MSME Council Justified In Proceeding To Arbitration Without Fresh Notice When Party Skips Conciliation: Madhya Pradesh HC

The Madhya Pradesh High Court has held that where a party, despite being granted an opportunity, fails to file a reply and declines to participate in conciliation proceedings, the MSME Facilitation Council is justified in proceeding to arbitration without issuing a separate notice.

A Division Bench of Justice Vivek Rusia and Justice Pradeep Mittal observed, “Once the petitioner had declared that he was interested in participating in the conciliation proceedings, the Facilitation Council had no option but to proceed to decide the dispute by way of arbitration, for which no separate notice was liable to be issued. The petitioner was required to file a reply to the statement of claim submitted by the respondent. Even otherwise, this Court had granted seven days' time to file a reply, failing which, the Facilitation Council shall proceed for arbitration and the said order was passed at the instance of the appellant/petitioner.”

The ruling came while dismissing a writ appeal filed by Shri Chain Perfumery Works against an ex parte award passed in favour of Pradeep Chemicals.

Pradeep Chemicals had approached the Facilitation Council seeking recovery of Rs 51,54,584 along with interest of Rs 14,63,656. A notice dated November 21, 2022 was issued calling upon Shri Chain Perfumery Works to submit a reply.

The firm challenged the notice before the High Court. By order dated December 20, 2022, it was granted seven days' time to file a reply, with the court making it clear that failure would be treated as disinterest in conciliation and the authority would be free to proceed with arbitration.

No reply was filed. Instead, by a letter dated December 24, 2022, the firm stated that it was not interested in conciliation and objected to arbitration by the Council while seeking the appointment of an independent arbitrator.

Thereafter, the appellant did not appear before the Council for nearly two years, communicating only through emails or telephonic exchanges.

In these circumstances, the Council passed an arbitral award on July 2, 2024 in favour of Pradeep Chemicals.

A writ petition challenging the award was dismissed as not maintainable on August 14, 2024, with liberty to avail the remedy under Section 34 of the Arbitration and Conciliation Act, 1996.

Challenging that order, the appellant filed the present writ appeal.

Before the Division Bench, the appellant argued that the Council had bypassed the mandatory procedure under Section 18 of the MSMED Act and Rule 7 of the 2017 Rules, insisting that conciliation and arbitration must be undertaken as separate stages.

On the other side, the respondents maintained that the writ petition itself was not maintainable, pointing out that the appellant had chosen not to participate in the proceedings despite repeated opportunities.

The court was not persuaded. It took note of the appellant's absence before the Council for nearly two years and the failure to contest the claim on merits.

Given this conduct, along with the earlier direction granting time to file a reply, the Bench said the Council was justified in moving ahead with arbitration.

With no error found in the Writ Court's order, the appeal was dismissed, with costs of ₹25,000 to be paid within four weeks.

For Appellant (Shri Chain Perfumery Works): Advocate Amit Sahani.

For Respondent (Union of India & Ors.): Advocates Sunil Kumar Jain, Preeti Singh, Piyush Jain, Alabhya Bajpai, Bipul Singh Yadav.