Act is a special statute, it overrides the 1996 Act. Reliance was placed upon Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Pvt. Limited [ (2023) 6 SCC 401] The Counsel for the respondent made the following arguments: Section 62 of the Mediation Act has not yet been notified in Notification No. S.O. 4384(E) dated 09.10.2023. The Madras High Court in its judgment dated 19.03.2024 in Tamil Nadu Medical Services Corp. Limited. v. M/s Smilax Healthcare Pvt. Ltd., has also noted that Section 62 of the Mediation Act is yet to be notified and the amended Section 18 of the MSME Act has not come into force.The Council's mandate as Arbitral Tribunal expired on 08.05.2023 (90 days from 10.02.2023), per Section 18(5) of the MSME Act. In Gujarat State Civil Supplies, the non obstante clauses in Section 18(1) and (4) of the MSME Act were held to override the 1996 Act.The 90-day limit under Section 18(5) of the MSME Act is mandatory, leaving no room for extensions under Section 29A of the 1996 Act.The only option before the parties is to seek a substitution under Section 15(2) of the 1996 Act. Section 18(4) of the MSME Act, containing a non obstante clause, gives the Council jurisdiction as Arbitrator or Conciliator. Section 80(a) of the 1996 Act bars a Conciliator from acting as an Arbitrator. This bar does not prevent the appointment of a fresh Arbitrator under Section 15 of the 1996 Act. Observations Whether Section 18 of the MSME Act stands amended by Section 62 of the 2023 Act The Court observed that Notification No. S.O.4384(E) dated 09.10.2023...

90-Day Timeline In Section 18(5) Of MSME Act Is Directory : Calcutta High Court

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90-Day Timeline In Section 18(5) Of MSME Act Is Directory : Calcutta High Court

Tazeen Ahmed

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