MSMED Facilitation Council's Reaffirmed Award Nullified for Bypassing Mandatory Conciliation and Arbitration: Jharkhand High Court - 2025-03-24

Jharkhand HC Quashes MSMED Council Award, Emphasizes Mandatory Conciliation and Arbitration Process

Ranchi, Jharkhand – The Jharkhand High Court has quashed an order by the Jharkhand Micro, Small and Medium Enterprises Facilitation Council (JMSEFC), firmly reiterating the mandatory step-by-step procedure prescribed under Section 18 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. The ruling came in a writ petition filed by M/s. Bharat Coking Coal Ltd. ( BCCL ) challenging an award that reaffirmed a previously set-aside decree without adhering to due process.

Case Background

The dispute originated from a claim by M/s C.K. Industries against BCCL for outstanding payments. The JMSEFC initially passed an award in favor of C.K. Industries, which was challenged by BCCL in the Jharkhand High Court. In the earlier round, the High Court had remanded the matter back to the Facilitation Council, finding procedural lapses in the initial award. However, upon remand, the Facilitation Council, without conducting fresh conciliation or initiating arbitration proceedings, reaffirmed its original order, citing BCCL 's absence from hearings.

Arguments Presented

Petitioner ( BCCL ) Arguments:

Represented by Advocate Mr. A.K. Mehta, BCCL contended that the Facilitation Council blatantly disregarded the High Court's remand order and the mandatory procedure outlined in Section 18 of the MSMED Act. They argued that the Council should have first initiated conciliation proceedings after remand, and only upon its failure, proceed to arbitration. BCCL emphasized that the impugned award was a nullity as it bypassed these essential steps and relied heavily on the Supreme Court's judgment in Jharkhand Urja Vikas Nigam Limited Vs. State of Rajasthan & Ors. , which clarified that conciliation and arbitration are distinct and sequential processes under the MSMED Act.

Respondent (C.K. Industries) Arguments:

Represented by Advocates Ms. Amrita Sinha , Ms. Shweta Suman, and Ms. Anjali Kumari, C.K. Industries argued that the writ petition was not maintainable and that BCCL should have challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. They raised objections regarding limitation and non-compliance with the pre-deposit requirement of 75% of the awarded amount as per Section 19 of the MSMED Act. They claimed sufficient notices were served to BCCL and principles of natural justice were followed. They also cited judgments emphasizing the availability of statutory remedies under the Arbitration Act in such disputes.

Court's Reasoning and Reliance on Precedents

Justice Anubha Rawat Choudhary , presiding over the case, meticulously analyzed Section 18 of the MSMED Act and reiterated the Supreme Court's stance in Jharkhand Urja Vikas Nigam Limited and Gujarat State Civil Supplies Corporation Limited Vs. Mahakali Foods Private Limited and another . The court highlighted that the Facilitation Council has a dual role: first, to conduct conciliation, and upon its failure, to initiate arbitration.

The judgment underscored key excerpts from the Supreme Court's rulings:

> "Under Section 18(3) of MSMED Act of 2006, when conciliation fails and stands terminated, the dispute between the parties can be resolved by Arbitration and it is open to the Facilitation Council to arbitrate and pass an Award after following the procedure more particularly Sections 20, 23, 24 and 25 of the Act of 1996."

> "There is a fundamental difference between conciliation and arbitration in as much as in the former, the Conciliator assists the parties to arrive at an amicable settlement while in arbitration the claim has to be proved before the Arbitrator…"

The High Court noted that in the present case, the Facilitation Council "neither recorded failure of conciliation nor proceeded to take up the matter for arbitration and reaffirmed the earlier order/award." This, the court held, rendered the impugned order a "nullity" and "not an arbitral award in the eyes of law."

Rejecting the respondent's arguments, the court clarified that since the award was deemed a nullity due to procedural violations, the provisions of Section 34 of the Arbitration Act and Section 19 of the MSMED Act (regarding pre-deposit) were not applicable.

Final Decision and Implications

The Jharkhand High Court quashed the Facilitation Council's order dated 20.02.2018, setting it aside and remitting the case back to the JMSEFC. The Council is now directed to restore Case No. JHMSEFC 03/2011 to its original file and proceed step-by-step in accordance with Section 18 of the MSMED Act, starting with mandatory conciliation proceedings. Both parties have been directed to appear before the Facilitation Council on 11th March 2025.

This judgment serves as a significant reminder to Facilitation Councils and adjudicating bodies under the MSMED Act to strictly adhere to the prescribed legal procedures, particularly the mandatory conciliation process before resorting to arbitration. It reaffirms that bypassing these crucial steps renders any subsequent award legally unsustainable.