15 December 2021 | Jharkhand Urja Vikas Nigam Limited v. State of Rajasthan | Civil Appeal 2899 of 2021 | Indira Banerjee & Subhash Reddy JJ | Supreme Court of India | 2021 SCC OnLine SC 1257

Dealing with a matter under the MSMED Act, the Supreme Court has highlighted the difference between conciliation and arbitration.

The Micro and Small Enterprises Facilitation Council had passed an order directing payment of the alleged due amount when the appellant failed to appear in the conciliation proceedings. The High Court dismissed the writ petition filed against that order, and the appellate bench affirmed the dismissal.

The Supreme Court noted the scheme of the MSMED Act and observed that in any reference made to it, the MSMED Council is obliged to conduct conciliation under Sections 65 to Section 81. If conciliation fails and stands terminated, the dispute between the parties can be resolved by arbitration. The Council is empowered either to take up arbitration under the ACA on its own or to refer the arbitration proceedings to any institution as specified.

Thus, the court concluded, the Facilitation Council could, at best, have recorded the failure of conciliation and proceeded to initiate arbitration. Accordingly, its order directing payment was nullity and ran contrary to the MSMED Act and the ACA.

The court also rejected the objection that the remedy was to apply for setting aside. Instead, it said there is no arbitral award in law, and Section 34 ACA would not apply. Perhaps referring to the fact that adjudication had been made in effect, the court also noted that conciliation and arbitration proceedings could not be clubbed under the enactment.

Lastly, the court said that it was open for the Council to either take up the dispute for arbitration under ACA on its own or refer to any institution or centre providing alternate dispute resolution services.

Read the decision here.