2021 (12) TMI 1451 - SC - Indian Laws

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

Jharkhand Urja Vikas Nigam Limited Versus. The State of Rajasthan And Ors.

The Supreme Court allowed the civil appeal, setting aside the order dated 06.08.2012 issued by the Rajasthan Micro & Small Industries Facilitation ... Validity of Arbitral Award - disputes on the supplies made by the 3rd Respondent, the bill amount due was not paid immediately - It is submitted that only on the ground that the Appellant has not responded in the conciliation proceedings, straightaway the order was passed by the Council without giving proper opportunity - HELD THAT:- 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, 25. 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 the Code of Civil Procedure or the Indian Evidence Act may not apply. Unless otherwise agreed, oral hearings are to be held. 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 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. The impugned judgment and order is set aside - this civil appeal is allowed. 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.