M/s TRF Limited through its Authorized signatory Shrehan Siddhartha v. Jharkhand Micro and Small Enterprises Facilitation Council through its 1. Under Secretary cum Member
Case Details
1 IN THE HIGH COURT OF JHARKHAND AT RANCHI W. P. [C] No. 928 of 2023 M/s TRF Limited through its Authorized signatory Shrehan Siddhartha .... .. ... Petitioner(s) Versus Jharkhand Micro and Small Enterprises Facilitation Council through its 1. Under Secretary cum Member Secretary having its office at Nepal House, Ranchi. 2. 3. office at Doranda, Ranchi. Divakar Kumar Singh, M/s Jagpati Engineers Private Ltd. State of Jharkhand through Secretary, Department of Industries, having its .. ... ...Respondent(s) W. P. [C] No. 923 of 2023 M/s TRF Limited through its Authorized signatory Shrehan Siddhartha .... .. ... Petitioner(s) With Jharkhand Micro and Small Enterprises Facilitation Council through its 1. Under Secretary cum Member Secretary having its office at Nepal House, Ranchi. 2. Divakar Kumar Singh M/s Jagpati Engineers Private Ltd. Versus With .. ... ...Respondent(s) W. P. [C] No. 925 of 2023 M/s TRF Limited through its Authorized signatory Shrehan Siddhartha .... .. ... Petitioner(s) Jharkhand Micro and Small Enterprises Facilitation Council through its 1. Under Secretary cum Member Secretary having its office at Nepal House, Ranchi. 2. Divakar Kumar Singh M/s Jagpati Engineers Private Ltd. Versus
Legal Reasoning
CORAM : HON'BLE MR. JUSTICE GAUTAM KUMAR CHOUDHARY ........... .. ... ...Respondent(s) ......... For the Petitioner(s) : Mr. Indrajit Sinha, Advocate Mr. Ankit Vishal, Advocate For the Respondent(s) : Mr. Ajit Kumar, Sr. Advocate Mr. Anil Kumar, Mr. V. Gupta, Mr. Ankitesh Kr. Jha, Advocates For the State : Mr. Shray Mishra, AC to AG C.A.V. on 28.11.2023. …... Pronounced on 22.12. 2023. Heard, learned counsel for the parties. 1. All the aforesaid three Writ Petitions have been preferred by the petitioner(s) against the Awards of the Jharkhand Micro and Small Enterprise Facilitation Council dated 12.09.2022 in favour of Respondent No.2- Divakar Kumar Singh. 2. Since the facts and law involved are substantially same in all the three Writ
Decision
Petitions, therefore, they are being heard together and will be disposed of by the common order. 3. Petitioner’s Company issued different work orders for fabrication and erection work to Respondent No.2. Dispute arose with regard to the payment of the amount against the work orders and Respondent No.2 moved Jharkhand Small and Medium Enterprises Facilitation Council (“Council”) for payment of outstanding balance. 2 The council awarded separate awards a total sum of Rs.1,72,34,088.00/- + Rs.57,49,615.87/- + Rs.16,34,882/- = Rs2,46,18,585.9 in favour of Respondent No.2 which is under challenge in these writ petitions. ARGUMENT ON BEHALF OF PETITIONER 4. Petitioner(s) Company issued purchase orders to Respondent no.2 for fabrication and erection work. Respondent No.2 submitted application before the Respondent No.1- Jharkhand Micro and Small Enterprises Facilitation Council (JHMSEFC) [in short Council] under Section 20 Micro, Small and Medium Enterprises Development Act, 2006 on 12.12.2020. In pursuance to the same, the case was admitted on 23.02.2021 by the said Council and the parties appeared on 17.08.2021 to 12.09.2022. 5. The list of dates of hearing before the Council are as under :- 17.08.2021 :- Council directed both the parties to jointly reconcile its disputes within 15 days; 15.12.2021 :- The case was referred for conciliation in terms of Section 18(2) of MSME Act, 2006, to be completed within 30 days from the date of the reference. 04.01.2022 :- The matter was referred to JHALSA for fresh conciliation and mediation. 25.07.2022 :- JHALSA informed that mediation had failed. 12.09.2022 :- Council directed both the parties to submit their final written submission within 15 days. 12.09.2022, the Council pronounced the Award. 6. It is argued on behalf of the petitioner(s) is that on 12.09.2022, the petitioner appeared with the belief that since the attempt made by the parties to reconcile the dispute among themselves had failed, the Facilitation Council would initiate steps in terms of the Arbitration & Conciliation Act, 1996 to conciliate the disputes between them in terms of Part III of the above said Act of 1996. Without resorting to the provisions of Part III and also without following the procedure established by Part I, Chapter V of the Arbitration and Conciliation Act, 1996, the Council informed the parties that since the dispute has not been settled, necessary order will be passed on the basis of materials available on record. No further date of hearing was given and the Council passed order granting claim to Respondent No.2. 