The Bombay High Court partly allowed the petitions by Dodal Electro Instruments, quashed the ex parte Micro and Small Enterprises Facilitation Council (MSEFC) orders awarding dues and heavy statutory interest to the seller, and remanded the matter to the Facilitation Council for fresh arbitration in accordance with law.
Mexim Adhesive Tapes Pvt. Ltd., a registered small-scale industry, raised two claims against Dodal, the petitioner, for unpaid supplies under work orders from 2016 and 2017. MSEFC passed ex parte orders dated 7 March 2024, awarding the seller principal and statutory interest amounts, allegedly after failed conciliation and non-appearance from Dodal. Dodal moved the High Court, arguing that the orders were void as arbitral procedure under the Arbitration and Conciliation Act, 1996 had not been followed.
Dodal claimed breach of natural justice, improper service of hearing notices, and failure to follow the two-stage dispute resolution process in Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act). They sought to quash the orders mandating payment of substantial dues (mostly interest under Section 16 of the Act).
The Bench comprising Justice N.J. Jamadar found evidence that Dodal was aware of proceedings since 2018 and sought adjournments, but held that MSEFC failed to adhere to procedural mandates for shifting from conciliation to formal arbitration.
The Court cited Supreme Court precedent to emphasize the two-stage (conciliation, then arbitration) process and need for procedural safeguards. It held that failure to follow Section 18(3) and relevant arbitral procedure made the orders unsustainable, and unsupportable as arbitral awards.
In result, the court quashed the impugned MSEFC orders in both references, remanded the matters to the MSEFC to conduct fresh proceedings as arbitration from the proper stage, and directed the Council to proceed in line with the Arbitration Act, giving all parties due opportunity to file pleadings and present evidence.
The parties were directed to appear before the MSEFC for further orders. The High Court expressly declined to enter into the merits of the dispute and clarified that all rights and contentions remain open for full adjudication by the arbitral tribunal.
Cases referred to:
1. Jharkhand Urja Vikas Nigam Ltd. vs. State of Rajasthan and Ors., (2021) 19 SCC 206
2. Silpi Industries and Ors. vs. Kerala State Road Transport Corporation and Anr., (2021) 18 SCC 790
3. India Glycols Ltd. and Anr. vs. Micro and Small Enterprises Facilitation Council, Medchal and Ors., (2025) 5 SCC 780
4. Tamil Nadu Cements Corporation Ltd. vs. Micro and Small Enterprises Facilitation Council and Anr., (2025) 4 SCC 1
Appearances:
Mr. Chanakya Keswani with Mr. Tanmay Bhave i/by Economic Laws Practice, for Petitioner.
Mr. Rohan Agarwal with Ms. Vidisha Rohira i/by Jonathan D. for Respondent No.2 (Mexim Adhesive Tapes Pvt. Ltd.).
