MSME Award Appeal here we mean and discuss Appeal against the order, decree or Award arising out of the statutory arbitration proceeding under MSME Act. There have been challenges to this provision in courts, where the contentions were raised that this provision is not mandatory and there can be deviation by the Appellate court. Thus, the Supreme Court has made it clear that the provision of section 19 of the MSME Act is mandatory in nature..    

Extention mandate in Arb proceeding under MSME Act

Author- admin
Date:October 14, 2022

Courts power to extend mandate in Arb proceeding under MSME Act

Section 29A of the Arbitration and Conciliation Act, 1996 prescribes that the award in the matter of arbitration other than International commercial arbitration be completed within a period of 12 months from the date of completion of pleadings.

As per section 29A(4) if the award is not made within the prescribed period the mandate of an arbitrator shall terminate unless the court extends the period.

Now the question is whether the above provision applies to an arbitration proceeding initiated under section 18(3) of the MSME act.

The High Court of Gujarat in the case ‘Magirsha Industries vs. M/s Gujarat State Fertilizer and Chemicals Limited” (C/IAAP/68/2020) has answered the above question.

In this case on a reference made by the applicant before the Micro Small and Medium Enterprise Facilitation Council under section 18(3) of the MSME, the sole arbitrator was appointed constituting the Arbitral Tribunal. Subsequently, the Arbitral Tribunal held its meeting. The period prescribed under the Act namely 12 months commenced on 26.02.2019.

On account of the pandemic prevailing and nationwide lockdown, the meetings of the tribunal could not take place and 12 months period envisaged under section 29A(1) was completed without passing the award.

The court observed that :

the arbitration proceedings by the appointment of an Arbitrator can be triggered in a number of ways.

It could be an agreed arbitrator appointed by parties outside the court, it could be a case of reference to the arbitration by a civil court in terms of the agreement between the parties, it may even be the case of appointment of an arbitrator by the High Court or the Supreme Court in terms of section 11 of the Act.

The provisions of section 29A would apply to arbitral proceedings of all kinds, without any distinction.

The court held that :

Thus the mandate of an arbitrator irrespective of the nature of his appointment and the manner in which the arbitral tribunal is constituted would come to an end within 12 months from the date the tribunal enters upon the reference unless such period is extended by the consent of the parties in terms of sub-section (3) of section 29A which could be for a period not exceeding six months.

Subsection (4) of section 29A specifically provides that, if the award is not made within such period, as mentioned in subsection (1) or within the extended period, if so done, under subsection (3) the mandate of the arbitrator shall terminate. This is however with the caveat that unless such period either before or after the expiry has been extended by the court.

The court further held that :

Section 18 of the MSME act provides that provisions of the Arbitration and Conciliation Act 1996 shall apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in subsection (1) of section 7 of the Act.

The court further held that :

Even in respect of the references made by MSME, the provisions of the Arbitration and Conciliation Act, 1996 would be applicable and thereby this Court is empowered under Section 29A to extend the mandate where the period prescribed under the Act for concluding the arbitration proceedings has expired.

The Court finally concluded that :

In the instant case, the arbitration proceedings had commenced by the Arbitral Tribunal, for the reasons set out in its proceedings, were adjourned from time to time and from the month of March 2020, the Arbitral Tribunal could not hold sittings due to nationwide lock-down and as such reason for the extension of time sought for deserves to be accepted.