In a recent judgment, the Orissa High Court, through a single judge bench led by Justice KR Mohapatra, determined that the Micro & Small Enterprises Facilitation Council lacks the authority to consider an application concerning the maintainability of a reference during the conciliation phase, as per the Micro, Small, and Medium Enterprises Development Act, 2006. The court clarified that issues regarding maintainability can only be addressed if the Council proceeds to arbitration.
Brief Facts:
The Petitioner filed the present writ to challenge the order of the Micro & Small Enterprises Facilitation Council, Cuttack as the said order ruled that the Petitioner was a 'Buyer'. Conciliation proceedings were directed following a challlenge to the maintainability of a reference by the Petitioner.
Contentions of the Petitioner:
It was contended that under Section 2(n) of the Micro, Small, and Medium Enterprises Development Act, 2006 ("MSME Act"), the Petitioner, identified as the National Small Industries Development Cooperation, should be considered a supplier rather than a buyer.
It was further submitted that the petitioner serves as a mediator, assisting manufacturers or suppliers in distributing their products.
Contentions of the Respondent:
It was argued that the Petitioner was the initiator of the disputed order by questioning the reference's maintainability prior to engaging in the conciliation process.
Observations of the Court:
The High Court determined that the Micro & Small Enterprises Facilitation Council did not initiate the conciliation process as required by Section 18(2) of the MSME Act. According to this provision, the Council is obliged to undertake the conciliation process directly or with the help of an institution specializing in alternative dispute resolution services upon receiving a reference.
It was highlighted that the Council overstepped its bounds by considering applications that questioned the reference's maintainability before arbitration could begin. The Court found that issues regarding maintainability should only be considered if the Council moved to arbitration as per Section 18(3) of the MSME Act. As such, the Court ruled that the Council's order, which was made before any conciliation effort, was without proper jurisdiction and thus invalid.
Additionally, the Court pointed out that the directive issued by the Council for the parties to begin conciliation within a month did not comply with the explicit requirements of Section 18(2) of the MSME Act. According to this provision, the Council is mandated to either oversee the conciliation process itself or refer it to a qualified alternative dispute resolution service provider. The Court identified the failure to comply with this mandatory step as a substantial procedural error on the part of the Council.
The decision of the Court:
Based on the aforementioned reasons, the High Court accordingly dismissed the matter.
Case Title: National Small Scale Industries Corporation Limited vs State of Odisha and others.
Coram: Hon’ble Justice K.R Mohapatra
Case No.: WP (C) No. 10410 of 2014
Advocates for the Appellant: Advs. Mr. Jagannath Pattanaik, Ms. Soma Pattanaik, Mr. Smita Ranjan Pattanaik
Advocates for the Respondent: Advs. Mr. Prasanna Kumar Parhi, Mr. Achyutananda Routray, Mr. Saswat Kumar Acharya, Mr. K.R. Thakker
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