Bombay High Court
Dodal Electro Instruments Thro. Its ... vs The Micro And Small Enterprises ... on 23 September, 2025
Author: N.J.Jamadar
Bench: N.J.Jamadar
2025:BHC-AS:40078
wp 9081 of 2025.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.9081 OF 2025
Dodal Electro Instruments,
having its address at Building - D,
Flat No.13, Chattraban Co-op.
Housing Society, S.No.127/2, Aundh,
Pune - 411 007,
through its Proprietor Mr. Arinjay Dodal ... Petitioner
versus
1. The Micro and Small Enterprises
Facilitation Council,
At Daman, Union Territory of Dadra
and Nagar Haveli and Daman and Diu,
District Industries Centre, 1st Floor,
Udhyog Bhavan, Bhenslore,
Daman - 396 210.
2. Mexim Adhesive Tapes Pvt. Ltd.,
Flat No.Surve No.351/1, Block-D
and E, Village / Town Kachigam,
Kachigam Char Rasta Road,
Daman & Diu, Daman - 396 210 ... Respondents
WITH
WRIT PETITION NO.9082 OF 2025
Dodal Electro Instruments,
having its address at Building - D,
Flat No.13, Chattraban Co-op.
Housing Society, S.No.127/2, Aundh,
Pune - 411 007,
through its Proprietor Mr. Arinjay Dodal ... Petitioner
versus
1. The Micro and Small Enterprises
Facilitation Council,
SSP 1/31
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At Daman, Union Territory of Dadra
and Nagar Haveli and Daman and Diu,
District Industries Centre, 1st Floor,
Udhyog Bhavan, Bhenslore,
Daman - 396 210.
2. Mexim Adhesive Tapes Pvt. Ltd.,
Flat No.Surve No.351/1, Block-D
and E, Village / Town Kachigam,
Kachigam Char Rasta Road,
Daman & Diu, Daman - 396 210 ... Respondents
Mr. Chanakya Keswani with Mr. Tanmay Bhave i/by Economic Laws Practice,
for Petitioner.
Mr. Rohan Agarwal with Ms. Vidisha Rohira i/by Jonathan D. for Respondent
No.2.
CORAM: N.J.JAMADAR, J.
RESERVED ON : 25 AUGUST 2025
PRONOUNCED ON : 23 SEPTEMBER 2025
JUDGMENT :
1. Rule. Rule made returnable forthwith, and, with the consent of the
learned Counsel for the parties, heard finally.
2. By these Petitions, the Petitioner takes exception to an order dated 7
March 2024 passed by the Micro and Small Enterprises Facilitation Council -
MSEFC - Respondent No.1, at Daman, thereby directing the Petitioner to pay
to the Respondent No.2 - seller, a sum of Rs.28,49,940/- and Rs.42,35,504/-
respectively, along with interest as admissible under Section 16 of the Micro,
Small and Medium Enterprises Development Act, 2006 (the Act of 2006).
3. The background facts necessary for the determination of these petitions
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can be summerized as under :
3.1 Mexim Adhesive Tapes Pvt. Ltd. (Mexim) - Respondent No.2 is a
private limited company. Mexim is engaged in the business of manufacture of
paper, rubber and plastic products. Dodal Electro Instruments (Dodal) is a
proprietorship concern of Mr. Arinjay Dodal. It is engaged in the business of
manufacture and supply of electrical instruments and associated components.
3.2 The Petitioner entered into commercial transactions with Mexim.
Pursuant thereto, Work Order no.001 was issued for supply of 2,40,692.42 sq.
meters of self-adhesive tape. The Petitioner purchased the material
aggregating to Rs.15,00,631/- from Mexim. Another Work Order No.003 was
issued for supply of 2,40,335.77 sq. meters of self-adhesive tape.
Thereunder, the Petitioner purchased the material from Mexim worth
Rs.14,88,789/-.
3.3 Mexim instituted two proceedings before the MSEFC - Respondent
No.1 being Case No.DD/01/S/DND/000074 and DD/01/S/DND/000075 for
recovery of the amounts which allegedly remained outstanding for the supply
of the material under the respective work orders. In case No.75 (subject
matter of WP No.9081 of 2025), the claim was for Rs.1,47,610/-. In case
No.74 (subject matter of WP No.9082 of 2025), the claim was for
Rs.3,00,631/-.
3.4 By the impugned orders of even date, in case No.75, MSEFC directed
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the Petitioner to pay to Mexim - Respondent No.2, the principal amount of
Rs.1,47,610/- along with interest of Rs.27,02,330/-. In case No.74, MSEFC
directed the Petitioner to pay to the Respondent No.2 a sum of Rs.3,00,631/-
along with interest of Rs.39,34,873/-. It was further declared that Mexim was
entitled for the interest as per Section 16 of the Act, 2006 from the date of the
filing of the application till realization.
