Orissa High Court
M/S Aes (India) Private Limited vs State Of Odisha And Others ....... Opp. ... on 28 March, 2024
Author: K.R. Mohapatra
Bench: K.R. Mohapatra
Signature Not Verified
Digitally Signed
Signed by: SASANKA SEKHAR SATAPATHY
Designation: A.R.-CUM-SR. SECRETARY
Reason: Authentication
Location: HIGH COURT OF ORISSA CUTTACK
Date: 02-Apr-2024 15:23:35
IN THE HIGH COURT OF ORISSA AT CUTTACK
W.P.(C) No. 36825 of 2023
(An application under Articles 226 and 227 of the
Constitution of India)
*****
M/s AES (India) Private Limited,
New Delhi ...... Petitioner
-Versus-
State of Odisha and others ....... Opp. Parties
Advocates appeared:
For Petitioner : Mr. Prafulla Kumar Rath, Senior Advocate
being assisted by Mr. S. Satyakam, Advocate
and Miss Adyasha Kar, Advocate
For Opp. Parties : Mr. Manoj Mishra, Senior Advocate
being assisted by Mr. Digambara Mishra,
Advocate
(For Opposite Party No.3)
Mr. Amiya Kumar Mishra, AGA
For Opposite Party No.1)
CORAM :
MR. JUSTICE K.R. MOHAPATRA
------------------------------------------
Date of Judgment: 28.03.2024
-----------------------------------------
JUDGMENT
K.R. Mohapatra, J.
IA No. 17789 of 2023 & W.P.(C) No. 36825 of 2023
1. This matter is taken up through hybrid mode.
2. Award dated 7th September, 2023 (Annexure-1) passed by Micro and Small Enterprises Facilitation Council, Cuttack (for brevity 'the Council') in MSEFC Case No.50 of 2022 is under challenge in this writ petition.
W.P. (C) NO. 36825 of 2023 Page 1 of 23 Signature Not Verified Digitally SignedSigned by: SASANKA SEKHAR SATAPATHY // 2 //
Designation: A.R.-CUM-SR. SECRETARY
Reason: Authentication
Location: HIGH COURT OF ORISSA CUTTACK
Date: 02-Apr-2024 15:23:35
2.1 The IA has been filed for with a prayer to stay operation of
the impugned award under Annexure-1.
Facts of the Case :-
3. The Petitioner is a Company registered under the Companies Act, 2013. Award under Annexure-1 is assailed on the ground that it has been passed by the Council without following the mandatory provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (for brevity 'the MSMED Act'). The matter came up for admission on 4th December, 2023. By that date, the Opposite Party No.3, namely, M/s Kalinga Industries had entered appearance. Entertaining IA No.17789 of 2023 filed with a prayer to stay operation of the impugned award under Annexure-1, this Court passed an interim order staying operation of the award till the next date of posting, i.e., till 3 rd January, 2024, the date to which the matter was posted. The said order was assailed by the Opposite Party No.3 before the Hon'ble Supreme Court in Special Leave to appeal bearing SLP(Civil) No.27607 of 2023. Hon'ble Supreme Court disposed of the said Special Leave to Appeal on 15 th December, 2023 with the following order:-
"The impugned order is in the nature of ad interim order and the High Court is yet to apply its mind on the question of granting interim order. Hence, no interference is called for at this stage. In fact, time has been granted to the petitioner to file a reply as indicated in the impugned order. Therefore, it is always open for the petitioner to oppose the continuation of ad interim order on all permissible grounds. Needless to add that the High Court will hear the prayer for interim relief independently as the observations made in the impugned order are only tentative observation.
Subject to what is observed above, the Special Leave Petition is disposed of.
