Wapcos Limited vs Virgo Aqua
- Court
- Delhi High Court
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on : 15.05.2026
Judgment delivered on : 01.07.2026
Judgment uploaded on : 02.07.2026
+ FAO(OS) (COMM) 97/2024 CM APPL. 30515/2024 CM APPL.
9694/2026 CM APPL. 15561/2026
WAPCOS LIMITED .....Appellant
versus
VIRGO AQUA .....Respondent
Advocates who appeared in this case
For the Appellant : Ms. Malvika Trivedi, Sr. Advocate with Mr.
Tushar Sannu, Mr. Priyanakr Tiwary, Mr.
Mohit Bhardwaj, Mr. Shailendra Slaria and
Mr. Fajallu Rehman, Advocates alongwith
Mr. Arjun (addtional Chief Engineer)
For the Respondents : Dr. Amit George, Mr. Saurabh Bhargavan,
Mr. Dushyant Kishan Kaul and Mr. Bhrigu
A. Pamidighantam, Advocates
CORAM:
HON'BLE MR. JUSTICE V. KAMESWAR RAO
HON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA
JUDGMENT
MANMEET PRITAM SINGH ARORA, J.
1. The Appellant has preferred the present appeal under Section 13(1A)
of the Commercial Courts Act, 2015 read with Section 37 of the Arbitration
and Conciliation Act, 1996 [‘Act of 1996’], assailing the orders dated
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20.03.2024 and 22.08.2024 passed by the learned Single Judge in OMP
(Comm.) No.132 of 2023.
By impugned order dated 20.03.2024, learned Single Judge directed
the Appellant to deposit 75% of the awarded amount as a pre-condition for
entertaining the petition filed by Appellant under Section 34 of the Act of
1996 [‘Section 34 petition’] challenging the ex-parte arbitral award dated
02.12.2022 [‘impugned award’] passed by the Micro and Small Enterprises
Facilitation Council, Kerala [‘Facilitation Council’] in terms of Section 19
of the Micro, Small and Medium Enterprises Development Act, 2006
[‘MSMED Act’].
By subsequent impugned order dated 22.08.2024, the learned Single
Judge dismissed OMP (Comm.) No. 132 of 2023 on account of the
Appellant’s failure to comply with the said direction of pre-deposit.
2. Before the learned Single Judge, Section 34 petition was filed by the
Appellant assailing the impugned award passed the Facilitation Council
under Section 18(3) of the MSMED Act.
3. The Facilitation Council vide the impugned award held that the
appellant is liable to pay principal amount of Rs. 5.33 crores, w.r.t., three
work orders under O.A. 32/2021 and principal amount of Rs. 43.31 crores
w.r.t two work orders vide O.A, 33/2021, along with compound interest on
monthly rests calculated at three times of bank rate notified by the Reserve
Bank of India [‘RBI’].
FACTS
4. Facts narrated by the Appellant in the present appeal are as under: -
4.1 The dispute arises out of various Memorandum of Understanding
[‘MOUs’] (dated 29.02.2016, 07.09.2018, 10.01.2019 respectively) and
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agreements executed between the Department of Fisheries, Government of
Andhra Pradesh, and the Appellant, pursuant to which five work orders were
awarded to the Respondent for consultancy services. The details of the work
orders issued in favour of the Respondent are:
a) Work Order No. WAP/P&H/AP-Fish/2016/1 dated 28.03.2016
b) Work Order No. WAP/P&H/AP-Fish-2017/1 dated 09.12.2017
c) Work Order No. WAP/PH&IW/AP/EDDU/2019/1 dated 26.02.2019
d) Work Order No. WAP/PH&IW/AP/AQF/2018-19/01 dated 18.09.18
e) Work Order No. WAP/P&H/OD/ODFISH/2018-19/01 dated 25.10.18
4.2 Alleging non-payment of its dues, the Respondent invoked Section 18
of the MSMED Act by filing two separate applications before the
Facilitation Council in September 2020, in respect of different work orders
executed under the contractual arrangement. The first application, bearing
No. KL02D0005169/M/00001, pertained to the work orders dated
28.03.2016 and 09.12.2017. The second application, bearing No.
KL02D0005169/M/00002, pertained to the work orders dated 18.09.2018,
25.10.2018, and 26.02.2019.
4.3 The said applications were registered as O.A. Nos. 32 of 2021 and 33
of 2021. According to the Appellant, it received first notice for participating
in the said proceedings for hearing dated 30.06.2022. As per the Appellant,
it understood that the proceedings before the Facilitation Council on
30.06.2022 were at the stage of conciliation, as contemplated under Section
18(2) of the MSMED Act; notice was issued for conciliation proceedings to
be held on 30.06.2022. It contends that no formal order recording failure of
conciliation was ever passed by the Facilitation Council, nor was any formal
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order of initiating arbitration under Section 18(3) of the MSMED Act issued
by the Facilitation Council or communicated to the Appellant.
4.4 Thereafter, the Facilitation Council issued a notice fixing the hearing
on 26.10.2022. The Appellant asserts that it failed to attend the hearing
dated 26.10.2022, however, by an email dated 31.10.2022 addressed to the
Facilitation Council explained the reasons for its absence and sought an
opportunity to participate in the proceedings. It states that no response was
received to the said request dated 31.10.2022.
4.5 However, on 29.12.2022, the Appellant received the Facilitation
Council’s impugned award directing payment of Rs. 5.33 crores and Rs.
43.31 crores (towards principal amount) in favour of the Respondent plus
compound interest. The Appellant alleges that the impugned award was
passed by the Facilitation Council without affording an effective opportunity
of hearing and without following the statutory procedure of Section 18(2)
and 18(3) mandated under the MSMED Act and the Act of 1996.
4.6 The Appellant contends that the Facilitation Council has illegally
rendered an arbitral award, at the stage of conciliation mandated under
Section 18(2) of the MSMED Act. It contends that the Facilitation Council
without first terminating conciliation proceeding, illegally commenced
arbitration proceedings under Section 18(3). It contends that it had no notice
of the commencement of the arbitration proceedings before the Facilitation
Council.
4.7 The Appellant also contended that the proceedings before the High
Court of Kerala in W.P.(C) No. 25686/2022 filed by Respondent were
disposed of without notice to it. It contends that the directions issued by the
High Court of Kerala in the order dated 16.09.2022 led to the undue haste by
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the Facilitation Council to pass the impugned award, without affording an
effective opportunity to the Appellant to participate in the said proceedings.
4.8 The Appellant filed the Section 34 petition before the learned Single
Judge on the aforesaid grounds and asserted that the resultant award was a
nullity in law and could not be treated as a valid arbitral award.
4.9 Although the impugned award was initially set aside by the learned
Single Judge and the matter remanded to the Facilitation Council by order
dated 21.04.2023, the said order was subsequently recalled in review
proceedings filed by the Respondent, and the Section 34 petition heard
afresh.
4.10 At the outset before the learned Single Judge, the Respondent raised a
preliminary objection contending that the Section 34 petition cannot be
entertained without compliance with the mandatory pre-deposit requirement
under Section 19 of the MSMED Act.
4.11 In these facts, learned Single Judge by the impugned order dated
20.03.2024, considered the submission of the Appellant and on examination
of the record filed before it concluded that conciliation proceedings took
place and Appellant had due notice of the same as recorded by the
Facilitation Council in its order dated 30.06.2022. Learned Single Judge also
observed that post High Court of Kerala’s order dated 16.09.2022, Appellant
failed to appear before the Facilitation Council at the hearing dated
26.10.2022 and did not show any inclination to appear in the proceedings. In
view of these conclusions, the learned Single Judge held that Appellant had
been notified with respect to the proceedings repeatedly and the impugned
award constituted a valid award for the purposes of the MSMED Act.
Learned Single Judge directed Appellant to comply with Section 19 of the
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MSMED Act and deposit 75% of the awarded amount within eight (8)
weeks, failing which the Section 34 petition would be liable to be dismissed.
