Arbitral Award By MSEF Council Without Conciliation Process Under Section 18(2) Is Liable To Be Set Aside: Orrisa High Court

The High Court of Orrissa has held that the failure of the MSFE Council to refer the parties to ‘Conciliation’ as provided under Section 18(2) of the MSMED Act renders the award passed by it under Section 18(3) susceptible to setting aside under Section 34 of the A&C Act. The bench of Justice S.K. Panigrahi held that in terms of Section 18(2) of the MSMED Act, the MSEF Council to conciliate between the parties either itself or take assistance from any other institution. It held that it is mandatory for it to appoint a third party as a ‘conciliator’ who would facilitate dialogue between both the parties and merely directing the parties to attempt to amicably settle the dispute between themselves is not sufficient. The Court further held that an arbitral award passed by the MSEF Council without deciding the Section 16 application filed by the buyer and without properly appreciating the evidence shocks the conscience of the Court. Facts The case involves a dispute between M/s Orissa Coal Chem. Pvt. Ltd. (Supplier) and M/s National Aluminum Company Ltd. (Buyer) over the supply of hard coal-tar pitch. The Supplier claimed that the Buyer's delay in payments caused a cash crunch and affected production. The Buyer withheld a significant amount from the Supplier's account. Despite the outstanding payment, additional purchase orders were placed, and the Supplier requested the release of the pending amount. The Buyer raised issues of non-furnishing of performance bank guarantees and threatened to offload the contracted quantities at the Supplier's risk and cost if supply wasn't resumed. The Buyer terminated the purchase order, claiming the outstanding amount as forfeited. The Supplier filed a petition for dispute settlement under the Interest on Delayed Payment of Interest Act, 1993, seeking recovery, which later got transferred to the Micro and Small Enterprises Facilitation Council (MSEFC) due to the repeal of the IDPI Act. During this process, the Buyer challenged the jurisdiction of the MSEFC. While the case was pending before the MSEFC, the Buyer nominated an arbitrator for adjudicating the dispute, leading the Supplier to seek quashing of the arbitration proceedings. The court ordered a stay on the arbitration proceedings pending before the Buyer-appointed arbitrator. MSEFC directed the parties to amicably settle the dispute, however, it did not appoint any third party as conciliator as required under Section 18(2) of the MSMED Act. The respondent also filed an application under Section 16 of the A&C Act challenging the jurisdiction of the Council. However, the Council without deciding such objection first, passed an award in favor of the Supplier, directing the Buyer to pay a sum along with interest under the MSMED Act. In the award, the Council failed to appreciate evidence and also to provide any reasons for its conclusion. The Buyer challenged the award, and the District Judge set it aside, remitting the dispute back to the MSEFC for fresh adjudication. Aggrieved by the impugned judgment the supplier challenged it under Section 37 of the A&C Act. Contention of the Parties The appellant challenged the impugned judgment on the following grounds: The Learned District Judge went beyond the scope of his powers as outlined in Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) by reevaluating the evidence and making a fresh decision on the entire dispute based on its merits, which is not permitted by law.The application filed by the Buyer under Section 34 of the A&C Act was flawed as it did not adhere to the mandatory requirement of depositing 75% of the awarded amount. Although the Buyer requested an exemption from making the deposit, the request was denied. The Supplier argues that the application was properly initiated only on 17.5.2017, when the Buyer eventually deposited 75% of the award amount (excluding interest). This filing date exceeds the 90 days + 30 days timeframe specified in Section 34 of the A&C Act.The Learned District Judge erred in entertaining the appeal under Section 34 of the A&C Act since the Buyer failed to make the necessary deposit within the stipulated time period. Analysis by the Court The respondent also challenged the impugned judgement in the cross appeal on the following grounds: The Learned District Judge went beyond the scope of his powers as outlined in Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) by reevaluating the evidence and making a fresh decision on the entire dispute based on its merits, which is not permitted by law.The application filed by the Buyer under Section 34 of the A&C Act was flawed as it did not adhere to the mandatory requirement of depositing 75% of the awarded amount. Although the Buyer requested an exemption from making the deposit, the request was denied. The Supplier argues that the application was ...

Arbitral Award By MSEF Council Without Conciliation Process Under Section 18(2) Is Liable To Be Set Aside: Orrisa High Court

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