Jharkhand High Court
M/S. Bharat Coking Coal Ltd vs The State Of Jharkhand Through Its ... on 11 February, 2025
Author: Anubha Rawat Choudhary
Bench: Anubha Rawat Choudhary
IN THE HIGH COURT OF JHARKHAND AT RANCHI
W.P.(C) No. 1196 of 2019
M/s. Bharat Coking Coal Ltd., a company within the meaning of
Section 617 of the Companies Act, 1956, having its Registered Office
at Koyla Bhawan, P.O. - Koyla Nagar, P.S.- Saraidhela, District-
Dhanbad, through Sri Santosh Kumar Singh, General Manager
(P)/Legal), BCCL, resident of Hirapur, Dhanbad, P.O., P.S. &
District- Dhanbad. ... ... Petitioner
Versus
1. The State of Jharkhand through its Secretary, Department of
Industries, Nepal House, Doranda, P.O. & P.S.- Doranda, Ranchi.
2. Director of Industries-cum-Chairman, Jharkhand Micro, Small and
Medium Enterprises Facilitation Council, 3rd Floor, Nepal House,
Doranda, P.O. & P.S.- Doranda, Ranchi.
3. M/s C.K. Industries, a Proprietorship Firm, through its Proprietor-
Chandra Kant Parkaria, Son of Late Dungoshi Parkaria, having its
Works at Katras Road, Matkuria, P.O.- Dhanbad, P.S.- Bank More,
District- Dhanbad. ... ... Respondents
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CORAM :HON'BLE MRS. JUSTICE ANUBHA RAWAT CHOUDHARY
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For the Petitioner : Mr. A.K. Mehta, Advocate
For the Respondent No.3 : Ms. Amrita Sinha, Advocate
: Ms. Shweta Suman, Advocate
: Ms. Anjali Kumari, Advocate
For the State : Mr. Mukul Kr. Singh, AC to GP-III
---
C.A.V on 16th October, 2024 Pronounced on 11/02/2025.
1. This writ petition has been filed for the following reliefs:-
"(i) To issue a writ in the nature of certiorari or any other
appropriate writ for quashing the Decision/Award/Decree
contained in Memo No. 933/Ranchi, dated 5.4.2018 in Case No.
JHMSEFC-03/2011 (Annexure-10) passed in complete violation
of the principles of natural justice without even serving notice of
hearing upon the petitioner, even though the matter was
remanded by this Hon'ble Court vide its order/judgment dated
14.9.2016 passed in W.P.(C) No. 6464/2012 (Annexure-6);
AND/OR
(ii) For issuance of any other appropriate writ, order or
direction as Your Lordships may deem fit and proper for doing
conscionable justice to the petitioner."
Foundational facts.
2. The foundational facts of dispute. The respondent No. 3 filed an
application before the Facilitation Council constituted under the
provisions of Micro, Small and Medium Enterprises Development
Act 2006 (hereinafter referred as MSMED Act of 2006). The claim
was filed for recovery of the principal amount of Rs.50,231.00 and
Interest amount of Rs.3,82,443.00. Notice was issued to the petitioner
however, the decision/award dated 22.03.2012 was passed by the
Facilitation Council directing the petitioner to pay Rs.50,231.00
towards the principal and interest @ three times at bank rate under
MSMED Act, 2006. The decision/award dated 22.03.2012 was
challenged before this Court in writ petition being W.P.(C) No. 6464
of 2012 and in the said writ proceedings 75% of the amount was
directed to be deposited before the Registrar General, Jharkhand High
Court. Consequently, the amount was deposited. The writ petition was
finally heard on 14.09.2016 and the matter was remanded to the
Facilitation Council to hear the matter afresh and take a decision after
due opportunities to the parties and the amount deposited before this
Court was directed to be returned to the petitioner.
3. The Facilitation Council passed a fresh order/award dated
20.02.2018 after recording that the petitioner did not attend six
meetings and as such observed that there is no need for any
interference in earlier order/award dated 22.03.2012, communicated
vide Memo No. 1384/Ranchi dated 26.04.2012. The order/award
termed as Award/Decree was passed on 20.02.2018 under MSMED
Act of 2006 is quoted as under:-
The Award/Decree on 20.02.2018 under MSMED Act 2006
"1. The applicant M/S C.K. Industries has filed application dated
30.05.2017 enclosing therewith the copy of Hon'ble Jharkhand
High Court order dated 7/14.9.2016 and requesting therein to
re-consider the case. The fact of the case is that the opposite
party M/S BCCL has filed Writ Petition to Hon'ble Jharkhand
High Court against the Order of this facilitation Council's
order 22.03.2012. The Hon'ble Jharkhand High Court has
remanded back to this facilitation Council to hear the
reference afresh and take a decision after due opportunity to
the parties within a frame time.
2. The case was taken up for hearing and the application of 1 st
party was sent to opposite party vide letter no. 3279 dated
11.09.2017.
3. The opposite party did not attend the 6 nos. of Council
meetings held since 04.09.2017 as detailed at point no. 2
(attendance) which shows that opposite party has nothing to
say in their defense.