4.12 The Appellant has, preferred the present appeal impugning the order
dated 20.03.2024, principally contending that the impugned award was
passed during conciliation proceedings, without any statutory transition to
arbitration, and consequently constitutes a jurisdictionally defective and non
est award, rendering the requirement of pre-deposit under Section 19 of the
MSMED Act inapplicable, in adjudicating the Section 34 petition.
4.13 During the pendency of the appeal, the Section 34 petition was
dismissed by the learned Single Judge vide subsequent order dated
22.08.2024 for non-compliance of the direction of deposit. The present
appeal was amended to impugn the said order dated 22.08.2024, as well.
SUBMISSIONS BY THE APPELLANT
5. Ms. Malvika Trivedi, learned Senior Counsel for the Appellant
submitted that the impugned award passed by the Facilitation Council is a
nullity in law, having been rendered in complete violation of the mandatory
procedure prescribed under Sections 18(2) and 18(3) of the MSMED Act.
She contended that Section 18 of the MSMED Act envisages a two-stage
mechanism, namely, conciliation under Section 18(2) of the MSMED Act
followed, upon failure of conciliation, by arbitration under Section 18(3) of
the MSMED Act; the impugned award itself records that the conciliation
proceedings allegedly failed on 11.12.2021 before District Legal Services
1
Authority, Thiruvananthapuram ; however, the Appellant was never served
with any notice of the purported conciliation proceedings conducted under
the aegis of DLSA before the National Lok Adalat on 11.12.2021. She
1
DLSA
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submitted that moreover, there exists no order of the Facilitation Council
recording termination of conciliation proceedings or commencement of
arbitration proceedings. She submitted that in the absence of such statutory
transition of the proceedings from conciliation to arbitration, the Facilitation
Council impermissibly clubbed both stages and proceeded directly to
adjudicate the dispute under arbitration, without entering reference, thereby
rendering the award without jurisdiction and non-est in law as it is in
violation of the statutory mandate of Section 18(2) and 18(3) of the
MSMED Act.
5.1 She further contended that the learned Single Judge erred in returning
findings regarding compliance with Section 18(2) of the MSMED Act while
simultaneously holding that the Section 34 petition could not be entertained
without compliance with Section 19 of the MSMED Act. Reliance is placed
upon the decisions of the Supreme Court in Jharkhand Urja Vikas Nigam
2
Ltd. v. State of Rajasthan and Vijeta Construction v. Indus Smelters
3
Ltd. , as well as the decisions in GPT Infraprojects Ltd. v. State of
4 5
Jharkhand and Unicorn Engineers v. Jindal Steel & Power Ltd. , to
contend that where the mandatory conciliation-arbitration sequence under
Section 18 of the MSMED Act is not followed by the Council, the resultant
award is a nullity and the requirement of pre-deposit does not arise.
5.2 She submitted that the award is liable to be set aside under Sections
34(2)(a)(iii) and 34(2)(b)(ii) of the Act of 1996, as the Appellant was denied
a fair and effective opportunity to present its case, thus violating its right of
natural justice. She stated that after receiving the first notice from the
2
(2021) 19 SCC 206
3
2021 SCC Online SC 3436
4
2024 SCC Online Jhar 184
5
2022 SCC Online Del 2215
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Facilitation Council in June 2022, it duly appeared before the Facilitation
Council on 30.06.2022 and was directed to file its reply; thereafter,
following the order of the Kerala High Court dated 16.09.2022 directing
expeditious disposal of the proceedings, only one notice dated 16.10.2022
was issued fixing the matter for hearing on 26.10.2022. She submits that
Appellant had no notice that the proceedings before the Facilitation Council
was for arbitration and also it had no notice of the order of the Kerala High
Court. She submitted that the Facilitation Council proceeded ex-parte
against the Appellant on 26.10.2022, on the first date of non-appearance,
and reserved the matter for orders. However, immediately thereafter, the
Appellant addressed a e-communication dated 31.10.2022 to the Facilitation
Council seeking an opportunity to file its reply and explained the reasons for
its inability to appear on 26.10.2022, but despite such request, the
Facilitation Council proceeded to pass the impugned award on 02.12.2022.
She submitted that it was effectively denied an opportunity of hearing and
Appellant was prevented from presenting its defence. Reliance is placed on
the judgment of the Supreme Court in Narinder Singh and Sons v. Union
6
of India , wherein an ex-parte award was set aside on similar grounds.
5.3 On the issue of maintainability of the present appeal against the
impugned orders leading to dismissal of the Section 34 petition, she also
relied upon the judgement of the Supreme Court in Chintels India Limited
7
v. Bhayana Builders Private Limited wherein the Supreme Court
8
clarified its judgment BGS SGS Soma JV v. NHPC Ltd . stating that it was
material fact that the impugned order did not result in attaching the finality
6
(2022) 18 SCC 690
7
(2021) 4 SCC 602
8
(2020) 4 SCC 234
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to the award.
5.4 Without prejudice to its submissions on the nullity of the award,
learned senior counsel submitted that the Appellant has, in any event,
complied with the requirement of Section 19 of the MSMED Act by
depositing approximately Rs. 36 crores, constituting 75% of the principal
awarded amount. She contended that the Respondent's reliance on Indian
9
Oil Corporation Ltd. v. FEPL Engineering (P) Ltd. to argue that interest
must also be included in computing the mandatory deposit is misplaced,
particularly in view of subsequent judicial pronouncements holding that
award passed in violation of Section 18 of the MSMED Act, is a nullity. She
further relied upon various judgments of the Supreme Court, including
Gujarat State Disaster Management Authority v. Aska Equipments
10
Ltd. to demonstrate that Courts have entertained challenges to MSME
awards without insisting upon strict compliance with the full pre-deposit
requirement and, in appropriate cases, have directed deposits of lesser
amounts.
SUBMISSIONS BY THE RESPONDENT
6. Dr Amit George, learned counsel appearing for the Respondents
submitted that the present appeal is directed against two orders passed by the
learned Single Judge in proceedings under Section 34 petition, the first order
dated 20.03.2024 required the Appellant to comply with the mandatory pre-
deposit requirement under Section 19 of the MSMED Act while the
subsequent order dated 22.08.2024 dismissed the Section 34 petition on
account of non-compliance with that requirement; he stated that both orders
are legally sustainable and do not warrant interference.
9
2020 SCC Online Del 2799, at paragraph nos. 38, 39, 44 and 46.
10
(2022) 1 SCC 61, at paragraph no. 15.
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6.1 He submitted that Respondent is a registered Micro Enterprise
engaged in engineering and consultancy services and had successfully
executed five work orders awarded by the Appellant, who is a Government
of India undertaking under the Ministry of Jal Shakti, in connection with the
development and modernization of fishery infrastructure in Andhra Pradesh
and Odisha. He submitted that despite satisfactory completion of the
contracted work and repeated demands for payment, substantial amounts
remained unpaid; consequently, the Respondent invoked Section 18 of the
MSMED Act and filed two references before the Facilitation Council,
seeking recovery of its outstanding dues aggregating to approximately Rs.
48.64 crores.
6.2 He submitted that the Appellant initially participated in the
proceedings before the Facilitation Council but thereafter failed to file
objections and stopped appearing despite repeated opportunities. He
submitted that, conciliation proceedings under Section 18(2) of the MSMED
Act were undertaken by DLSA, Thiruvananthapuram and ultimately failed
due to the Appellant’s non-cooperation. He stated that pursuant to the Kerala
High Court’s order dated 16.09.2022 directing the Facilitation Council to
decide the dispute within ten days, a fresh notice was issued to the
Appellant. However, even thereafter the Appellant failed to participate in the
proceedings, compelling the Facilitation Council to proceed and render the
impugned award dated 02.12.2022.
6.3 He contended that the impugned award was not passed merely
because of the Appellant’s absence but was based on a substantive
consideration of the material on record; the Facilitation Council specifically
relied upon documentary evidence, including correspondence issued by the
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Appellant acknowledging the outstanding dues payable to the Respondent;
the impugned award records that despite service of notices and service of
copies of the claims, the Appellant failed to raise any objections and its
silence was treated as an admission of the claims. He therefore submits that
the impugned award represents a reasoned adjudication on merits and that
the Appellant is, in substance, seeking a re-appreciation of factual findings,
which is impermissible in proceedings under Section 34 of the Act of 1996.