Pending application(s), if any, shall stand disposed of accordingly."W. P. (C) NO. 36825 of 2023 Page 2 of 20 Signature Not Verified Digitally Signed
Signed by: SASANKA SEKHAR SATAPATHY // 3 //
Designation: A.R.-CUM-SR. SECRETARY
Reason: Authentication
Location: HIGH COURT OF ORISSA CUTTACK
Date: 02-Apr-2024 15:23:35
3.1 The matter was taken up on the date fixed, i.e., on 3rd
January, 2024 when the aforesaid order passed by the Hon'ble Supreme Court was brought to the notice of this Court. On the said date, counter affidavit was filed by Opposite Party No.3 serving copy thereof on learned counsel for the Petitioner. On receipt of copy of the counter affidavit, learned Senior Advocate, Mr. Rath for the Petitioner sought for an adjournment to go through the counter affidavit and take instruction. Accordingly, the matter was posted to 20th February, 2024. On the said date, further adjournment was sought for on behalf of Mr. Rath, learned Senior Advocate appearing for the Petitioner and the matter was accordingly posted to 22nd February, 2024. IA No.17789 of 2023 was taken up for consideration on that date. However, learned Senior Advocates appearing for the parties made a submission that notice need not be issued to Opposite Party Nos.2, 4 and 5 because their presence is not necessary for adjudication of the interim application as well as the writ petition. It was also submitted by learned Senior Advocates for the parties that interest of justice will be best served if the writ petition is disposed of finally.
3.2 Accordingly, the matter was taken up on 26th February, 2024 for further hearing. During the aforesaid period, interim order was allowed to continue; and on 26th February, 2024, the matter was finally heard and judgment was reserved.
Legal submissions on behalf of the Petitioner :-
4. Mr. Rath, learned Senior Advocate submitted that no conciliation much less in terms of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (for convenience 'the W. P. (C) NO. 36825 of 2023 Page 3 of 20 Signature Not Verified Digitally Signed Signed by: SASANKA SEKHAR SATAPATHY // 4 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35 Arbitration Act') as mandated by Section 18(2) of the MSMED Act was undertaken by the Council. Therefore, the Council lacks jurisdiction to initiate any arbitration proceedings under Section 18(3) of the MSMED Act. He further submitted that the framework of Section 18 of the MSMED Act does not permit clubbing up of conciliation and arbitration proceedings by the Council to pass the impugned award under Annexure-1.
4.1 Elaborating his submission, it was submitted that Section 18 of the MSMED Act envisages a two-tier dispute resolution mechanism. Section 18 (2) of the MSMED Act mandates that on receipt of a reference, the Council shall either conduct a conciliation itself or seek assistance of an institution or center for conducting such conciliation. While undertaking the conciliation, provisions under Section 65 to 81 of the Arbitration Act have to be followed. It is only in the event the conciliation between the parties fails or is terminated without any settlement; the Council can initiate arbitration proceedings under Section 18 of the said Act. In the instant case, the Council undertook the so-called conciliation by itself. While undertaking conciliation, the Council was required to request the parties to submit their statements elucidating the general nature of dispute and to point out the issue as well as additional statements elucidating their position as well as the facts and grounds thereof along with supporting documents as mandated under Section 65 of the Arbitration Act. Further, Section 67 of the Arbitration Act provides that the role of Conciliator is only to assist the parties in an independent and impartial manner in their attempt to reach at an amicable settlement. Further, Section 76 of the W. P. (C) NO. 36825 of 2023 Page 4 of 20 Signature Not Verified Digitally Signed Signed by: SASANKA SEKHAR SATAPATHY // 5 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35 Arbitration Act prescribes four modes for terminating the conciliation proceedings, such as. --
i) by signing settlement agreement;
ii) by written declaration that further efforts at
conciliation are no longer justified after
consultation with the parties;
iii) by a written declaration by the parties
addressed to the Conciliator that the conciliation proceeding has been terminated;
or
iv) by written declaration by one of the parties to the other and the conciliator, if appointed, to the effect that the conciliation proceedings are terminated.
Admittedly, none of the above mandatory provisions and requirements were either followed or complied with by the Council. 4.2 Following observation of the Council makes it clear that the conciliation proceeding was initiated on 17th November, 2022; it reads as follows: -
"In the above circumstances, the Council initiates the conciliation process under Section 18 (2) of the Act, 2006 for amicable settlement of the disputes among the erring parties."
On the very next sitting, the Council, vide its order dated 27th December, 2022 recorded that conciliation between the parties had failed, although there was no conciliation proceedings or sitting of the Council at all. Relevant portion of order dated 27th December, 2022 is as follows: -
"In the above circumstances, the Council declares that conciliation process under Section 18(2) has failed and invoked arbitration proceeding under Section 18(3) of the MSMED Act, 2006 for settlement of disputes between the parties."W. P. (C) NO. 36825 of 2023 Page 5 of 20 Signature Not Verified Digitally Signed
Signed by: SASANKA SEKHAR SATAPATHY // 6 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35
Thus, it appears that no attempt was ever made by the Council for amicable settlement of the matter in dispute. Therefore, there was no conciliation, much less following provisions under Sections 65 to 81 of the Arbitration Act, was ever undertaken.
