Karnataka, Apr 2 (KNN) The Karnataka High Court has ruled that the Micro and Small Enterprises Facilitation Council (MSEFC) cannot pass an award if conciliation fails without referring the matter to arbitration.

Justice Suraj Govindaraj, while allowing the petition filed by M/s Enmas GB Power Systems Projects Ltd, stated that the Council must first terminate conciliation proceedings and then decide whether to conduct arbitration itself or refer it to an institution.

Justice Govindaraj highlighted that under Section 18(2), the Council could either conduct conciliation itself or refer the matter to an institution.

If conciliation failed, the Council was required to terminate the process before proceeding to arbitration, either on its own or through an arbitral institution.

The Court ruled that the Council acted beyond its jurisdiction by passing an award without following due procedure, rendering it invalid. Consequently, the petition was allowed, and the matter was remitted to the Council for proper proceedings.

The case stemmed from a purchase order issued by the petitioner to Lotus Power Gear Private Ltd on February 14, 2013. Due to unpaid dues, Lotus Power initiated conciliation under Section 18 of the Micro, Small, and Medium Enterprises Development (MSMED) Act.

Despite multiple meetings, the Council issued an award on March 14, 2017, directing the petitioner to pay Rs 11,88,756 along with interest.

The petitioner contended that since only conciliation proceedings were conducted, the Council was not authorised to pass an award without first terminating conciliation and proceeding to arbitration. The award, they argued, violated Section 18(3) of the MSMED Act.

The respondent company asserted that once an award was passed, the petitioner’s only remedy was under Section 19 of the MSMED Act and not through a writ petition.

(KNN Bureau)