FACILITATION COUNCIL UNDER MSMED ACT CANNOT REVIEW ITS OWN ORDER

[Mr. M. GOVINDARAJAN]

Introduction

The Micro, Small and Medium Enterprises Development Act, 2006 (‘Act’ for short) was enacted by the Central Government to provide for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises. 

Section 20 of the said Act provides that the State Government shall, by notification, establish one or more Micro and Small Enterprises Facilitation Councils, at such places, exercising such jurisdiction and for such areas, as may be specified in the notification.

Reference to Facilitation Council

Section 18 of the Act provides that, any party to a dispute may, with regard to any amount due, make a reference to the Micro and Small Enterprises Facilitation Council.  On receipt of a reference the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 shall apply to such a dispute as if the conciliation was initiated under Part III of that Act.

Where the conciliation initiated 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 it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 shall then 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 that Act.

Reviewing of order

The order passed by the Facilitation Council itself is an award.  The Facilitation Council cannot review its own order.  It has no authority under the Act.  If any person is aggrieved against the order of the Facilitation Council he has to take other proceedings to challenge the order. 

The Supreme Court confirmed the same in BAJAJ AUTO LIMITED VERSUS AJANTA PRESS AND MECHANICAL WORKS & ORS. 2022 (9) TMI 845 - SUPREME COURT

In the above said case the appellant placed two purchase orders on the 1st respondent for the supply of washers, respectively on 16.01.1989 and 21.01.1989. Under the purchase orders, the appellant was supposed to supply raw material and the 1st respondent was entitled to retain scrap.   The appellant raised a debit note for Rs.35,000/- on the 1^st respondent, towards the differential value of brass scrap generated during the period of supply.  The 1st respondent raised serious objections to the debit note in the year 1998. Thereafter the appellant made the payment was by way of a settlement.  The minutes of the settlement were also recorded on 30.04.2004.

In the meanwhile the Parliament enacted the MSMED Act, 2006, which came into force on 02.10.2006.  The first respondent filed a claim before the Facilitation Council under MSMED Act during 2009.  The Facilitation Council issued notice to the appellant and convened a meeting on 17.02.2009.  After hearing the case the Facilitation Council rejected the claim of the first respondent on the ground that he had accepted Rs.35000/- as per the settlement made on 30.04.2004. 

The first respondent challenged the said order of the Facilitation Council by way of a writ petition before the High Court in the year 2013 after a lapse of 4 years of the decision of the Facilitation Council.   In the meanwhile the first respondent moved an application before the Facilitation Council to reconsider its decision on 17.02.2009.  Further through his repeated correspondence to various officers of the Government, including the Chief Secretary, the Facilitation Council reviewed its earlier decision and passed an award dated 27.01.2016, directing the appellant to pay a sum of Rs.7,21,512/- for the period up to 31.12.2015. Future interest at 22% p.a. was also awarded if payments were further delayed.

Being aggrieved with the order dated 27.01.2016 of the Facilitation Council, the appellant filed a writ petition before the High Court.  Both the writ petitions filed by the first respondent and the appellant were taken together by the High Court.  The High Court set aside the order of Facilitation Council dated 17.02.2009 and also 27.01.2016.  The High Court remanded the matter back to the Facilitation Council.  The appellant, against the common order of the High Court filed the present appeal before the Supreme Court.

The Supreme Court observed that the Facilitation Council could not entertain a claim in the year 2009 for the payment arose in 1989-90 long prior to the enactment of MSMED Act.  The Supreme Court made it clear M/S. SILPI INDUSTRIES ETC. AND M/S. KHYAATI ENGINEERING VERSUS KERALA STATE ROAD TRANSPORT CORPORATION & ANR. ETC. AND PRODIGY HYDRO POWER PVT. LTD. - 2021 (6) TMI 1119 - SUPREME COURT that the MSMED Act is not applicable to transactions which took place even before the Act was enacted and that by taking recourse to Section 8(1) of the Act and filing a memorandum, a person cannot assume the legal status conferred under the Act to claim retrospectively. The Supreme Court, therefore, held that the Facilitation Council was wrong in entertaining claim in the year 2009.

The Supreme Court further observed that the Facilitation Council rejected the claim of the first respondent on 17.09.2009 on the ground that a full and final settlement had been recorded on 30.04.2004 between the parties.  The first respondent challenged the said decision after a lapse of four years.  The said writ petition could not have been entertained by the High Court for the following reasons-

• The respondent no. 1 was guilty of delay and laches.
• The remedy of writ petition is not the appropriate remedy.

The Supreme Court further observed that during the period 2009 – 2013 the first respondent pressurized the Facilitation Council by making repeated representation to the Council and to the higher authorities and compelled the Council to review its own order and passed revised order on 27.01.2016.  The Supreme Court held that the MSMED Act does not empower the Facilitation Council to review its own decisions which is without authority.  Once the Facilitation Council had rejected the claim of respondent no.1 on 17.02.2009, the same could not have been reopened by the Facilitation Council, without any express power to do so. The Supreme Court held that every decision of the Facilitation Council is an award.

The Supreme Court also analyzed the provisions of the MSMED Act.  Section 18(3) of the Act provides that where the conciliation initiated 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 it any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996  shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in subsection (1) of section 7 of that Act.

The Supreme Court observed that a combined reading of Section 18 and 19 of the MSMED Act will show that-

• to begin with the Facilitation Council should conduct conciliation;
• upon failure of conciliation the dispute is to be arbitrated either by the Facilitation Council itself or by an institution to which it is referred; and
• the decision arrived thereto constitutes an award.

In the present case, the Supreme Court observed that the Facilitation Council rejected the claim of the first respondent on 17.02.2009 which itself is an award.  The respondent No. 1 ought to have initiated other proceedings to challenge the award.  Instead of taking these steps the first respondent pressurized the Facilitation Council to review its own order, even though the Council has no such power.  The High Court also overlooked the inherent lack of jurisdiction of Facilitation Council to pass order dated 27.01.2016.  The High Court without analyzing these aspects remanded the matter back to the Facilitation Council. 

The Supreme Court allowed the appeal filed by the appellant and rejected the first respondent’s writ petition.  The Supreme Court set aside the order passed by the Facilitation Council on 27.01.2016.