Calcutta High Court Rules on Arbitral Timelines under MSMED Act

New Delhi, Oct 4 (KNN) In a significant ruling, the Calcutta High Court has clarified the application of the 90-day timeline for arbitration proceedings under Section 18(5) of the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act).

A bench comprising Justice Sabyasachi Bhattacharyya held that the 90-day period for completing arbitral proceedings under the MSMED Act is directory rather than mandatory.

This ruling establishes that exceeding the 90-day timeframe does not invalidate the mandate of the MSME Facilitation Council acting as arbitrator.

The Court examined three key issues: whether Section 18 of the MSMED Act has been amended by Section 62 of the Mediation Act, 2023; whether the Court has jurisdiction to replace the Facilitation Council as arbitrator under Section 18 of the MSMED Act; and whether the Council’s mandate expires after 90 days from the reference date under Section 18(3) of the MSMED Act.

The Court first confirmed that Section 62 of the Mediation Act, 2023, which purportedly replaces conciliation with pre-arbitration mediation under the MSMED Act, has not yet been notified. Consequently, no amendment has taken effect.

Regarding jurisdiction, the Court reaffirmed the exclusive authority of the MSME Facilitation Council to conduct or refer arbitrations, per Section 18(3) of the MSMED Act.

The ruling emphasised that the non obstante clauses in Section 18 of the MSMED Act override provisions of the Arbitration and Conciliation Act, preventing courts from substituting the Council or its nominees as arbitrators.

On the 90-day timeline, the Court ruled that the period prescribed in Section 18(5) of the MSMED Act is directory, not mandatory. This interpretation aligns with previous rulings such as GPT Infra Projects Ltd. v. Miki Wire Works Pvt. Ltd., noting the absence of penal consequences for exceeding the timeline. As a result, the Council’s mandate remains valid beyond 90 days.

The case arose from a dispute between Porel Dass Water & Effluent Control Pvt. Ltd. (the petitioner) and the West Bengal Power Development Corporation Limited.

The petitioner initiated arbitration under the MSMED Act and sought an extension of the Facilitation Council’s mandate after arbitration proceedings exceeded the 90-day statutory period.

The petitioner sought relief through Section 29A of the Arbitration and Conciliation Act, 1996 (1996 Act), which governs timelines and mandates extensions.

The judgment underscores the MSMED Act’s precedence in arbitration cases concerning micro, small, and medium enterprises. It clarifies that the Facilitation Council retains its mandate as arbitrator despite procedural delays, offering clarity to businesses engaged in arbitration under the MSME framework.

The Court also urged the Facilitation Council to expedite its proceedings, ideally completing the arbitration within three months.

(KNN Bureau)