Calcutta High Court: Arbitration Provisions of Section 11 of A&C Act, does not come into play up to the stage of Section 18(2) of MSMED Act

Calcutta High Court: Arbitration Provisions of Section 11 of A&C Act, does not come into play up to the stage of Section 18(2) of MSMED Act

The Calcutta High Court by its single judge Justice Sabyasachi Bhattacharya observed that the provisions governing arbitration, including Section 11 of the Arbitration and Conciliation Act, 1996 does not comes into play at all up to the stage of Section 18(2) of Micro, Small and Medium Enterprises Development Act, 2006, as the stage of arbitration under the 2006 Act only commences after failure and termination of the conciliation proceeding, which remains live till the stage of the Section 18(2) of the 2006 Act.

The crux of the dispute in the present case was whether, in the teeth of the pendency of a reference under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as, “the 2006 Act”) to the Micro and Small Enterprises Facilitation Council (MSEFC), the Court can pass an order under Section 11 of the Arbitration and Conciliation Act, 1996 (for short, “the 1996 Act”).

Since in this case, the matter was merely referred to the MSEFC for conciliation and is still pending for such purpose, therefore, having not reached the stage of arbitration under Section 18(3) of the 2006 Act, it could not be said that the bar under Section 24 of the 2006 Act was attracted at all, added the Court.

The Court opined that insofar as such conciliation proceedings before the MSEFC is concerned, the provisions of Sections 65 to 81 of the 1996 Act have been made applicable, which pertain exclusively to conciliation and not arbitration. Hence, the provisions governing arbitration, including Section 11 of the 1996 Act, do not come into play at all up to the stage of Section 18(2) of the 2006 Act.

“Thus, it is crystal-clear that only after the failure of the conciliation proceeding and termination thereof, the procedure governing arbitration under the 1996 Act can be invoked by the Council, either by resolving the disputes itself or by referring the dispute to an Arbitral Tribunal,” the Court observed.

The Court with respect to the second limb of reference under Section 18 of the 2006 Act, it opined that the same overlaps and coincides with a reference under the 1996 Act.

The Court held that, in both cases, the matter is referred to arbitration before a Tribunal and is governed by the laws of arbitration as stipulated in the 1996 Act, the only distinction being that under the 2006 Act, the Council makes such reference whereas under the 1996 Act, either the parties choose the Tribunal or such reference is made by the High Court or the Supreme Court under Section 11 of the 1996 Act, which virtually stands on the same footing insofar as the reference to arbitration was concerned.

Averting back to the present case, the Court noted that no agreement was entered into between the parties which could be given primacy over the statutory provisions of Section 18 read with Section 24 of the 2006 Act

The Court discerned that, Section 24 envisages overriding effect of the 2006 Act only where there is anything inconsistent between the said Act and any other law. Such inconsistency or conflict does not arise at all until and unless the arbitration stage begins within the contemplation of Section 18(3) of the 2006 Act, after conciliation fails.

In the present case, the jurisdiction of the Court under Section 11 of the 1996 Act was already invoked.

Hence, the High Court clarified that it was not the mere inchoate existence of an arbitration clause but the specific invocation of Section 11 on the basis of such clause under the 1996 Act, which was challenged by the Respondent.

The Court remarked, “It is a germane consideration as to whether there is any specific bar stipulated in the 2006 Act to such reference to Arbitrator under Section 11 of the 1996 Act. The bar contemplated in Section 24 of the 2006 Act clearly elaborates that the overriding effect of the 2006 Act only comes into operation if and when there is anything inconsistent with Sections 15 to 23 of the 2006 Act contained in any other law for the time being in force.”

Therefore, the Court failed in finding anything inconsistent per se between Section 11 of the 1996 Act and the reference to conciliation under Section 18(1) and (2) of the 2006 Act, to attract the rigor of Section 24 of the 2006 Act.

The Court found the arguments raised by Learned counsel for the petitioner to be justified in law that, as held in several of the cited judgments, the stage of arbitration under the 2006 Act only commences after failure and termination of the conciliation proceeding, which remains live till the stage of the Section 18(2) of the 2006 Act.

Hence, the Court stated that it cannot be said that the bar of Section 24 was attracted at all to the present case.

Accordingly, the Court appointed Justice Md. Mumtaz Khan, a former judge of the Court as the sole Arbitrator to resolve the dispute between the parties, subject to obtaining declaration/consent under Section 12 of the Arbitration and Conciliation Act, 1996.

Advocate Tridib Bose appeared for the Petitioner and Advocate Tanmoy Mukherjee appeared for the Respondent.