Background facts

Puraldas Water and Effluent Control Private Limited (petitioner) had initiated arbitration proceedings under the MSME Act. The petitioner sought extension of the mandate of the Council acting as arbitrator under Section 18(5) of the MSME Act after the arbitral proceedings had exceeded the statutory period of 90 days. The petitioner filed an application under Section 29A of the Arbitration and Conciliation Act, 1996 for extension of mandate.

The problems

1. whether section 18 of the MSME Act has been amended by section 62 of the Arbitration Act, 2023;
2. whether a court having jurisdiction over arbitration proceedings under the MSME Act has power/jurisdiction to substitute the Council or its nominee as arbitrator in an arbitration under section 18 of the MSME Act; And
3. Whether the mandate of the Council under Section 18(3) of the MSME Act or its nominee lapses after the expiry of 90 days from the date of referral.

Arguments

Lawyer for The petitioner Make the following arguments:

• Section 62 of the Arbitration Act, 2023 amended the MSME Act in the manner specified in the Seventh Schedule, substituting conciliation under section 18(2) and (3) of the MSME Act before arbitration by the MSME Facilitation Council. Mediation has been done.
• Section 18(4) of the MSME Act now allows for arbitration by a council or an ADR institution if arbitration fails. Previous sub-section (5) of section 18 provided that every reference under section 18 shall be decided within 90 days from the date of making such reference. Thus, there is no longer any statutory time for the completion of arbitration proceedings by the Council.
• As the period of 90 days has expired on 08.05.2023, the Court may extend the mandate of the Council under Section 29A of the 1996 Act by virtue of Section 18(4) of the MSME Act.
• Even if section 62 of the Arbitration Act does not apply, the original section 18 of the MSME Act remains, and section 29A of 1996 will apply to MSME arbitration.
• The period of 90 days under section 18(5) is directory, as laid down in GPT INFRA PROJECTS LTD Vs MICKEY WIRE WORKS PVT LTD [2023 SCC OnLine Cal 595].
• Section 18(4) confers exclusive jurisdiction on the Council for arbitration. Section 18(1) and (4) contain However Provisions Thus, even considering either Section 29A or Section 15 of the 1996 Act, there can be no replacement of the Council if the mandate lapses. As the MSME Act is a special law, it overrides the 1996 Act. was placed on dependency. Gujarat State Civil Supply Corporation Ltd. v. Mahakali Foods Pvt. limited [ (2023) 6 SCC 401]

Lawyer for Respondent Make the following arguments:

• Section 62 of the Arbitration Act has not yet been notified vide Notification No. SO 4384(E) dated 09.10.2023. Madras High Court in its judgment dated 19.03.2024 TAMIL NADU MEDICAL SERVICES CORPORATION LIMITED. v. M/s Smilax Healthcare Pvt. Limitedhas also noted that Section 62 of the Arbitration Act is yet to be notified and amended Section 18 of the MSME Act has not come into force.
• The Council’s mandate as arbitral tribunal expired on 08.05.2023 (90 days from 10.02.2023) as per Section 18(5) of the MSME Act.
• i Gujarat State Civil Suppliesthe However The provisions of Section 18(1) and (4) of the MSME Act were placed to override the 1996 Act.
• The 90-day limit is mandatory under Section 18(5) of the MSME Act, with no scope for extension under Section 29A of the 1996 Act.
• The only option open to the parties is to seek an alternative under Section 15(2) of the 1996 Act.
• Section 18(4) of the MSME Act, which a However The clause confers jurisdiction on the Council as an arbitrator or conciliator. Section 80(a) of the 1996 Act prevents a conciliator from acting as an arbitrator. This bar does not prevent the appointment of a new arbitrator under section 15 of the 1996 Act.

Observations

1. Whether Section 18 of the MSME Act has been amended by Section 62 of the 2023 Act

The Court observed that the Notification No. SO4384(E) issued by the Ministry of Law and Justice dated 09.10.2023 did not include Section 62 of the Arbitration Act. Thus, Section 62 was not yet notified or enacted, and the amendments thereunder did not come into force. The court held that Section 18 of the MSME Act is unamended by the Arbitration Act. Thus, the court answered the question in the negative.

2. Whether the Court has power under Section 18 of the MSME Act to replace the Council or its nominated arbitrator

The Court observed that Section 18(3) of the MSME Act confers exclusive jurisdiction on the Facilitation Council to either conduct arbitration or refer it to any institution or center providing alternative dispute resolution services. gave However The proviso to Section 18(1) provides that a reference may be made to the MSME Council in respect of matters covered under Section 17.

Further, the However The proviso to section 18(4) provides that the Council or its nominee may act as an arbitrator or conciliator under this section in a dispute between a supplier within its jurisdiction and a buyer located anywhere in India. shall have jurisdiction. So, it will happen outside To replace the MSME Act Council or its nominee with another arbitrator.

Referring to the Supreme Court I decide Gujarat State Civil Suppliesthe court held that the provisions of the MSME Act override the Arbitration and Conciliation Act, 1996 in such cases. The court said:

“Section 2(1)(e) of the 1996 Act provides that the Court does not have jurisdiction under any of the provisions of the 1996 Act, whether section 29A(6), section 14(1) or section 15(2). 1996, Act to replace Council or its nominee by a foreign arbitrator“

This question was also answered in the negative.

3. Whether the mandate of the Council or its nominee under Section 18(3) of the MSME Act lapses after the expiry of 90 days from the reference.

The court relied on the decision. GPT INFRA PROJECTS LIMITEDand held that the period of 90 days mentioned in Section 18(5) of the MSME Act is not mandatory but directory due to the absence of any penal consequences for exceeding the 90-day timeline.

The Court compared Section 18(5) of the MSME Act with Section 29A of the Arbitration and Conciliation Act, 1996. He noted that both sections use the term “shall” for timelines. ) and 90 days from the reference in section 18(5). However, Section 29A(4) states that if the award is not made within the specified period, the mandate of the arbitrator lapses unless extended by the court. The court noted that the MSME Act does not contain any sanction or adverse consequence for non-compliance with such external time limit. The Court thus held that the timeline of 90 days in Section 18(5) is directory, not mandatory, despite the use of “shall” in both the provisions. “The timeline is only for the council to act and it is a provision. In terror“, the court said.

The court further held that the expiry of the timeline under Section 18(5) of the MSME Act does not terminate or affect the validity of the Council’s mandate as arbitrator. Thus, the Council retains its mandate even after the 90-day period.

The plea for extension of the Council’s mandate under Section 29A was held to be infructuous. The Court hoped that the Facilitation Council would complete the arbitration proceedings expeditiously, ideally within 3 months of notification of the order.