4. The Petitioners have invoked the writ jurisdiction asserting, inter alia,
that the impugned orders were passed by the MSEFC ex-parte. The
impugned orders suffer from grave legal infirmities. Firstly, notices of hearing
were not properly served on the Petitioners. There was gross violation of
fundamental principles of natural justice. Secondly, MSEFC did not follow
mandatory procedure envisaged by the Act of 2006 and the Arbitration and
Conciliation Act, 1996. Without terminating the conciliation proceeding,
MSEFC went on to pass impugned orders which are completely denuded of
the character of an arbitration award.
5. An affidavit in reply has been filed on behalf of Respondent No.2,
assailing the very tenability of the Petitions in view of the statutory remedy
under Section 19 of the Act, 2006. Even otherwise, Respondent No.2
contends, the Petitioner is guilty of suggestio falsi and suppressio veri. Thus,
the Petitioner is not entitled to any discretionary relief.
6. On the merits of the matter, Respondent No.2 asserts, the Petitioner
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has, in fact, acknowledged its liability; made part payment during the
pendency of the Reference before the MSEFC and never disputed the claims.
It is only with an oblique motive to avoid the pre-deposit envisaged by Section
19 of the Act, 2006, the Petitioner has invoked the writ jurisdiction.
7. I have heard Mr. Keswani, learned Counsel for the Petitioners, and Mr.
Agarwal, learned Counsel for Respondent No.2, at some length. Learned
Counsel took the Court through the material on record.
8. Mr. Keswani, learned Counsel for the Petitioners canvassed multi-
pronged submissions. Firstly, Mr. Keswani would urge, the impugned orders
have been passed in flagrant violation of the principles of natural justice and
express statutory provisions. Therefore, the objection to the tenability of the
petitions raised on behalf of Respondent No.2 about the existence of a
statutory remedy, is completely misconceived.
9. Amplifying the submission, Mr. Keswani made an endeavour to
demonstrate that the notices of hearing of the Reference proceedings before
MSEFC, were not duly served on the Petitioners and the orders were passed
behind the back of the Petitioners.
10. Secondly, MSEFC passed the impugned order without following the
mandate contained in Section 18(3) of the Act, 2006. The conciliation
proceedings were never declared to be unsuccessful or otherwise terminated.
On the contrary, all the notices which were issued to the Petitioners were for
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settlement of the dispute, which clearly implied that the conciliation
proceedings were underway. At no point of time, MSEFC indicated that it had
donned the role of an arbitrator. The impugned orders, thus, suffer from the
vice of clubbing the conciliation proceedings with the arbitration proceedings.
Such a course is not legally permissible. A very strong reliance was placed by
Mr. Keswani on the judgment of the Supreme Court in the case of Jharkhand
Urja Vikas Nigam Ltd. V/s. State of Rajasthan and Ors. 1, wherein it was
enunciated that the proceedings for conciliation and arbitration cannot be
clubbed.
11. Thirdly, MSEFC assumed jurisdiction not vested in it by law, in as much
as the reference under Section 18 of the Act, 2006 was itself infirm. Mexim
(R2) was not the seller within the meaning of Section 2(n) of the Act, 2006,
and, therefore, lacked the essential qualification to make a reference under
Section 18 of the Act, 2006. Since Mexim (R2) was not registered as a Small
Scale Industry on the date of the supply of the material to the Petitioners, it
was not entitled to make a reference under Section 18 of the Act, 2006.
12. To this end, Mr. Keswani placed reliance on the judgment of the
Supreme Court in the case of Silpi Industries and Ors. V/s. Kerala State
Road Transport Corporation and Anr.2 In the said case, it was enunciated
that to seek the benefit of provisions under MSMED Act, the seller should
1 (2021) 19 SCC 206
2 (2021) 18 SCC 790
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have been registered under the provisions of the Act, as on the date of
entering into the contract.
13. Lastly, Mr. Keswani would urge, the impugned orders do not have the
trappings of an award under the Arbitration and Conciliation Act, 1996. There
is nothing to indicate that MSEFC resorted to the provisions contained in the
Arbitration and Conciliation Act, with a view to arbitrate the dispute between
the parties and adhered to the procedure prescribed thereunder. Since the
impugned orders are bereft of the characteristic of the award, the Petitioner is
not enjoined to invoke the statutory remedy under Section 19 of the Act,
2006.
14. In opposition to this, Mr. Agarwal, learned Counsel for Respondent No.2
would urge that the Petitioner does not deserve to be heard on the merits of
the matter as the Petitioner has approached the Court with demonstrably
false statements. Inviting attention of the Court to the communication
addressed by the Petitioner in the year 2018, upon being served with the
notice of the Reference proceedings by MSEFC in the year 2018 itself, Mr.
Agarwal strenuously submitted that the assertions in the Petitions that the
Petitioner, for the first time, became aware of the said proceedings in the
month of February 2020, is a blatant lie. According to Mr. Agarwal, the
Petitioner has suppressed the material facts about the service of multiple
notices by MSEFC and the acknowledgment of the liability. On this count
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alone, the Petitions deserve to be thrown over-board, submitted Mr. Agarwal.