5. It was further submitted that parties were not required to submit their written statement during course of conciliation as would be apparent from Section 65 of the Arbitration Act. In addition to the above, the Council in the impugned award under Annexure-1 observed that neither of the parties came up with any proposal for conciliation, for which the conciliation between the parties deemed to have failed. Thus, it appears that the Council has left the parties to reach at an amicable settlement without providing any assistance in an independent and impartial manner in their attempt to reach at an amicable settlement. He also drew attention to the following observations of the Council in support of his submission.
"This Council initiated the conciliation proceeding under Section 18 for amicable settlement of the issues between the parties. Since parties did not come up with any proposal by way of conciliation, this Council upon failure of conciliation process initiated the arbitration proceeding on 27th December, 2022 under Section 18(2) of the MSMED Act, 2006."
Case Laws relied upon :-
6. In support of his submissions, Mr. Rath, learned Senior Advocate placed reliance on the following judicial pronouncements.
i) Vijeta Construction vs. Indus Smelters Ltd. and another, reported in 2021 SCC OnLine SC 3436;
ii) Jharkhand Urja Vikas Nigam Limited vs State of Rajasthan and others, reported in 2021 SCC OnLine SC 1257.
W. P. (C) NO. 36825 of 2023 Page 6 of 20 Signature Not Verified Digitally SignedSigned by: SASANKA SEKHAR SATAPATHY // 7 //
Designation: A.R.-CUM-SR. SECRETARY
Reason: Authentication
Location: HIGH COURT OF ORISSA CUTTACK
Date: 02-Apr-2024 15:23:35
6.1 In Vijeta Construction (supra), the Hon'ble Supreme
Court held as follows: -
"13. As per Sub-Section (3) of Section 18 after conciliation fails under Sub-Section (2) of Section 18 of the MSMED Act, and conciliation initiated under sub-section (2) is not successful, conciliation stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing ADR services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in subsection (1) of section 7 of that Act. Therefore, only after the procedure under Sub-Section (2) of Section 18 is followed and the conciliation fails and then and then only the arbitration proceedings commences and thereafter the provisions of the Arbitration Act shall then apply.
14. .......... It is required to be noted that at the initial stage the Facilitation Council was performing the duty as a Conciliator for which the provisions of Sections 65 to 81 shall be applicable. It is true that at the stage of conciliation, the role of the conciliator (Facilitation Council) is to assist the parties to reach an amicable settlement of their dispute as provided under Section 67 of the Arbitration Act. At that stage the parties are not required to lead the evidence and at that stage the role of the conciliator is not to adjudicate the dispute between the parties, but to reach an amicable settlement of the dispute between the parties. Once the conciliation fails thereafter as per Sub-Section (3) of Section 18 of the MSMED Act, the arbitration proceedings commences and the conciliation proceedings stands terminated and thereafter the Facilitation Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing ADR services for such arbitration and the provisions of the Arbitration Act shall then apply to the dispute as if the arbitration is in pursuance of an arbitration agreement referred to Sub-Section (1) of Section 7 of the Arbitration Act. At that stage and thereafter the Facilitation Council shall act as an Arbitrator and the provisions of Arbitration Act shall then apply to the dispute as if arbitration was in pursuance of an arbitration agreement referred to Sub-Section (1) of Section 7 of the Arbitration Act including the appeal under Section 34 to the district court against the award declared by the Facilitation Council or any institution or centre providing alternate dispute resolution (ADR) services to whom the dispute is referred for arbitration."
W. P. (C) NO. 36825 of 2023 Page 7 of 20 Signature Not Verified Digitally SignedSigned by: SASANKA SEKHAR SATAPATHY // 8 //
Designation: A.R.-CUM-SR. SECRETARY
Reason: Authentication
Location: HIGH COURT OF ORISSA CUTTACK
Date: 02-Apr-2024 15:23:35
6.2 In Jharkhand Urja Vikas Nigam Limited (supra), wherein
the Hon'ble Supreme Court held as follows:-
"12. There is a fundamental difference between conciliation and arbitration. In conciliation the conciliator assists the parties to arrive at an amicable settlement, in an impartial and independent manner. In arbitration, the Arbitral Tribunal/ arbitrator adjudicates the disputes between the parties. The claim has to be proved before the arbitrator, if necessary, by adducing evidence, even though the rules of the Civil Procedure Code or the Indian Evidence Act may not apply. Unless otherwise agreed, oral hearings are to be held.
