Award declared invalid due to non-compliance with statutory procedures under MSMED Act and Arbitration and Conciliation Act.
In a significant ruling, the Bombay High Court's Aurangabad Bench, presided over by Justice S. G. Chapalgaonkar, has set aside an arbitral award issued by the Micro Small Enterprises Facilitation Council. The award, dated June 13, 2025, in favor of M/s Engg. Susmita Punjabrao Suryawanshi against M/s. GG Construction Company, was nullified for failing to adhere to mandatory procedural requirements.
The case arose from a dispute over a work contract in which M/s GG Construction Company had subcontracted M/s Engg. Susmita Punjabrao Suryawanshi. The latter sought recovery of dues amounting to Rs. 2,54,39,416/- under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). However, the Bombay High Court found that the MSME Council's award was procedurally flawed.
The Court identified two major procedural deficiencies. Firstly, the award lacked the signature of one of the Arbitral Tribunal members, as mandated by Section 31 of the Arbitration and Conciliation Act, 1996. The Court emphasized that all members must sign the award unless a valid reason for any omitted signature is provided, which was not the case here.
Secondly, the Council failed to conduct a mandatory conciliation process before moving to arbitration, contravening Sections 18(2) and 18(3) of the MSMED Act. The Court reiterated that conciliation is a pre-requisite to arbitration, and without it, the award cannot be legally sustained.
The Court also addressed the applicability of the MSMED Act to work contracts, noting that such contracts, involving both goods and services, fall outside the Act's purview. The Court urged the MSME Council to determine the arbitrability of disputes under the Act, a step that was overlooked in this instance.
Despite objections regarding the maintainability of the writ petition due to the availability of an alternative remedy under Section 19 of the MSMED Act, the Court exercised its writ jurisdiction. It held that the impugned award was "non est" due to its procedural invalidity, thereby justifying the invocation of writ jurisdiction under Article 226 of the Constitution.
The Court's decision mandates the MSME Council to reassess the case, starting with the procedural requirements outlined in the MSMED Act, within a three-month timeframe. The parties are scheduled to appear before the Council on April 16, 2026.
Bottom Line:
Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) - Award passed by MSME Council set aside for non-compliance with mandatory procedural requirements under Sections 18(2) and 18(3) of the MSMED Act and Section 31 of the Arbitration and Conciliation Act, 1996.
Statutory provision(s):
Micro, Small and Medium Enterprises Development Act, 2006 Sections 18(2), 18(3); Arbitration and Conciliation Act, 1996 Section 31; Article 226 of the Constitution of India.
