Supreme Court invalidates order, directs proper arbitration procedures under MSMED & Arbitration Acts.

The Supreme Court allowed the civil appeal, setting aside the order dated 06.08.2012 issued by the Rajasthan Micro & Small Industries Facilitation Council. The Court found the order to be invalid as it was passed without following proper arbitration procedures mandated by the MSMED Act and the Arbitration and Conciliation Act. The Court quashed the order and directed the Council to either take up the dispute for arbitration or refer it to an appropriate institution. The 3rd Respondent's claim was left to be decided by the arbitral tribunal.

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Issues Involved:

1. Validity of the order dated 06.08.2012 passed by the Rajasthan Micro & Small Industries Facilitation Council.
2. Compliance with Section 18 of the MSMED Act and the provisions of the Arbitration and Conciliation Act, 1996.
3. Jurisdiction and procedural propriety in the arbitration process.
4. Delay and laches in challenging the Council's order.
5. The right of the Appellant to challenge the order after partial compliance.

Issue-wise Detailed Analysis:

1. Validity of the Order Dated 06.08.2012:

The Supreme Court reviewed the order dated 06.08.2012 issued by the Rajasthan Micro & Small Industries Facilitation Council, which directed the Appellant to pay a specified amount to the 3rd Respondent. This order was challenged by the Appellant on the grounds that it was passed without giving them a proper opportunity to participate in the proceedings. The Court found that the order was passed solely because the Appellant did not appear on the specified date, without initiating proper arbitration proceedings as mandated by law.

2. Compliance with Section 18 of the MSMED Act and the Arbitration and Conciliation Act, 1996:

The Court emphasized that under Section 18(3) of the MSMED Act, if conciliation fails, the Council must either take up the dispute for arbitration itself or refer it to an institution for arbitration. The provisions of the Arbitration and Conciliation Act, 1996, particularly Sections 20, 23, 24, and 25, must be followed. The Court noted that the Council did not initiate arbitration proceedings as required, making the order dated 06.08.2012 contrary to the mandatory provisions of both the MSMED Act and the Arbitration and Conciliation Act.

3. Jurisdiction and Procedural Propriety:

The Appellant argued that the order was also without jurisdiction since the contract stipulated that disputes would be subject to the jurisdiction of civil courts at Ranchi. The Court did not delve deeply into this jurisdictional issue but focused on the procedural impropriety, noting that the Council's order was passed without following the due process of arbitration.

4. Delay and Laches in Challenging the Council's Order:

The Respondents contended that the Appellant's challenge was delayed and thus should not be entertained. However, the Court found that the Appellant had paid a substantial amount to the 3rd Respondent after verifying records, and the 3rd Respondent accepted this payment without protest. The subsequent attempt to execute the order was dismissed for lack of territorial jurisdiction, and the Appellant then promptly approached the High Court. Therefore, the Court did not accept the argument of delay and laches.

5. The Right of the Appellant to Challenge the Order After Partial Compliance:

The Court held that partial compliance with the order (payment of Rs. 63,43,488/-) did not preclude the Appellant from challenging the order, especially since the payment was made without any protest from the 3rd Respondent. The Court reiterated that the order dated 06.08.2012 was a nullity as it was passed without following the mandatory arbitration procedures.

Conclusion:

The Supreme Court allowed the civil appeal, setting aside the impugned judgment and the order/award dated 06.08.2012. The Court quashed the order but allowed the 2nd Respondent-Council the option to either take up the dispute for arbitration or refer it to an appropriate institution, ensuring compliance with the Arbitration and Conciliation Act, 1996. The merits of the 3rd Respondent's claim were left to be decided by the arbitral tribunal.

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