15. Mr. Agarwal would urge that the submission on behalf of the Petitioner
that MSEFC has clubbed the stages of conciliation and arbitration is a
subterfuge. Laying emphasis on the contents of the notices addressed by
MSEFC to the Petitioner, Mr. Agarwal urged, with a degree of vehemence,
that the notices were issued for hearing in regard to the complaint of non-
payment of dues. After having succeeded in protracting the proceedings
before the MSEFC by non-appearance and seeking time on multiple
occasions, the Petitioner cannot be heard to urge that MSEFC clubbed the
conciliation and arbitration proceedings.
16. Mr. Agarwal joined the issue on the point that Mexim (R2) is not the
supplier, by placing reliance on the registration certificate of Mexim as a small
scale industry in the year 2004 itself. Even otherwise, all these contentions
ought to be raised in the proceeding challenging the award under Section 19
of the Act, 2006 and not before the writ Court, was the thrust of the
submission of Mr. Agarwal. It was submitted with tenacity that, entertaining
the petitions despite the existence of a statutory remedy would defeat the
object of the provisions of the Act, 2006, especially the avowed purpose of the
provisions contained in Section 19 of the Act, 2006, under which the Court is
precluded from entertaining any proceedings for setting aside a decree,
award or order, unless the appellant, not being a supplier, deposits 75% of the
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amount. A defaulting party cannot be permitted to circumvent the statutory
requirement by invoking writ jurisdiction, submitted Mr. Agarwal.
17. To buttress this submission, Mr. Agarwal placed reliance on the
judgment of a learned Single Judge of the Himachal Pradesh High Court in
the case of Surinder Sharma V/s. Himachal Pradesh Micro Small
Enterprises Facilitation Cuncil and Ors.3.
18. At any rate, according to Mr. Agarwal, the conduct of the Petitioner is
such that no relief can be granted to the Petitioner. Mexim (R2) has been
made to run from pillar to post since the year 2014 for a legitimate claim. The
instant Petitions came to be instituted only when Mexim (R2) filed execution
proceedings and coercive orders were about to be passed therein. In these
circumstances, the Petitions deserve to be dismissed.
19. To begin with the aspect of tenability of the writ petitions against the
orders passed by the MSEFC under Section 18 of the Act, 2006. The
availability of an efficacious alternate remedy is self-imposed restraint on the
exercise of the writ jurisdiction by the High Court. Normally, the exceptions to
the rule of efficacious alternate remedy arise where the writ petition has been
filed for the enforcement of a fundamental right; there has been a violation of
principle of natural justice; the impugned order or proceedings are wholly
without jurisdiction or vires of the legislation under which the orders have
3 Manu/HP/1136/2025
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been purportedly passed itself is challenged. When a right is created by a
statute which has also prescribed the remedy or procedure for enforcing such
right or liability, resort must be had to that particular statutory remedy before
invoking extra-ordinary writ jurisdiction under Article 226 of the Constitution.
This rule of exhaustion of the statutory remedy is a rule of policy, convenience
and discretion.
20. To put it in other words, the existence of the statutory remedy does not
affect the jurisdiction of the High Court to issue a prerogative writ.
Nonetheless, the writ jurisdiction being discretionary, as a matter of policy, writ
Courts insist that the parties exhaust the alternate statutory remedy.
However, in exceptional cases, the writ jurisdiction can be exercised by the
High Court.
21. As the aforesaid legal position is well settled, it may not be necessary
to refer to the precedents on the limits of the exercise of the writ jurisdiction, in
the face of the availability of the statutory remedy under various enactments.
In the backdrop of the controversy at hand, reference can be made to a three
Judge Bench judgment of the Supreme Court in the case of India Glycols
Ltd. and Anr. v/s. Micro and Small Enterprises Facilitation Council,
Medchal and Ors.4 wherein the Supreme Court enunciated in clear and
explicit terms that Section 18 of the Act, 2006 provides for recourse to a
4 (2025) 5 SCC 780
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statutory remedy for challenging an award under the 1996 Act. That recourse
to the remedy is subject to the discipline of complying with the provisions of
Section 19. The entertaining of a petition under Articles 226/227 of the
Constitution, in order to obviate compliance with the requirement of pre-
deposit under Section 19, would defeat the object and purpose of the special
enactment which has been legislated upon by Parliament.
22. In the case of Tamil Nadu Cements Corporation Ltd. V/s. Micro and
Small Enterprises Facilitation Council and Anr. 5, another three Judge
Bench of the Supreme Court expressed its reservations on the aforesaid
dictum in the case of India Glycols Ltd. and Anr. (supra). It was observed
that whether there would be an absolute and complete bar to invoke writ
jurisdiction under Article 226 of the Constitution, even in exceptional and rare
cases where fairness, equity and justice may warrant the exercise of writ
jurisdiction, warranted consideration. Thus, a reference was made to a larger
Bench of five Judges on the following questions :
"64. In the light of the aforesaid decisions, we deem it
appropriate to refer the following questions raised in the
present appeal to a larger Bench of five Judges, namely :
64.1(i) Whether the ratio in India Glycols (supra) that a writ
petition could never be entertained against any order/award
of MSEFC, completely bars or prohibits maintainability of the
writ petition before the High Court ?
