Calcutta High Court: In an application seeking clarification on whether the arbitrator’s refusal or disinclination to decide on the applicant’s claim for interest under the MSMED Act amounts to a “decision” and whether the petitioner has the right to challenge this decision in a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, a single-judge bench comprising of Moushumi Bhattacharya,* J., held that the refusal or failure of the arbitrator to decide on issue of interest amounted to a “decision”. The Court observed that the issue of interest is integral to the award and cannot be separated from it and appellant’s challenge to the award, based on the arbitrator’s failure to rule on the interest issue, is deemed legitimate.
However, the Court dismissed the applicant’s request for a clarification on the application of the MSMED Act, stating that the issue requires adjudication by the Court and the only recourse is to file a section 34 application.
Summary of Facts
The instant matter revolves around a dispute arising from an arbitration award dated 11-12-2021. The applicant/respondent award-holder was the claimant in the arbitration, seeking approximately Rs. 77.74 lacs in unpaid dues, charges for extra work, and overstay compensation. The applicant also claimed Rs. 50,000/- in expenses related to the arbitration proceedings. A significant part of the award pertains to the claim for interest under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), particularly under Section 16 of the MSMED Act.
The petitioner in the case, who is also the award-debtor, contested the claim for interest under the MSMED Act, arguing that the Act was not applicable to the contract in question, as it was not for the supply of goods or services. The petitioner had paid the entire awarded amount to the respondent/applicant but asserted its right to challenge the award.
The arbitrator, in the award, noted that the applicant had claimed interest under the MSMED Act but did not make a definitive decision on the matter. The arbitrator’s observation suggested that while the reference to the Micro and Small Enterprises Facilitation Council under Section 18 of the MSMED Act may be optional, it becomes necessary if a party decides to claim interest under the Act. The arbitrator did not render a conclusive finding on whether the applicant was entitled to interest under the MSMED Act.
Moot Point
The primary issue before the court is to determine whether the Arbitrator’s statement that he was not inclined to decide the question of the claimant’s entitlement to interest under the MSMED Act can be considered a “decision”. If it is deemed a decision, the petitioner, as the award-debtor, has the right to challenge it under Section 34 of the Arbitration and Conciliation Act, 1996. On the other hand, if it is not considered a ‘decision’, the applicant award-holder is entitled to move to the Micro and Small Enterprises Facilitation Council for adjudication.
Court’s Observation
The Court examined the extracted portion of the award, which indicated that the arbitrator was disinclined to decide the question of the claimant’s entitlement to interest under the MSMED Act and held that leaving the issue of interest undecided would amount to a decision, as it affects the applicant’s right to approach the Facilitation Council under the MSMED Act.
The Court rejected the applicant’s argument that the arbitrator was not required to decide on the merits of the claim and pointed out that the issue of interest is an integral part of the award. The Court also noted that the petitioner’s grounds of challenge in the Section 34 petition are directly related to the arbitrator’s failure to decide the interest issue and the applicability of the MSMED Act.
The Court concluded that the only recourse for the petitioner against the lack of a finding by the arbitrator was to file a section 34 application and opined that the arbitrator’s failure to decide the issue is a decision amenable to challenge in AP 471 of 2022. The Court also declined to give a finding on the applicability of the MSMED Act in this application, as the entire spectrum of challenge was before the Court in AP 471 of 2022.
Court’s Decision
The Court dismissed the application for clarification, asserting that the entire spectrum of challenge under Section 34 of the Arbitration and Conciliation Act is before the Court in AP 471 of 2022. The court refrains from making a conclusive finding regarding the applicability of the MSMED Act and listed the AP for further proceedings in the usual course.
[SAIL v. F. Harley & Co. (P) Ltd., 2023 SCC OnLine Cal 3481, order dated 12-10-2023]
*Judgment by Justice Moushumi Bhattacharya
Advocates who appeared in this case :
Mr. Mohit Gupta, Mr. A.P. Agarwalla, Counsel for the Petitioner
Mr. Suddhasatva Banerjee, Mr. Chayan Gupta, Mr. Pourush Bandopadhyay, Mr. Dwip Raj Basu, Counsel for the Respondent
Buy Arbitration and Conciliation Act, 1996 HERE