4. In compliance of Hon'ble High Court order sufficient
opportunity was given to Opposite Party but Opposite Party
did not respond. And as such there is no need for any
interference in earlier order dated 22.03.2012, communicated
vide Memo No. 1384/Ranchi dated 26.04.2012."
4. The fresh order /award dated 20.02.2018 is under challenge in
this writ petition.
5. An objection has been raised by the private respondent that this
writ petition is not maintainable as the order/award ought to have been
challenged under section 34 of the Arbitration and Conciliation Act
of 1996 (hereinafter referred to as the Act of 1996). Another
objection has been raised regarding non-compliance of pre-deposit of
75% of the awarded amount in terms of section 19 of the MSMED Act
of 2006. The details of the objection has been mentioned in the
arguments of the private respondent.
6. Arguments of the Petitioner.
A. The aforesaid order of remand passed by this Court in W.P.(C)
No. 6464 of 2012 has not been complied as the provisions of
Order 41 Rule 23 and 25 of the CPC have not been followed.
B. Six notices issued to the petitioner after remand were not
served upon the petitioner on account of which there has been
gross violation of principle of natural justice. Upon remand, the
matter was taken up by the Facilitation Council and directions
were issued for issuance of notice on various dates but the
orders do not record service of any notice and ultimately
impugned order/award has been passed reviving the earlier
award after recording that the petitioner did not attend six
meetings.
C. Irrespective of the fact as to whether the petitioner appeared or
not appeared, the direction passed by this Court on remand was
required to be followed in letter and spirit. The same having not
been followed, the impugned award cannot be sustained in the
eyes of law and calls for interference under Article 226 of the
Constitution of India.
D. The learned counsel has also heavily relied upon the judgment
passed by the Hon'ble Supreme Court in the case of Jharkhand
Urja Vikas Nigam Limited Vs. State of Rajasthan & Ors.
reported in (2021) 19 SCC 206 paragraphs 14 to 21 to submit
that it has been held that under section 18(3) of MSMED Act of
2006 when the conciliation fails and stands terminated, the
dispute between the parties can be resolved by Arbitration and it
is open to the Facilitation Council to arbitrate and pass an award
after following the procedure more particularly under Sections
20, 23, 24 and 25 of the Act of 1996. In paragraph 16 of the
judgment, it has been held that if the party fails to appear, the
Facilitation Council could at best have recorded failure of
conciliation and proceeded to initiate Arbitration Proceedings in
accordance with the provisions of the Act of 1996 to adjudicate
the dispute between the parties through arbitration. It has been
held that proceedings for conciliation and arbitration cannot be
clubbed. The award which was involved in the aforesaid
judgment of Jharkhand Urja Vikas Nigam Limited (Supra)
was held to be in nullity and it was held that it was not only
contrary to the provisions of MSMED Act of 2006 but was also
contrary to the mandatory provisions of the Act of 1996 and the
award impugned was held to be no arbitral award in the eyes of
law.
E. The learned counsel submits that in view of the aforesaid
decision passed in the case of Jharkhand Urja Vikas Nigam
Limited (Supra) the impugned award in the present case is a
nullity in the eyes of law and therefore, there is no question of
seeking remedy through Section 34 of the Act of 1996. In
paragraph 20 of the aforesaid judgment passed by the Hon,ble
Supreme Court the order passed by the Facilitation Council was
set aside and liberty was granted to the Council to proceed in
accordance with law, similar order may be passed. The learned
counsel has also relied upon the judgment passed by this Court
in L.P.A. No. 505 of 2019 dated 11.09.2023 and has submitted
that this Court has held that such award is a nullity having not
followed the mandate as provided in Section 18(2) and (3) of
the MSMED Act of 2006. In the said judgment another
judgment passed by Hon'ble Supreme Court reported in (2023)
6 SCC 401 (Gujarat State Civil Supplies Corporation Limited
Vs. Mahakali Foods Private Limited & Another) has also been
relied upon.
F. It has submitted that the present case is squarely covered by the
judgment passed by the Hon'ble Supreme Court in the case of
Jharkhand Urja Vikas Nigam Limited (Supra) and also the
judgment passed by this Court in L.P.A. No. 505 of 2019
(supra) inasmuch as the Facilitation Council on remand neither
recorded failure of conciliation nor recorded any reference to
itself for adjudication of the dispute through arbitration. It has
been submitted that the impugned order/award dated
22.02.2018 is a nullity and is not an arbitral award in the eyes of
law so as to require challenge under section 34 of the Act of
1996 and it is submitted that section 34 of the Act of 1996 does
not apply to this case at all and consequently there is no
question of pre-deposit in terms of section 19 of the MSMED
Act of 2006 to challenge the impugned order/award.
G. That the present Writ Petition is more or less similar to the facts
of the Judgment in the case of Jharkhand Urja Vikas Nigam
Limited (supra) as well as the Judgment rendered by the
Division Bench of this Hon'ble Court in the case of LPA No.
