1. Petitioner challenged Council's jurisdiction due to respondent's status as medium enterprise and referral to individual arbitrator instead of institution. (Para 3 )
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2026 Supreme(HP) 706
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA
JYOTSNA REWAL DUA, J.
M/s Tynor Orthotics Pvt. Ltd. - Petitioner
Versus
Himachal Pradesh Micro & Small Enterprises Facilitation Council, & Ors. - Respondent
CWP No. 8278 of 2022 a/w Arb. Case No. 206 of 2022
Decided On : 07-07-2026
Advocates:
Advocate Appeared:
For the Petitioner:Mr. Suneet Goel, Sr. Advocate with Mr. Vivek Negi, Advocate
For the Respondents:Mr. L.N. Sharma, Additional Advocate General, Mr. Himanshu Thakur, Advocate Mr. Lalit K. Sehgal, Advocate
Advocate Appeared:
For the Petitioner:Mr. Suneet Goel, Sr. Advocate with Mr. Vivek Negi, Advocate
For the Respondents:Mr. L.N. Sharma, Additional Advocate General, Mr. Himanshu Thakur, Advocate Mr. Lalit K. Sehgal, Advocate
Under Section 18(3) of the MSMED Act, 2006, the Facilitation Council upon failure of conciliation can either arbitrate itself or refer the dispute to an institution/centre providing ADR, not to an individual arbitrator. Also the Council must verify the supplier's status as micro or small enterprise.
Headnote:(A) Micro, Small and Medium Enterprises Development Act, 2006 - Sections 2(g),(h),(m),(n), 7, 15, 16, 17, 18, 19, 24 - Reference to Facilitation Council - Supplier must be micro or small enterprise - Medium enterprise not covered - Council must verify status before proceeding - Verification of supplier's status is mandatory. (Paras 4(i), 4(i)(b))
(B) Micro, Small and Medium Enterprises Development Act, 2006 - Section 18(3) - Arbitration upon failure of conciliation - Council has two options: either itself take up dispute for arbitration or refer to any institution or centre providing alternate dispute resolution services - No power to refer dispute to an individual arbitrator - Institutional arbitration only - Reference to an individual arbitrator, even if empanelled by State Government, is invalid - Himachal Pradesh Micro and Small Enterprises Facilitation Council Rules, 2018 - Rule 4(ix) - Definition of 'Institution' under Rule 2(f) - 2007 Rules repealed. (Paras 4(ii)(a), 4(ii)(b), 4(ii)(c), 4(ii)(d))
(C) Arbitration and Conciliation Act, 1996 - Section 11 - Appointment of Arbitrators - Distinction between arbitral institution and individual arbitrator - Panel of arbitrators maintained by Chief Justice under proviso to Section 11(3A) does not apply to references under Section 18(3) of MSMED Act - Section 2(1)(ca) - Definition of 'Arbitral Institution'. (Paras 4(ii)(c))
(D) Arbitration and Conciliation Act, 1996 - Section 34 - Challenge to arbitral award - Award passed by an arbitrator without jurisdiction is a nullity - Objections under Section 34 rendered infructuous when award is set aside in writ. (Paras 1, 5)
Facts of the case:
A dispute arose between the petitioner and respondent No.2 regarding payment for goods. Respondent No.2 made a reference to the Himachal Pradesh Micro & Small Enterprises Facilitation Council (respondent No.1) under Section 18 of the MSMED Act, 2006 for recovery of Rs.2,60,65,515/-. Conciliation failed. The Council, by order dated 27.05.2022, referred the dispute to an arbitrator (respondent No.3) from a panel notified by the State Government in 2015. The arbitrator proceeded ex parte and passed an award on 29.09.2022. The petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 (Arb. Case No.206/2022) and also filed a writ petition (CWP No.8278/2022) seeking declaration that the award was nullity for lack of jurisdiction.
Issues: (1) Whether respondent No.2, being a medium enterprise, is covered by the definition of 'supplier' under the MSMED Act, thereby entitling it to invoke Section 18? (2) Whether the Council was legally justified in referring the dispute to an individual arbitrator under Section 18(3)?
Findings of Court:
(1) Respondent No.2 was registered as a small enterprise during the period of the dispute (certificate dated 26.04.2018) and hence was a 'supplier' under the Act. However, the Council failed to verify the status, which is mandatory. (2) Under Section 18(3) of the MSMED Act, the Council can only either itself arbitrate or refer the dispute to an institution or centre providing alternate dispute resolution services. There is no provision for referring to an individual arbitrator. The panel of arbitrators notified by the State Government does not constitute an 'institution'. The 2018 Rules also require reference to an institution. The reference to respondent No.3 was illegal and without jurisdiction.
