The conciliation proceedings contemplated under Section 18(2) of MSMED Act is mandatory in nature, and failure to comply with the mandatory procedure vitiates the impugned order.

JUDGMENT

(Prayer: Writ Petition filed under Article 226 of the Constitution of India, praying to issue a writ of certiorari, calling for the records on the file of the first respondent and quash the impugned order dated 07.05.2013 made in O.P.No.MSEFC/CR/62/2011.)

The petitioner has filed this writ petition, challenging the order passed by the first respondent in O.P.No.MSEFC/CR/62/2011, dated 07.05.2013, whereunder it was directed to pay a sum of Rs.2,23,338/- together with compound interest with monthly rest at three time of the bank rate notified by the Reserve Bank of India as stipulated in Micro, Small and Medium Enterprises Development Act, 2006 (herein after mentioned as MSMED Act).

2. In his affidavit filed in support of the writ petition, petitioner submitted that the second respondent filed a petition before the first respondent alleging that a sum of Rs.2,23,338/- (Two lakhs twenty three thousand and three hundred and thirty eight only) was due to him from petitioner. According to the petitioner, the second respondent claimed that it was engaged in the activity of “Manufacturing of Speciality Chemicals for Wet Procession Applications in Textile Leather and other allied Industries only” and supplied the same to the petitioner from 12.03.2007 till 05.05.2007 and the petitioner failed to make payment of the above said amount towards the cost of the material supplied and hence the second respondent moved the first respondent for recovery of the same. It was further averred in the affidavit that on receipt of the notice from the first respondent, the petitioner filed his objections and inspite of the fact the second respondent failed to place any reliable materials, the first respondent passed an order directing the petitioner to pay the abovesaid sum. It was also averred that under the provisions of MSMED Act, both the parties appeared before the first respondent on several occasions to explore the possibility of the settlement and after hearing the parties, the first respondent adjourned the matter on several occasions. When the petitioner was expecting the conciliation under the provisions under Sections 8(2) of MSMED Act, the first respondent passed the impugned order and hence the writ petition.

3. The contesting second respondent has not filed any counter, however, made his submissions based on the records available.

4. Heard, the arguments of Mr.R.Bharath Kumar, learned counsel appearing for the petitioner and Mr.T.V.Lakshmanan, learned counsel appearing for the second respondent and there was no representation for the first respondent.

5. The learned counsel for the petitioner submitted that under Section 18(2) of MSMED Act, when the claim is made to the first respondent council, the parties must be referred to the conciliation proceedings and such reference to conciliation proceedings is mandatory in nature. The question of referring the parties to the arbitral proceedings will arise only on termination of the conciliation proceedings and in the instant case, the first respondent has not complied with the mandate of Section 18(2) of MSMED Act, by conducting conciliation proceedings. It was submitted by the learned counsel for the petitioner that an award passed by the first respondent without conducting conciliation proceedings under Section 18(2) of the Act is without jurisdiction and hence the same is liable to be set aside. It was also submitted by the learned counsel for the petitioner that the provisions of Arbitration Act has also not been followed by the first respondent and hence the award passed by the first respondent cannot be termed as an arbitral award in the eye of law. Therefore it is his submission that both Sections 18(2) and 18(3) of MSMED Act had not been complied with while passing impugned order.

6. The learned counsel for the second respondent submitted that the mandate under Section 18(2) of MSMED Act, to refer the parties to conciliation proceedings is only directory in nature but not mandatory.