505 of 2019 in as much as the Facilitation Council, Ranchi on
remand has done nothing on reference made to it. There is no
mention of any Conciliation upon remand or recording of
failure of conciliation. There is no order of the Facilitation
Council for Arbitration on failure of conciliation. The private
respondent has also not proved the claim before the Arbitrator
to adjudicate the dispute and make an award. The Petitioner
therefore submits that the order/award termed as Award/Decree
was passed on 20.02.2018 of the Facilitation Council, Ranchi is
a nullity and is also patently illegal and therefore it is not an
Arbitral Award in the eyes of law which is required to be
questioned by way of an application under Section 34 of the Act
of 1996.
H. The observations and directions passed by this Court in the
order of remand also have not been followed.
7. During the course of hearing and upon going through the
records of this case, the learned counsel for the petitioner has not been
able to show any averment in the writ petition with regard to non-
service of the award which was said to be communicated to the parties
as is reflecting from the impugned order/award itself. It is further not
clear from the records as to the date on which the award came to the
knowledge of the petitioner for the first time. However, the petitioner
has also annexed a copy of the notice dated 19.09.2018 which is a
communication from the private respondent to the petitioner
mentioning about the award. The date of receipt of the said notice
dated 19.09.2018 has also not been mentioned in the writ petition.
8. Arguments of the private Respondent.
I. The impugned order is an arbitration award and writ petition is
not maintainable.
II. Writ petition has been filed on a date by which the statutory
remedy under section 34 of the Act of 1996 had become time
barred and the permissible period of condonation of delay under
section 34(3) of the Act of 1996 had also expired. The present
Writ Petition has been filed on 05.03.2019 i.e. with a delay of 1
year 12 days from the date of passing of the award dated
05.04.2018, which was duly communicated to the Petitioner.
III. This Hon'ble Court in the case of Union of India v. M/s Ekta,
Telecommunications Systems being L.P.A. 644 of 2022 at
paragraphs 53, 54 and 55 after relying upon the judgment of the
Hon'ble Supreme Court passed in Simplex Infrastructure Ltd.
V. Union of India has held that a plain reading of sub section
(3) along with the proviso to section 34 of the Act of 1996
shows that the application for setting aside the award on the
grounds mentioned in section 34(2) could be made within three
months and the period can only be extended for a further period
of 30 days on showing sufficient cause and not thereafter.
Arbitral process is strictly conditioned upon time limitation and
modelled on the "Principle of unbreakability" and if the courts
are allowed to interfere with the arbitral process beyond the
ambit of enactment, then the efficiency of the process will be
diminished. The aforesaid view of this Hon'ble Court has
attended finality, as the Appeal preferred against the order
passed in L.P.A. No.644 of 2022 has duly been dismissed vide
order dated 01.12.2023 passed in S.L.P. No. 27886 of 2023.
IV. A point regarding non-deposit of 75% of the awarded amount
(with interest) has also been raised as per the provisions of
section 19 of MSMED Act of 2006. In terms of Section 19, an
application for setting aside an award of the Facilitation Council
cannot be entertained by any Court unless the applicant has
deposited 75% of the amount in terms of the award, as held by
the Hon'ble Supreme Court in the case of M/s India. Glycols
Limited & Others v. MSEFC, Medchal & Others being SLP
(C) No. 9899 of 2023 decided on 06.11.2023 and also in the
case of Goodyear India Limited reported in (2012) 6 SCC 345.
In the present case the Petitioner is claiming to have deposited
75% of the decretal amount being Rs.3,24,506/- pursuant to an
order passed by this Court in the earlier round of litigation
being order dated 15.07.2013 passed in W.P.(C) No. 6464 of
2012. The mandatory condition of deposit of seventy-five
percent of the award has not been complied with and on this
ground alone, the Writ Petition may be dismissed.
V. It is submitted that Section 18 of MSMED Act of 2006 provides
for a reference to the Facilitation Council. Sub Section (2) of
Section 18 provides for the conduct of Conciliation
proceedings. Sub Section (3) empowers the Facilitation Council
to thereafter take up the dispute for arbitration or to refer it to an
Institution or Centre providing for the Alternative Dispute
Resolution Services "for such arbitration". Sub Section (3) of
Section 18 stipulates that the provisions of the Act, 1996 "shall
then apply to the dispute as if the arbitration was in pursuance
of the Arbitration Agreement referred to in Sub Section (1) of
Section 7 of that Act". In view of Sub Section (3) of Section 18
of the MSMED Act of 2006 the proper remedy available to the
person aggrieved by the impugned order/award is under Section
34 of the Act, 1996. It is submitted that the Hon'ble Supreme
Court in the Judgment reported in (2023) 6 SCC 401, namely
Gujarat State Civil Supplies Corporation Limited v. Mahakali
Foods Pvt. Limited & Another, has held in paragraph No. 48,
that the Facilitation Council is the Arbitral Tribunal constituted
under Section 7(1) of the Arbitration Act, 1996 and Section 16
of the Arbitration Act would apply.
VI. That the Hon'ble Court in the case of M/s G.P.T. Infraprojects
Limited & Others v. State of Jharkhand & Others, reported in
2016 SCC Online Jhar 1004 at Paragraphs 9 and 10 of the
Judgment has held that when such specific grounds to assail the
impugned Award are already available for challenge in a
proceeding in an application under Section 34 of the Act, 1996
on the part of the aggrieved buyer/purchasers, there is no reason
why the Petitioner should not have availed of the statutory
remedy available under the provisions of the Act which are in
the nature of Special Legislation. In conclusion, it can only be
said that in such matters when hierarchy of statutory remedy is
available and interference of the Courts are to be avoided.