6.4 His principal submission was that the present appeal itself is not
maintainable under Section 37 of the Act of 1996. He argued that Section 37
permits appeals only against orders setting aside or refusing to set aside an
arbitral award under Section 34 of the Act of 1996, however, in the present
case, neither of the impugned orders adjudicated the merits of the challenge
to the award; the learned Single Judge merely held that the Section 34
petition could not be entertained in the absence of compliance with the
mandatory pre-deposit requirement under Section 19 of the MSMED Act.
He stated that such orders do not constitute orders refusing to set aside an
award under Section 34 of the Act of 1996 and therefore fall outside the
scope of Section 37 of the Act of 1996.
6.5 He further submitted that Section 19 of the MSMED Act embodies a
mandatory statutory condition precedent to the maintainability of any
challenge to an award rendered under the said Act. He argued that the
MSMED Act is a special beneficial legislation intended to secure
expeditious recovery of dues owed to micro and small enterprises and that
the requirement of depositing 75% of the awarded amount is an integral
component of that legislative framework. Reliance is placed upon decisions
of the Supreme Court and various High Courts holding that a challenge
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under Section 34 of the Act of 1996 cannot be entertained unless the
mandatory pre-deposit has been made. He contended that the MSMED Act,
being a special statute, overrides the general provisions of the Act of 1996
wherever there is any inconsistency.
6.6 He also disputed the Appellant’s reliance on Chintels India Ltd.
(supra) to establish maintainability of the present appeal. It was submitted
that Chintels concerned dismissal of a Section 34 petition on account of
refusal to condone delay under Section 34(3) of the Act of 1996, which
constituted an exercise of jurisdiction under the Act of 1996 itself; in
contrast, the present case concerns a jurisdictional bar arising under Section
19 of the MSMED Act; according to the Respondent, the ratio of BGS SGS
11
Soma JV v. NHPC Ltd . squarely applies, as the impugned orders merely
declined to entertain the Section 34 petition in the absence of fulfilment of a
statutory prerequisite and did not adjudicate the challenge on merits.
6.7 Without prejudice to the objection on maintainability, he submitted
that the impugned orders are otherwise correct because the Appellant
admittedly failed to make the statutory deposit despite repeated
opportunities granted by the learned Single Judge. He submitted that the
subsequent deposit of Rs. 36 crores before this Court is said to be legally
insufficient and incapable of curing the defect, as the amount required to be
deposited under Section 19 of the MSMED Act includes not only the
principal sum awarded but also the accrued statutory interest, and on a
proper computation, including compound interest payable under the
MSMED Act, the total liability has substantially increased and the amount
deposited by the Appellant represents only a fraction of the amount required
11
At paragraph nos. 13 to 19.
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under law.
6.8 He also opposed the Appellant’s attempt to rely upon decisions where
constitutional Courts exercised writ jurisdiction or powers under Article 142
of the Constitution to grant relief to the buyer who suffered the award,
notwithstanding non-compliance with Section 19 of the MSMED Act. He
submitted that such decisions arose in entirely different jurisdictions and
cannot dilute the mandatory statutory scheme applicable to a challenge
under Section 34 of Act of 1996; Appellant having consciously elected to
pursue the statutory remedy under Section 34 of the Act of 1996, and the
Appellant cannot seek to import principles applicable in writ proceedings in
order to circumvent the requirement of pre-deposit.
6.9 He lastly submitted that the present appeal is an attempt to avoid the
legislative mandate embodied in Section 19 of the MSMED Act and to delay
payment of amounts that have been found due by the Facilitation Council.
He contended that permitting challenges without strict adherence to the
statutory pre-deposit requirement would defeat the very object of the
MSMED Act.
FINDINGS AND ANALYSIS
7. This Court has heard the learned counsel for the parties and perused
the record.
8. The present appeal has been filed under Section 37 of the Act of 1996,
challenging the order dated 20.03.2024, whereby the learned Single Judge
directed the Appellant to deposit 75% of the awarded amount within eight
(8) weeks as per Section 19 of the MSMED Act before hearing Section 34
petition on merits, and the consequential order dated 22.08.2024, passed by
the learned Single Judge dismissing the Appellant’s Section 34 petition for
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failure to comply with the said direction of deposit.
9. In the present appeal, the Appellant seeks setting aside of the
impugned orders on the ground that since the impugned award is a nullity, it
should be exempted from the condition of the pre-deposit and seeks a
consequential direction for adjudication of its Section 34 petition on merits.
10. The Section 34 petition challenged the ex-parte impugned award
passed by the Facilitation Council, whereby the Appellant has been directed
to pay a principal sum of Rs. 48,64,50,365/- (comprising Rs. 5,33,03,981/-
and Rs. 43,31,46,384/-), together with compound interest with monthly rests
calculated at three times the bank rate as per Section 16 of the MSMED Act,
from 12.04.2020 until the date of payment.
11. In the Section 34 petition proceedings, since the impugned award was
ex-parte, the Respondent initially consented to its setting aside and re-
hearing on merits. Accordingly, by order dated 21.04.2023, the impugned
award was initially set aside by the learned Single Judge, and the parties
were directed to appear before the Facilitation Council on 19.05.2023.
Subsequently, the Respondent filed a review petition seeking recall of
the order dated 21.04.2023 on the ground that its counsel had no authority to
consent to the setting aside of the ex-parte impugned award. In these
circumstances, the learned Single Judge vide order dated 08.05.2023
recalled the earlier order dated 21.04.2023 and proceeded to adjudicate the
Section 34 petition.
12. The Respondent objected to hearing of the Section 34 petition on
merits, without the Appellant depositing 75% of the awarded amount and
this led to the passing of the impugned orders dated 20.03.2024 and
22.08.2024.
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13. The present appeal was heard at length on 10.04.2026, when the
Respondent raised a preliminary objection to its maintainability on the
ground that since the Appellant had not complied with the mandatory pre-
deposit requirement under Section 19 of the MSMED Act, there was no
order on the merits of the Section 34 petition and therefore, the present
appeal was not maintainable under Section 37 of the Act of 1996.
During the course of hearing on 10.04.2026, the Appellant submitted
that it was today in a position to deposit Rs. 36 crores, being 75% of the
principal amount awarded, and prayed that, upon such deposit, the impugned
orders be set aside and it be permitted to prosecute its Section 34 petition on
merits. The Appellant was accordingly granted liberty by this Court to
deposit Rs. 36 crores, which has since been deposited with the Registry of
this Court and is presently lying in a fixed deposit.
However, when the matter was taken up for hearing on 15.05.2026,
the Respondent contended that the sum of Rs. 48 crores represented only the
principal amount awarded and that, after inclusion of interest, the decretal
liability had exceeded Rs. 131 crores, as on date. On that basis, it was
argued that the Appellant could not be heard on merits in Section 34 petition
unless it deposited Rs. 98.86 crores, being 75% of the alleged outstanding
amount of Rs. 131 crores.
14. At the outset, it is pertinent to note that the Respondent’s
representative was personally present in Court when the order dated
10.04.2026 was passed, and no objection was raised to the direction of
deposit of Rs. 36 crores towards 75% of the awarded amount as Rs. 48
crores, in paragraph 4 thereof. The proceedings on that date proceeded on
the common understanding of the parties that the requirement of depositing
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75% of the awarded amount would stand satisfied upon the Appellant
depositing Rs. 36 crores, being 75% of the principal sum of Rs. 48 crores.
The reservation of rights of the Respondent at paragraph 6 of the order dated
10.04.2026 was to the effect as to whether the fact that the deposit was being
made by the Appellant in 2026 would entitle it to be heard in a Section 34
petition filed in the year 2022 and no more. The figure of Rs. 48 crores as
the awarded amount and Rs. 36 crores as the requisite deposit were not
disputed at that stage. The order dated 10.04.2026 is set out hereunder: -
“
1. This appeal has been filed with the following prayers: -
(a) set aside the order/judgment dated 20.03.2024 passed by
the Ld. Single Judge in OMP (Comm) No.132 of 2023;
(b) May pass such other and further order(s) as this Hon’ble
Court deems fit and proper in the premises of this case.