13. If the appellant had not submitted its reply at the conciliation stage, and failed to appear, the Facilitation Council could, at best, have recorded the failure of conciliation and proceeded to initiate arbitration proceedings in accordance with the relevant provisions of the Arbitration and Conciliation Act, 1996, to adjudicate the dispute and make an award. Proceedings for conciliation and arbitration cannot be clubbed.
xx xx xx
15. The order dated 06.08.2012 is a nullity and runs contrary not only to the provisions of MSMED Act but contrary to various mandatory provisions of Arbitration and Conciliation Act, 1996. The order dated 06.08.2012 is patently illegal. There is no arbitral award in the eye of law. It is true that under the scheme of the Arbitration and Conciliation Act, 1996 an arbitral award can only be questioned by way of application under Section 34 of the Arbitration and Conciliation Act, 1996. At the same time when an order is passed without recourse to arbitration and in utter disregard to the provisions of Arbitration and Conciliation Act, 1996, Section 34 of the said Act will not apply. We cannot reject this appeal only on the ground that appellant has not availed the remedy under Section 34 of the Arbitration and Conciliation Act, 1996.........."
6.3 He also submitted that the Council in its order dated 17 th November, 2022, while initiating the conciliation, also directed the Opposite party No.1 to file counter against the rejoinder affidavit of the Petitioner. In order to justify his submission, he placed reliance W. P. (C) NO. 36825 of 2023 Page 8 of 20 Signature Not Verified Digitally Signed Signed by: SASANKA SEKHAR SATAPATHY // 9 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35 upon the following observations of the Council in the impugned award: -
"The Council directed the Petitioner to file details spread sheet incorporating OP wise, Bill wise/ Date wise claim made & payment received against such claims before next sitting of the next Sitting of the Council.
The Opposite Party No.01 is directed to file counter against the rejoinder affidavit of the Petitioner before the next Sitting of the Council & send the copy of the same directly to the petitioner under intimation to the Council. Further, the O.P. Nos.02 &O.P. No.03 3 are directed to file counter against the claim petition of the petitioner in the Council & sent the copy of the same to the petitioner directly under intimation to the Council."
6.4 Direction of the Council to parties to file their statement of claims and written statement to the same, after initiation of the conciliation proceeding implied that it initiated the arbitration proceeding and the conciliation proceeding simultaneously by clubbing up both the proceedings, which is not permissible in law as has been held at para-13 in Jharkhand Urja Vikas Nigam Limited (supra).
7. It is, thus, submitted by Mr. Rath, learned Senior Advocate that the Council having failed to conduct conciliation proceeding in terms of mandatory provisions of Section 65 to 81 of the Arbitration Act, it had no jurisdiction to initiate the proceeding under Section 18(3) of the said Act.
8. Mr. Rath, learned Senior Advocate further submitted that ratio in the case of M/s India Glycols Ltd. and another Vs. MSEFC, Medchal - Malkajgiri and others, (Civil Appeal No.7491 of 2023 decided on 6th November, 2023) is not applicable to the facts of this case, as in the said case, the issue involved was in respect of a time-barred claim, which is a mixed question of fact and law whereas the present case is based on pure question of law with regard to jurisdiction of the W. P. (C) NO. 36825 of 2023 Page 9 of 20 Signature Not Verified Digitally Signed Signed by: SASANKA SEKHAR SATAPATHY // 10 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35 Council to initiate arbitration is under challenge. He further submitted that Hon'ble Supreme Court in the case of M/s S.M. Solar Products Limited Vs. Bajaj Auto Limited and others [Special Leave Petition (Civil) Diary No.39899 of 2023] considered the decision in M/s India Glycols Ltd. (supra) and did not interfere with the order of the High Court passed in exercise of writ jurisdiction. He, therefore, submits that the impugned award under Annexure-1 is not sustainable and is liable to be set aside being without jurisdiction.
