Bar Against Even Number Of Arbitrators Is Not Attracted In Case Of Statutory Arbitration U/S 18(3) Of MSMED Act: Calcutta HC

A division bench of Calcutta High Court comprising Justices Uday Kumar and Sabyasachi Bhattacharya in a notable judgment has observed that the bar restricting the number of arbitrators to even numbers, which is applicable when the parties themselves appoint arbitrators under the Arbitration and Conciliation Act (“ACA”), is not attracted to a statutory arbitration under Section 18(3), Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”). Thus, even if the number of the Council members who acted as arbitrators as in the present case is an even number, it per se does not vitiate the award. Facts The present appeal under Section 37, ACA has been preferred against a judgment passed under Section 34, ACA thereby affirming the award passed by the West Bengal State Micro and Small Enterprises Facilitation Council (“Council”). By the impugned award, the Appellant had been directed to pay an amount of Rs.6,88,852/-, together with interest at three times the bank rate notified by the RBI with effect from the date of expiry of the period of 45 days from the day of acceptance or the day of deemed acceptance of the work as admissible under the provisions of Sections 15 and 16 of the MSMED Act. Contentions The Counsel for the Appellant averred the following – The Council acted contrary to the scheme of Section 18, ACA in terminating the conciliation process, taking up the matter for arbitration and passing the award by the self- same order dated September 21, 2011. As per Section 18(3), provisions of ACA apply to the arbitration under MSMED Act. The same Council members could not have acted as arbitrators after having themselves taken up the conciliation proceedings, since such a course of action violates Section 80, ACA. The four Council members acted as the arbitral tribunal, which violates Section 10, ACA which mandates that the number of arbitrators cannot be an even number. The award dismissed on the ground of limitation alone. Although the award was passed in the year 2011, only a purported copy of the award was served by the Respondent on the Appellant. This does not qualify the as the delivery of a signed copy by the arbitral tribunal as mandated under Section 31(5), ACA. The limitation period commences only upon such delivery. Section 19, MSMED Act provides that a challenge to the award shall not be entertained unless a pre-deposit of 75 per cent of the award is made. The effect thereof would be that the challenge would not be taken up for disposal prior to such deposit, as opposed to the filing itself being barred due to non- deposit simultaneously with the application. In reply the Counsel for the Respondent argued – The application under Section 34 was palpably barred by limitation. Rule 4(12) of the West Bengal Micro and Small Enterprises Facilitation Council Rules, 2006 ('2006 Rules') provides that copies of the award shall be made available within seven days of filing an application. The Appellant itself had filed an application and obtained such a copy. Section 31(5) has to be read in the context of the MSMED Act, the Rules framed thereunder provide for making an application for getting a copy of the award. Nothing prevented the Appellant from making an application earlier than July 2023, when it was already award of the award upon getting a photocopy of the same from the Respondent.Section 19, MSMED provides that a challenge against an award passed under the MSMED Act has to be accompanied by 75 per cent of the awarded which includes the principal as well as the interest. However, in the present case, the deposit was made only to the tune of 75 per cent of the principal amount, thus violating the mandate of Section 19. As per the Supreme Court's decision in Gujarat State Civil Supplies Corporation Limited v Mahakali Foods (P) Ltd. (2023) 6 SCC 401 the bar under Section 80, ACA stands superseded by Section 18 read with Section 24, MSMED Act and the Council itself can act both as a Conciliator and an Arbitrator. Observations Upon hearing the Counsels for the parties, the Court framed the following issues – Whether the application under Section 34 was time- barred; Whether the non-deposit of 75 per cent of the entire awarded amount including interest would justify dismissal of the application under Section 34; Whether the Council itself could act both as Conciliator and Arbitrator; Whether the composition of the Arbitral Tribunal, comprised of four Council members, being in violation of Section 10, ACA, vitiated the impugned award; Whether the claim itself was time-barred; Whether the award was otherwise vitiated in law As to issue i), the Court held that Section 18(3), MSMED Act, the parent provision which empowers the Council in the first place to take up the dispute for arbitration, itself stipulates that the provisions of ACA shall apply as ...

Bar Against Even Number Of Arbitrators Is Not Attracted In Case Of Statutory Arbitration U/S 18(3) Of MSMED Act: Calcutta HC

Arpita Pande

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