FACTS
M/s Jai Balaji Industries Ltd. (“Petitioner”), a company incorporated under the Companies Act, 1956, had placed several purchase orders upon Garuda Ispat Private Limited (“Respondent”) during 2016 for supply of steel materials. A dispute arose between the parties concerning quality of the material supplied and payments claimed by the Respondent. The Petitioner rejected material supplied against Purchase Order No. EX-57 on account of alleged defects. Despite such rejection, the Respondent included the value of the rejected material while computing its outstanding dues.
On 02.03.2020, the Respondent invoked Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”) and filed a claim before the Micro and Small Enterprises Facilitation Council (“Council”) seeking recovery of Rs. 9,63,968/-. The Petitioner raised preliminary objections challenging the jurisdiction of the Council on the ground that the purchase orders contained an exclusive jurisdiction clause in favour of courts at Kolkata. Despite such objection, the Council proceeded with the matter and initiated conciliation proceedings under Section 18(2) of the MSMED Act on 12.10.2021.
During the proceedings, the matter was adjourned on multiple dates. On 27.12.2022, the Respondent filed its reply to the Petitioner’s preliminary objections regarding limitation, and the Council specifically recorded that written submissions on limitation would be filed, whereafter the matter would be reserved for orders. The Petitioner filed its written arguments on 02.01.2023. However, the impugned order, though dated 27.12.2022, was released only on 24.05.2023, after a delay of 147 days, without any explanation or notice of pronouncement to the Petitioner.
The Council directed the Petitioner to pay Rs. 28,05,929/- (comprising principal of Rs. 9,63,968/- and interest of Rs. 18,41,961/-). Thereafter, the Respondent initiated execution proceedings on 28.03.2024 under Section 36 of the Arbitration and Conciliation Act, 1996, before the learned 2nd Additional District Judge, Durg, registered as T.D. No. 82/2024. The Petitioner filed objections seeking dismissal of the execution proceedings, contending that the order dated 27.12.2022 was not a valid arbitral award. The learned Executing Court rejected the objections vide order dated 07.01.2025, aggrieved by which the Petitioner approached the High Court under Article 227 of the Constitution of India.
A material fact that emerged during the proceedings was that the Petitioner had separately challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, before the Commercial Court, Durg (MJC (Civil) No. 384 of 2023), but had failed to comply with the mandatory pre-deposit requirement under Section 19 of the MSMED Act, and consequently no stay had been granted.
ISSUES
- Whether the order dated 27.12.2022 passed by the Facilitation Council constitutes a valid and enforceable arbitral award in the eyes of law?
- Whether the Executing Court committed an error in rejecting the Petitioner’s objections without examining the foundational question of jurisdictional nullity?
- Whether an objection founded upon inherent lack of arbitral jurisdiction can be raised in execution proceedings, notwithstanding the pendency of proceedings under Section 34 of the Arbitration and Conciliation Act, 1996?
PETITIONER’S CONTENTIONS
The Petitioner contended that the Council failed to comply with the mandatory procedure prescribed under Sections 18(2) and 18(3) of the MSMED Act, 2006 and the corresponding provisions of the Arbitration and Conciliation Act, 1996. Conciliation and arbitration are distinct stages under the statutory scheme, and arbitration can commence only after conciliation has failed and stands terminated. The order-sheet proceedings of the Council do not disclose any order recording failure of conciliation or any declaration terminating the conciliation proceedings.
It was further argued that even assuming conciliation had failed, no notice regarding commencement of arbitration was issued, no statement of claim or defence was invited under Section 23, no issues were framed, no evidence was recorded, and no opportunity was afforded to the parties as contemplated under Sections 23, 24, and 25 of the Arbitration Act. The entire process reflected an impermissible clubbing of conciliation and arbitration proceedings.
The Petitioner also contended that the order was vitiated by violation of principles of natural justice because the issue of limitation was never decided, no hearing in arbitration was granted, and the order was released after 147 days without explanation, raising serious doubts about authenticity.
Reliance was placed on Jharkhand Urja Vikas Nigam Ltd. v. State of Rajasthan, (2021) 19 SCC 206; Feedback Infra Private Limited v. MSEFC (Madras High Court); Electrosteel Steel Limited v. Ispat Carrier Private Limited, 2025 (7) SCC 773; Kiran Singh v. Chaman Paswan, AIR 1954 SC 340; and Jagmittar Sain Bhagat v. Director, Health Services, (2013) 10 SCC 136.
RESPONDENT’S CONTENTIONS
The Respondent submitted that the challenge amounts to a collateral attack upon an arbitral award in execution proceedings, which is impermissible in law. The award had already been challenged under Section 34 of the Arbitration Act before the Commercial Court, and the Petitioner failed to comply with the mandatory pre-deposit under Section 19 of the MSMED Act. No stay having been granted, the award remained operative and enforceable.
It was contended that all objections regarding non-compliance with Section 18, alleged procedural irregularities, violation of natural justice, non-termination of conciliation, and lack of jurisdiction fall squarely within the domain of Section 34 proceedings and not execution proceedings. The scope of inquiry in execution is extremely limited and confined to cases where the decree or award is a complete nullity for want of inherent jurisdiction.