2. In effect, the appellant herein is challenging the order dated
23.02.2024 and also order dated 22.08.2024, whereby the learned
Single Judge has directed the appellant to deposit the 75% of the
awarded amount within a period of eight weeks, failing which, the
petition filed by the appellant would liable to be dismissed and also
order dated 22.08.2024, whereby on failure on the part of the appellant
to deposit the amount as directed, the petition under Section 34 was
rejected.
3. We have heard Ms. Malvika Trivedi, learned senior counsel for
the appellant and also Dr. Amit George appearing for the respondent, at
length.
4. At this stage, Ms. Trivedi on instructions from the counsel
submits that the appellant shall deposit an amount of Rs. 36 crores,
which shall be 75% of the awarded amount of Rs. 48 crores with the
Registrar General of this Court. If that be so, appropriate shall be that
the appellant shall deposit the amount within four weeks from today.
5. If such an amount is deposited, the Registrar General shall invest
the amount in an interest-bearing FDR of a nationalized bank with
periodical renewals till further orders.
6. Suffice to state that the amount to be deposited by the appellant
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is without prejudice to the rights and contentions of the respondent.
7. Renotify on 15.05.2026.
8. Interim orders, if any, shall continue till the next date of
hearing.”
[Emphasis Supplied]
Pertinently, the impugned award only determines the principal
awarded amount and does not compute the award of interest. In these
peculiar facts where the Appellant is challenging the award as a nullity for
non-compliance of Section 18(2) and 18(3) of the MSMED Act and on the
plea of violation of natural justice, at the hearing dated 10.04.2026, it
appeared equitable to the Court that subject to Appellant showing its bona
fide by depositing 75% of the principal awarded amount it should be granted
an opportunity to be heard in the Section 34 petition. In our opinion, by
depositing Rs. 36 crores, Appellant had established that it was not
undertaking dilatory tactics to avoid its liability but indeed seeking a fair
opportunity to be heard on merits of the validity and illegality of the award.
15. The conduct of the Respondent in opposing examination of the
Section 34 petition on merits is writ large on the record of the proceedings,
including the orders dated 21.04.2023 and 08.05.2023 passed by the learned
Single Judge, as well as the hearings in the present appeal held on
10.04.2026 and 15.05.2026.
I. Maintainability of this Appeal
16. Learned Single Judge vide impugned order dated 22.08.2024 has
dismissed the Section 34 petition and refused to set aside the impugned
award due to the Appellant’s non-compliance of the direction of pre-deposit
issued vide impugned order dated 20.03.2024. In our considered opinion, the
impugned order dated 20.03.2024 merged into the impugned order
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22.08.2024, as the effect of its non-compliance resulted in the dismissal of
the Section 34 petition.
The effect of the dismissal of Section 34 petition is that the award has
attained finality, it can be executed at the instance of the Respondent like a
Court decree under Section 36 of the Act of 1996.
In our considered opinion, the impugned orders of the learned Single
Judge in these proceedings refusing to set aside the impugned arbitral award
under Section 34 of the Act of 1996 are final in nature and have the effect of
extinguishing the Appellant’s remedy of filing objections against the
impugned award and therefore this final order dated 22.08.2024 is amenable
to appeal under Section 37(1) (c) of the Act of 1996. The correctness of the
impugned orders passed by the learned Single Judge can only be examined
in the appeal filed under Section 37(1) (c) of the Act of 1996 and there is no
other forum available to the Appellant.
17. The Respondent has relied upon the judgment of the Supreme Court
in BGS SGS Soma (supra) and specifically paras 13-19 therein to contend
that since the challenge to the impugned award has not been evaluated by
the learned Single Judge on the grounds set forth in Section 34 of the Act of
1996, there was no judicial application as to the substance of the dispute and
therefore no appeal under Section 37(1)(c) of the Act of 1996 is
maintainable. In the judgment of BGS SGS Soma (supra), the Special
Commercial Court, Gurugram hearing the Section 34 petition had ordered
the petition to be returned on principles of Order VII Rule 10 CPC to be
presented before the appropriate Court of requisite jurisdiction at Delhi. The
High Court however entertained an appeal against the said order of the
Special Commercial Court under Section 37 of the Act of 1996, and in this
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background Supreme Court held that the order of the Special Commercial
Court directing return of the petition was not an order passed refusing to set
aside an arbitral award under Section 34 and therefore no appeal was
maintainable under Section 37(1)(c) of the Act of 1996. The Supreme Court
noted with approval a judgment of High Court of Delhi in Harmanprit
12
Singh Sidhu v. Arcadia Shares & Stockbrokers (P) Ltd. and upheld the
reasoning therein which held that preliminary orders passed by the Court
hearing Section 34 petition, which do not impact the arbitral award cannot
be a subject matter of challenge under Section 37(1)(c) of the Act of 1996.
18. As is evident from the judgment of BGS SGS Soma (supra), the
Supreme Court was of the view that the order of the Special Commercial
Court did not express any opinion on the legality of the arbitral award and
the petitioner therein had the remedy of approaching the competent Court at
Delhi for filing a Section 34 petition and consequently a Section 37 appeal
on the merits of its challenge to the award adjudicated. The Supreme Court
thus considered the order directing return of a Section 34 petition under
Order VII Rule 10 CPC to be an order akin to a preliminary order which
does not have any effect on the finality of the award.
However, in the facts of the present case the effect of the impugned
orders dated 20.03.2026 and 22.08.2026, resulting in dismissal of Section 34
petition, is that the award has attained finality and the Appellant has no other
remedy except preferring an appeal under Section 37(1)(c) of the Act of
1996 to challenge the said orders on merits. The effect of the impugned
orders is that the learned Single Judge has refused to entertain the Section 34
petition, even though it is the Court of competent jurisdiction. As noted
12
2016 SCC OnLine Del 5383
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above the only remedy available to the Appellant against the impugned
orders is to prefer this appeal, failing which the award will attain finality.
We therefore hold that the present appeal against the impugned orders
dismissing the Section 34 petition is maintainable.
19. In our considered opinion, learned senior counsel for the Appellant
has rightly placed reliance upon the subsequent judgment of the Supreme
Court in Chintels India Limited (supra) where the Supreme Court has
clarified its judgment BGS SGS Soma (supra) and at para 32 therein held
that the pronouncement in BGS SGS Soma turned on the material fact that
the impugned order of the Special Commercial Court Gurgaon therein did
not result in attaching finality to the award. The judgment of the Supreme
Court in Chintels India Limited (supra) therefore further fortifies our
conclusion that this appeal is maintainable.
II. For examination of the plea of nullity of the impugned award, a Court under
Section 34 and Section 37 of the Act of 1996 can examine this plea if it is
discernible from the record even prior to the pre-deposit
20. The Appellant has contended that the impugned award is a nullity as it
has been passed by the Facilitation Council in violation of the mandate of
Section 18(2) and 18(3) of the MSMED Act as well as without complying
with the principles of natural justice and, therefore, liable to be set aside in
view of Section 34(2)(a)(iii) and Section 34(2)(b)(ii) of the Act of 1996. In
our considered opinion, the Appellant has succeeded in demonstrating, from
a bare perusal of the record, the existence of the aforesaid grounds which
merit setting aside of the impugned award and remitting the matter to the
Facilitation Council for fresh consideration, as discussed hereinafter.
21. The Respondent, however, submits that since the Appellant has failed
to deposit Rs. 98.96 crores i.e., 75% of the decretal amount as per Section 19
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of the MSMED Act, therefore, its pleas of nullity of award or violation of
principles of natural justice cannot be examined under Section 34 or Section
37 of the Act of 1996.