5 (2025) 4 SCC 1
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64.2(ii) If the bar/prohibition is not absolute, when and
under what circumstances will the principle / restriction of
adequate alternative remedy not apply ?
64.3(iii) Whether the members of MSEFC who
undertake conciliation proceedings, upon failure, can
themselves act as arbitrators of the Arbitral Tribunal in terms
of Section 18 of the MSEMD Act read with Section 80 of the
A & C Act ?
The first and second question will subsume the question of
when and in what situation a writ petition can be entertained
against an order / award passed by MSEFC acting as an
Arbitral Tribunal or conciliator."
23. Mr. Keswani would urge that, in view of the aforesaid reference and
enunciation of law in the case of Tamil Nadu Cements Corporation Ltd.
(supra), the High Court is not completely denuded of the power to exercise
writ jurisdiction, especially in the case like the present one, where the justice
of the claim is firmly in favour of the Petitioner.
24. I am conscious of the settled position in law that, the mere fact that the
decision is referred to a larger Bench does not erode the precedential value of
the decision under reference. In my considered view, it may not be necessary
to adopt a doctrinaire approach regarding the binding efficacy of the three
Judge Bench judgment in the case of India Glycols Ltd. (supra). I propose
to evaluate the case on the touchstone, whether any of the exceptional
circumstances to exercise the writ jurisdiction, despite existence of the
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statutory remedy, is made out.
25. First, the ground of alleged violation of the principles of natural justice.
Though Mr. Keswani made a valiant attempt to draw home the point that no
effective opportunity of hearing was given to the petitioner, and, at times, the
notices were served on the petitioner after the date of hearing had passed by,
yet, the ground of failure to adhere to the principles of natural justice appears
to be in the nature of a litany of grievances; unsubstantiated. It is imperative
to note that as early as 24 th July, 2018 itself, the petitioner had informed
MSEFC that a notice in regard to the listing of the matter on 11 th July 2018
was received on 23rd July, 2018 and a request to reschedule the hearing was
made. This communication implied that the petitioner became aware of the
proceedings before MSEFC in the month of July, 2018 itself. That gives heft
to the submission on behalf of the respondents that the petitioner has
approached this Court with an incorrect assertion that the petitioner for the
first time became aware of such proceedings before the MSEFC on 5 th
February, 2020. On the own showing of the petitioner, the petitioner had
sought adjournments and rescheduling of the hearing on a number of
occasions during the period 2018 to 2023. Therefore, the submission on
behalf of the petitioner that the impugned orders were passed in flagrant
violation of the fundamental principles of natural justice and, therefore, this
Court would be justified in exercising the writ jurisdiction, despite the
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existence of the statutory remedy, does not commend itself.
26. The edifice of the next ground, assiduously canvassed by Mr. Keswani,
that Mexim was not qualified to make a reference under Section 18 and, thus,
MSEFC lacked jurisdiction to pass the impugned order, was sought to be built
on the premise that there is no material to show that Mexim was duly
registered under the Act, 2006 before it entered into the subject transactions
with the petitioner. Mr. Keswani would urge that in the absence of material to
show that the Mexim had filed a Memorandum in accordance with the
provisions of the Act, 2006 the dispensation under the regime enshrined by
the Act, 2006 is not at all attracted. A very strong reliance was placed on the
judgment in the case of Silpi Industries (supra).
27. In the aforesaid case, the Supreme Court enunciated that for the
supplies pursuant to the contract made before the registration of the unit
under the provisions of the Act, 2006 no benefit can be sought by such entity,
as contemplated under the Act, 2006. By taking recourse to filing
Memorandum under sub-section (1) of Section 8 of the Act, 2006, subsequent
to entering into a contract and supply of goods and services, one cannot
assume the legal status of being classified under the Act, 2006, as an
enterprise to claim the benefits retrospectively from the date on which a party
(appellant therein) entered into a contract with the respondent. The
observations in paragraph 44 of the judgment in the case of Silpi Industries
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(supra) were pressed into service by Mr. Keswani. They read as under:
"44. The appellant cannot become micro or small enterprise
or supplier, to claim the benefits within the meaning of
MSMED Act 2006, by submitting a memorandum to obtain
registration subsequent to entering into the contract and
supply of goods and services. If any registration is obtained,
same will be prospective and applies for supply of goods and
services subsequent to registration but cannot operate
retrospectively. Any other interpretation of the provision would
lead to absurdity and confer unwarranted benefit in favour of a
party not intended by legislation." (emphasis supplied)
28. It must be recorded that Mr. Keswani fairly invited the attention of the
Court to a two-Judge Bench judgment of the Supreme Court in the case of
NBCC (India) Limited vs. State of West Bengal and others 6, wherein the
Supreme Court observed that Silpi Industries (supra) is not an authority on
the issue that a reference under Section 18 cannot be made by a micro or
small enterprise if supplies were made or contracts were executed before
filing of the memorandum under Section 8 of the Act, 2006. Though it was
possible for the two-Judge Bench to arrive at the conclusion that the
judgments in Silpi Industries (supra) and Gujarat State Civil Supplies
Corporation Limited vs. Mahakali Foods Private Limited (Unit-2) and
another7 coupled with the subsequent orders in Vaishno Enterprises vs.
