Chh HC | The term ‘compromise’ and ‘conciliation’ differentiated; In case mandate under S. 18(2) of MSME Development Act, 2006 is not followed strictly, proceeding under S. 18(3) of the Act is illegal

Chhattisgarh High Court

Chhattisgarh High Court: Rajendra Singh Samant J. allowed the appeal and directed to take up the proceeding for conciliation under Section 18 (2) of the Act, 2006.

The facts of the case are such that respondent 4 i.e. Core Fab Projects Pvt. Ltd. moved an application under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (in short ‘the Act, 2006’), before the Facilitation Council i.e. respondent 3 which was proceeded with and notice was issued to the petitioner for appearance in that proceeding. The instant petition was filed under Article 227 of the Constitution of India praying to quash the proceeding on application for reference before respondent 3 on grounds that the proceeding so initiated is against the provisions of Section 18 of the Act, 2006.

Counsel for the petitioners Mr Amit Soni submitted that the conciliation proceeding under Section 18 (2) of the Act, 2006 is a must, therefore, it is prayed that respondent 3 be directed to comply with Section 18 (2) of the Act, 2006, before proceeding to decide the reference.

Counsel for the respondents Mr B P Banjare and P R Patankar submitted that respondent 3 has followed the procedure as provided under the Act, 2006. Section 18 (5) of the Act, 2006 provides time within which the matter has to be decided and that time limit has already crossed.

The Court observed that the words in Section 18 (2) of the Act, 2006 give a mandate that the Council shall itself conduct conciliation in the matter or may seek assistance of any institution or center providing alternative dispute resolution services. The only word used in the provision is ‘conciliation’. Conciliation is procedure adopted for alternate dispute resolution in which neutral person proposes the parties in dispute to come to agreement for resolving the dispute between them, further there are specific provisions for conciliation in Arbitration and Conciliation Act, 1996. Therefore, the term ‘compromise’ has different meaning than term ‘conciliation’. In a compromise, both the parties in a dispute strictly negotiate with each other, whereas, in conciliation proceeding one neutral person is engaged in confidential manner to bring about the settlement of dispute between the parties and granted opportunity for compromise itself would not be sufficient.

The Court further observed that the parties were given opportunity to compromise and negotiate for terms and parties failed in that, subsequent to which, the proceeding under Section 18 (2) of the Act, 2006 has been closed and Facilitation Council has ordered for proceeding under Section 18 (3) of the Act. The Court further observed that the proceeding under Section 18 (2) of the Act, 2006 is still not over as the conciliation proceeding has not taken place, therefore, it is held that respondent 3 has failed to exercise its authority under Section 18 (2) of the Act, either by involving itself or by handing over the matter to any other institutions or centers providing alternate dispute resolution services.
The Court thus held “the order of the respondent 3 for proceeding under Section 18 (3) of the Act is erroneous and illegal regarding, in which interference is required for by this petition.”

In view of the above, petition was disposed off.[Sew Infrastructure Limited v. State of Chhattisgarh, 2021 SCC OnLine Chh 905, decided on 12-04-2021]


Arunima Bose, Editorial Assistant has reported this brief.

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