Submissions on behalf of contesting Opposite Party No.3
9. Mr. Mishra, learned Senior Advocate appearing for Opposite Party No.3 opened his argument submitting that the writ petition against an award passed under Section 18 of the MSMED Act is not maintainable in view of Section 19 of the said Act. It is his submission that the Petitioner has a statutory remedy under Section 19 of the said Act to assail the award if it is so aggrieved. It is submitted that Section 18 of the MSMED Act has three stages, namely, existence of a dispute, conciliation and lastly switching over to arbitration when conciliation is not successful and stands terminated without any settlement. When first two stages are mandatory, third stage is consequential to stage one and stage two. In the instant case, admittedly there is dispute between the parties and it has been referred at the instance of Opposite Party No.3 to the Council under Section 18 (1) of the MSMED Act. Admittedly, the conciliation proceeding was also initiated by the Council under Section 18(2) of the said Act for amicable settlement of the disputes between the parties. But the Council recorded that "since parties did not come up with a proposal by way of conciliation, the conciliation proceeding was terminated with 'failure'". Although it is alleged by the Petitioner that W. P. (C) NO. 36825 of 2023 Page 10 of 20 Signature Not Verified Digitally Signed Signed by: SASANKA SEKHAR SATAPATHY // 11 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35 the Council did not follow the provisions under Section 65 to 81 of the Arbitration Act while proceeding with the conciliation, but on a plain reading of the award under Annexure-1, it is crystal clear that the Petitioner did not submit any proposal for conciliation. As directed, the Opposite Party No.3 submitted its written statement as well as spread sheet for conciliation. The submission of Mr. Rath, learned Senior Advocate that the Council could not have asked the parties to submit their written statement does not hold good, as the tenor of the orders recorded by the Council during the process of conciliation clearly indicates that during conciliation, the Council had made attempts for amicable settlement of dispute between the parties. Although the Council has not recorded orders in terms of Section 65 of the Arbitration Act during conciliation proceeding, but it cannot be denied that the Council has scrupulously followed the procedure laid down under Sections 65 to 81 of the Arbitration Act during conciliation proceeding. It is also submitted that the stand taken by the Petitioner that it was not given an opportunity of hearing is also not correct, which is borne out from the record itself. Irregularity, if any, in the conciliation proceeding could not render the award a nullity, as alleged by learned counsel for the Petitioner. An award becomes a nullity, if it suffers from lack of inherent jurisdiction. No such case has been made out by the Petitioner in this case. The conciliation proceeding was terminated by the written declaration of the Conciliator (Council) under Section 76 (b) of the Arbitration Act. When the Council recorded a finding that the conciliation proceeding was terminated with failure, it had no other option than to proceed with the arbitration. At no stage during the arbitration proceeding, the Petitioner had raised any objection either to W. P. (C) NO. 36825 of 2023 Page 11 of 20 Signature Not Verified Digitally Signed Signed by: SASANKA SEKHAR SATAPATHY // 12 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35 the invocation or to the continuation of the proceeding in terms of Section 16 of the Arbitration Act. Thus, the objection raised in the writ petition with regard to validity of the arbitration proceeding before the Council is not sustainable. In the case of Gujarat State Civil Supplies Corporation Limited Vs. Mahakali Foods Private Limited (Unit 2) and another, reported in (2023) 6 SCC 401, it is held as under :-
"48. When the Facilitation Council or the institution or the centre acts as an Arbitrator, it shall have all powers to decide the disputes referred to it as if such arbitration was in pursuance of the arbitration agreement referred to in sub-section (1) of Section 7 of the Arbitration Act, 1996 and then all the trappings of the Arbitration Act, 1996 would apply to such arbitration. It is needless to say that such Facilitation Council/institution/centre acting as an arbitral tribunal would also be competent to rule on its own jurisdiction like any other arbitral tribunal appointed under the Arbitration Act, 1996 would have, as contemplated in Section 16 thereof."