Moreover, loosing Party, that is, the buyer in the instant case, is
also under a statutory obligation to make deposit of 75% of the
amount awarded before his application u/s 34 of the Act, 1996
is entertained. That this Hon'ble Court in a recent Judgment
dated 16.08.2023 passed in the case of Union of India v. M/s
Ekta Telecommunications Systems being L.P.A No. 644 of
2022, has reaffirmed the above view/the settled principle of
law.
VII. It is submitted that the principle of natural justice has duly been
complied in the present case as all the notices granting
opportunity of hearing issued by the Facilitation Council were
duly served upon the Petitioner on their new address i.e. Koyala
Bhawan, Dhanbad as is evident from the cause title of the
impugned award, as contained in page 62 of the Writ Petition
and also from page 64 of the Writ Petition which says that the
award was duly communicated. That the petitioner at paragraph
24 of its Writ Petition has itself stated that notices to be served
in the office of General Manager, P.B. Area, BCCL or in any of
the functional office including the BCCL Head Quarter, Koyala
Bhawan, Dhanbad. Accordingly, all the six notices granting
opportunity of hearing to the Petitioner were duly served on the
aforesaid address itself. However, the Petitioner chose not to
appear in the proceeding merely in order to linger the
proceeding. From the order dated 23.01.2018, as contained in
the final award dated 05.04.2018, it is further evident that the
notice granting opportunity of hearing was also served through
email on the Petitioner, communicating the next date of hearing.
Thus, sufficient opportunity was granted to the petitioner to
appear and contest the matter. However, the Petitioner chose
not to appear and thus the Petitioner cannot take the plea of
violation of principles of natural justice merely in order to show
the maintainability of the petition. Moreover, the ground of
violation of principal of natural justice can be raised in an
application filed u/s 34 of the Act of 1996.
VIII. The Learned Facilitation Council only upon verifying each and
every document being the bills, sanction letters, and the
payment of few of the bills, came to the conclusion that the
principal amount of Rs.50,231/- is due and that the payment has
also been made with delay. Even if the Petitioner was aggrieved
by the aforesaid award the right course of action available to
Petitioner was to prefer an application under section 34 of the
Act, 1996.
IX. That Hon'ble Apex Court in the case of M/s India Glycols Ltd.
& Others being Civil Appeal No. 7491 of 2023 at paragraph 16
has held that having come to the conclusion that the remedy
which was adopted by the Appellant was thoroughly
misconceived, it is not necessary for the Court to make any
observation on what course of action should be adopted by the
Appellant and it was also observed that the Appellant at that
stage could take recourse to the proceedings under section 34
of the Act of 1996 and it would be open to the second
Respondent to object on all counts which were available in law.
X. That it is submitted the Jharkhand Urja Vikas Nigam Limited
(supra) and L.P.A. No. 505 of 2019, are not applicable to the
facts and circumstances of the above case as in the present case
the matter was remanded back by this Hon'ble Court vide order
dated 14.09.2016 passed in W.P.(C) No. 6464 of 2012 with a
specific direction to hear the reference afresh and take a
decision with respect to the claims arising out of such supply
orders such as the date of the supply orders, the date on which
supplies were made, the date on which bills were raised, the
date on which the acceptance of supplies were made or refused,
after giving due opportunity to the parties within a time frame.
Thus, the matter was remanded back from the stage to decide
the claim of the Respondent No. 3. Inspite of notices, the
Petitioner chose not to appear and defend the claim of the
private respondent. The Facilitation Council was of the view
that the Petitioner had nothing to say in their defence and
accordingly, the earlier order dated 22.03.2012 was reiterated
as the same was passed only after examining the entire
documents/records of the case. The relevant portion of the order
is quoted herein for ready reference:
"It is evident from the papers that the supplier bill was
processed, 1st for obtaining sanction and thereafter for
payment. In this process some bills are left out for
payment and in some cases there are considerable
delay in making payment. The first party has informed
the opposite party vide letter dated 05.07.2011 by
enclosing a C.A. Certificate showing the details of
outstanding Principal amount of various bills totalling
to rupees 50,231/- and interest of rupees 3,82,443/-
with a copy to the Council."
XI. Thus, if there is still any grievance, the proper recourse
available to the Petitioner is to file an application under section
34 of the Act of 1996 challenging the impugned order/Award as
contained in Memo No. 933/Ranchi dated 05.04.2018.
XII. The aforesaid grounds of non-compliance of provisions as
contained in sub section (2) and (3) of section 18 has been
raised for the first time in their written argument. There is no
pleading to that extent in the Writ Petition. Therefore, the
Principle of Waiver applies herein.
Findings of this Court.
9. This Court finds that after remand by this Court in W.P(C) No.
6464 of 2012 dated 14.09.2016 as many as six notices were issued to
the petitioner but the petitioner did not appear. At the same time the
proceedings on different dates as recorded in the impugned
order/award itself does not record that the notices were served.