7. The Facilitation Council did not follow the provisions of Chapter V, Part-I of the Arbitration and Conciliation Act, 1996, which requires the statement of claim and defence and then hearing in terms of Section 24 of the Arbitration & Conciliation Act, 1996. The manner in which the award under challenge has been passed by the Facilitation Council cannot be said to be an award in terms of the Arbitration & 3 Conciliation Act, 1996 and hence, the recourse against the said award cannot be taken under Section 34 of the Arbitration & Conciliation Act, 1996. 8. Arbitration proceedings before the Council has been followed in perfunctory manner in which on one day, 21 matters were disposed of, in a span of one and half hours. Under Section 25 of the Arbitration and Conciliation Act, 1996, after failure of the conciliation, it was incumbent on the part of the Council to have entered into arbitration proceedings in terms of Section 18 of the MSMED Act, 2006. Furthermore, under Section 25 of the Arbitration and Conciliation Act, 1996, it was required that sufficient opportunity be given to the parties to prepare the statement in accordance with the sub-section 1 of Section 23 of this Act. 9. The opportunities were not granted and the arbitral award was made which is not, in consonance with the, law as laid down by the Hon’ble Supreme Court in the judgment reported in 2021 SCC OnLine SC1257 [JUVNL Limited vs. State of Rajasthan and Ors.] wherein it has been held in Para-11, which reads as under :- 11. 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. 12. There is a fundamental difference between conciliation and arbitration. In conciliation the conciliator assists the parties to arrive at an amicable settlement, the Arbitral in an 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 Civil Procedure Code or the Indian Evidence Act may not apply. Unless otherwise agreed, oral hearings are to be held. independent manner. In arbitration, impartial and 13. 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. 14. 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 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. the appellant and/or 15. 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 4 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. 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. 10. It is submitted that from the bare reading of Award itself, it will be apparent that JHALSA had not conducted conciliation rather it was mediation that had failed. Section 18 mandates that before entering into arbitration, efforts should have been for conciliation and then on its failure, it was open to the Council either to refer it for arbitration or to enter into arbitration itself. Here in the present case, neither conciliation was held nor arbitration was made as per mandates of law. ARGUMENT ON BEHALF OF RESPONDENT[S] 11. Learned counsel appearing on behalf of answering respondent(s) defends the impugned order. It is submitted that from the proceedings as recorded in the Award is self-explanatory as on 17.08.2021, the Council had directed both the parties to jointly reconcile the dispute. In the Award, there is specific reference vide Letter No.22 dated 04.01.2022 whereby, the matter was referred to JHALSA for fresh conciliation and mediation under Section 18(2) of the MSMED Act and on its failure, arbitration was taken up by the Council. JHALSA vide Letter Nos.1990 &1991, dated 25.07.2022 intimated about the failure of conciliation/ mediation. This has been noted in the said Award that conciliation process had failed and accepted by the parties on which they were asked to submit their written submissions within 15 days. 12. The stand of the Opp. Party(s) has been recorded in details in the said Award which will go to show that petitioner(s) had sufficient opportunity to present its case in the arbitral proceeding. 13. If the petitioner(s) was aggrieved by not getting sufficient opportunity, as the remedy lies under Section 34(2)(III) of the Arbitration and Conciliation Act and not to invoke the Writ Jurisdiction of this Court. 14. It is submitted that the fact of the present case is different to that of W.P.(S) No.5804 of 2022 which has been relied upon by the petitioner (s) in as much as in the instant case, it was not a case of clubbing of conciliation and arbitration proceedings rather their matter had been referred for mediation and on its failure, the arbitral proceeding had been initiated. 