Invocation Of Section 9 Of The A&C Act; Need To Wait Termination Of Conciliation Proceedings Under MSME Act: Madhya Pradesh High Court

The Madhya Pradesh High Court has ruled that the provisions of the Arbitration and Conciliation Act, 1996 (A&C Act), including Section 9, would come into operation only after the termination of the conciliation proceedings under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), in the absence of an arbitration agreement between the parties. The Bench, consisting of Justices Sheel Nagu and Maninder S. Bhatti, held that the powers under Section 9 of the A&C Act cannot be invoked by the competent Court prior to the termination of the conciliation proceedings under the MSMED Act. The Court ruled that the word 'before' mentioned in Section 9 of the A&C Act refers to the period between the termination of the conciliation proceedings under the MSMED Act till the cognizance of the dispute by the Arbitral Tribunal under Section 18(3) of the MSMED Act. The appellant M/S Ujas Associates, registered with the Ministry of Micro, Small and Medium Enterprises (MSME), Government of India, entered into a transaction with the respondent Company M/S KJS Cement (India) Ltd. for some construction work. The appellant approached the Council constituted under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) for non-payment of dues by the respondent. Subsequently, conciliation proceedings were initiated by the Facilitation Council constituted under the MSMED Act. Thereafter, during the pendency of the conciliation proceedings, the appellant filed an application under Section 9 of the A&C Act before the District Court for interim measures of protection, which was dismissed by the District Court. Against this, the appellant filed an appeal before the Madhya Pradesh High Court under Section 37 of the A&C Act. The appellant Ujas Associates submitted before the High Court that though there was no written agreement between the parties, however, a contract for construction work existed between the parties, which was successfully carried out by the appellant. Thus, the appellant averred that it had claimed payment from the respondent for the work executed by it. The appellant contended that the District Court had wrongly held that in the absence of an agreement between the parties, an application under Section 9 of the A&C Act was not maintainable. The appellant averred that in view of the provisions of Section 18 of the MSMED Act, there need not be an agreement between the parties and that if a dispute fell within the ambit of the MSMED Act, it would automatically be referred for conciliation and then subsequently, for arbitration. The respondent KJS Cement submitted that in the absence of an arbitration agreement between the parties, the arbitral proceedings were not maintainable. The respondent averred that since there was no agreement containing an arbitration clause between the parties, therefore, an application under Section 9 of the A&C Act was not maintainable. Section 18(1) of the MSMED Act provides that any 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 and is thereby terminated, the MSEFC may either itself take up the dispute for arbitration or refer the matter to any institution or centre for arbitration. Section 18 (3) further provides that the provisions of the A&C Act shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement under Section 7 of the A&C Act. The Court noted that a party can approach the Court under Section 9 of the A&C Act, before, during or at any time after the passing of the arbitral award for grant of interim measures. Thus, the Court held that powers under Section 9 can be invoked even prior to the initiation of the arbitral proceedings, or during its pendency, and even after the passing of an award. Hence, the Court ruled that pendency of arbitral proceeding is not a condition precedent for invoking the powers under Section 9 of the A&C Act. The Court added that even in the absence of the arbitral proceedings, the competent Court can be approached under Section 9 for grant of interim measures or other reliefs for preservation of the subject matter of the arbitration. The Court observed that the parliament has enacted the MSMED Act for facilitating the promotion and development of the MSME and for enhancing their competitiveness. The Court added that the MSMED Act is a self-contained Code which provides a mechanism for redressal of the disputes. The Court noted that under Section 15 of the MSMED Act, a protection is given to a supplier where there is a delay in payment by the buyer towards the goods...

Invocation Of Section 9 Of The A&C Act; Need To Wait Termination Of Conciliation Proceedings Under MSME Act: Madhya Pradesh High Court

Parina Katyal

Tags