6 (2025) 3 Supreme Court Cases 440.
7 (2023) 6 Supreme Court Cases 401.
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Hamilton Medical AG8 and Nitesh Estates Ltd. vs. Outsourcing Xperts 9
cannot be considered to be binding precedents on the issue that had arisen
for the consideration of the Division Bench, yet, taking into account the
compelling need to ensure clarity and certainty about the applicability of the
precedents on the subject, the Division Bench deemed it appropriate to refer
the said appeal to a three-Judge Bench.
29. This Court is of the considered view that, in the facts of the instant
case, the character and qualification of Mexim to invoke the remedies under
the Act, 2006 does not appear debatable. Under the first proviso to Section
8(1) of the Act, 2006, any person, who before commencement of the Act,
2006, has established a Small Scale Industry and obtained a registration
certificate, may, at his discretion, file the memorandum in accordance with the
provisions of the Act, 2006. In contrast, a person who established a industry
covered by the Notification of the Government of India in the erstwhile of
Ministry of Industry (Department of Industrial Development) dated 25 th July,
1991, shall within one hundred and eighty days from the commencement of
the said Act, 2006, file the memorandum in accordance with the provisions of
the Act, 2006. The Parliament has thus designedly made a distinction in the
matter of filing of the memorandum, in accordance with the provisions of the
Act, 2006, in the case of a small scale industry which had a registration
8 (2024) 12 SCC 214.
9 (2024) 12 SCC 221.
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certificate and an industry which had filed an Industrial Entrepreneur's
Memorandum. It was thus not obligatory for the person, who had established
a small scale industry and obtained a registration certificate, prior to the
commencement of the Act, 2006 to file such memorandum within one
hundred eighty days from the commencement of the said Act, 2006. The
Parliament has used the word 'may' as well as the expression 'at his
discretion' in the matter of the filing of a memorandum by the person who
established the Small Scale Industry and obtained a registration certificate
also, before the Act, 2006 came into force.
30. In the case at hand, Mexim was registered as a Small Scale Industry on
13th February, 2004. The MSME Udyog Aadhar issued on 13 th January, 2016,
records the fact that Mexim commenced the business on 19 th April, 2001. It
had obtained registration as a small scale industry on 13 th February, 2004. In
this view of the matter, prima facie, it appears that Maxim having been
registered as a small scale industry in the year 2004 itself was not obligated
to file the memorandum under the proviso to Section 8(1) of the Act, 2006
within one hundred and eighty days from the commencement of the said Act,
to claim the benefits of the provisions under the Act, 2006.
31. This propels me to the main plank of Mr. Keswani's submission that the
impugned orders have been passed by MSEFC in gross violation of the
mandate of the provisions contained in Section 18(3) of the Act, 2006, in as
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much as the MSEFC had not at all resorted to arbitrate the dispute as
warranted by the provisions contained in the Arbitration and Conciliation Act,
1996. The conciliation and arbitration proceedings were arbitrarily clubbed,
which is in teeth of the express statutory provisions and the governing judicial
precedents.
32. For a proper evaluation of the aforesaid submission, recourse to the
provisions contained in Section 18 of the Act, 2006, becomes imperative.
Upon receipt of a reference, the MSEFC was required to follow the procedure
as delineated in sub-sections (2), (3) and (4) of Section 18, which read as
under :
"(1).......
(2) On receipt of a reference under sub-section (1), the
Council shall either itself conduct conciliation in the matter or
seek the assistance of any institution or centre providing
alternate dispute resolution services by making a reference
to such an institution or centre, for conducting conciliation
and the provisions of Sections 65 to 81 of the Arbitration and
Conciliation Act, 1996 (26 of 1996) shall apply to such a
dispute as if the conciliation was initiated under Part III of
that Act.
(3) Where the conciliation initiated under sub-section (2)
is not successful and stands terminated without any
settlement between the parties, the Council shall either itself
take up the dispute for arbitration or refer it to any institution
or centre providing alternate dispute resolution services for
such arbitration and the provisions of the Arbitration and
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Conciliation Act, 1996 (26 of 1996) shall then apply to the
disputes as if the arbitration was in pursuance of an
arbitration agreement referred to in sub-section (1) of
section 7 of that Act.
(4) Notwithstanding anything contained in any other law
for the time being in force, the Micro and Small Enterprises
Facilitation Council or the centre providing alternate dispute
resolution services shall have jurisdiction to act as an
Arbitrator or Conciliator under this section in a dispute
between the supplier located within its jurisdiction and a
buyer located anywhere in India. "
33. A perusal of the aforesaid provisions would indicate that the Parliament
has devised a two stage mechanism for the resolution of the dispute. First,
under sub-section (2) of Section 18, MSEFC was obligated to itself conduct
the conciliation or refer the parties for conducting the conciliation. The
mandate to either conciliate or refer the parties to conciliation was
emphasised by the use of the word "shall", and by further providing that, once
the parties are referred to conciliation, the provisions of Section 65 to 81 of
the Act, 1996 shall apply to such a dispute as if the conciliation was initiated
under Part III of the said Act, 1996. Upon the failure of the conciliation or
termination of the conciliation proceedings, the next stage of arbitration was to
be compulsorily resorted to by the MSEFC. Sub-section (3) of Section 18,
MSEFC was empowered to itself arbitrate the dispute or refer the parties to
arbitration. Once the parties were referred to arbitration, the provisions of the
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Arbitration and Conciliation Act, 1996 would then apply to the dispute
resolution process.