22. We note that the Appellant’s right to allege nullity of the impugned
award is available to it even in the execution proceedings and the dismissal
of the Section 34 petition would have no impact on the plea of nullity. It is
trite law that if the impugned award is vitiated due to nullity, it cannot even
be implemented by the Executing Court even if the judgment debtor has not
filed a Section 34 petition or having filed one, fails to prosecute the same
due to non-deposit as per Section 19 of the MSMED Act. It is also a
fundamental principle of law, that a plea of nullity of the award or decree
can be set up, whenever and wherever the impugned award is sought to be
enforced or relied upon, including at any stage of execution or even in
collateral proceedings because a null award has no legal existence from the
start, and a Court or executing authority does not technically ‘go behind’ the
award, it simply recognizes that there is no valid legal award or decree to
13
enforce. ( Re: Sunder Dass v Ram Prakash and Heeralal Patni v. Shri
14
Kali Nath ).
23. The contentions of the Appellant on the plea of nullity of the
impugned award are discernible on the face of the record, as discussed
hereinafter. Since, nullity of the award can be examined even by the
Executing Court as well as a Court in collateral proceedings, in our
considered opinion this aspect can be examined by the Court hearing Section
34 petition as well as an appeal under Section 37 of the Act of 1996 where
the subject impugned award is alleged to be a nullity.
13
1977 SCC OnLine SC 99, at paragraph 3
14
AIR 1962 SC 199, at paragraph 4
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24. The distinction between an arbitral award that is merely illegal and
one that is a nullity, is tangible and real.
An award rendered by an Arbitral Tribunal having jurisdiction over
the subject matter and the dispute may nonetheless be vulnerable to
challenge on account of errors of law, or other defects recognised under
Section 34 of the Act of 1996. Such an award is not nullity; it continues to
possess legal efficacy and remains enforceable unless and until it is set aside
by a competent Court in proceedings under Section 34 of the Act of 1996 on
the grounds of illegality. For instance, where the arbitrator awards a rate of
interest in excess of the rate of interest permissible under the contract, such
an award of the interest of higher rate is illegal but not a nullity. The only
remedy available to the judgment debtor is to challenge the award under
Section 34 for correction of the award of higher rate of interest. However,
the alleged illegality of such an award of interest cannot be raised as a
defence in execution proceedings, since an Executing Court is not permitted
to sit in appeal over the correctness of the award.
A fundamentally different position arises where the impugned award
is vitiated due to existence of facts, which deprive the arbitral tribunal from
exercising jurisdiction over the disputes. For instance, an arbitral proceeding
presided over by an Arbitrator in violation of Section 12(5) of the Act of
1996 has been held to be a nullity and such an award has been set aside by
the Executing Court even where the petition under Section 34 stood
dismissed on merits. [Re: Kotak Mahindra Bank Ltd. v. Narendra
15
Kumar Prajapat ] In another instance, where a party who is not a micro or
small industry on the date of its entering into the contract with the buyer for
15
2023 SCC OnLine Del 3148, at paragraph 13
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supply of goods, it cannot maintain a reference under Section 18 before the
Facilitation Council for recovery of dues for the goods supplied under the
said contract before its registration [ Re: Silpi Industries and Others v.
16
Kerala State Road Transport Corporation and Another ]. Where the
existing facts and law do not permit the arbitral tribunal to enter reference
without compliance of the condition precedent for exercise of its
jurisdiction, the erroneous assumption of jurisdiction by the arbitral tribunal
shall result in a award which is a nullity. An award which is a nullity derives
no legal force from its inception and is incapable of creating, extinguishing,
or determining any rights in favour of the successful party.
Viewed in this light, the requirement of pre-deposit under Section 19
of the MSMED Act necessarily presupposes the existence of a valid award,
which is capable of legal recognition as an award under law. Section 19 of
the MSMED Act is intended to regulate challenges to valid awards rendered
under the statutory framework of the MSMED Act. The provision cannot be
construed as compelling a party to first comply with the pre-deposit
requirement before it is permitted to contend that the very instrument sought
to be enforced is non-est and devoid of legal existence. Where a credible and
ex-facie case of nullity is made out on the perusal of the face of the record of
the Facilitation Council, the Court under Section 34 or Section 37 of the Act
of 1996 is not denuded of its jurisdiction to examine the issue of nullity of
the award merely because the requirement of pre-deposit has not been
fulfilled.
25. The learned Single Judge in the impugned order dated 20.03.2024
concluded that the Appellant was duly served and had full notice of the
16
(2021) 18 SCC 790, at paragraph 44
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conciliation proceedings as well as arbitral proceedings and consciously
abstained from participating in the proceedings before the Facilitation
Council. This led to the learned Single Judge to form an opinion that the
impugned award is valid, and it issued directions of pre-deposit of 75% of
the awarded amount.
We have, however, in this judgment, hereinafter, on perusing the
record of the Facilitation Council noted our findings to the effect, that as per
the record, the Appellant had no notice of the initiation of conciliation
proceedings before the DLSA, termination of the conciliation proceedings
and initiation of arbitral proceedings before the Facilitation Council. The
Facilitation Council passed the ex-parte impugned award without formally
entering reference on arbitration with notice to the Appellant, rendering the
award to be a nullity. We therefore find that in the facts of this case the
directions for pre-deposit by the learned Single Judge were not made out as
the award itself was a nullity.
26. The Appellant is a public sector undertaking and has pleaded financial
hardship in making a deposit of 75% of the decretal amount i.e., deposit of
Rs. 98.86 crores. Instead, it has offered to deposit 75% of the principal
awarded amount i.e., Rs. 36 crores to seek examination of its plea of nullity,
violation of principles of natural justice and a consequent remand to the
Facilitation Council for hearing on merits. The inability of the Appellant to
deposit Rs. 98.86 crores has not been contested by the Respondent.
27. In our considered opinion, by depositing a sum of Rs. 36 crores as per
order dated 10.04.2026, which is equal to 75% of the principal awarded
amount the Appellant has demonstrated its bona fides and is therefore
entitled to a hearing and examination of its plea of award being a nullity and
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the same having been passed in violation of principles of natural justice.
28. In the facts and circumstances of the present case where we are
persuaded to set aside the impugned award a nullity and remand the matter
to Facilitation Council for a fresh hearing, instead of remanding the matter
to the learned Single Judge for adjudication of the Section 34 petition, in the
interest of expeditious determination of the disputes, we have considered it
appropriate to ourselves examine the record of the Facilitation Council
ourselves in order to evaluate the correctness of Appellant’s contention that
the impugned award has been passed without complying with Section 18(2)
of the MSMED Act and without giving any notice to the Appellant with
respect to the commencement of the arbitration proceedings under Section
18(3) by the Facilitation Council.
III. Issue: Non-compliance of Section 18(2) and 18(3) of the MSMED Act renders
the impugned award a nullity
29. It is stated that Respondent submitted an application dated 01.09.2020
under Section 18(2) of the MSMED Act, vide KL02D0005169/M/00001
before the Facilitation Council for its dues towards ‘consultancy services’
related to work order dated 28.03.2016 and 09.12.2017, for the principal
amount of Rs. 43,31,46,384/-. The statement of claim was filed in the year
2021 and the aforesaid application was numbered as O.A. 33/2021.
It is stated that Respondent submitted a separate application dated
02.09.2020 also under Section 18(2) of the MSMED Act, vide
KL02D0005169/M/00002 for its dues towards ‘consultancy services’ related
to the work orders dated 26.02.2019, 18.09.2018 and 25.10.2018, for the
principal amount of Rs. 5,33,03,981/-. The statement of claim was filed in
the year 2021 and the aforesaid application was numbered as O.A. 32/2021.
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30. The Appellant states that the first time it received notice for
appearance in the proceedings initiated before the Facilitation Council was
for hearing dated 30.06.2022, scheduled at 11 A.M. The Appellant concedes
that it duly appeared before the Facilitation Council on 30.06.2022,
however, it contends that the Appellant understood that the hearing had been
fixed for conciliation of the disputes as per mandate of Section 18(2) of the
MSMED Act. It states that the Appellant was, however, not aware that at the
hearing dated 30.06.2022 the Facilitation Council was entering reference for
arbitration so as to adjudicate upon the claims of the Respondent as per the
provisions of Act of 1996.