However, non-service of notices issued by Facilitation Council by
itself will not be a ground to entertain this writ petition. The point
regarding service/non service of notices by Facilitation Council is
certainly a point which can be raised under Section 34 of the Act of
1996 which may even require examination of the records of the
Facilitation Council.
10. The argument is that the impugned decision/award/order is not
an arbitral award and hence is a nullity and therefore Section 34 will
not apply. The question of pre-deposit of 75% would arise only if the
impugned order is held to be an award. Essentially, it has to be
examined as to whether the impugned order/award can be said an
award under section 18 of the MSMED Act of 2006 so as to hold that
the petitioner ought to have challenged the award under section 34 of
the Act of 1996 which is certainly a self-contained code and the
challenge was to be coupled with pre-deposit in terms of section 19 of
the MSMED Act of 2006. This has to be examined in the light of the
observations made in the order of remand of the earlier writ court and
also in view of the judgements relied upon by the parties.
11. This takes us to the core issue involved in the present case as to
whether the impugned order can be said to be an award in eyes of law
at all or it is a nullity in the eyes of law.
12. On the face of the record, particularly the entire proceeding
which have been recorded in the impugned order itself, this Court
finds that upon remand the Facilitation Council issued six notices
including final notice to the petitioner vide order dated 12.12.2017
mentioning that upon failure to appear the case will be decided on
merits and ultimately on the next meeting on 20.02.2018 non-
appearance of the petitioner was recorded and the impugned final
order/award dated 20.02.2018 was also passed. The Facilitation
Council was of the view that enough opportunity was given to the
petitioner to defend his case but the petitioner remained absent and the
Facilitation Council straightaway simply reaffirmed/revived its earlier
award dated 22.03.2012 which was set aside by this Court in writ
petition being W.P.(C) No. 6464 of 2012 while remanding the matter.
The Facilitation Council neither recorded failure of conciliation nor
proceeded to take up the matter for arbitration and reaffirmed the
earlier order/award which was set-aside by this Court in the earlier
round of the writ petition.
13. This Court finds that while setting aside the award dated
22.03.2012, and remanding the matter to the Facilitation Council vide
W.P.(C) No. 6464 of 2012, this Court had examined the entire scheme
of Section 18 of the MSMED Act of 2006 and it was not a case of
simple remand on account of violation of principles of natural justice.
The specific case of the petitioner in the earlier round of the writ
petition has been recorded interalia, as:-
"..... It has also questioned the approach of the
Facilitation Council in deciding the matter on merits
without exhausting the steps stipulated under Section
18(2) of the Act of 2006. It was submitted that the matter
was required to be first referred for conciliation and only
on failure to arrive at a settlement between the parties,
the Council would have taken up dispute for arbitration
or referred it to any institution or center for adjudication
in the nature of an arbitration proceeding in terms of
Section 18(3) of the Act. The impugned order is otherwise
also cryptic and straightaway proceeded to determine the
liability of the petitioner ..................."
14. The findings recorded in final judgement dated 14.09.2016
passed in W.P.(C) No. 6464 of 2012 while remanding the matter to the
Facilitation Council reveal as follows: -
a) The facilitation council under the MSMED Act of 2006 has been
entrusted with the statutory conciliatory/adjudicatory role to
perform as per mandate of law and the procedure laid down
therein.
b) The scheme of the MSMED Act of 2006 including Section 18 was
considered and it has been held that the claim petition as made
before the Facilitation Council in the first place as per section
18(2) it is required to conduct conciliation in the matter itself or
seek an assistance of any institution or center providing alternate
dispute resolution services by making a reference thereto and it is
only on the failure of the conciliation effort and where the parties
do not arrive at a settlement, the Facilitation Council under section
18 (3) is requited to take up dispute for arbitration or refer it to any
institution or centre providing alternate dispute resolution services.
It has been held that the provisions of the Act 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
the Act of 1996.
c) The Facilitation Council while entertaining a reference is required
to follow up the procedure laid down under Section 18.
d) The Facilitation Council without discussing the admissibility of
each of such claim in proceeding in the nature of arbitration
proceeding has by cryptic order straightaway proceeded to hold
that the petitioner was liable to pay outstanding amount along with
interest.
e) The Facilitation Council had also chosen to bye-pass the first step
of undertaking conciliation of the dispute between the parties.
f) Ultimately in the totality of the facts and circumstances, the order
impugned was set aside and the matter was remanded to the
Facilitation Council to hear the reference afresh and take a
decision after due opportunity to the parties within a time frame.
15. On perusal of the aforesaid judgement passed in W.P.(C) 6464
of 2012 it is clear that this Court had also recorded that while passing
the order impugned the Facilitation Council had chosen to by-pass the
first step of undertaking conciliation on the dispute between the
parties and the procedure as laid down under section 18 which was
required to be followed, was not followed. This Court finds that the
manner in which the Facilitation Council had conducted the
proceedings ignoring the procedure laid down under section 18 of the
Act of 1996 was directly in issue in the earlier writ petition but the
Facilitation Council repeated the same error in the proceedings after
remand.
16. Upon non-appearance of the petitioner, the Facilitation Council
ought to have recorded failure of conciliation and then proceed for
arbitration.