Thus, the Petitioner was required to raise objection with regard to the jurisdiction and competence of the Council to proceed with the arbitration before the Council itself. It is too late to raise such objection, as the Petitioner by its conduct has waived its right to object to the jurisdiction of the Council to proceed with the arbitration in view of Section 4 of the Arbitration Act. Had the objection been raised with regard to jurisdiction of the Council in terms of Section 16 of the Arbitration Act, any finding on the same could only be challenged along with the award following procedure laid down therein. Thus, the legality of the award together with question of jurisdiction of the arbitration (Council) can only be challenged in a proceeding under Section 34 of the Arbitration Act (in the instant case under Section 19 of the MSMED Act). Thus, in any case, a writ petition assailing the legality of the award including the question of jurisdiction is not maintainable. The Petitioner W. P. (C) NO. 36825 of 2023 Page 12 of 20 Signature Not Verified Digitally Signed Signed by: SASANKA SEKHAR SATAPATHY // 13 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35 is only a fence sitter, as it participated in the arbitration proceeding without raising any objection under Section 16 of the Arbitration Act. Thus, at this stage, it cannot turn around and challenge the jurisdiction of the Council in a proceeding under Article 227 of the Constitution of India. The Council has made several attempts for conciliation between the parties; as the Petitioner did not cooperate, it ended in a failure. If in the instant case, a writ petition is entertained after an award is passed by the Council, it may be an abuse of process of the Court, as the Petitioner has efficacious statutory remedy under Section 34 of the Arbitration Act read with Section 19 of the MSMED Act, which is a special legislation and provides only ninety days for disposal of the reference. The said provision prevails over provisions of the Arbitration Act, as held in Gujarat State Civil Supplies Corporation Limited (supra). Mr. Mishra, learned Senior Advocate, therefore, submitted that the writ petition being not maintainable is liable to be dismissed and the interim order should be vacated forthwith.
Analysis by the Court
10. Heard learned counsel for the parties at length; perused the materials on record, including the case laws cited.
11. For better appreciation of fact and law, provisions of Sections 17 and 18 of the MSMED Act are very much necessary to be discussed.
11.1 Section 17 of the MSMED Act provides that for any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16 of the said Act.
W. P. (C) NO. 36825 of 2023 Page 13 of 20 Signature Not Verified Digitally SignedSigned by: SASANKA SEKHAR SATAPATHY // 14 //
Designation: A.R.-CUM-SR. SECRETARY
Reason: Authentication
Location: HIGH COURT OF ORISSA CUTTACK
Date: 02-Apr-2024 15:23:35
11.2 Section 18 of the MSMED Act provides remedial measure. It
provides that if there is a dispute with regard to the amount due under Section 17 of the said Act, any party may make a reference to the Council.
11.3 Sub-section (2) and (3) of Section 18 provides the procedure for dispute resolution. Sub-section (2) provides that on receipt of a reference under Sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or center providing alternate dispute resolution services by making a reference to such an institution or center, for conducting conciliation and the provisions of Sections 65 to 81 of the Arbitration Act shall apply to such a dispute as if the conciliation was initiated under Part-III of the said (Arbitration) Act.
11.4 Sub-section (3) provides that when the conciliation under Sub- Section (2) of Section 18 of the MSMED Act fails being not successful, conciliation proceedings stand terminated and thus, the Council has only option either to take up the dispute for arbitration itself or refer it to any institution or centre providing ADR services for such arbitration and the provisions of the Arbitration Act shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in Sub-section (1) of Section 7 of that Act.
11.5 In the instant case, the reference was made at the instance of Opposite Party No.3 to the Council and admittedly conciliation was taken up by the Council itself without referring to any institution or centre. It is alleged by Mr. Rath, learned Senior Advocate for the Petitioner that after initiation of the conciliation proceeding, the Council did not follow the provisions of Sections 65 to 81 of the Arbitration Act W. P. (C) NO. 36825 of 2023 Page 14 of 20 Signature Not Verified Digitally Signed Signed by: SASANKA SEKHAR SATAPATHY // 15 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35 in conducting the conciliation. No conciliation was at all conducted by the Council, which is the mandate of Section 18(2) of the MSMED Act. He categorically submitted that as per Section 65 of the Arbitration Act, the Conciliator is required to request the parties to submit documents elucidating the general nature of dispute and points at issue as well as additional statement elucidating their position, the facts and the grounds along with supporting documents. In the instant case, it is apparent that in the 97th sitting of the Council held on 17th November, 2022, the Council after discussing the rival contentions of the parties opined to initiate the conciliation process by itself for settlement of the dispute between the Petitioner and Opposite Party No.3 and directed the parties to file their respective statements, which cannot be said to be compliance of Section 65 of the Arbitration Act. Such a direction could only be made during arbitration under Section 18(3) of MSMED Act. It is further submitted the role of a Conciliator under Section 67 of the Arbitration Act is only to assist the parties in an independent and impartial manner in order to arrive at an amicable settlement. Mr. Rath, learned Senior Advocate alleged that no such attempt appears to have been made by the Council. Thus, he claims that the arbitration proceeding under Section 18(3) of the MSMED Act is without jurisdiction. Such a submission cannot be accepted, more particularly when none of the parties came up with any proposal for conciliation. Thus, there was no occasion on the part of the Council to assist them to arrive at an amicable settlement. As such, no exception can be taken to the procedure adopted by the Council while performing its role as a Conciliator.
