Discretion of Facilitation Council under Section 18(3) of MSMED, 2006 overrides applicability of Section 80 of A&C Act, 1996: Allahabad HC
In a petition by Bata India Limited, the Allahabad High Court recently held that the Micro, Small and Medium Enterprises Development Act, 2006 is a special enactment and the Facilitation Council under Section 18(3) can arbitrate by itself in case of failure of conciliation proceedings.
The Allahabad High Court in its recent judgment observed that the Micro, Small and Medium Enterprises Development Act, 2006 is a special law and in view of the provisions made under Section 24 of the Act, the discretion of the council under Section 18(3) shall have an overriding effect on Section 80 of the Arbitration and Conciliation Act, 1996.
In other words, where Facilitation Council is the Conciliator and the conciliation proceedings fail, the council under Section 18(3) can by itself proceed to arbitrate the dispute and the prohibition contained in Section 80 of the Act of 1996 will have no application.
A division bench of Justice Mahesh Chandra Tripathi and Justice Manjive Shukla, while dismissing the petition by Bata India Limited, observed, “The legislature in Section 18(2) of the Act of 2006 has categorically provided that the Council may either itself act as a Conciliator or may refer the matter for conciliation to any institution providing alternate dispute resolution services and the procedure of conciliation proceedings will be carried out as per Sections 65 to 81 of the Act of 1996. Thereafter, the legislature under Section 18(3) of the Act of 2006 has given absolute discretion to the Council that in the event of failure of the conciliation proceedings either Council itself can proceed to arbitrate the dispute between the parties or Council may refer the arbitration to an institution providing alternate dispute resolution services and it has been further provided that during such arbitration the provisions of the Act of 1996 will be applicable.”
Reliance was placed on Gujarat State Civil Supplies Corporation v. Ramakrishna Foods, 2022 SCC OnLine SC 1492 wherein under para 34 of the judgment, the Supreme Court held that Facilitation Council that initiated Conciliation proceedings under Section 18(2) of the MSMED Act, 2006 would be entitled to act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act.
Brief Background
The present petition was filed challenging the order dated 11.06.2019 passed by the UP State Micro and Small Enterprises Facilitation Council, whereby in view of Section 18(3) of the MSMED Act, 2006, the council decided to arbitrate the dispute between the petitioners and respondent no. 2 by itself.
The petitioners also challenged the order dated 24.07.2019 passed by the council, whereby the petitioner’s representation for referring the arbitration to any institution or centre providing ADR services, was rejected.
The counsel for the petitioners submitted that Section 18(2) of the Act of 2006 provides that the council on receipt of a reference shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and in the said conciliation proceedings the provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 will be applicable.
Moreover, the counsel submitted that Section 18(2) of the Act of 2006 categorically provides that Sections 65 to 81 of the Act of 1996 will apply in the conciliation proceedings before the Council and therefore, the categorical prohibition imposed under Section 80 of the Act of 1996, that the Conciliator cannot be an Arbitrator, will be applicable in the case in question.
Case Title: Bata India Limited v. UP State Micro and Small Enterprise Facilitation | WRIT C No. 27768 of 2019