17. In the case of Jharkhand Urja Vikas Nigam Limited Vs. State
of Rajasthan & Ors. reported in (2021) 19 SCC 206 paras 14 to 21,
the Hon'ble Supreme Court has held that:-
a) Facilitation Council is obliged to conduct Conciliation for
which provisions of Section 65 to 81 of the Act of 1996 would
apply as if conciliation was initiated under Part III of the Act
of 1996.
b) Under Section 18(3) of MSMED Act of 2006, when
conciliation fails and stands terminated, the dispute between
the parties can be resolved by Arbitration and it is open to the
Facilitation Council to arbitrate and pass an Award after
following the procedure more particularly Sections 20, 23, 24
and 25 of the Act of 1996.
c) There is a fundamental difference between conciliation and
arbitration in as much as in the former, the Conciliator assists
the parties to arrive at an amicable settlement while in
arbitration the claim has to be proved before the Arbitrator, if
necessary, by adducing evidence even though the provisions
of CPC or Evidence Act may not apply.
d) In Paragraph 16 the Apex Court held that if the party failed to
appear, the Facilitation Council could at best have recorded
failure of conciliation and proceeded to initiate Arbitration
Proceedings in accordance with the provisions of the Act of
1996 to adjudicate the dispute and make an Award. The
proceedings for conciliation and arbitration cannot be
clubbed.
e) In paragraph 17 of the Judgment, the Apex Court held that it
was clear from the records of the proceedings of the
concerned case before the court that Facilitation Council did
not initiate Arbitration Proceedings in accordance with the
provisions of the Act of 1996 and accordingly in paragraph
18 of the judgment the Apex Court held that the order of the
Facilitation Council is a nullity and runs contrary not only to
provisions of MSMED Act of 2006 but also contrary to
mandatory provisions of the Act of 1996 and therefore the
order/award was held to be patently illegal and that there
was no Arbitral Award in the eyes of law.
f) The Hon'ble Apex Court also held that it is true that an
Arbitral Award can only be questioned by way of application
under Section 34 of the Act of 1996 but at the same time when
an order is passed without recourse to Arbitration and in utter
disregard to the provisions of the Act of 1996, Section 34 of
the said act will not apply. Accordingly, the Apex Court held
that the Court cannot reject the case only on the ground that
the appellant had not availed the remedy under Section 34 of
the Act of 1996.
g) In paragraph 20 of the Judgment the Hon'ble Supreme Court
of India interfered with the order passed by the Facilitation
Council and granted liberty to the Facilitation Council to
proceed in accordance with law.
18. In the case of "Gujarat State Civil Supplies Corporation
Limited Vs. Mahakali Foods Private Limited and another" reported
in (2023) 6 SCC 401 the Hon'ble Supreme Court examined the
scheme of the MSMED Act of 2006 and recorded the salient features
in paragraph No. 40 as under: -
"40. Having regard to the purpose, intention and objects as
also the scheme of the MSMED Act, 2006 and having
regard to the unambiguous expressions used in Chapter V
thereof, following salient features emerge:
40.1. Chapter V is "party-specific", inasmuch as the party i.e.
the "buyer" and the "supplier" as defined in Sections
2(d) and 2(n), respectively are covered under the said
Chapter.
40.2. A specific provision is made fastening a liability on the
buyer to make payment of the dues to the supplier in
respect of the goods supplied or services rendered to the
buyer, as also a liability to pay compound interest at
three times of the bank rate notified by the Reserve Bank,
if the buyer fails to make payment within the prescribed
time-limit. The said liability to pay compound interest is
irrespective of any agreement between the parties or of
any law for the time being in force.
40.3. A dedicated statutory forum i.e. Micro and Small
Enterprises Facilitation Council is provided to enable
any party to a dispute with regard to any amount due
under Section 17, to make reference to such Council.
40.4. A specific procedure has been prescribed to be followed
by the Facilitation Council after the reference is made to
it by any party to the dispute.
40.5. The Facilitation Council or the centres providing
alternative dispute resolution services have been
conferred with the jurisdiction to act as an arbitrator or
conciliator under Section 18(4), notwithstanding anything
contained in any law for the time being in force, in a
dispute between the suppliers located within its
jurisdiction.
40.6. The provisions of the Arbitration Act, 1996 have been
made applicable to the dispute only after the conciliation
initiated under sub-section (2) does not succeed and
stands terminated without any settlement between the
parties.
40.7. Sub-section (1) and sub-section (4) of Section 18 starting
with non obstante clauses have an effect overriding the
other laws for the time being in force.
40.8. As per Section 24, the provisions of Sections 15 to 23
have an effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in
force."
19. A Division Bench of this Hon'ble Court in LPA No. 505 of
2019 has followed the Judgment of the Hon'ble Supreme Court of
India in the case of Jharkhand Urja Vikas Nigam Limited (supra)
and the scheme of the act has explained in Gujarat State Civil
Supplies Corporation Limited Vs. Mahakali Foods Pvt. Ltd. & Anr.
reported in (2023) 6 SCC 401 with regards to mandate of Section 18
of the MSMED Act of 2006. Accordingly, the Division Bench of this
Hon'ble Court has held that the Award was a nullity as it had not
followed the mandate as provided in Section 18(2) and (3) of the
MSMED Act of 2006.
