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2023 (3) TMI 1540 - HC - Indian LawsSeeking appointment of an Arbitrator for adjudicating the disputes that have arisen between the parties in relation to the Purchase Orders that were placed upon the petitioner by the respondent - non-payment of alleged dues by the respondent - Section 11 of the Arbitration and Conciliation Act, 1996 - HELD THAT - A reading of Section 18(3) of the MSMED Act would show that where the conciliation proceedings initiated under sub-Section 2 of Section 18 of the MSMED Act are not successful and stand terminated without settlement between the parties, the Facilitation Council is empowered to either itself take up the dispute for arbitration or refer it to any institution or Centre providing alternate dispute resolution services for such arbitration. The provision further states that upon taking up of arbitration by the Facilitation Council itself or upon such reference to any institution or centre, the provisions of the Arbitration Act shall apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-Section 1 of Section 7 of the Arbitration Act. The use of the word then clearly indicates the intent of the legislature that it is only when the arbitration proceedings are initiated in form of the Facilitation Council itself taking it up or referring the dispute to any institution or Centre providing alternate dispute resolution services for such arbitration that the provisions of the Arbitration Act are to apply. The Supreme Court in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Pvt. Ltd. 2022 (11) TMI 91 - SUPREME COURT observed that the provisions of the Arbitration Act would apply only after the process of Conciliation initiated by the Facilitation Council under Section 18(2) of the MSMED Act fails and the Council either itself takes up the dispute for arbitration or refers it to any institution or Centre for such arbitration as contemplated under Section 18(3) of the MSMED Act. Section 11(6) of the Arbitration Act can be invoked only where inter-alia the institution which has been entrusted to perform any function under the appointment procedure agreed upon by the parties fails to perform such function. The existence of an arbitration agreement as defined in Section 7 of the Arbitration Act, therefore, is a sine qua non for exercise of jurisdiction under Section 11(6) of the Arbitration Act. It is only on the failure of the institution to act in accordance with a duty cast upon it under the appointment procedure agreed upon in the arbitration agreement as provided in Section 7(1) of the Arbitration Act, that the jurisdiction of the Court under Section 11(6) of the Arbitration Act can be invoked. In the present case, as admittedly there is no arbitration agreement between the parties, the present petition is not maintainable. The present petition is, accordingly, dismissed.
Issues:
Appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 without a written arbitration agreement. Analysis: The petition sought the appointment of an arbitrator under Section 11 of the Arbitration Act due to disputes arising from Purchase Orders without a written arbitration agreement between the parties. The petitioner invoked Section 18(1) of the Micro, Small & Medium Enterprises Development Act, 2006 (MSMED Act) before the Facilitation Council. The Facilitation Council, after failed conciliation, refused to act as an arbitrator due to insolvency proceedings pending at NCLT. The petitioner contested this, arguing that as the moratorium under the Insolvency and Bankruptcy Code, 2016 had not been declared, the refusal was incorrect. The respondent contended that without an arbitration agreement, Section 11 of the Arbitration Act couldn't be invoked. The Court examined Section 18(3) of the MSMED Act, which allows the Facilitation Council to take up disputes for arbitration if conciliation fails, applying the Arbitration Act as if an arbitration agreement existed. The Court noted that the Arbitration Act provisions apply only when arbitration proceedings are initiated by the Facilitation Council or referred to an institution. The Supreme Court's decision in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Pvt. Ltd. emphasized the overriding effect of MSMED Act provisions on the Arbitration Act, applying after failed conciliation. The Court highlighted that the Arbitration Act's provisions don't apply before this stage. The Court cited Section 11(6) of the Arbitration Act, stating that jurisdiction under this section requires the existence of an arbitration agreement. As no arbitration agreement existed between the parties, the Court held the petition was not maintainable under Section 11. Consequently, the petition was dismissed, allowing the petitioner to pursue other available legal remedies against the Facilitation Council's order. In conclusion, the judgment clarifies the application of the Arbitration Act in cases involving the MSMED Act, emphasizing the need for failed conciliation before invoking arbitration provisions. The absence of a written arbitration agreement precluded the petitioner from seeking relief under Section 11 of the Arbitration Act.
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