MSEF Council’s Dismissal Order Under Section 18 Is Not An Award For Section 34 Of The A&C Act: Jharkhand High Court

The bench of Justices Shree Chandrashekhar and Anubha Rawat Choudhary held that since the alternative remedy under Section 34 is not available in such a case, the aggrieved party can challenge the order of the MSEF Council directly in a writ petition.

The Court also held that an application under Section 18 of the MSMED Act can also be filed for the recovery of the interest amount only even if the principal amount has been paid, though belatedly. It held that once the liability to pay under the MSMED Act crystallizes, it is not erased by mere payment of the principal amount without the due interest, therefore, an application for the recovery of the interest only is maintainable.

Facts

The parties entered into an agreement dated 08.02.2013. In terms of the agreement, the respondent was to carry out certain printing and supply work for the appellant.

A dispute arose between the parties when the payment against the final bill issued by the respondent was withheld by the appellants. Accordingly, the respondent filed a writ petition praying for a direction upon the appellant to pay the due amount. The appellant paid the principal amount during the pendency of the writ petition, consequently, the respondent withdrew the petition with a liberty to appropriate remedy to recover the interest amount.

Thereafter, the respondent made an application under Section 18 of the MSMED Act before the MSEF Council seeking to recover the interest on the belated payment. The Council, vide an order dated 04.03.2016, dismissed the reference at the very threshold, holding the petition as not maintainable on the ground that reference under Section 18 cannot be maintained for the recovery of the interest amount when the principal has been paid.

Against the order of the MSEF Council, the respondent filed a writ petition. The writ Court allowed the petition and remitted the matter back to the Council for adjudication on the issue regarding the interest on the delayed payment of the principal amount.

Aggrieved by the order of the writ Court, the appellants filed an LPA challenging it.

Grounds of Appeal

The appellant challenged the order of the writ Court on the following grounds:

• The writ was not maintainable on the ground that the respondent had a statutory alternative remedy under Section 354 of the A&C r/w Section 19 of the MSMED Act.
• Section 19 of MSMED Act, 2006 comprehends not only decree and award to be appealable but also “any order” passed by the Council as being statutory/Institutional Arbitrator.
• In arbitral jurisprudence, once the appeal is maintainable, the remedy of writ petition is rendered otiose.

The respondent made the following counter-arguments in support of the order of the writ Court:

• MSEF dismissed the reference at the threshold as not maintainable solely on the ground that no application under section 18 of MSMED Act, 2006 is maintainable where the claim is only for interest and not for the principal amount. This was done without initiating conciliation proceedings as required under section 18(2) of the MSMED Act, 2006.
• An order which has been passed by the MSEF Council without following the procedure laid down under Section 18 of the Act, cannot fall within the rubric of an award which is challengeable under Section 19 of MSMED Act r/w Section 34 of the A&C Act.
• Since there were no conciliation proceedings, there could not have been any failure of conciliation and, therefore, no arbitration proceeding was started in terms of section 18(3) of the Jharkhand MSMED Act, 2006 by the Facilitation Council. Therefore, the order impugned in the writ petition was not an award.
• The ld. Writ Court rightly concluded that a claim only for the interest on the delayed payments is maintainable under Section 18 of the MSMED Act as the interest falls squarely within the scope of Section 17 of the Act.

Analysis by the Court

The Court observed that the facilitation council dismissed the petition moved by the respondent, under Section 18 of the MSMED Act, at the very threshold as not maintainable on the ground that a claim for the recovery of interest alone is beyond the scope of the Section.

The Court held that for an order to be called an award which is challengeable under Section 34 of the A&C Act, the facilitation council must follow the procedure as laid down under the Act, therefore, the facilitation council must have to initiate the conciliation proceedings and upon the failure of facilitation, it must refer the dispute to arbitration and it is only the order passed by the arbitral tribunal on such reference would be deemed an award.

The Court held that the writ court rightly concluded that the order impugned before it was not an award as the facilitation council had dismissed the claim at the very threshold as not maintainable, therefore, it could not have been challenged under Section 34 of the A&C Act. It held that the ld. Writ Court rightly held that since no alternative remedy was available to the respondent against the order, the writ was maintainable.

Next, the Court examined that whether the facilitation council can entertain a claim for interest alone when the principal amount has been belatedly paid.

The Court held that an application under Section 18 of the MSMED Act can also be filed for the recovery of the interest amount only even if the principal amount has been paid, though belatedly. It held that once the liability to pay under the MSMED Act crystallizes, it is not erased by mere payment of the principal amount without the due interest, therefore, an application for the recovery of the interest only is maintainable.

However, the Court observed that the ld. Writ Court had directed the facilitation council to adjudicate on the issue regarding claim of the respondent regarding interest. The Court held that the stage of adjudication would come only after the failure of the Conciliation proceedings. Accordingly, the Court modified the order and directed the Facilitation Council to first initiate the conciliation proceedings.

Case Title: The State Project Director v. National Printers, LPA No. 505 of 2019

LL Citation: 2023 LiveLaw (Jha) 55

Date: 11.09.2023

Counsel for the Appellants: Mr. Krishna Murari and Mr. Raj Vardhan

Counsel for the Respondents: Mr. Rahul Lamba, Mr. Aditya Mohan Khandelwal and Mr. Amrit Raj Kisku.

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