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While holding that there is a fundamental difference between conciliation and arbitration, the Supreme Court on Wednesday remarked that the proceedings for conciliation and arbitration cannot be clubbed.

A bench of Justices Indira Banerjee and R. Subhash Reddy thus held,

"In conciliation the conciliator assists the parties to arrive at an amicable settlement, in an impartial and independent manner. In arbitration, the Arbitral Tribunal/ arbitrator adjudicates the disputes between the parties. The claim has to be proved before the arbitrator, if necessary, by adducing evidence, even though the rules of the Civil Procedure Code or the Indian Evidence Act may not apply. Unless otherwise agreed, oral hearings are to be held."

These observations were made by the top court while allowing a civil appeal filed by Jharkhand Urja Vikas Nigam Limited which had challenged  the order passed by the Rajasthan Micro & Small Industries Facilitation Council, Jaipur by way of a writ petitiion.

The Rajasthan High Court had dismissed the intra-court appeal preferred by the appellant.

Jharkhand Urja Vikas, the successor company of erstwhile Jharkhand State Electricity Board, had entered into a contract with the M/s. Anamika Conductors Ltd., Jaipur, for supply of ACSR Zebra Conductors.

M/s. Anamika Conductors claiming to be a small scale industry, approached the Rajasthan Micro and Small Enterprises Facilitation Council, claiming an amount of Rs.74,74,041/- towards the principal amount of bills and an amount of Rs.91,59,705.02 paise towards interest.

On the ground that Jharkhand Urja Vikas had not responded to earlier notices, the Council issued summons for its appearance before the Council. When Jharkhand Urja Vikas did not appear before it, the impugned order was passed by the Council directing the appellant to make the payment, as claimed, within a period of thirty days from the date of the order.

The Court noted that only on the ground that even after receipt of summons the appellant did not appear, the Council has passed impugned order.

Further reliance was placed on Section 18(3) of the MSMED Act, which states that even if conciliation is not successful, the said proceedings stand terminated and thereafter Council is empowered to take up the dispute for arbitration on its own or refer to any other institution.

"The said Section itself makes it clear that when the arbitration is initiated all the provisions of the Arbitration and Conciliation Act, 1996 will apply, as if arbitration was in pursuance of an arbitration agreement referred under sub-section (1) of Section 7 of the said Act", noted the bench.

It was also noted that Section 18(2) and 18(3) of the MSMED Act clarifies that the Council is obliged to conduct conciliation for which the provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 would apply, as if the conciliation was initiated under Part III of the said Act. Under Section 18(3), when conciliation fails and stands terminated, the dispute between the parties can be resolved by arbitration. The bench added,

"The Council is empowered either to take up arbitration on its own or to refer the arbitration proceedings to any institution as specified in the said Section. It is open to the Council to arbitrate and pass an award, after following the procedure under the relevant provisions of the Arbitration and Conciliation Act, 1996, particularly Sections 20, 23, 24, 25."

It was found that if the appellant did not submit its reply at the conciliation stage, and failed to appear, the Facilitation Council could, at best, have recorded the failure of conciliation and proceeded to initiate arbitration proceedings in accordance with the relevant provisions of the Act of 1996, to adjudicate the dispute.

With this view, the bench held that the impugned order was a nullity and ran contrary not only to the provisions of MSMED Act but contrary to various mandatory provisions of Arbitration and Conciliation Act, 1996.

Cause Title: Jharkhand Urja Vikas Nigam Limited v The State of Rajasthan & Ors.