Council Members Changed Between Hearing and Award: Calcutta High Court Sets Aside MSME Award

The Calcutta High Court has set aside an arbitral award passed by the Micro, Small and Medium Enterprises Facilitation Council.It held that the award in this case could not stand because it was delivered by a differently constituted tribunal than the one that heard the parties

A division bench of Justice Debangsu Basak and Justice Md. Shabbar Rashidi found that the dispute was heard over several years but the Council's composition kept changing. The members who finally delivered and signed the award were not the same in material part as those who had heard the matter on merits.

The court noted, “there is a change in the position of the Arbitral Tribunal between the last date of its meeting on May 12, 2021 and the date when the award was passed on April 28, 2022. At least two of the members of the Council stood changed in between the last two dates.”

In these circumstances, the bench held that the award was passed in breach of the principles of natural justice.

The dispute was between the Board of Major Port Authority for the Syama Prasad Mookerjee Port, Kolkata and Marinecraft Engineers Pvt. Ltd. It was referred to the Facilitation Council under Section 18 of the MSMED Act, 2006. Conciliation failed. The Council then proceeded to arbitration and passed an award in favour of Marinecraft Engineers in April 2022.

The Port Authority challenged the award under Section 34 of the Arbitration and Conciliation Act. A Single Judge dismissed the challenge. The Port Authority then carried the matter in appeal.

Before the division bench, the Port Authority argued that the award was barred by limitation under Section 29A of the Arbitration Act. It also said the Council lacked jurisdiction to decide disputes arising out of a works contract. It further argued that the proceedings violated principles of natural justice because the members who heard the matter did not deliver the award. The claimant opposed the appeal and said sufficient opportunity had been given.

Allowing the appeal, the High Court stressed that arbitral proceedings must comply with natural justice. The bench said, “. That arbitral decisions must adhere to principles of natural justice is the public policy of India, is trite law. Any breach of the principles of natural justice or the award being contrary to the fundamental policy of Indian laws allows re-appreciation of the award under Section 34 of the Act of 1996”

The court set aside both the arbitral award and the single judge's order. It remanded the matter to the Facilitation Council for fresh adjudication. All other issues were left open.