The Facilitation Council lacks jurisdiction over disputes arising from works contracts under the MSME Act, and principles of natural justice must be adhered to in adjudicatory processes.

ORDER :

This writ petition is filed under Article 226 of the Constitution of India for the following relief:

“….to issue to issue a Writ of Mandamus or any other appropriate Writ or Writs Order or Direction declaring the Respondents minutes of the meeting dated 20.09.2023 in the proceedings vide reference no 21C/IFC/2023/2741 as arbitrary and illegal being inter alia in violation of the provisions of the Medium Enterprises Development Act 2006 and the Andhra Pradesh Micro Small and Medium Enterprises Facilitation Council Rules 2007 in addition to being in contravention of the principles of natural justice and consequently terminate the proceedings before the Respondent in 21C/IFC/2023/2741 between the 2^nd Respondent and the Petitioner as being without jurisdiction and pass…”

2. Brief facts of the case are that the petitioner is a company incorporated under the provisions of the Companies Act, 1956 and is engaged in the execution of several large-scale infrastructure projects across the country. In the instant case, the Petitioner was awarded the work of construction of a bridge near Chamanur village in the Kalaburgi district of Karnataka. The Petitioner and the 2^nd Respondent (a partnership concern) executed the Sub-Contract dated 22.08.2018. whereby, the 2^nd Respondent was responsible for executing the entire works on a back-to- back basis. Under the Sub-Contract, the 2nd Respondent is, inter alia, responsible for planning, procuring, supplying, execution and installation, testing, quality and quantity checking for compliance and commissioning, and operation and maintenance of the above-noted bridge up to the defect liability period. The 2^nd Respondent's Reference relates to its purported claims under this Sub-Contract. It is further stated that several clauses of the Sub-Contract, including the recitals, make it clear that the 2nd Respondent had undertaken the entire responsibility for the works. The 2^nd respondent initiated a reference before the 1^st respondent by filing its reference, which is in the form of a statement of claim, the 2^nd respondent has advanced several claims against the petitioner allegedly arising under the Sub-Contract. The 2^nd respondent’s alleged claims aggregate to a principal claim amount of Rs.17,00,45,429/- and interest of Rs.14,45,40,417/-. It is further stated that, on 22.08.2023, the Petitioner received a "Notice Calling for Statement of Defence" from the 1^st Respondent under Rule 8(1) of the AP MSEFC Rules. In this notice, the 1^st Respondent called upon the Petitioner to submit its statement of defence within 15 (fifteen) days of receiving the instant notice. In addition, the Petitioner was directed to pay an advance for costs referred to in Section 31 (8) of the Arbitration and Conciliation Act, 1996 (for short "Arbitration Act"). Further, in the notice, the 1 Respondent has further stated that the 2^nd Respondent has made the Reference to it to act as an "Arbitrator" regarding the 2nd Respondent's claims against the Petitioner. the petitioner has sent a letter to the 1^st respondent on 4.9.2023 stating that it required further time to collate the necessary documents and therefore requested an enlargement of time. Again on 5.9.2023 the petitioner received another “Notice Calling for Statement of Defence” from the 1^st respondent, which does not appear to have considered the petitioner’s request. Thereafter, without calling for any response from the petitioner, the 1^st respondent sent a notice dated 8.9.2023 informing that, a meeting will be held on 20.9.2023 for conciliation in terms of Section 18(2) of MSME Act. Objecting the same, the petitioner submitted a detailed Memo. After filing the Memo before the 1^st respondent during the meeting on 20.9.2023 the 1^st respondent