34. The aforesaid dispute resolution mechanism, envisaged under sub-
section (3) of Section 18, is in contrast to the fundamental principle of
arbitration i.e. party autonomy. Section 18(3) introduces a measure of
compulsory arbitration, de hors the consent of the parties. To ensure that
such compulsory arbitration is in accord with the regime of arbitration
governed by the Act, 1996, the Parliament has not only provided that the
provisions of Arbitration and Conciliation Act, 1996, should apply to the
disputes which are taken up for arbitration, or referred to arbitration, by
MSEFC, but also that, the Act, 1996 would apply as if the arbitration was in
pursuance of an arbitration agreement referred to in sub-section (1) of Section
7 of the Act, 1996. Thus, by a deeming fiction, the arbitration agreement is
presumed to exist between the parties to the reference under Section 18(1) of
the Act, 2006 before the MSEFC.
35. Keeping in view the aforesaid scheme of the dispute resolution by
MSEFC, the decision of the Supreme Court in the case of Jharkhand Urja
Vikas Nigam Ltd. V/s. State of Rajasthan and Ors. (supra), deserves to be
consulted. In the said case, MSEFC had issued notices to the appellant
therein. As the appellant did not respond to the notices, the Council had
issued summons for appearance to the appellant before the Council. On 6
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August 2012, on the ground that the appellant did not appear on that day, the
Council passed an order on the very day directing the appellant to make the
payment to the third respondent therein, as claimed.
36. In the backdrop of the aforesaid facts, the Supreme Court after
extracting the provisions of Section 18 of the Act, 2006, expounded the legal
position as under :
"14. From a reading of Section 18(2) and 18(3) of the
MSMED Act it is clear that the Council is obliged to conduct
conciliation for which the provisions of Sections 65 to 81 of
the Arbitration and Conciliation Act, 1996 would apply, as if
the conciliation was initiated under Part III of the said Act.
Under Section 18(3), when conciliation fails and stands
terminated, the dispute between the parties can be resolved
by arbitration. The Council is empowered either to take up
arbitration on its own or to refer the arbitration proceedings
to any institution as specified in the said Section. It is open to
the Council to arbitrate and pass an award, after following
the procedure under the relevant provisions of the Arbitration
and Conciliation Act, 1996, particularly Sections 20, 23, 24
and 25.
15. There is a fundamental difference between
conciliation and arbitration. In conciliation the conciliator
assists the parties to arrive at an amicable settlement, in an
impartial and independent manner. In arbitration, the Arbitral
Tribunal/ arbitrator adjudicates the disputes between the
parties. The claim has to be proved before the arbitrator, if
necessary, by adducing evidence, even though the rules of
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the Civil Procedure Code or the Indian Evidence Act may
not apply. Unless otherwise agreed, oral hearings are to be
held.
16. If the appellant had not submitted its reply at the
conciliation stage, and failed to appear, the Facilitation
Council could, at best, have recorded the failure of
conciliation and proceeded to initiate arbitration proceedings
in accordance with the relevant provisions of the Arbitration
and Conciliation Act, 1996, to adjudicate the dispute and
make an award. Proceedings for conciliation and arbitration
cannot be clubbed.
17. In this case only on the ground that the appellant had
not appeared in the proceedings for conciliation, on the very
first date of appearance, that is, 06.08.2012, an order was
passed directing the appellant and/or its predecessor
Jharkhand State Electricity Board to pay Rs.78,74,041/-
towards the principal claim and Rs.91,59,705/- odd towards
interest. As it is clear from the records of the impugned
proceedings that the Facilitation Council did not initiate
arbitration proceedings in accordance with the relevant
provisions of the Arbitration and Conciliation Act, 1996.
18. The order dated 06.08.2012 is a nullity and runs
contrary not only to the provisions of MSMED Act but
contrary to various mandatory provisions of Arbitration and
Conciliation Act, 1996. The order dated 06.08.2012 is
patently illegal. There is no arbitral award in the eye of law. It
is true that under the scheme of the Arbitration and
Conciliation Act, 1996 an arbitral award can only be
questioned by way of application under Section 34 of the
Arbitration and Conciliation Act, 1996. At the same time
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when an order is passed without recourse to arbitration and
in utter disregard to the provisions of Arbitration and
Conciliation Act, 1996, Section 34 of the said Act will not
apply. We cannot reject this appeal only on the ground that
appellant has not availed the remedy under Section 34 of the
Arbitration and Conciliation Act, 1996."