31. The Appellant states that, it is a matter of record that no next date of
hearing was fixed on 30.06.2022 and the order of the said date also does not
record that the Facilitation Council has entered reference for arbitration.
32. It admits that it received another notice of hearing before the
Facilitation Council for hearing dated 26.10.2022, however, states that since
there was a Diwali vacation at its office, the said notice was inadvertently
overlooked and came to the attention of the Appellant only on 31.10.2022. It
is stated that thereafter the Appellant on 31.10.2022 immediately addressed
an e-mail to the Facilitation Council explaining the cause of its absence at
the hearing dated 26.10.2022 and requested for a further opportunity to
present the case. The e-mail dated 31.10.2022 was addressed to the official
ID of the Facilitation Council from which the notice for hearing had been
received.
33. The Appellant states that it received no further response to the said e-
mail dated 31.10.2022 and, instead, on 29.12.2022 was served with the
impugned ex-parte award dated 02.12.2022 directing the Appellant to make
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payment of Rs. 48,64,50,365/- (5,33,03,981/- plus 43,31,46,384/-) i.e., Rs.
48.64 crores plus interest.
34. It is stated that in these facts the Appellant filed a Section 34 petition
impugning the award dated 29.12.2022 as the Facilitation Council wrongly
proceeded to arbitration under Section 18(3) of the MSMED Act without
undertaking conciliation as per the mandate of Section 18(2) of the MSMED
Act.
35. In reply, the Respondent stated that the mandate of conciliation as per
Section 18(2) of the MSMED Act had been fulfilled as the matter was
17
referred by the Facilitation Council to DLSA in the year 2021 under Lok
Adalat for settlement of disputes, and the conciliation proceedings failed due
to the non-participation of the Appellant before the DLSA.
In reply, the Appellant contends that it had received no notice from
DLSA for conciliation or Lok Adalat in the year 2021 and the only notice
received by it was from the Facilitation Council for the first hearing dated
30.06.2022, and thus the Appellant verily believed that the hearing before
the Facilitation Council on 30.06.2022 was for conciliation as per Section
18(2) of the MSMED Act.
36. The Appellant has placed reliance upon the decision of the Supreme
Court in Jharkhand Urja Vikas Nigam Ltd. v. State of Rajasthan (supra)
18
and Vijeta Construction v. Indus Smelters Ltd. and Anr , to contend
that the scheme of Section 18 of the MSMED Act contemplates a mandatory
two-stage process, namely, conciliation under Section 18(2) and upon failure
of conciliation, followed by determination of disputes through arbitration
under Section 18(3). It is submitted that compliance with the conciliation
17
District Legal Services Authority, Thiruvananthapuram
18
2021 SCC Online SC 3436
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requirement is not a mere formality but a jurisdictional precondition before
the Facilitation Council can assume the role of an arbitral tribunal and
adjudicate the dispute.
The Appellant contends that, since it was never served with any notice
of the conciliation proceedings allegedly conducted before the DLSA Lok
Adalat on 11.12.2021, it bona fide understood the notices received from
Facilitation Council for the hearings on 30.06.2022 and 26.10.2022 were
related to conciliation proceedings. On this basis, it is urged that the
impugned award having been rendered without adherence to the mandatory
procedure prescribed under Section 18(2) of the MSMED Act is a nullity in
the eyes of law.
It reiterates its reliance on the e-mail dated 31.10.2022 to explain its
absence at the second hearing dated 26.10.2022.
37. In this background vide order dated 29.01.2026, we had summoned
the record of the Facilitation Council to verify the submission of the parties
with respect to conciliation proceedings. A perusal of the record shows that
58 distinct cases were referred to DLSA for conciliation in its Lok Adalat
scheduled on 11.12.2021, wherein the two cases between these parties were
enlisted at Sr. No. 40 and 41. However, we find that it does not contain any
record of issuance of notice to the Appellant herein either by the Facilitation
Council or the DLSA for participating in the conciliation proceedings. The
report of DLSA, dated 24.01.2022, records that none of the 58 cases were
settled in the Lok Adalat held on 11.12.2021. Though, the Respondent has
contended that conciliation was held by DLSA and the Appellant did not
participate in the same, the Respondent has also not filed with its reply any
notice received by it from the DLSA or the Facilitation Council calling it for
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conciliation on 11.12.2021.
38. Having perused the record, we are persuaded to accept the
Appellant’s submission that it had no notice of the conciliation proceedings
conducted by DLSA before the Lok Adalat on 11.12.2021. The material
placed on record does not disclose service of any notice upon the Appellant
informing it of the proposed conciliation proceedings or requiring its
participation therein.
In the record, there is no order of Facilitation Council referring the
matter to DLSA for conciliation, with notice to the Appellant, available in
the record
39. Also, after receiving the report of the DLSA dated 24.01.2022,
further, there is no order of the Facilitation Council recording that the
conciliation proceedings have failed, and the matter should proceed to
determination through arbitration as per Section 18(3) of the MSMED Act.
40. Though, the record of the Facilitation Council shows that these cases
were referred to DLSA for conciliation, however, the record does not show
that the Appellant had been put to notice of the conciliation proceedings. In
addition, there is no order of the Facilitation Council referring the matter to
conciliation with the notice to the parties and a separate order of the
Facilitation Council recording failure of the conciliation proceedings, with
notice to the parties. To prove compliance of Section 18(2) of the MSMED
Act, Facilitation Council must possess record documenting reference to
conciliation with notice to parties and termination of the conciliation
proceedings. Reference to conciliation without notice to the buyer cannot
fulfil the mandate of Section 18(2) of the MSMED Act. In these facts, non-
compliance of Section 18(2) of the MSMED Act as contended by the
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Appellant also stands proved. The submission of the Appellant that the
impugned ex-parte award has been passed without complying with Section
18(2) of the MSMED Act would, therefore, have to be accepted.
41. Also, in these circumstances, the Appellant’s contention that, upon
receiving the first notice issued by the Facilitation Council for the hearing
scheduled on 30.06.2022, it understood the same to be a notice relating to
conciliation proceedings in terms of Section 18(2) of the MSMED Act
appears to be bona fide and merits acceptance.
42. The Supreme Court has held in Jharkhand Urja Vikas Nigam Ltd.
19
v. State of Rajasthan and Ors. (supra) that an award passed by the
Council in violation of Section 18 of MSMED Act is a nullity. As discussed
hereinabove, in the facts of this case the aforesaid mandate of Section 18(2)
and 18(3) of MSMED Act have not been complied with. Relevant part of the
judgment reads as under: -
“14. From a reading of Sections 18(2) and 18(3) of the M SMED Act it is
clear that the Council is obliged to conduct conciliation for which the
provisions of Sections 65 to 81 of the Arbitration and Conciliation Act,
1996 would apply, as if the conciliation was initiated under Part III of the
said Act. Under Section 18(3), when conciliation fails and stands
terminated, the dispute between the parties can be resolved by arbitration.
The Council is empowered either to take up arbitration on its own or to
refer the arbitration proceedings to any institution as specified in the said
section. It is open to the Council to arbitrate and pass an award, after
following the procedure under the relevant provisions of the Arbitration
and Conciliation Act, 1996, particularly Sections 20, 23, 24 and 25.
15. There is a fundamental difference between conciliation and
arbitration. In conciliation, the conciliator assists the parties to arrive at an
amicable settlement, in an impartial and independent manner. In
arbitration, the Arbitral Tribunal/arbitrator adjudicates the disputes
between the parties. The claim has to be proved before the arbitrator, if
necessary, by adducing evidence, even though the rules of the Civil
Procedure Code or the Evidence Act may not apply. Unless otherwise
19
(2021) 19 SCC 206
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agreed, oral hearings are to be held.