The Respondent further argued that the Petitioner failed to demonstrate any patent lack of inherent jurisdiction. The Respondent is a registered MSME unit; the reference under Section 18 was maintainable; the Council issued notices and afforded opportunities. Whether the conciliation was properly concluded or the procedure strictly conformed to the Arbitration Act are questions pertaining to validity and not inherent jurisdiction.
Reliance was placed on Electrosteel Steel Ltd. v. Ispat Carrier Pvt. Ltd., (2024) 4 SCC 696 .
COURT’S OBSERVATIONS AND REASONING
On the Statutory Scheme under Section 18 of the MSMED Act:
The Court noted that under Section 18(2), the Council must first conduct conciliation, and under Section 18(3), only where conciliation is unsuccessful and stands terminated, the Council may proceed to arbitration. Compliance with this statutory transition is not a matter of mere procedure but a condition precedent for lawful exercise of arbitral jurisdiction.
On the Absence of Arbitral Procedure:
The Court examined the order-sheet proceedings of the Council from 14.09.2021 to 18.05.2023 and found no material to show: (a) formal termination of conciliation proceedings; (b) issuance of notice commencing arbitration; (c) filing of statement of claim; (d) submission of statement of defence; (e) framing of points for determination; (f) production of evidence; or (g) conduct of hearings as contemplated under Sections 23, 24, and 25 of the Arbitration Act.
On the Distinction Between Nullity and Erroneous Award:
Relying upon Jharkhand Urja Vikas Nigam Ltd. (supra), the Court held that proceedings for conciliation and arbitration cannot be clubbed. When conciliation fails, the Council must initiate arbitration proceedings in accordance with the Arbitration Act. An order passed without recourse to arbitration and in utter disregard of the Arbitration Act is a nullity, and Section 34 would not be the exclusive remedy in such circumstances.
The Court further relied upon Electrosteel Steel Ltd. (supra), particularly paragraphs 67, 69, and 70, to hold that while an executing court cannot go behind a decree on merits, a plea of nullity founded upon jurisdictional infirmity can be raised in execution proceedings, and such objection is not contingent upon filing a petition under Section 34.
On Inferring Failure of Conciliation:
The Court refused to accept the contention that failure of conciliation can merely be inferred from subsequent conduct. Even if conciliation were assumed to have terminated, there remains a complete absence of material demonstrating compliance with the statutory procedure governing arbitration. The defect extends to the very foundation of the arbitral process.
On Maintainability of Article 227 Petition:
The Court held that since the challenge is directed not against the merits of the award but against the very existence of arbitral jurisdiction, the petition under Article 227 cannot be held to be not maintainable merely because Section 34 proceedings are also pending. The Court also took note of Tamil Nadu Cements Corporation Limited v. MSEFC, 2025(4) SCC 1, wherein the Supreme Court referred the question of maintainability of writ petitions against MSME awards to a larger Bench, but clarified that the legal position regarding mandatory compliance with Sections 18(2) and 18(3) remains undisturbed.
JUDGEMENT
The High Court allowed the writ petition and held as follows:
- The proceedings culminating in the award dated 27.12.2022 suffer from a fundamental jurisdictional infirmity inasmuch as the mandatory statutory requirements governing the transition from conciliation to arbitration under Section 18 of the MSMED Act, 2006, and the procedure prescribed under the Arbitration and Conciliation Act, 1996, have not been shown to have been complied with.
- The award dated 27.12.2022 passed by the Micro and Small Enterprises Facilitation Council was set aside.
- The consequential order dated 07.01.2025 passed by the learned 2nd Additional District Judge, Durg in T.D. No. 82/2024 was also set aside.
- The matter was remitted to the Micro and Small Enterprises Facilitation Council for reconsideration afresh from the stage contemplated under Section 18 of the MSMED Act, 2006, strictly in accordance with the provisions of the MSMED Act and the Arbitration and Conciliation Act, 1996, after affording adequate opportunity of hearing to all parties.
- The Court clarified that it has not expressed any opinion on the merits of the rival claims, and all contentions are left open.
AMLEGALS Remarks
Compliance with the statutory transition from conciliation to arbitration under Section 18 of the MSMED Act, 2006 is not a matter of mere procedure but a condition precedent for the lawful exercise of arbitral jurisdiction. Where the Facilitation Council passes an order without initiating or conducting arbitration proceedings in accordance with Sections 23, 24, and 25 of the Arbitration and Conciliation Act, 1996, the resultant order is a nullity and not merely an erroneous award. Such jurisdictional infirmity can be raised even in execution proceedings and is not contingent upon filing a petition under Section 34 of the Arbitration Act.
Case Title – Jai Balaji Industries Ltd. v. Garuda Ispat Private Limited
Citation – WP (227) No. 67 of 2025
Court: High Court of Chhattisgarh at Bilaspur
Order Date: 22.06.2026
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