37. In the case of Silpi Industries (supra) also, the Supreme Court
enunciated the import of the provisions contained in Section 18(3) of the Act,
2006 in relation to the provisions contained in the Arbitration and Conciliation
Act, 1996. The observations in paragraph No.33 are material, and, hence,
extracted below :
"33. From a reading of Section 18(3) of the 2006 Act it is
clear that when the conciliation initiated under sub-section
(2) of Section 18 of the said Act is not successful, the
Council shall either itself take up the dispute for arbitration or
refer to any institution for arbitration. Further Section 18(3) of
the said Act also makes it clear that the provisions of 1996
Act are made applicable as if there is an agreement between
the parties under sub-section (1) of Section 7 of the 1996
Act. Section 23 of the 1996 Act deals with the statement of
claim and defence. Section 23(2A), which gives a right to
respondent to submit a counter claim or plead set-off with
regard to claims within the scope of the arbitration
agreement, is brought into Statute by Amending Act 3 of
2016. If we look at the Statement of Objects and Reasons of
the Amending Act, same is also enacted to provide for
speedy disposal of cases relating to arbitration with least
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court intervention. Clause 11 of the Bill, by which sub-section
(2A) was proposed to be inserted, states that sub-section
(2A) was intended to give an opportunity to the respondent,
in support of his case, to submit counter-claim or a set-off if
such counter-claim or set-off falls within the scope of
arbitration agreement. When Section 18(3) makes it clear
that in the event of failure by the Council under Section 18(2)
if proceedings are initiated under Section 18(3) of the 1996
Act, the provisions of 1996 Act are not only made applicable
but specific mention is made to the effect as if the arbitration
was in pursuance to an arbitration agreement referred to in
sub-section (1) of Section 7 of the 1996 Act. When there is a
provision for filing counter-claim and set-off which is
expressly inserted in Section 23 of the 1996 Act, there is no
reason for curtailing the right of the respondent for making
counter-claim or set-off in proceedings before the Facilitation
Council."
38. Whether the aforesaid enunciation of law governs the facts of the case
at hand ? For an answer, a reference to the impugned order which spells out
the manner in which the MSEFC approached the matter of resolution of the
disputes, becomes necessary. Relevant observations in Case No.75 read as
under :
"In this matter, the Conciliation proceedings were initiated
udner the MSMED Act, 2006. As per the Section 18 of
Chapter V of the Act, the said case is referable to the MSEF
Council. The Section 17 of the Act is with reference to
recovery of the due amount and the reference of outstanding
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amount which are due is required to be made under section
18 of the Act, which has been done by the Petitioner.
Accordingly, the Council constituted under the MSMED Act,
2006 continued with the hearing of the said case and
initiated conciliation proceedings.
The matter was heard on 30/01/2019, 27/05/2019,
15/11/2019, 10/02/2020, 23/10/2020, 12/01/2021,
17/02/2021, 19/08/2021, 31/07/2023, 14/08/2023,
31/08/2023 and 22/09/2023. The Purchaser /Buyer has
remained absent from hearing. However, purchaser / buyer
has submitted letter on dated 29/08/2023, 21/09/2023 and
Email on dated 22/09/2023 for request to time for settlement.
After the perusal of records and documents, the claim of the
Seller towards the purchaser is genuine and the Purchaser
has failed to repay the amount for the goods supplied, and,
hence, the Council allows the claim submitted by the Seller."
39. Critising the approach, evinced by the aforesaid observations, of
MSEFC, Mr. Keswani would urge that, at no point of time, MSEFC decided to
proceed to the next stage of arbitration. Inviting attention of the Court to the
notices of hearing, Mr. Keswani would urge that, none of the notices referred
to the fact the MSEFC had taken up the dispute for arbitration. On the
contrary, in each of the notices the Petitioner was called upon to submit
response for settlement of the dispute.
40. Mr. Agarwal, learned Counsel for Respondent No.2, joined the issue by
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canvassing a submission that the notices cannot be read in a selective
manner. Laying emphasis on the statement in the body of notices that the
matter was fixed for hearing on the complaint of non-payment of dues, Mr.
Agarwal would urge that the Petitioners cannot be permitted to take
advantage of their own wrong in not appearing before the MSEFC, despite
multiple notices of hearing, and, yet, contend that the provisions of the Act,
were not followed.
41. In my considered view, the contents of the notices may not have the
decisive significance. The pivotal question that comes to the fore is, whether
the MSEFC decided to proceed to the stage of arbitration, and, if so, whether
the arbitration proceedings were conducted in conformity with the provisions
of the Act, 1996 ?
42. From the perusal of the observations in the impugned order (extracted
above), it becomes evident that the MSEFC has referred to initiation of
conciliation proceedings. The consideration on the said point, stops at that.
The impugned order does not indicate that the MSEFC reckoned that the
conciliation proceedings did not succeed and stood terminated. Even if one
were to presume that, on account of the non-appearance of the Petitioners, in
the proceedings before the MSEFC, despite notices, the MSEFC construed,
by implication, that the conciliation proceedings failed, yet, further question as
to whether MSEFC resorted to itself arbitrate the dispute or refer the parties to
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arbitration, is neither answered by the impugned order nor any other material
on record. It does not appear that the proceedings were recorded in the
Reference that the MSEFC took upon itself the task of arbitration.
