2015 (1) TMI 1493 - HC - Indian Laws

Validity of arbitration proceedings - grievance is that the Council could not have directed an arbitration to be carried out by an arbitrator appointed by it without reference to the provision under clause 3 that contemplates to such reference only on the failure of the Council to resolve the dispute by itself under clause (2) - HELD THAT - It is seen through the order and when the Director makes a reference on behalf of the Council to an Arbitrator. It must be taken that it was not possible to conciliate and resolve the dispute itself and therefore, the reference was made. It would make no difference that the reference is made to an institution or centre which will provide for alternative dispute resolution services or a direct reference to the arbitrator itself. There can be really no prejudice at all for the petitioner, for, there is no issue of bias. The provisions of Arbitration Act are sufficient to make possible for any party who is not satisfied with the Arbitrator to take such an issue before him and invite a decision thereon which is still capable of being assailed in higher forums in the manner contemplated under the Arbitration and Conciliation Act. The counsel says that there is an independent arbitration agreement under the contract and that must allow for the parties to choose the arbitrator in the manner contemplated under the contract. It must be taken only as an additional method of appointment of an arbitrator and cannot exclude the application of the provisions of this Act. This is so in view of the non obstante clause that is set forth under Section 18 which begins with these expressions notwithstanding anything contained in any other law for the time being in force . A contract that provides for appointment of an arbitrator must be seen as a contract as recognized by law and that provision will stand eclipsed by the non obstante clause that Section 18 provides for. There are no substantial prejudice for the petitioner to approach this Court for any remedy under Article 226 of the Constitution. The writ petition is dismissed.

Summary

Issues:
1. Interpretation of provisions under the Micro Small and Medium Enterprises Development Act, 2006 regarding arbitration and conciliation.
2. Validity of an independent arbitration agreement under the contract in light of the Act.

Analysis:
Issue 1: The judgment primarily deals with the interpretation of provisions under the Micro Small and Medium Enterprises Development Act, 2006 concerning arbitration and conciliation. The court focused on Section 18 of the Act, which outlines the procedure for resolving disputes arising under contracts covered by the Act. The court noted that if conciliation efforts fail, the Council may refer the dispute for arbitration. The key contention was whether the Council could directly appoint an arbitrator without attempting to resolve the dispute internally first. The court held that when the Director refers the matter to an arbitrator, it implies that conciliation was unsuccessful, justifying the arbitration reference. The court emphasized that the provisions of the Arbitration and Conciliation Act provide safeguards against bias, allowing parties dissatisfied with the arbitrator's appointment to seek redress through appropriate legal channels.

Issue 2: The second issue involved the validity of an independent arbitration agreement within the contract, separate from the Act's provisions. The court considered the argument that parties should be allowed to choose an arbitrator as per the contract's terms. However, the court invoked the non obstante clause in Section 18, which overrides any conflicting provision in other laws. The court held that the Act's arbitration procedure supersedes any independent arbitration agreement, emphasizing that the Act's provisions must be followed. Ultimately, the court dismissed the writ petition, finding no substantial prejudice to the petitioner warranting intervention under Article 226 of the Constitution.

In summary, the judgment clarifies the procedures for arbitration and conciliation under the Micro Small and Medium Enterprises Development Act, 2006, emphasizing the Act's primacy over independent arbitration agreements and ensuring the application of legal safeguards for fair dispute resolution.