20. Thus, the Facilitation Council, upon filing of such an
application under section 18 (1) of MSMED Act of 2006, was under a
duty to deal with the same step by step as per the mandate of Section
18 of MSMED Act of 2006 as explained by the Hon'ble Supreme
Court in "Jharkhand Urja Vikas Nigam Limited v. State of
Rajasthan and Others" reported in 2021 SCC online SC 1257 and the
scheme of the Act as explained in "Gujarat State Civil Supplies
Corporation Limited Vs. Mahakali Foods Private Limited and
another" reported in (2023) 6 SCC 401 and also in the order of
remand passed in WPC No. 6464 of 2012.
21. This Court is of the considered view that even if the notices
issued to the petitioner after remand are taken to have been duly
served, the Facilitation Council could not have straightaway revived
their earlier award which was set-aside by this Court. The impugned
order/award has been passed without recording failure of conciliation
and without entering into arbitration reference under the Act of 1996
either by itself or by referring it to another institution for arbitration.
Such steps have not been followed inspite of clear indication of the
procedures to be followed under section 18 of the MSMED Act of
2006 indicated in the order of remand and also mentioned in the
judgement passed in the case of Jharkhand Urja Vikash Nigam
(supra).
22. The impugned order/award having been passed without even
entering into reference for arbitration ex-facie it cannot be said to be
an arbitration award under the Act of 1996 read with MSMED Act of
2006 so as to even prima-facie hold that the impugned order/award
ought to have been challenged under section 34 of the Act of 1996
read with section 19 of the MSMED Act of 2006.
23. The Facilitation Council has not only ignored the step-by-step
procedure prescribed under MSMED Act of 2006 but has also failed
to notice the observations/findings made by this Court while
remanding the matter. The argument of the learned counsel for the
private respondent that the order of remand was to take up the matter
straightaway for arbitration is also devoid of any merits as the
judgement and order passed in the earlier round of writ petition has to
be read as a whole wherein it was clearly held, interalia, that the
Facilitation Council had chosen to bye-pass first step for undertaking
conciliation on the dispute between the parties.
24. There is no doubt that Facilitation Council can also act as an
arbitral tribunal constituted under Section 7(1) of the Arbitration and
Conciliation Act, 1996 and that Section 16 of the Act of 1996 would
apply as held by the Hon'ble Supreme Court in the Judgment reported
in Gujarat State Civil Supplies Corporation Limited Vs. Mahakali
Foods Private Limited and another (Supra). However, the
Facilitation Council has twin role to play. Firstly, it acta as a forum for
conciliation between the parties and after the conciliation is failed it
records the failure of conciliation and secondly, upon such failure of
conciliation, an arbitral agreement has to be read in between the
parties and then the Facilitation Council can act as arbitral tribunal
constituted under section 7(1) of the Act of 1996 and proceed to pass
an arbitral award. In the present case the failure of conciliation having
not been recorded and after failure of conciliation, the Facilitation
Council was required to take a decision to act as arbitral tribunal or to
refer the matter for arbitration by itself or any other authority. But the
aforesaid procedure has not been followed and consequently
impugned order/award has been passed without entering into reference
for arbitration .
25. Entering into arbitration is an important stage while passing an
arbitral award in absence of which the impugned order cannot be said
to be an arbitral award at all within the meaning of the Act of 1996
and the same is ex-facie nullity in the eyes of law. Consequently, the
arguments of the private respondent that the award ought to have been
challenged under section 34 of the Act of 1996 and that this writ
petition is not maintainable is rejected. Even the limitation prescribed
under section 34 of the Act of 1996 to challenge the award is not
applicable to the impugned order/award. Since the impugned
order/award is not an award under the Act of 1996 read with MSMED
Act, 2006, the arguments of the private respondent that the writ
petition has to be dismissed on account of non-deposit of 75% of the
award in terms of section 19 of MSMED Act,2006 is also rejected.
26. In M/s India Glycols Limited and Another (Supra) it has been
held that Section 18 of the MSMED Act of 2006 provides for recourse
to the statutory remedy for challenging an award under Arbitration
and Conciliation Act, 1996 and this remedy is subject to the discipline
of complying with pre-deposit in terms of the provisions of Section 19
of MSMED Act of 2006. In the said judgment itself the entire step by
step procedure under Section 18 of MSMED Act of 2006 has been
again explained by the Hon'ble Supreme Court in Paragraph 8 as
follows:-
"Section 18 of the MSMED Act provides for a reference
to the Facilitation Council, Sub-section (2) of Section 18
provides for conduct of conciliation proceeding. Sub-
section (3) empowers the Council to thereafter take up
the dispute for arbitration or to refer it to an institution
or centre providing for Alternative Dispute Resolution
services "for such arbitration". Sub-section (3) of Section
18 stipulates that the provisions of the Act of 1996 "shall
then apply to the dispute as if the arbitration was in
pursuance of an arbitration agreement referred to in sub-
section (1) of section 7 of that Act".