16. If the appellant had not submitted its reply at the conciliation stage,
and failed to appear, the Facilitation Council could, at best, have recorded
the failure of conciliation and proceeded to initiate arbitration proceedings
in accordance with the relevant provisions of the Arbitration and
Conciliation Act, 1996, to adjudicate the dispute and make an award.
Proceedings for conciliation and arbitration cannot be clubbed.
17. In this case, only on the ground that the appellant had not appeared in
the proceedings for conciliation, on the very first date of appearance, that
is, 6-8-2012, an order was passed directing the appellant and/or its
predecessor Jharkhand State Electricity Board to pay Rs 78,74,041
towards the principal claim and Rs 91,59,705 odd towards interest. As it
is clear from the records of the impugned proceedings that the Facilitation
Council did not initiate arbitration proceedings in accordance with the
relevant provisions of the Arbitration and Conciliation Act, 1996.
18. The order dated 6-8-2012 is a nullity and runs contrary not only to the
provisions of the M SMED Act but contrary to various mandatory
provisions of the Arbitration and Conciliation Act, 1996. The order dated
6-8-2012 is patently illegal. There is no arbitral award in the eye of the
law. It is true that under the scheme of the Arbitration and Conciliation
Act, 1996, an arbitral award can only be questioned by way of application
under Section 34 of the Arbitration and Conciliation Act, 1996. At the
same time, when an order is passed without recourse to arbitration and in
utter disregard to the provisions of the Arbitration and Conciliation Act,
1996, Section 34 of the said Act will not apply. We cannot reject this
appeal only on the ground that the appellant has not availed the remedy
under Section 34 of the Arbitration and Conciliation Act, 1996.”
[Emphasis Supplied]
43. In view of our findings on lack of notice to the Appellant qua
conciliation and initiation of arbitration as well as the law on Section 18 of
the MSMED Act laid down above, we hold that the mandatory procedure
prescribed under Sections 18(2) and 18(3) of the MSMED Act was not
complied with in this case, as the Appellant was neither served with notice
of the conciliation proceedings nor was there any order recording failure of
conciliation before the Facilitation Council assumed the role of an arbitral
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tribunal and proceedings which culminated in the ex-parte impugned award.
Consequently, the ex-parte impugned award is a nullity.
IV. Issue: Violation of principles of natural justice making the impugned award
vulnerable to challenge under Section 34(2)(a)(ii) and Section 34(2)(b)(ii) of
the Act of 1996 and on proof of violation rendering the award a nullity
44. The record of the Facilitation Council indicates that the first notice
served upon the Appellant was in respect of the hearing scheduled for
20
30.06.2022. The record contains an e-mail communication addressed to the
Appellant for hearing dated 30.06.2022, and the Appellant has also placed
21
on record the physical notice received by it for hearing dated 30.06.2022.
Upon perusal of the contents of the notice, it is evident that, apart from
requiring the Appellant to appear on 30.06.2022, the notice does not specify
whether the proceedings were being conducted are in the nature of
conciliation under Section 18(2) of the MSMED Act or as arbitral
proceedings under Section 18(3) of the MSMED Act. It is an admitted
position that the Appellant duly appeared before the Facilitation Council on
30.06.2022 and sought time to file its objections to the claim. Significantly,
the order passed on 30.06.2022 neither records any decision on the nature of
the proceedings held i.e., arbitration or conciliation nor specifies the next
date of hearing.
45. The record of the Facilitation Council further reflects that a second
notice was issued to the Appellant in respect of the hearing scheduled on
22
26.10.2022. The record contains an e-mail dated 15.10.2022 addressed to
the Appellant regarding the said hearing, and the Appellant has also placed
20
E-mail dated 17.06.2022 at pdf page 742 of the appeal.
21
At pages 467 and 468 of Section 34 petition.
22
Pdf page 930 of the Appeal
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on record a physical copy of the notice received by it. Upon examining the
contents of the notice, it is apparent that, similar to the earlier notice, it does
not specify whether the proceedings are being conducted for the purposes of
conciliation or arbitration. It is undisputed that the Appellant did not appear
on 26.10.2022. The order passed by the Facilitation Council on that date
records that, in view of the directions issued by the High Court of Kerala in
W.P.(C) No. 25686/2022 vide order dated 16.09.2022, the Facilitation
Council proceeded ex-parte against the Appellant and reserved the matter
for passing appropriate orders.
46. The notice issued to Appellant for the hearing dated 26.10.2022 did
not put the Appellant to notice that, in the event of its non-appearance, the
Facilitation Council would proceed to hear and decide the matter ex-parte. It
is an admitted position that 26.10.2022 was the first occasion on which the
Appellant remained absent and that it was only the second hearing before
the Council. This case, therefore, was not one of repeated or deliberate
default on the part of the Appellant to participate in the proceedings. In such
circumstances, it would have been fair and reasonable for the Facilitation
Council to adjourn the matter by one more date of hearing to await the
participation of the Appellant. However, the Facilitation Council on
26.10.2022 itself proceeded ex-parte against the Appellant and determined
to decide the matter on merits.
47. Pertinently, before the Facilitation Council could decide the matter on
merits, the Appellant, by its e-mail dated 31.10.2022, promptly sought to
rectify its default of non-appearance on 26.10.2022 by addressing a
communication to the Facilitation Council on the same e-mail address from
which it had received the notice for hearing dated 26.10.2022, explaining the
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reasons for its absence and requesting an opportunity to present its case.
Admittedly, no award had been passed as on 31.10.2022.
48. In our considered opinion, the Facilitation Council ought to, therefore,
have considered the said request dated 31.10.2022 and afforded the
Appellant an opportunity of hearing before adjudicating the dispute in the
claim petitions on merits.
49. However, the Facilitation Council, without taking cognisance of the e-
mail dated 31.10.2022, proceeded to pass the impugned ex-parte award
dated 02.12.2022 in favour of the Respondent. The impugned award relies
upon the absence of written objections to the claim statement as an
admission and is the primary basis of passing the award. The impugned
award fails to refer to the Appellant’s e-mail dated 31.10.2022.
The Supreme Court held in the case of Jharkhand Urja Vikas Nigam
Ltd. v. State of Rajasthan ( supra) that where an arbitral award is passed by
the Council without complying with the provisions of the Act of 1996 with
respect to grant of sufficient opportunity to the buyer in the arbitral
proceedings will result in the award becoming a nullity.
50. In these circumstances, we are of the considered view that the
impugned award stands vitiated on account of the Appellant having been
denied a reasonable opportunity to present its case and is consequently liable
to be set aside under Section 34(2)(a)(iii) and Section 34(2)(b)(ii) of the Act
of 1996, being in violation of the principles of natural justice rendering it a
nullity, as compliance of principles of natural justice is the foundation of the
arbitration process. The reliance placed by the Appellant on the decision of
the Supreme Court in Jharkhand Urja Vikas Nigam Ltd. v. State of
Rajasthan (supra) is, therefore, apposite.
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51. We find merit in the submission of the Appellant that the notices
issued for the hearings dated 30.06.2022 and 26.10.2022 do not indicate that
the Facilitation Council had commenced arbitral proceedings under Section
18(3) of the MSMED Act. Equally, the notice dated 26.10.2022 did not put
the Appellant to notice that, in the event of its non-appearance, the Council
would proceed ex-parte and adjudicate the claims. This assumes significance
particularly as the Appellant was not shown to have been aware of the
directions issued by the High Court of Kerala requiring expeditious disposal
of the proceedings within a stipulated period. In these circumstances, the
Appellant's understanding that the proceedings were still at the stage of
conciliation cannot be said to be lacking in bona fides.
52. There is also an issue arising from the proceedings before the High
Court of Kerala in W.P.(C) No. 25686 of 2022, which culminated in the
order dated 16.09.2022. The said writ petition was instituted by the
Respondent seeking a direction for expeditious disposal of its applications
pending before the Facilitation Council. In the said proceedings, the
Facilitation Council was impleaded as respondent no. 1 and the Appellant
herein was arrayed as respondent no. 2. The writ petition was disposed of on
16.09.2022 upon recording the submission of the Facilitation Council that it
would proceed to decide the pending applications, whereupon the High
Court directed that the proceedings be concluded within ten days. The
Appellant has specifically asserted that no notice of the said writ
proceedings was served upon it and that it was not afforded an opportunity
to be heard before the aforesaid direction was issued. Significantly, this
assertion has not been disputed by the Respondent. In such circumstances,
the Appellant cannot be faulted for being unaware of the directions issued
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by the High Court of Kerala or the consequential urgency with which the
Facilitation Council thereafter proceeded with the matter.