15. It is further submitted that the instant writ petition has been filed to bypass the normal provision of Section 19 of the MSMED Act, 2006 which requires pre-deposit of 75% of the awarded amount. Reliance is placed on the following authorities :- (a) Tirupati Steels v. Shubh Industrial Component, (2022) 7 SCC 429 (b) Gujarat State Disaster Management Authority v. Aska Equipments Ltd., (2022) 1 SCC 61 5 (c) SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 (g) W.P.(C) No.3154 of 2021 (h)LPA No.400 of 2022 (i) 2019 SCC OnLine Jhar.1608. ANALYSIS 16. The Award delivered by the Facilitation Council is under challenge principally on the ground that the conciliation process was not followed as required under Section 18 (2) of the MSME Act, 2006, and secondly, the Award under Section 18(3) of the said Act is not as per the mandate and provisions of Arbitration and Conciliation Act, 1996 ( in short ‘A.C. Act, 1996’). 17. Before adverting to the points raised the object of the Act is not to be lost sight of, which is to provide security to the Micro, Small and Medium Enterprises and to facilitate their development. If the small enterprises is to flourish in the competitive world today, commercial dispute needs to be fast tracked and resolved without any interminable delay. Different provisions have been engrafted in the Act, to ensure that financial disputes arising out of commercial transactions do not affect the growth of such enterprises. It is with this object that Section 19 of the MSMED Act, 2006 reserves the obligation to deposit 75% of the awarded amount. This is to ensure timely and smooth flow of liquidity to small and Medium enterprises. The provisions of MSMED Act, 2006 has to be looked into from this perspective, in order to appreciate the issues raised in the instant writ petition. 18. In the present case on 17.08.2021, the Council directed both the parties to reconcile the disputes within 15 days, failing which, on 15.12.2021, it was referred for conciliation under Section 18(2) of the MSMED Act, 2006, to be completed within 30 days of the reference. The said reference also failed on 04.01.2022 and was sent to JHALSA for fresh conciliation and mediation which failed on 25.07.2022. 19. Considering the above stated course of events, it cannot be said that Section 18(2) of the MSMED Act, has not be complied with. Merely because the terminology used in sending back by the JHALSA, “mediation” had failed will not completely negate the efforts taken for conciliation, where conciliation was held at different stages. Therefore plea of failure to comply with Section 18(2) of the MSME Act is rejected. 20. The second plea that has been raised is that the Award of the Facilitation Council cannot be termed as arbitration Award, as the matter has been rushed up and disposed of without following the mandates under Chapter V, Part I of the A.C. Act, 1996. On 12.09.2022, Council directed both the parties to submit their final written submissions within 15 days and on the same day, the Award was pronounced. 6 21. Indisputably, appeal is to be preferred under Section 19 of the MSMED Act, 2006 and not a Writ Petition against the arbitral Award under Section 18(3) of the MSMED Act, 2006. The Writ Courts cannot be made an escape route to avoid making payment of 75% of the Award amount which is mandated under Section 19. The counsel on behalf of the petitioner is however right to the extent that before invoking Section 19 of the said Act, 2006, there should be a formal arbitral award. In the present case, from the arbitral award (Annexure-5), it is evident that on 12.09.2022, the Council directed both the parties to submit their final written submissions within 15 days and on the very same day, the Award has been pronounced. This cannot be called an arbitral Award against which an Appeal can be preferred. Under the aforesaid circumstances, the Award dated 12.09.2022 passed against the petitioner(s) in all these three Writ Petitions is set aside, and the matter is remitted back to the Facilitation Council to pass order /Award afresh within three months of this order. The petitioner(s) and Respondent No.2- Divakar Kumar Singh Director M/s Jagapati Engineers Private Ltd are directed to appear before the Jharkhand MSME Facilitation Council on 8th January, 2024 and present their written submissions as directed vide order dated 12.09.2022 by the Facilitation Council. The Writ Petitions stand disposed of. Pending, I.A(s), if any stands disposed of. (Gautam Kumar Choudhary, J.) Jharkhand High Court, Ranchi, Dated 22.12.2023 NAFR/Sandeep Uploaded.