Mandate Of Facilitation Council Is Not Terminated Even If It Fails To Render Award Within 90 Days U/S 18(5) Of MSME Act: Bombay High Court

The Bombay High Court bench of Justice Somasekhar Sundaresan has held that the mandate of the MSME Facilitation Council (Council) cannot be terminated merely on the ground that it failed to render an award within 90 days under section 18(5) of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSME Act”) from the date of entering reference as this time period is directory in nature. Brief Facts: In this Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), the Petitioner, the Maharashtra Public Service Commission (“MPSC”) has challenged an arbitral award passed in favour of the Respondent Vast India Private Ltd. (“Vast India”). The Award has been passed by the Facilitation Council (“Council”) formed under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSME Act”) - Vast India is a “small enterprise” for purposes of the MSME Act. MPSC issued a Tender for Digital Asset Management on July 20, 2010 and the contract was awarded to Vast India. The Vast India claimed an unpaid amount from the MPSC which was denied. Subsequently, Vast India filed a reference before the MSME Facilitation Council (Council). Arbitration commenced on June 10, 2021. The Arbitral Tribunal also found that there had been no complaints from MPSC during the performance of the contract either about the quality of work done or about any requirement not being met. However, the payment due to Vast India had not been released. The Arbitral Tribunal, on facts, upon a review of the evidence before it, has returned a conclusive finding that there had been no default on the part of Vast India and the payments due to it ought to be made. The Arbitral Tribunal has ruled that the benefit of access to the forum would not be available to an entity that is not a protectee of the special provisions of the MSME Act. Contentions: The petitioner submitted that the impugned award was passed beyond the 90 day limit under section 18(5) of the MSME Act and the time period provided under section 29A of the Arbitration Act had also been missed. This rendered the council functus officio. Observations: The court, at the outset, referred to the scheme outlined under Section 18 of the MSME Act. It noted that the MSME Council can act both as an arbitrator and a conciliator. Furthermore, once the Council decides to act as an arbitrator, the provisions of the Arbitration Act become applicable to the proceedings conducted by the Council. It also observed that the territorial jurisdiction of the Council is determined based on the location of the supplier, regardless of where the other party is situated. Lastly, it mandates that arbitral proceedings must be completed within 90 days. The court further observed that Section 29A of the Arbitration Act stipulates that arbitral proceedings should be completed within 12 months from the date of completion of pleadings. This period may be extended by an additional six months upon an application made by one of the parties to the jurisdictional court, provided sufficient cause is shown. Rejecting the submission that the council had become functus officio, the court held that the time period mentioned under Section 18 of the MSME Act is directory in nature. It further stated that merely because the Council failed to render the award within the stipulated time frame, the beneficiary, being an entity registered under the MSME Act, could not be faulted. Additionally, the court observed that although the time period under the MSME Act is directory, once the arbitration is undertaken by the Council, the timeline prescribed under Section 29A of the Arbitration Act becomes applicable. Accordingly, the award must be rendered within 12 months from the completion of pleadings. However, the court noted that in this case, a counterclaim was also filed by the MPSC, which reset the 12-month deadline as provided under Section 29A of the Arbitration Act. Therefore, the award rendered by the Council was within the prescribed timeframe and could not be said to be in violation of Section 29A. Based on the above, the court concluded that the contention that the mandate of the Arbitral Tribunal expired on September 9, 2021 on account of Section 18(5) of the MSME Act, as well the contention that the mandate expired on June 15, 2022 on account of Section 29-A of the Arbitration Act, deserve emphatic rejection. Coming to the contention of counter claim being rejected, the court observed that it is clealry provided under section 19 of the Arbitration Act that arbitration proceedings are not strictly governed by the CPC. Order VIII Rule 6A provides that the counter claim should be filed before the submission of statement of defence or before the expiry of time period for submitting the statement of defence. In the present case, the counter claim was filed one year after...

Mandate Of Facilitation Council Is Not Terminated Even If It Fails To Render Award Within 90 Days U/S 18(5) Of MSME Act: Bombay High Court

Mohd Malik Chauhan

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