53. The record therefore shows that the Appellant herein had no notice of
the Conciliation proceedings before the DLSA and the proceedings before
the High Court of Kerala.
54. In the facts of the present case, the record of the Facilitation Council
does not disclose that any notice of the conciliation proceedings before the
DLSA/Lok Adalat was served upon the Appellant. Further, there is no
formal order of the Facilitation Council recording the failure of conciliation
and its decision to commence arbitral proceedings in terms of Section 18(3)
of the MSMED Act. In the absence of any communication formally
notifying the Appellant of the termination of conciliation and the
commencement of arbitration, the Appellant's understanding that the
proceedings continued to remain at the stage of conciliation cannot be said
to be unreasonable or lacking in bona fides.
55. The Appellant has also alleged that the impugned ex-parte award
dated 02.12.2022 was passed in haste by the Facilitation Council,
notwithstanding that its absence was confined to a single hearing date,
namely 26.10.2022, and despite the Appellant having promptly sought, by
its communication dated 31.10.2022, an opportunity to participate in the
proceedings and present its case, thus, resulting in violation of principles of
natural justice. Perusal of the record substantiates this submission of the
Appellant that the Facilitation Council, in order to comply with the
directions of the High Court of Kerala, passed the award in haste without
affording the Appellant an equal opportunity to be heard [Re: Narinder
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23
Singh v. Union of India (supra)].
56. Learned Single Judge, in the impugned order dated 20.03.2024,
observed in paragraphs 16 to 19 that the Appellant had failed to place its
stand before the Facilitation Council, had stopped participating in the
proceedings, had failed to appear on 26.10.2022 despite the directions issued
by the High Court of Kerala on 16.09.2022, and had not sought any
adjournment. On that basis, the learned Single Judge concluded that the
Appellant had chosen to remain absent from the proceedings at its own peril.
However, it appears that the learned Single Judge did not have the
benefit of examining the complete record of the Facilitation Council and was
not adequately assisted on the factual aspects by the parties. Upon perusal of
the record, we find that the Appellant was served with only two notices,
namely, for the hearings scheduled on 30.06.2022 and 26.10.2022. The
Appellant duly appeared on the first date i.e., 30.06.2022 and sought time to
file its response. The record, therefore, does not support a finding that the
Appellant had persistently defaulted in appearance or had exhibited a pattern
of negligence in prosecuting its case. Further, the Appellant’s e-mail dated
31.10.2022, addressed prior to the passing of the award, specifically sought
an opportunity of hearing and explained the circumstances leading to its
absence on 26.10.2022. In these circumstances, the Facilitation Council
ought to have afforded the Appellant an opportunity to present its case on
merits before proceeding to render the ex-parte impugned award. The
premise underlying the impugned order dated 20.03.2024, namely that the
Appellant had been repeatedly served with notices and had wilfully
abstained from participating in the proceedings, is not borne out from the
23
At paragraph nos.9 and 10.
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record. In any event, the Appellant has since deposited a sum of Rs. 36
crores pursuant to the order dated 10.04.2026, thereby demonstrating its
bona fides and willingness to comply with the directions of the Court. The
impugned order dated 20.03.2024 is therefore premised on incorrect factual
basis and cannot be upheld, and consequently the order dated 22.08.2024
also cannot be sustained as these orders have the effect of upholding the
impugned award dated 02.12.2022, which is a nullity.
57. In the facts of this case, the record of the Facilitation Council fails to
show that any conciliation proceedings were held as per the mandate of
Section 18(2) of the MSMED Act with due notice to the Appellant. In
addition, there is no order of the Facilitation Council formally recording
failure of the conciliation proceedings mandated as per Section 18(2) of the
MSMED Act and formally recording that it is entering reference in
arbitration for deciding the disputes as per Section 18(3) of the MSMED
Act.
58. The Appellant has raised several grounds in its petition under Section
34 of Act of 1996, challenging the merits of the Respondent’s claims,
including, inter alia, the grounds set out in paragraph ‘W’ thereof. The
Appellant states that the claims filed by the Respondent were premature and
not maintainable on the date of filing of the claims before the Facilitation
Council. It is stated that payments had not been received by it from the State
of Andhra Pradesh and it is only after payments are received that the basis of
the payments to the Respondent can be determined. We also note that the
impugned award is based on appreciation of invoices issued by the
Respondent on the Appellant. However, the invoices are not supported by
any reports or documents evidencing consultancy services actually rendered
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by the Respondent to the Appellant, to justify the invoices. The impugned
award is also based on the confirmation letter issued by Appellant in June
2022. The impugned award is based on invoices and the confirmation letter
only and not on an independent assessment by the Facilitation Council of the
work carried out by the Respondent. The impugned award is therefore akin
to an award passed on default.
However, in view of our conclusion that the impugned award is liable
to be set aside on account of the Appellant having been denied a reasonable
opportunity to present its case, we do not consider it appropriate to examine
the merits of the rival claims or the validity of the findings returned by the
Facilitation Council. Any such examination at this stage may prejudice the
rights and contentions of the parties in the proceedings to be conducted
afresh.
59. In view of the foregoing discussion, we are satisfied that the
Appellant has demonstrated sufficient cause for its non-appearance on the
hearing dated 26.10.2022. The ex-parte impugned award, having been
rendered without considering the Appellant’s request dated 31.10.2022 for
participation, without affording it a reasonable opportunity to present its
case, and without adhering to the mandate of Section 18 of the MSMED
Act, is a nullity and cannot therefore be sustained.
60. We are equally of the view that no prejudice would be caused to the
Respondent by setting aside the impugned award and directing a fresh
adjudication on merits after considering the defence of the Appellant. The
Respondent shall retain the claims raised by it in its applications. If the
Respondent is successful in its claims, the interest awarded under Section 17
of the MSMED Act will sufficiently compensate the Respondent. On the
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other hand, all that the Appellant is being granted by this order is an
opportunity to answer the claim of the Respondent on merits.
61. Accordingly, we deem it appropriate to set aside the impugned award
and remit the matter to the Facilitation Council for a fresh adjudication on
merits in accordance with law. [Re: Bombay Slum Redevelopment Corpn.
24
(P) Ltd. v. Samir Narain Bhojwani ]. We clarify that the proceedings
before the Facilitation Council will be for arbitration under Section 18(3) of
the MSMED Act.
62. The Appellant is directed to file its statement of objections before the
Facilitation Council within a period of four (4) weeks from today, failing
which its right to file objections shall stand forfeited. The Respondent shall
be at liberty to file its rejoinder, if any, within four (4) weeks thereafter. The
Facilitation Council shall thereafter fix a date of hearing within ten (10)
weeks from today and endeavour to finally adjudicate the proceedings
within a period of four (4) months.
To secure the interest of the Respondent, in the interregnum, the sum
of Rs. 36 crores deposited by the Appellant with the Registry of this Court
shall continue to remain deposited and shall abide by the final outcome of
the proceedings before the Facilitation Council, subject to such further
orders as may be passed by the Facilitation Council.
63. With the aforesaid directions, the appeal stands allowed and the
impugned award dated 02.12.2022 is hereby set aside. Pending applications,
stands disposed of.
64. The Appellant is directed to serve a copy of this judgment on the
Facilitation Council within one (1) week.
24
(2024) 7 SCC 218, at paragraph no. 28.
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65. The registry is directed to send a copy of this order to the Facilitation
Council through e-mail on [email protected] and
[email protected] , within one (1) week, for its information and
compliance.
MANMEET PRITAM SINGH ARORA, J
V. KAMESWAR RAO, J
JULY 01, 2026/ mt/AM
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