Ratio Decidendi: The Council under Section 18(3) has only two statutory options: either take up the dispute for arbitration itself or refer it to an institution/centre providing ADR. An individual arbitrator, even if empanelled by the State Government, is not an institution. Therefore, the reference to an individual arbitrator is invalid, and any award passed by such arbitrator is a nullity.
Result: Writ petition allowed. The reference made by respondent No.1-Council on 27.05.2022 (Annexure A-19) to respondent No.3 is quashed. Consequently, all further proceedings including the ex parte award dated 29.09.2022 are set aside. Directions issued to the Council to verify supplier status and to follow proper procedure. Arb. Case No.206/2022 disposed of as infructuous.
Legal Category Hierarchy
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commercial law
-
micro small and medium enterprises
-
facilitation council
- powers and functions
- duty to verify supplier status
-
arbitration under section 18
- institutional arbitration only
- definition of supplier
-
facilitation council
-
micro small and medium enterprises
-
practice and procedure
-
arbitration and conciliation
- appointment of arbitrators
- challenge to award (Para 5)
-
arbitration and conciliation
Table of Contents
2. Writ allowed — Reference to individual arbitrator quashed — Ex parte award set aside — Directions issued for proper procedure. (Para 5 )
JUDGMENT :
Jyotsna Rewal Dua, J.
A dispute arose between the petitioner and respondent No.2. The parties could not resolve the dispute. Respondent No.2 made a reference to the Himachal Pradesh Micro & Small Enterprises Facilitation Council-respondent No.1 for recovery of Rs.2,60,65,515/- from the petitioner in accordance with the provisions of Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (the Act, in short). Amicable settlement could not be arrived at between the parties. Respondent No.1-Council took note of the same and, acknowledging failure of conciliation efforts, unanimously decided to refer the dispute to arbitration under Section 18(3) of the Act. Accordingly, on 27.05.2022 (Annexure A-19), the Council referred the matter to an arbitrator from the panel notified on 18.09.2015 by the State Government. Learned Arbitrator-respondent No.3 issued notice to the petitioner to appear before him on 25.07.2022. Petitioner, vide letter dated 29.06.2022, requested for changing the date. Petitioner's request was denied by the learned Arbitrator vide letter dated 03.07.2022. Petitioner again requested for another date vide letter dated 26.07.2022. Petitioner was proceeded against ex parte by the learned Arbitrator, and the ex parte award qua the petitioner was passed on 29.09.2022 (Annexure A-24).
Petitioner has taken recourse to Section 34 of the Arbitration and Conciliation Act, 1996 for assailing the ex parte award dated 29.09.2022 in Arbitration Case No. 206/2022. Simultaneously, the petitioner has instituted present writ petition seeking declaration that the award dated 29.09.2022 passed by respondent No.3 is a nullity, being without jurisdiction. It has been further contended that the assumption of jurisdiction by respondent No.1-Council in referring the dispute for adjudication by respondent No.3 is bad in law. Respondent No.1-Council could not have referred the dispute for adjudication by respondent No.3-an independent arbitrator, consequently, the award passed by respondent No.3 is void ab initio.
2. Heard learned counsel for the parties on both sides and considered the case file.
3. Learned Senior Advocate for the petitioner has raised the following two questions of law:
• Respondent No. 2 being a medium enterprise is not covered by the definition of 'supplier' under the Act. Therefore, respondent No. 1-Council could not have entertained the dispute raised by respondent No. 2 under Section 18 of the Act.
• In any case, respondent No.1-Council, by resorting to Section 18(3) of the Act, could not have referred the matter for adjudication to an independent arbitrator, i.e. respondent No. 3. The procedure adopted by respondent No. 1-Council was contrary to the mandate of Section 18(3) of the Act.
While elaborating the above two points, it was urged that the impugned award passed by respondent No. 3 is a nullity, as the reference made by respondent No. 1 of the dispute raised by respondent No. 2 for adjudication to respondent No. 3 (learned Arbitrator) was vitiated from the very beginning.
4. Consideration
4(i) Status of respondent No. 2 vis-à-vis the provisions of the Act:
Respondent No. 2 had invoked Section 18 of the Act for resolving the dispute between respondent No. 2 and the petitioner. Section 18 falls within the ambit of Chapter V of the Act that contains Sections 15 to 25 and bears the heading "Delayed Payments to Micro and Small Enterprises." In terms of Section 18(1), which provides for a reference to the Micro and Small Enterprises Facilitation Council, any party to a dispute with regard to any amount due under Section 17 may make a reference to the Micro and Small Enterprises Facilitation Council. Under Section 17, the buyer is liable to pay the amount, along with interest, for any goods supplied, as provided under Section 16, to the 'Supplier'. Section 16 prescribes the date from which as also the rate at which interest is payable to the 'Supplier'. Section 15 makes the buyer liable to make pay
