Case Brief
Heavy Engineering Corporation Ltd. v. State of Jharkhand & Ors.
L.P.A. No. 230 of 2019
Facts
The present case arose out of a Letters Patent Appeal from a dispute concerning the validity of an award passed by the Jharkhand Micro, Small and Medium Enterprises Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006. Heavy Engineering Corporation Ltd. (“HEC”), a public sector undertaking, issued a work order in March 1995 in favour of the respondent supplier for supply of rack and pinion gates valued at approximately Rs. 57.48 lakhs. Disputes subsequently arose regarding payments, pursuant to which the supplier raised claims amounting to Rs. 19.53 lakhs. These claims were later mutually settled for a reduced sum of Rs. 5,76,610 as full and final settlement.
Despite partial payments made by HEC and deductions agreed upon by the supplier, a small amount of Rs. 35,100 remained outstanding. The supplier thereafter approached the Jharkhand MSME Facilitation Council under Section 18 of the MSMED Act, 2006. By an award given in 2011, the Council directed HEC to pay the outstanding principal amount along with interest on delayed payment at rates prescribed under Section 16 of the Act, which significantly enhanced the total liability.
HEC challenged the award before the Sub-Judge I, Ranchi under Section 34 of the Arbitration and Conciliation Act, 1996. The challenge was not entertained on merits, and HEC was directed to deposit 75% of the awarded amount as a pre-condition. Aggrievedby the order, HEC invoked the supervisory jurisdiction of the High Court under Article 227 of the Constitution in W.P.(C) No. 1558 of 2016. The learned Single Judge dismissed the writ petition leading to the present intra-court appeal before the Division Bench.
Legal Issues
The Division Bench was required to consider the following issues:
(i) Whether the Facilitation Council was properly constituted in accordance with Section 21 of the MSMED Act, 2006.
(ii) Whether the issue of lack of jurisdiction of the Council could be raised at the appellate stage?
(iii) Whether the award passed by a Council constituted contrary to statutory provisions was a nullity?
Legal Reasoning
The Division Bench reiterated that a defect of jurisdiction goes to the root of the matter and can be raised at any stage of proceedings. Participation in proceedings cannot cure a jurisdictional defect where the adjudicating body itself lacks statutory competence.
On examining Section 21 of the MSMED Act, 2006, the Court noted that the statute mandates that the Facilitation Council must consist of not less than three and not more than five members. In the present case, the award had been passed by a Council consisting of eight members. Subordinate legislation or executive rules permitting a larger composition could not override the express mandate of the parent statute.
The Court held that when a statute prescribes a specific manner for exercising power, it must be exercised strictly in that manner or not at all. Since the Council was improperly constituted, it lacked inherent jurisdiction to pass the award. Consequently, the 2011 award was declared void ab initio and a nullity in the eyes of law.
Holding
The Division Bench allowed the Letters Patent Appeal and quashed the order of the learned Single Judge, the award passed by the MSME Facilitation Council, and the order passed by the Sub-Judge I, Ranchi. The Court held that the award was a nullity owing to the improper constitution of the Council and remitted the matter to the Facilitation Council for fresh adjudication in accordance with law
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