Order Of Facilitation Council, After Termination Of Conciliation Under MSMED Act, Not Executable: Delhi High Court

The Single Bench of Justice Prateek Jalan reiterated that the proceedings for conciliation and arbitration cannot be clubbed.

The respondent M/S. Jindal Steel and Power Ltd. issued a work order in favour of the petitioner M/S. Unicon Engineers. After the respondent failed in clearing the dues of the petitioner, the petitioner made a complaint before the Facilitation Council under Section 18 of the MSMED Act. The Council passed an order directing the respondent to pay a certain sum to the petitioner along with interest. The said sum was paid by the respondent to the petitioner, however, the respondent failed to make payment of the interest amount as directed by the Council.

The petitioner filed a petition before the Delhi High Court seeking execution of the order passed by the Facilitation Council under the MSMED Act, on the ground that the said order constituted an arbitral award which is capable of execution under Section 36 of the A&C Act.

The respondent M/S. Jindal Steel and Power Ltd. submitted before the High Court that the execution proceedings were not maintainable since the said order was not an executable arbitral award.

The respondent added that the Council had taken up the proceedings for conciliation, which had failed. The respondent added that the Council was required to refer the matter to arbitration and that it could not have passed a direction to the respondent to make payment to the petitioner.

The petitioner M/S. Unicon Engineers averred that the respondent had failed to challenge the order of the Council and hence, he cannot resist the execution of the order passed by the Council.

Section 18(1) of the MSMED Act provides that a party to a dispute may make a reference to the Micro and Small Enterprises Facilitation Council (MSEFC). Under Section 18(2), the MSEFC shall either itself conduct conciliation proceedings in the matter or it may seek the assistance of any institution or centre. Section 18(3) provides that where the conciliation initiated under Section 18(2) is not successful, the MSEFC may either itself take up the dispute for arbitration or refer the matter to any institution or centre for arbitration.

The Court observed that the Supreme Court in the case of Jharkhand Urja Vikas Nigam Limited versus The State of Rajasthan & Ors. (2021) had held that, in view of Section 18(3) of the MSMED Act, when the conciliation proceedings initiated by the Facilitation Council fails and stands terminated, the dispute between the parties can be resolved by arbitration. The Supreme Court had ruled that the Council can arbitrate and pass an award, after following the procedure specified in the provisions of the A&C Act, particularly the procedure specified in Sections 20, 23, 24 and 25 of the A&C Act. The Apex Court had held that where the arbitral proceedings initiated by the Facilitation Council is not in accordance with the relevant provisions of the A&C Act, the order passed by the Facilitation Council is a nullity and it does not constitute an arbitral award.

The Court noted that after the conciliation proceedings initiated by the Council failed, the Council passed an order directing the respondent to pay a part of the claim raised by the petitioner. With respect to the remaining part of the claim, the Council referred the parties to the High Court Arbitration Centre, Chennai for arbitration.

The Court held that the Council had failed to follow the procedure mentioned in Section 18(3) of the MSMED Act.

The Court noted that the order sought to be executed was passed by the Facilitation Council, with respect to a part of the claim raised by the petitioner, without taking it up for arbitration or by referring it to an institution or centre for arbitration.

The Court added that even if the Council were to arbitrate and pass an award, the relevant procedure contained in the A&C Act, as mentioned under Sections 20, 23, 24 and 25, should have been followed.

The Court observed that in view of the judgment of the Supreme Court in Jharkhand Urja Vikas Nigam Limited versus The State of Rajasthan & Ors. (2021), the proceedings for conciliation and arbitration cannot be clubbed.

Hence, the Court ruled that since the procedure adopted by the Council was contrary to the mandate, the order passed by the Facilitation Council is a nullity and it does not constitute an arbitral award.

The Court observed that the Apex Court in Jharkhand Urja Vikas Nigam Limited (2021) has held that when an order is passed without recourse to arbitration and in utter disregard to the provisions of A&C Act, Section 34 of the A&C Act will not apply, and hence, an appeal against the said order cannot be rejected only on the ground that the appellant has not availed the remedy under Section 34.

Hence, the Court ruled that the enforcement proceedings were not maintainable.

Case Title: M/S. Unicon Engineers versus M/S. Jindal Steel and Power Ltd.

Citation: 2022 LiveLaw (Del) 722

Dated: 26.07.2022 (Delhi High Court)

Counsel for Petitioner: Mr. Senthil Jagadeesam, Ms. Mrinal Kanwar & Mr. Sajal Jain, Advocates.

Counsel for Respondent: Mr. Saket Sikri, Mr. Naman Joshi, Mr. Yuvraj Francis, Mr. Ajay Pal Khullar & Ms. Ekta Gupta, Advocates.

Click Here To Read/Download Order