M/S.UTILITY POWERTECH LIMITED v. THE MICRO SMALL ENTERPRISES

3. The learned counsel for the petitioner assailed the impugned order passed by the 1^strespondent on the ground that the 1^strespondent failed to follow the step by step procedure contemplated under Section 18 of MSMED Act, 2006 and therefore, the same is liable to be set aside. It is the specific case of the petitioner that 1^strespondent has not attempted conciliation and terminated the same in the manner known to law and therefore, without fulfilling the step under Section 18(2) of MSMED Act, 2006, the 1^strespondent ought not to have proceeded under Section 18(3) of MSMED Act, 2006 and passed the impugned order.

4. The learned counsel for the 2^ndrespondent submitted that the 1^st respondent initially attempted the conciliation between the petitioner and the 2^ndrespondent. When there was no consensus between the parties, the conciliation was terminated and the arbitration proceedings were initiated. After giving sufficient opportunity to both the parties, the award was passed by the 1^strespondent. Therefore, the petitioner is not entitled to move the writ petition without filing an appeal under Section 34 of Arbitration Act. On these

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grounds, the learned counsel for the 2^ndrespondent sought for dismissal of the writ petition.

Section 18 of Micro, Small and Medium Enterprises Development Act, 2006 which reads as follows:-

"Section 18: Reference to Micro and small Enterprises Facilitation Council.

(1) Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council.

(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.

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(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 ittoany institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 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.

(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.

(5) Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference.

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5. A reading of the above said provision would make it clear that on receipt of a reference under Section 18(1), the 1^strespondent is expected to conduct conciliation proceedings and if the conciliation is not successful, the same shall be terminated. Thereafter, the 1^strespondent council can either take up the arbitration itself or refer the matter to any other institution or centre for arbitration proceedings. Once the matter is referred to arbitration then the provision of Arbitration Act is applicable.

6. I had an occasion to consider the step by step procedure to be followed under Section 18 by the MSMED Council in Sri Valli Process Vs Mirco, Small Enterprises Facilitation Council reported in 2022 SCC OnLine Mad 3537. The relevant observation in the above said decision reads as follows:-

"23.The complexion or character of MSMED council changes from one capacity to other while following the step by step procedure contemplated under Section 18 of MSMED Act. While exercising power under Section 18(1) of the Act, MSMED council acts as an ordinary authority to receive respective representations of the parties. On the other hand,

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while acting under Section 18(2) the complexion of the council would change from that of an ordinary authority to that of a conciliator acting under relevant provision of arbitration and conciliation Act. While exercising power under Section 18(3) the complexion of MSMED council changes from that of conciliator to that of an Arbitrator. Therefore, it is incumbent upon the first respondent council to inform the parties by express notice under what capacity, they receive the pleadings of the parties. At least while commencing the arbitration under Section 18(3) of MSMED Act, the first respondent is obliged to record the failure of conciliation proceedings and initiation of an adjudicatory procedure as an Arbitrator. It is obligatory on the part of the first respondent council to inform the parties about the change of its face from that of conciliator to that of an Arbitrator, so that the parties will be made to understand that they are participating in an adjudicatory process, which will result in a binding order having impact on their rights. There is nothing available in the impugned order to show that at what point of time, the first respondent council acquired the character of arbitrator from that of conciliator. The parties appeared to have participated in the proceedings without knowledge whether they are participating in an ordinary reference stage under Section 18(1) or conciliation stage

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under Section 18(2)or in an adjudicatory stage under Section 18(3) There is nothing available in the impugned order to show valid constitution of arbitral Tribunal and beginning of adjudicatory process with express notice to the parties. Hence, I hold the impugned order cannot be termed as an award and hence liable to be set aside".

7. Therefore, if the conciliation proceedings is not successful, the 1^st respondent Council is expected to record the failure of the conciliation proceedings and initiate an adjudicatory process by way of arbitration. It has been expressly held that it is obligatory on the part of the 1^strespondent Council to inform the parties about the change of its face from that of the conciliator to arbitrator so that the parties will be made to understand that they are participating in an adjudicatory process which will result in a binding order having impact on their rights.

8. A perusal of the impugned order passed by the 1^strespondent would suggest that the 1^strespondent failed to issue an express notice to the parties intimating commencement of arbitration proceedings after failure of conciliation. There is nothing available on record to say after commencement of

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arbitral proceedings, a claim statement was made by the 2^ndrespondent and petitioner was given an opportunity to file a counter as per the provisions of Arbitration Act. Therefore, the 1^strespondent failed to follow the step by step procedure contemplated under Section 18 of MSMED Act, 2006 and also provisions of Arbitration Act. Consequently, the order impugned in this writ petition cannot be treated as an award passed under Arbitration Act.

9. Once this Court comes to a conclusion that the order impugned is not an award within the meaning of Arbitration Act, there is no possibility for the petitioner to file an application to set aside the award under Section 34 of Arbitration Act. In such circumstances, the contention raised by the 2^nd respondent that petitioner has got alternative remedy of invoking Section 34 of Arbitration Act is not appealable to this Court.

10. In view of the discussions made earlier, the impugned order is set aside since the 1^strespondent failed to follow the step by step procedure under Section 18 of MSMED Act, 2006 and the matter is remanded back to the file of the 1^strespondent with direction to follow procedure contemplated under

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Section 18 of the MSMED Act, 2006.

11. Both the counsel for the petitioner and the 2^ndrespondent agrees that there is no possibility of conciliation in the matter. The said statement is recorded. Therefore, the conciliation process is deemed to be terminated and the 1^strespondent is directed to initiate arbitration proceedings as per Section 18(3) of MSMED Act, 2006. The arbitration proceedings shall be finished within a time limit prescribed under Section 18(5) of the MSMED Act, 2006.

12. This direction is issued to the 1^strespondent in view of the consensus arrived between the learned counsel for the petitioner and the 2^ndrespondent that there will be no purpose in exploring the conciliation proceedings again. Therefore, this Court treat the statement made by the learned counsel for the petitioner and the 2^ndrespondent as failure of the conciliation and direct the 1^st respondent to proceed with arbitration proceedings in accordance with law.

13. It is also made clear that the member of the 1^strespondent Council, who attempted conciliation earlier shall not act as an arbitrator in view of bar

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under Section 80(a) of Arbitration and Conciliation Act,1996. It is open to the 1^strespondent to take up arbitration itself or sent it to any other institution or centre offering alternative dispute resolution services.

14. With the above observations, this writ petition is disposed of. Consequently, connected miscellaneous petition is closed. No costs.

10.08.2023

(2/2) Index : Yes/No Internet : Yes/No Speaking Order/Non-Speaking Order Neutral Citation Case : Yes/No nr

To

The Chairperson

The Micro Small Enterprises Facilitation Council, Guindy, Chennai - 600 032.

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S.SOUNTHAR , J.

nr

W.P No.22063 of 2023 and W.M.P.No.21449 of 2023

10.08.2023

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