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IN THE HIGH COURT OF DELHI AT NEW DELHI
Prateek Jalan, J.
Indian Oil Corporation Limited – Appellant
Versus
Fepl Engineering (P) Limited & Anr. – Respondents
O.M.P. (COMM.) 144 of 2019
Decided On : 16-03-2023
Arbitration - Micro, Small and Medium Enterprises Development Act - 1996, Section 34 - MSME Act - 2006 [Section 18] - The Act - 1996 [Section 34]
Fact of the Case:
The petitioner seeks setting aside of an arbitral award passed by the Micro and Small Enterprises Facilitation Council. The respondent is a micro enterprise under the MSME Act, and the claims arose from a Purchase Order for supply of a Solar PV System. Disputes led to proceedings under Section 18 of the MSME Act before the Council.
Finding of the Court:
The court found that the impugned award was vitiated by the Council's failure to render any finding on the petitioner's defenses and by manifestly inadequate reasoning. The court set aside the award and consented to adjudication of the disputes by an independent arbitrator.
Issues: Setting aside of the arbitral award, constitution of the Arbitral Tribunal, irregular procedure of the Council, and merits of the award.
Ratio Decidendi: The impugned award was set aside due to the Council's failure to address the petitioner's defenses and provide adequate reasoning. The court consented to adjudication of the disputes by an independent arbitrator.
Final Decision: The impugned award was set aside, and the disputes were consented to be adjudicated by an independent arbitrator. The court did not adjudicate upon the merits of the respondent's claims, and all rights and contentions of the parties were reserved.
JUDGMENT
Prateek Jalan, J. (Oral)
1. By way of this petition under Section 34 of the Arbitration and Conciliation Act, 1996 [hereinafter, "the Act"], the petitioner seeks setting aside of an arbitral award dated 14.12.2018, passed by the Micro and Small Enterprises Facilitation Council, Konkan Region, Thane in Petition No. 21/2017 [hereinafter, "the Council"].
2. The respondent herein is a micro enterprise, within the purview of the Micro, Small and Medium Enterprises Development Act, 2006 [hereinafter, "the MSME Act"]. Its claims arose out of a Purchase Order dated 10.03.2016, issued by the petitioner herein, for supply of a 1000 KWP Solar PV System with PV Panels installation frame, invertor and SCADA, all lower side DC/AC, accessories and cables for 3-phase 440 VAC Grid Connection Syncronization to the plant 9030 for its refinery in Gujarat.
3. Disputes arose between the parties leading to the institution of proceedings under Section 18 of the MSME Act by the respondent before the Council on 14.03.2017. Notice was issued by the Council to the petitioner on 23.05.2017. After some correspondence between them, the petitioner ultimately filed its statement of defence on 12.10.2017, and the respondent filed a rejoinder thereto on 16.11.2017.
4. A hearing was held by the Council on 19.12.2017, when it granted time to the parties to settle the matter. The parties thereafter agreed to conduct a joint visit to assess the status of the work done, and appointed one Mr. Sushil Ramesh Tongay to act as an expert for this purpose. He issued his report on 20.03.2018, which was a part of the conciliation proceedings.
5. Further hearings were held before the Council on 27.03.2018 and 12.07.2018. In the hearing on 12.07.2018, the Council recorded that the conciliation has failed, and that the matter was "kept for arbitration"1[Document No.64, page No. 335 of the petitioner's list of documents.] . This order was apparently based upon a communication of the respondent to the Council which, according to the petitioner, was never served upon the petitioner.
6. The next hearing before the Council was held on 01.08.2018. Although the petitioner claims that no arguments were advanced by the parties, the order sheet records that oral arguments were made by the parties, and that time was granted for filing of "written statement"2[Document No.65, page No. 337 of the petitioner's list of documents.] , firstly by the petitioner herein, and then by the respondent.
7. Certain applications were thereafter filed by the petitioner, and hearings were held, wherein directions were given to the respondent for filing replies to the applications. It is pleaded by the petitioner that copies of replies were not served upon it, although reference is made thereto in the impugned award.
8. The impugned award was passed by the Council on 14.12.2018, allowing the respondent's claims.
9. The award has been challenged by the petitioner herein on several grounds, including inter alia as to whether the Council itself, having first acted as a panel of conciliators, could act as an arbitral tribunal, grounds relating to procedure, and on merits of the award.
10. As far as the first aspect, relating to the constitution of the Arbitral Tribunal is concerned, Mr. Raman Kapoor, learned Senior Counsel for the petitioner, does not press the objection, in view of the judgment of the Supreme Court in Gujarat State Civil Supply Corporation Ltd. vs. Mahakali Foods Pvt. Ltd. (Unit 2) and Another, 2022 SCC Online SC 1492.
11. As far as the procedure of the Council is concerned, Mr. Kapoor submits that the Council accepted the submission of the respondent, closed the conciliation proceedings, and embarked upon arbitration, without any specific notice to the petitioner in this regard. He further submits that the order sheets of the proceedings were also not shared with the petitioner, and that the Council followed a wholly irregular procedure.
12. On the merits of the case, it is
AI
The court emphasized the importance of addressing the parties' defenses and providing adequate reasoning in arbitral awards.
The Court upheld the impugned Award and emphasized the finality of arbitral awards, reinforcing the limited grounds for challenging an award under the Arbitration and Conciliation Act, 1996.
Writ petition against arbitral award is maintainable; petitioner must follow remedies under Arbitration Act.
The court emphasized the limited scope of review power, the need for an error apparent on the face of the record, and the applicability of the provisions of the Arbitration & Conciliation Act to the ....
The directive from the Micro & Small Enterprises Facilitation Council was held not to be an executable arbitral award due to failure to adhere to required arbitration procedures post-conciliation.
The mandatory pre-deposit requirement under Section 19 of the MSMED Act, 2006 for challenging an award and the overriding effect of the MSMED Act, 2006 over the Arbitration Act, 1996 in specific disp....
The arbitration proceedings initiated under Section 18 of the MSMED Act must comply with the provisions of the Arbitration and Conciliation Act, and failure to do so constitutes a breach of the Act.
Section 34 of the Arbitration and Conciliation Act provides a limited window of challenge to an arbitral award, and a violation of a statute, not tied to public policy or public interest, cannot serv....
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