Arbitration U/s. 11 Of A&C Act Does Not Come Into Play Up To The Stage Of Section 18(2) Of MSMED Act: Calcutta HC
While considering the dispute as to whether, in the teeth of the pendency of a reference under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 to the Micro and Small Enterprises Facilitation Council (MSEFC), this Court can pass an order under Section 11 of the Arbitration and Conciliation Act, 1996 or not, the Calcutta High Court opined that the objection pertaining to the interplay between the 1996 Act and 2006 Act does not come in at all in the present case.
The Division Bench of Justice Sabyasachi Bhattacharya observed that 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, 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.
Since in this case, the matter has merely been 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 cannot be said that the bar under Section 24 of the 2006 Act is attracted at all, added the Bench.
Advocate Tridib Bose appeared for the Petitioner and Advocate Tanmoy Mukherjee appeared for the Respondent.
The Bench observed that provisions of Sections 15 to 23 (including Section 18) of the 2006 Act have been given overriding effect “notwithstanding anything inconsistent therewith contained in any other law for the time being in force”.
“Therefore, the stage of reference to arbitration within the contemplation of the 2006 Act only arises after the conciliation efforts fail, as sub-sections (1) and (2) of Section 18 of the 2006 Act merely envisage the conciliation stage, which is distinct and different from the arbitration stage and precedes the latter”, added the Bench.
The High Court went on to elaborate that if only the conciliation initiated under sub-section (2) “is not successful and stands terminated” without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer to any institution or centre providing alternate dispute resolution services for such arbitration, which would then be governed by the provisions of the 1996 Act, insofar as arbitration is concerned.
“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”, clarified the Court.
The High Court clarified that it is not the mere inchoate existence of an arbitration clause but the specific invocation of Section 11 based on such clause under the 1996 Act, which has been challenged by the Respondent.
Since the reference to the Facilitation Council was still at the initial stage of conciliation and had not ripened into the stage of arbitration as contemplated under Section 18(3) of the 2006 Act, there could not have been any bar for the Petitioner to invoke the principles of Section 11 of the 1996 Act in view of the absence of consensus between the parties regarding appointment of arbitrators, concluded the Court.
Accordingly, the Division Bench 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.
Cause Title: Essar Oli and Gas Exploration & Production v. Gargi Travels Pvt Ltd