MSME Facilitation Council Award Outvoted by Coram Exceeding Statutory Limits is Void Ab Initio

In brief

The question

1. Whether the Award passed by the MSME Council is void ab initio due to the constitution of the Council exceeding the number of members mandated under the MSMED Act, 2006

The court held

The Court held that the Award dated 25.01.2016 and the subsequent review order dated 15.07.2016 were void ab initio for want of jurisdiction

It also directed

The Court quashed and set aside the Award and the review order and remitted the matter to the MSME Council for fresh consideration by a properly constituted Coram in accordance with Section 21 of the MSMED Act, 2006

01Facts

The Respondent No. 3 (M/s Gillooram Gauri Shankar) filed a claim before the Jharkhand Micro, Small and Medium Enterprises Facilitation Council (Council) seeking payments, refund of penalties, and interest related to 19 purchase orders issued by the erstwhile Bihar State Electricity Board (BSEB) between 1997 and 2000

¶ 7

Following the reorganization of Bihar and Jharkhand, a dispute arose between Bihar State Power Holding Co. Ltd. (Petitioner in W.P.(C) 1593/2016) and Jharkhand Urja Vikas Nigam Ltd. (Petitioner in W.P.(C) 1293/2018) regarding liability for these dues

¶ 7

The Council passed an Award on 25.01.2016 directing payment to Respondent No. 3

¶ 4

Both power companies challenged the Award primarily on the grounds that the Council’s composition (8 members) violated the statutory limit set by the MSMED Act, 2006

¶ 11

02Issues

i.1. Whether the Award passed by the MSME Council is void ab initio due to the constitution of the Council exceeding the number of members mandated under the MSMED Act, 2006

¶ 20

ii.2. Whether the issue of jurisdiction/composition must be raised via Section 34 of the Arbitration and Conciliation Act, 1996, or can be entertained under Article 226 of the Constitution of India

¶ 20

03Law Applied

Section 21 of the MSMED Act, 2006, which mandates that the Facilitation Council consist of "not less than three but not more than five members"

¶ 34-35

The Court applied the principle that a right decision by a wrong forum is no decision in law.

¶ 19

The High Court’s own precedents in Jharkhand Bijli Vitran Nigam Ltd. v. Vexcel Upkram Pvt. Ltd. (2022) and HEC Ltd. v. State of Jharkhand (L.P.A. 230/2019), holding that a Coram of eight members is coram-non-judice

¶ 41-42

Regarding maintainability, it applied the doctrine from Whirlpool Corporation v. Registrar of Trade Marks, which allows writ jurisdiction despite alternative remedies if the order is "wholly without jurisdiction"

¶ 67

Provisions in the judgment · 30 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 25 provisions

Section 7 Section 9 Section 11 Section 16 Section 17 Section 33 Section 34 Section 37 Section 65 Section 66 Section 67 Section 68 Section 69 Section 70 Section 71 Section 72 Section 73 Section 74 Section 75 Section 76 Section 77 Section 78 Section 79 Section 80 Section 81

Commercial Courts Act, 2015 Section 13

Micro, Small and Medium Enterprises Development Act, 2006 Section 17 Section 18 Section 19 Section 21

04Reasoning

The Court noted that while the MSMED Act and the Arbitration Act are self-contained codes, the Council’s authority is derived strictly from Section 21 of the MSMED Act

¶ 26, 32, 35

The Court observed that although the Jharkhand MSME Rules, 2007 previously allowed up to nine members, those rules were ultra vires the parent Act and were subsequently repealed and corrected in 2017

¶ 40-41

Applying the principle of coram-non-judice, the Court reasoned that because the Council that passed the impugned Award consisted of eight members—exceeding the statutory maximum of five—it lacked inherent jurisdiction

¶ 42, 60

The Court rejected the Respondents' argument that the Petitioners were limited to a Section 34 remedy, concluding that an award passed by an illegally constituted tribunal is a nullity and can be challenged under Article 226

¶ 62-70