W. P. (C) NO. 36825 of 2023 Page 15 of 20 Signature Not Verified Digitally SignedSigned by: SASANKA SEKHAR SATAPATHY // 16 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35
12. Mr. Rath, learned Senior Advocate further submitted that Section 76 of the Arbitration Act prescribes four modes for termination of a conciliation proceeding, i.e.,--
(a) by singing the settlement agreement;
(b) by a written declaration that further efforts at conciliation are no longer justified, after consultation with the parties;
(c) by a written declaration of the parties addressed to the Conciliator that conciliation proceeding has been terminated; or
(d) by a written declaration by one party to the other party and the Conciliator to the effect that conciliation proceedings are terminated.
12.1 It is alleged that none of the aforesaid modes was adopted by the Council while recording termination of the conciliation proceeding without any amicable settlement. In the instant case, it has been categorically observed by the Council that the parties did not come up with proposal for conciliation. Thus, it recorded that the conciliation proceeding has ended in failure and proceeded to initiate arbitration under Section 18(3) of the MSMED Act. Although the Council has not recorded any finding strictly in terms of Section 76 of the Arbitration Act, but tenor of the order indicates that the Council recorded a finding that further efforts for conciliation was no longer justified as the parties did not come forward with any proposal for conciliation. Thus, it cannot be said that the entire award is vitiated or without jurisdiction in view of non-compliance of Section 76 of the Arbitration Act, as alleged.
12.2 It is further alleged that the Council proceeded with the conciliation proceeding as well as arbitration proceeding simultaneously. Mr. Rath, learned Senior Advocate for the Petitioner contended that the W. P. (C) NO. 36825 of 2023 Page 16 of 20 Signature Not Verified Digitally Signed Signed by: SASANKA SEKHAR SATAPATHY // 17 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35 Council in its order dated 17th November, 2022, while initiating conciliation, also directed the Petitioner as well as Opposite Party No.3 to file their respective statements of claim/ written statement, which is not the procedure in a conciliation proceeding under Section 18(2) of MSMED Act. The Council is only authorised to issue such a direction during the arbitration proceeding, in the event the conciliation is terminated without any amicable settlement. Relying upon the ratio in the case of Jharkhand Urja Vikas Nigam Limited (supra), it is submitted that clubbing up both the conciliation and arbitration proceedings is illegal. To test the veracity of such submission, this Court went through the impugned award under Annexure-1. From the award, it is apparent that in its 97th meeting on 27th November, 2022, the Council initiated the conciliation proceeding and directed the Opposite Party No.3 to file detailed spread sheet disclosing item wise claim from the Petitioner. The Council also directed the Petitioner to file counter against the rejoinder affidavit filed by the Opposite Party No.3. Further, rest of the Opposite Parties were also directed to file their counter against the claim petition of Opposite Party No.3 before the Council. Only because the Council directed the parties to submit their respective claims/defence, it cannot be said that the Council proceeded with the conciliation as well as arbitration proceeding simultaneously. In order to understand the rival claims of the parties, the Council for an effective conciliation has issued such a direction. The tenor of the impugned award under Annexure-1 makes it abundantly clear that the Council proceeded with arbitration only after it recorded failure of conciliation.
W. P. (C) NO. 36825 of 2023 Page 17 of 20 Signature Not Verified Digitally SignedSigned by: SASANKA SEKHAR SATAPATHY // 18 //
Designation: A.R.-CUM-SR. SECRETARY
Reason: Authentication
Location: HIGH COURT OF ORISSA CUTTACK
Date: 02-Apr-2024 15:23:35
12.3 Mr. Rath, learned Senior Advocate also submitted that the
Council abruptly closed the conciliation proceeding without affording any opportunity and proceeded with the arbitration under Section 18(3) of the MSMED Act. He, therefore, submitted that the impugned award under Annexure-1 is a nullity for which the writ petition is maintainable. As discussed earlier, this Court has already held that the procedures provided under Sections 65 to 81 of the Arbitration Act are made to facilitate an effective conciliation proceeding. It appears from record that none of the parties have submitted any proposal for conciliation. Thus, it cannot be said that the Council did not follow the provisions under Sections 65 to 81 of the Arbitration Act.
