Facts On Record Clearly Contrary To Argument Of Petitioner | Calcutta High Court Upholds MSME Council Award And Dismisses Section 34 Arbitration Act Challenge As Misconceived
Sanchayita Lahkar
The High Court of Calcutta Single Bench of Justice Sabyasachi Bhattacharyya dismissed a challenge under Section 34 of the Arbitration and Conciliation Act, 1996, against an award passed by the West Bengal Micro, Small Enterprises Facilitation Council. The court held that there was "no scope of interference with the impugned award" and stated that "the petitioner has abjectly failed to establish any of the grounds stipulated under Section 34 of the 1996 Act for this Court to intervene with the arbitral award." Consequently, the court affirmed the award and declared the challenge against the Council's jurisdictional order as not maintainable.
In a detailed judgment, the court also held that the timelines under Section 29-A of the Arbitration Act do not apply to proceedings under the MSME Act, 2006, and affirmed the Council's jurisdiction over disputes arising out of works contracts. The bench further stated that there was no violation of natural justice and clarified that clerical tasks like interest computation could be delegated for execution but not adjudication. The court granted a stay on the operation of the judgment for four weeks to allow potential appellate recourse.
The petition was filed under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award passed by the West Bengal Micro, Small and Medium Enterprises Facilitation Council in a reference initiated under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006. The arbitration arose from a claim submitted by a registered MSME unit for alleged outstanding dues.
Initially, conciliation proceedings were initiated under Section 18(2) of the 2006 Act. The petitioner, however, failed to appear, resulting in termination of conciliation and commencement of arbitration by the Council under Section 18(3) of the Act.
The petitioner contended that the award was a nullity due to expiration of the mandatory twelve-month period stipulated in Section 29-A (1) of the 1996 Act. It argued that the Council's mandate had lapsed and that the award was rendered without jurisdiction. Additionally, the petitioner claimed violation of natural justice, asserting that it was denied an adequate opportunity to argue the matter on merits.
It further alleged that no GC-3 Form was submitted by the claimant, which it claimed was mandatory for payment processing under the contractual terms. The petitioner also challenged the merits of the award, asserting that concessions made during conciliation were improperly used and the award suffered from patent illegality.
The petitioner argued that the dispute pertained to a "Works Contract," which it claimed was beyond the jurisdiction of the MSME Council under the 2006 Act. It also alleged that the Council improperly delegated the task of interest computation to a Chartered Accountant appointed by the respondent, amounting to illegal sub-delegation.
In response, the respondent contended that the timelines under Section 29-A of the 1996 Act were inapplicable to MSME proceedings, citing the High Court's decision in Porel Dass Water & Effluent Control Private Limited v. West Bengal Power Development Corporation Limited and Others, 2024 SCC OnLine Cal 8927. It asserted that sufficient opportunities were granted to the petitioner, who had submitted statements and made oral arguments.
The respondent further clarified that submission of a GC-3 Form was not obligatory since it was a "No Dues Certificate," inappropriate when dues were contested. On merits, the respondent argued that the award was well-reasoned and partially allowed claims based on evidence.
It was submitted that post-conciliation settlement efforts did not invalidate the arbitration since they were initiated at the petitioner's request and did not constitute fresh conciliation under Section 18(2). The Council's decision on interest was said to be fully adjudicated, leaving only arithmetic calculation to the respondent's Chartered Accountant.
Regarding jurisdiction over works contracts, the respondent relied on Hindustan Petroleum Corporation Limited v. West Bengal State Micro, Small Enterprises Facilitation Council, 2023 SCC OnLine Cal 1700, to assert that MSME Councils could adjudicate such contracts where the supplier was a registered MSME.
The court addressed the issue of statutory timelines first. "The argument of the petitioner that the Council became functus officio and the award was a nullity, due to the expiry of the timeline stipulated in Section 29-A of the 1996 Act (or even under Section 18(5) of the 2006 Act), cannot be accepted and is decided in the negative." It stated that timelines in the MSME Act are directory, not mandatory.
It recorded: "Section 18 or, for that matter, any other provision of the 2006 Act, does not carry any sanction (such as termination of the mandate of the Council) or penalty for non-completion of the reference within the said period."
On natural justice, the court extensively recounted multiple opportunities granted to the petitioner. "Arguments were advanced on several occasions on merits of the dispute by both the parties." It stated that the petitioner had participated in proceedings, submitted documents, and argued on both jurisdiction and merits.
"I am of the clear opinion that the facts on record are clearly contrary to the argument of the petitioner that no opportunity of hearing was given to it."
Addressing the GC-3 Form contention, the court stated: "The liability of the petitioner to clear the respondent's dues for such work arose immediately, upon such completion certificates being issued by the petitioner itself, and was not dependent on any further paraphernalia."
On the issue of post-arbitration conciliation, the court recorded: "It is only on the prayer of the petitioner that further avenues of mutual settlement...were explored by the Council, which having failed, the matter was decided on merits."
Regarding delegation of interest computation, the court clarified: "There was no element of 'adjudication' which was delegated to the respondent or its CA." It noted that the Council determined the principal amount, interest rate, and calculation period.
The court also addressed the jurisdictional argument concerning works contracts. "There is no bar in the 2006 Act for works contracts, having ingredients both of goods and services supply, to come within the purview of the Act."
"Section 18 is impartial as to the nature of dispute... and merely provides that 'any dispute regarding any amount under Section 17'... is referable under the said provision to the Council."
On maintainability of the jurisdictional challenge, the court noted that the May 12, 2021 order was not an award and hence not challengeable under Section 34. "What cannot be done directly cannot also be indirectly brought in by the backdoor by permitting a challenge to an interlocutory order... within the ambit of a challenge to the final award."
The court issued clear and final directions as follows:
"Accordingly, A.P.-COM No.296 of 2024 (Old No. A.P. 179 of 2023) is dismissed on contest without, however, any order as to costs, thereby affirming the impugned award dated April 28, 2022, passed by the West Bengal Micro, Small Enterprises Facilitation Council and turning down the challenge to the order dated May 12, 2021 passed by the said Council as not maintainable."
The court also addressed post-judgment requests: "In view of certain arguable question being involved, stay of operation of the above judgement is granted for a period of four weeks from date."
With regard to the respondent’s application to withdraw deposited amounts, the court ordered:
"Such prayer shall be subject to any order, if passed in the challenge, if any, to be preferred against the above judgement and/or till the period of four weeks from date, whichever is earlier."
It further added: "In the event no appeal is preferred against the above judgment within four weeks, the respondent shall be at liberty to withdraw such amount and adjust it with the decretal dues."
Advocates Representing the Parties:
For the Petitioners: Mr. Krishnaraj Thaker, Advocate; Mr. Ashok Kr. Jena, Advocate
For the Respondents: Mr. Shounak Mukhopadhyay, Advocate; Mr. S. Bhattacharya, Advocate; Ms. Anewesha Guha Roy, Advocate; Mr. Abhijit Guha Roy, Advocate
Case Title: The Board of Major Port Authority for the Syama Prasad Mukherjee Port, Kolkata vs. Marinecraft Engineers Private Limited
Case Number: A.P.-COM No.296 of 2024 (Old No. A.P. 179 of 2023)
Bench: Justice Sabyasachi Bhattacharyya
[Read/Download order]