The aforesaid paragraph clearly reveal that Section 18 (2) provides
for conduction of conciliation proceeding and sub-section (3)
empowers the Facilitation Council to thereafter take a dispute for
arbitration or refer it to an institution or a centre providing for
alternative dispute resolution services for such arbitration and the Act
of 1996 applies to the dispute as if arbitration was in pursuance of an
arbitration agreement referred to in sub section 1 of section 7 of the
MSMED Act of 2006. It has been held that in case of challenge to an
arbitral award passed in terms of sub section 3 of section 18 after
failure of conciliation in terms of section 18 (2) certainly the
procedure to challenge the such award under the Act of 1996 under
Section 34 of the Act of 1996 has to be availed coupled with
compliance of Section 19 of the MSMED Act of 2006 i.e. pre-deposit
of 75%. However, the said judgment of M/s India Glycols Limited
and Another (Supra) does not help the petitioner in any manner. In
this case, ex-facie, neither failure of conciliation has been recorded in
terms of section 18 (2) nor any steps have been taken to enter into
arbitration in terms of Sub-section 3 of Section 18 of MSMED Act,
2006. Consequently, the award in the present case is a nullity as
discussed above. Once it is held that the impugned award is not an
arbitral award at all, the writ petition cannot be dismissed on account
of availability of remedy under Section 34 of the Act of 1996 and the
writ petition can also not be dismissed on account of non-compliance
of pre-deposit of 75% of the awarded amount under Section19 of the
MSMED Act, 2006.
27. So far as the point argued by the private respondent that
recourse to Section 34 of the Arbitration and Conciliation Act, 1996
has already become barred by limitation prior to filing of the writ
petition is concerned, this Court is of the considered view that having
held that the impugned award is not an arbitral award in the eyes of
law and hence a nullity, the limitation to challenge an arbitral award
prescribed under Section 34 of the Act of 1996 does not apply .
Accordingly, the judgment passed by the Hon'ble Supreme Court in
the case of Simples Infrastructure Limited (Supra) which has been
followed in the judgment passed by this Court in L.P.A. No. 644 of
2022 does not apply to the facts of this case.
28. The plea of the private respondent that no plea has been taken
in the writ petition in connection with Section 18(2) and 18(3) also fit
to be rejected. This Court finds that in the earlier writ petition this
Court while remanding the matter had clearly dealt with the scheme of
MSMED Act of 2006 and had also held that the Facilitation Council
had given a complete go bye to the step by step procedure prescribed
under section 18 of the MSMED Act of 2006 and had not even
followed the step of recording failure of conciliation. The specific case
of the petitioner is the fresh order/award has not followed the order of
remand. The order of remand has to be read as a whole and this Court
having held that the step prescribed under section MSMED Act of
2006 was not followed, it was for the Facilitation Council to follow
the procedure not only as per the mandate of law and also indicated in
the order of remand. The point regarding Section 18(2)(3) is covered
by the plea taken by the petitioner that order of remand was not
followed. The consequences of not recording failure of conciliation
and not taking any step to enter into arbitration is fatal to the
impugned order/award and renders it a nullity and is not an arbitral
award at all. The law is well settled that even on account of non-
appearance failure of conciliation is to be recorded and an order is
required to be drawn with respect to reference for arbitration either by
the Facilitation Council or by any other authority and this having not
been done, the impugned award reviving the earlier award is a nullity
and thus not an arbitral award.
29. To summaries, on the face of the impugned award, this Court
finds that the proceeding prescribed under the MSMED Act of 2006
has been given a complete go by and without recording failure of
conciliation on account of non-appearance of petitioner and further
without initiating arbitral proceeding the impugned order/award has
been passed. In such circumstances, the impugned award cannot be
said to be an arbitral award at all in the eyes of law which can be
subject matter of challenge under Section 34 of the Act of 1996. The
impugned award is ex-facie a nullity in the eyes of law and since the
impugned award is not an award in the eyes of law, therefore there is
no question of deposit of 75% of the awarded amount in terms of
section 19 of MSMED Act 2006 as objected to by the learned counsel
for the claimant. Accordingly, the impugned order/award requires
interference under Article 226 of the Constitution of India.
30. Consequently, the impugned order/award dated 20.02.2018
passed by the Facilitation Council is quashed and set-aside and the
matter is remitted back to the Facilitation Council and Case No.
JHMSEFC 03 /2011 is restored to the original file of the Facilitation
Council to enable the Facilitation Council to proceed in accordance
with law.
31. I.A. No. 9838 of 2023 filed by the respondent No. 3 seeking
withdrawal of the amount deposited by the petitioner in earlier writ
petition being W.P.(C) No. 6464 of 2012 is dismissed.
32. The petitioner as well as the claimant are directed to appear
before the Facilitation Council on 11th March 2025 at 11: 00 a.m.
Upon their appearance, the Facilitation Council is directed to proceed
with the matter step by step in terms of Section 18 of the MSMED Act
of 2006 as indicated by the Hon'ble Supreme Court in the case of
Jharkhand Urja Vikas Nigam Limited (Supra).
33. This writ petition is accordingly disposed of in the aforesaid
terms.
34. Interim order, if any, stands vacated.
(Anubha Rawat Choudhary, J.)
Rakesh/-