13. It is, however, submitted that in view of Vijeta Construction (supra) and Jharkhand Urja Vikas Nigam Limited (supra), the award is a nullity. Mr. Rath, learned Senior Advocate for the Petitioner relied upon the case law in the case of Harshad Chiman Lal Modi Vs. DLF Universal Ltd. and another, reported in (2005) 7 SCC 791 in which it is held at para-30 as under:-
"30. We are unable to uphold the contention. The jurisdiction of a court may be classified into several categories. The important categories are (i) Territorial or local jurisdiction; (ii) Pecuniary jurisdiction; and (iii) Jurisdiction over the subject matter. So far as territorial and pecuniary jurisdictions are concerned, objection to such jurisdiction has to be taken at the earliest possible opportunity and in any case at or before settlement of issues. The law is well settled on the point that if such objection is not taken at the earliest, it cannot be allowed to be taken at a subsequent stage. Jurisdiction as to subject matter, however, is totally distinct and stands on a different footing. Where a court has no jurisdiction over the subject matter of the suit by reason of any limitation imposed by statute, charter or commission, it cannot take up the cause or matter. An order passed by a court having no jurisdiction is nullity."W. P. (C) NO. 36825 of 2023 Page 18 of 20 Signature Not Verified Digitally Signed
Signed by: SASANKA SEKHAR SATAPATHY // 19 //
Designation: A.R.-CUM-SR. SECRETARY
Reason: Authentication
Location: HIGH COURT OF ORISSA CUTTACK
Date: 02-Apr-2024 15:23:35
13.1 On a plain reading of the case law, it is clear that the
jurisdiction of a Court may be classified into several categories, which are broadly described as (i) territorial or local jurisdiction; (ii) pecuniary jurisdiction and (iii) jurisdiction over the subject matter.
13.2 So far as the territorial and pecuniary jurisdictions are concerned, objection to such jurisdiction has to be raised at the earliest possible opportunity and in any case at or before the settlement of issues. If objection with regard to territorial or pecuniary jurisdiction is not raised at the earliest possible opportunity, it cannot be allowed to be taken at a subsequent stage. The aforesaid case law also makes it clear that jurisdiction as to the subject matter is however totally distinct and stand on a different footing. Where the Court has no jurisdiction over the subject matter of the dispute by reason of any limitation imposed by the statute, charter or commission, it cannot take up the cause or matter. An order passed by a Court having no jurisdiction is a nullity. Endeavour was made by Mr. Rath, learned Senior Advocate for the Petitioner to bring the instant case under the third category stating that the Council had no jurisdiction to proceed with the arbitration without conducting an effective conciliation under Section 18(2) of the MSMED Act. As discussed earlier, this Court has already held that there is no infirmity in the process of conciliation. Further, no objection with regard to the jurisdiction of the Council to proceed with the arbitration was raised, as required under Section 16 of the Arbitration Act. In any event, the proceeding of arbitration before the Council having all characteristics of an arbitration proceeding under the Arbitration Act, the objection with regard to competence or jurisdiction of the Arbitrator can only be challenged in a proceeding under Section 34 of the Arbitration Act and W. P. (C) NO. 36825 of 2023 Page 19 of 20 Signature Not Verified Digitally Signed Signed by: SASANKA SEKHAR SATAPATHY // 20 // Designation: A.R.-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA CUTTACK Date: 02-Apr-2024 15:23:35 not before that. Thus, the issue with regard to competence of the Arbitrator (the Council) can only be raised in a properly constituted petition under Section 34 of Arbitration Act as provided under Section 19 of MSMED Act and not in a proceeding under Article 227 of the Constitution of India, as in the instant case.
14. Accordingly, this Court is constrained to hold that the writ petition in the present form is not maintainable and hence stands dismissed. However, in the facts and circumstances, there shall be no order as to costs.
15. Interim order dated 4th December, 2023 passed in IA No.17789 of 2023 stands vacated.
Issue urgent certified copy of the judgment on proper application.
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(K.R. Mohapatra) Judge Orissa High Court, Cuttack, Dated 28th March, 2024/s.s.satapathy W. P. (C) NO. 36825 of 2023 Page 20 of 20