43. On the contrary, upon perusal of the observations in paragraph No.2
(extracted above), one gets an impression that the MSEFC proceeded to
pass the impugned orders as the Petitioners did not appear, and, on 22
September 2023, the Petitioners had sought time for settlement.
44. As noted above, once the stage of arbitration under Section 18(3) was
reached, the dispute was required to be arbitrated in accordance with the
provisions contained in the Arbitration and Conciliation Act, 1996. It does not
appear that MSEFC adverted to any of the provisions contained in the Act,
1996. The parties were not called upon to file statements of claim and
defence. Even when the Petitioner did not appear, the MSEFC was enjoined
to follow the procedure contained in Sections 23 and 25 of the Act, 1996;
which provides for the procedure to be adopted in the event of a default of a
party.
45. Under Section 25 clause (b) of the Act, 1996, where the Respondent
fails to communicate his statement of defence in accordance with sub-section
(1) of Section 23, the arbitral tribunal shall continue the proceedings without
treating that failure in itself as an admission of the allegations by the claimant
and shall have the discretion to treat the right of the respondent to file such
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statement of defence as having been forfeited. Under clause (c) of Section
25, where a party fails to appear at an oral hearing or to produce
documentary evidence, the arbitral tribunal may continue the proceedings and
make the arbitral award on the evidence before it. Thus, there are adequate
provisions under the Act, 1996, which regulate the arbitral proceedings where
the respondent commits default in appearance.
46. I am mindful that it could be urged that the Petitioner's right to file the
statement of defence could be deemed to have been forfeited. However, for
that purpose, there ought to be a clear indication either in the order or in the
record of proceedings or other material to unmistakably demonstrate that the
MSEFC having crossed the stage of conciliation and embarked upon the
adjudication of the dispute by itself taking up arbitration. In the absence
thereof, the order passed by the MSEFC like the one, extracted above, where
it is simply recorded that the claim of the seller appears genuine and the
purchaser committed default, does not cloth it with the character of an
arbitration award.
47. Thus, I find substance in the submission of Mr. Keswani that the
impugned orders do not constitute an arbitration award, as envisaged by the
provisions of the Act, 1996. The impugned orders, therefore, become
unsustainable and susceptible to interference in exercise of the writ
jurisdiction as the orders have been passed in breach of the mandatory
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provisions of the Act, 2006 and the Arbitration and Conciliation Act, 1996.
Failure to adopt express statutory provisions in conformity with which only the
decisions were required to be rendered, furnishes a surer foundation for the
exercise of the writ jurisdiction.
48. It is true, the conduct of the Petitioners in the matter of the participation
in the proceedings before the MSEFC cannot be said to be unblemished. Yet,
the failure of MSEFC to adhere to statutory mandate cannot be brushed aside
as inconsequential on the premise that the Petitioners did not diligently
participate in the proceedings before the MSEFC. The Court is also required
to be sensitive to the fact that out of the total amount ordered to be paid in
Case No.75 i.e. Rs.28,49,940/-; the outstanding principal amount was
Rs.1,47,610/- and the balance Rs.27,02,330/- was the interest component.
Likewise, in Case No.74, out of the total awarded amount of Rs.42,35,504/-,
the principal amount was Rs.300,631/- only and the balance Rs.39,34,873/-
was formed by interest. Therefore, the element of justice of the claim,
notwithstanding the provisions contained in Sections 16 and 19 of the Act,
2006, is such that a rare and exceptional situation on account of the failure of
the MSEFC to follow the mandatory procedure in passing the award, can be
said to be made out.
49. The upshot of aforesaid consideration is that the Petitions deserve to
be partly allowed and the impugned orders are required to be quashed and
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set aside and the References under Section 18 of the Act, 2006 are required
to be remitted back to the MSEFC for afresh decision in accordance with law.
50. Hence, the following order :
ORDER
(i) The Writ Petitions stand partly allowed.
(ii) The impugned orders stand quashed and set aside.
(iii) Proceedings under Reference Nos.75 and 74 stand remitted back
to the MSEFC at Daman, for afresh determination by way of arbitration.
(iv) The parties shall appear before MSEFC, Daman on 6 October
2025.
(v) On that day, MSEFC, Daman, shall pass appropriate orders to
regulate the arbitral proceedings.
(vi) In the event of default in appearance of the parties, MSEFC shall
be at liberty to pass appropriate orders in accordance with the provisions of
the Act, 1996.
(vii) MSEFC, Daman, is requested to decide Reference Nos.75 and
74 on their own merits and in accordance with law and without being
influenced by any of the observations hereinabove, which were confined to
evaluate the legality, propriety and correctness of the impugned orders, in the
light of the aforesaid challenges thereto. It is clarified that this Court has not
entered into the merits of the matter.
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(viii) Rule made absolute in the aforesaid terms with no order as to
costs.
( N.J.JAMADAR, J. )
Signed by: S.S.Phadke
Designation: PS To Honourable Judge
Date: 23/09/2025 21:21:58
