Odisha HC Rules Against Constitutional Challenge To Arbitral Award In MSMED Act Dispute

(MENAFN- KNN India) New Delhi, Nov 15 (KNN) In a landmark judgment, the Odisha High Court upheld the arbitral award passed by the Micro and Small Enterprises Facilitation Council (MSEFC), ruling that such awards can only be contested in accordance with Section 34 of the Arbitration and Conciliation Act, 1996.

The bench, comprising Chief Justice Chakradhari Sharan Singh and Justice Murahari Sri Raman, emphasised that challenges to such awards must be made under the statutory framework, as prescribed under Section 19 of the MSMED Act, rather than invoking writ jurisdiction under Articles 226 or 227 of the Constitution.

The Court dismissed the appeal filed by AES India Pvt. Ltd., which sought to challenge the award passed by the MSEFC. The appellant argued that the arbitral proceedings were flawed due to non-compliance with conciliation requirements under the MSMED Act.

However, the Court affirmed the Single Judge's decision, which had declined to entertain the challenge under constitutional provisions and held that the award could only be contested through the statutory remedy available under Section 34 of the Arbitration Act.

The appeal stemmed from a judgment dated March 28, 2024, where the Single Judge of the Odisha High Court had refused to entertain a challenge to an arbitral award passed by the MSEFC in Cuttack.

The appellant, AES India Pvt. Ltd., argued that the MSEFC failed to conduct conciliation as required under Section 18(2) of the MSMED Act, which should have been a precondition for initiating arbitration.

The appellant contended that the arbitral proceedings were thus beyond the Council's jurisdiction, rendering the award a nullity.

Sudipto Sarkar, Senior Counsel for the appellant, argued that since conciliation was not properly carried out before arbitration, the MSEFC's jurisdiction to proceed with arbitration was invalid.

He pointed out that the conciliation process had been terminated prematurely in November 2022, without any settlement between the parties, which violated the statutory procedure.

In contrast, Manoj Kumar Mishra, Senior Counsel for Respondent No. 3, M/s Kalinga Insulation, defended the award, asserting that after the conciliation failed in December 2022, the arbitration proceedings were initiated in accordance with Section 18(3) of the MSMED Act.

The Court referred to Section 18(3) of the MSMED Act, noting that after conciliation fails, the Council is mandated to either handle the arbitration itself or refer it to another institution.

The Court further highlighted that the appellant had participated in the arbitration process and did not challenge the conciliation failure at that stage.

Ultimately, the Court upheld the decision of the Single Judge, affirming that the appellant's challenge should have been raised under Section 34 of the Arbitration and Conciliation Act.

The appeal was dismissed, reinforcing the legal framework for resolving disputes within the Micro and Small Enterprises sector under the MSMED and Arbitration Acts.

(KNN Bureau)

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