M/s Jai Balaji Industries Ltd. v. Garuda Ispat Private Limited, WP227 No. 67 of 2025, decided on 22 June 2026 (Chhattisgarh High Court).

Legal verdict reached in the case of M/s Jai Balaji Industries Ltd. vs. Garuda Ispat Private Limited, as decided on 22 June 2026 by the Chhattisgarh High Court.

The decision of the High Court of Chhattisgarh in Jai Balaji Industries Ltd. v. Garuda Ispat Private Limited is an important contribution to the jurisprudence governing disputes under the Micro, Small and Medium Enterprises Development Act, 2006. The judgment highlights that while the Act provides a speedy mechanism for resolving disputes involving Micro and Small Enterprises, the statutory procedure prescribed under the Act and the Arbitration and Conciliation Act, 1996 cannot be overlooked. The Court made it clear that compliance with the transition from conciliation to arbitration is not merely a procedural formality but a condition that must be satisfied before the Facilitation Council can exercise arbitral jurisdiction.

The dispute arose from several purchase orders issued by Jai Balaji Industries Limited in 2016 for the supply of steel materials by Garuda Ispat Private Limited. According to the petitioner, certain materials supplied under one of the purchase orders were defective and were therefore rejected. Despite the rejection, the supplier included the value of those materials while calculating the outstanding amount and subsequently initiated proceedings before the Micro and Small Enterprises Facilitation Council under Section 18 of the MSMED Act seeking recovery of its dues.

During the proceedings before the Council, the petitioner raised several preliminary objections. It argued that the Council lacked jurisdiction because the purchase orders contained an exclusive jurisdiction clause in favour of the courts at Kolkata. It also contended that the supplier's claim was barred by limitation and disputed the inclusion of the rejected goods in the amount claimed. Although these objections were placed before the Council, conciliation proceedings were initiated and continued over several hearings.

The record showed that the Council invited written submissions on the issue of limitation and the petitioner duly filed its written arguments. However, instead of deciding the preliminary objections separately or commencing arbitration proceedings in accordance with law, the Council issued an order dated 27 December 2022. Significantly, this order was released only on 24 May 2023 after a delay of 147 days. The petitioner questioned the legality of the order, alleging that the proceedings suffered from procedural irregularities and violation of the principles of natural justice.

The Council directed the petitioner to pay the principal amount of Rs. 9,63,968 along with interest, resulting in a total liability of more than Rs. 28 lakh. The petitioner challenged this award before the Commercial Court under Section 34 of the Arbitration and Conciliation Act. Since it did not comply with the mandatory pre deposit requirement under Section 19 of the MSMED Act, no stay was granted. The respondent therefore initiated execution proceedings before the District Judge.

During execution, the petitioner argued that the Council's order was not a valid arbitral award because the mandatory statutory procedure had never been followed. The Executing Court rejected these objections, following which the petitioner approached the High Court under Article 227 of the Constitution.

The principal issue before the High Court was whether the order passed by the Facilitation Council could be treated as a legally enforceable arbitral award. The Court closely examined the statutory framework of Section 18 of the MSMED Act. It observed that the Act contemplates two distinct stages. The first stage is conciliation under Section 18(2), where the Council attempts to facilitate a settlement between the parties. The second stage begins only if conciliation fails and stands terminated, after which the Council may either conduct arbitration itself or refer the matter to another arbitral institution under Section 18(3). Once arbitration begins, the provisions of the Arbitration and Conciliation Act, 1996 become fully applicable.

After examining the record, the Court found no material showing that the conciliation proceedings had ever been formally terminated. More importantly, there was no indication that independent arbitration proceedings had commenced in accordance with the Arbitration and Conciliation Act. The record did not disclose any notice commencing arbitration, any statement of claim or defence, any opportunity for leading evidence, or any hearing conducted in the manner contemplated under Sections 23, 24 and 25 of the Arbitration and Conciliation Act. The Court therefore concluded that there was no legally recognisable arbitration proceeding before the Council.

In reaching its conclusion, the High Court relied heavily upon the decision of the Supreme Court in Jharkhand Urja Vikas Nigam Ltd. v. State of Rajasthan. The Supreme Court had held that conciliation and arbitration are separate stages and cannot be merged into one proceeding. Arbitration can commence only after conciliation has failed, and the mandatory procedure prescribed under the Arbitration and Conciliation Act must thereafter be followed. An order passed without complying with these statutory requirements cannot be regarded as a valid arbitral award.

The High Court also considered the decision in Electrosteel Steel Ltd. v. Ispat Carrier Private Limited, where the Supreme Court reiterated that although an executing court ordinarily cannot examine the correctness of an arbitral award, an exception exists where the award is a nullity because of an inherent lack of jurisdiction. Applying this principle, the High Court observed that the present case did not involve a mere procedural irregularity. Instead, the Council had failed to satisfy the mandatory conditions required to assume arbitral jurisdiction. As a result, the order was not simply an erroneous award but one that was void in law.

The Court therefore held that the Executing Court had erred in refusing to examine the petitioner's jurisdictional objection. It set aside both the award passed by the Facilitation Council and the order of the Executing Court. The matter was remitted to the Facilitation Council for fresh consideration from the stage contemplated under Section 18 of the MSMED Act, with a direction to strictly follow the statutory procedure and provide both parties with an adequate opportunity of hearing.

This judgment reinforces an important legal principle that statutory safeguards cannot be ignored in the interest of speed or convenience. Although the MSMED Act seeks to provide an efficient mechanism for resolving disputes involving Micro and Small Enterprises, the Facilitation Council must strictly comply with the procedure prescribed by law before exercising arbitral powers. The decision confirms that the transition from conciliation to arbitration is a jurisdictional requirement and not a mere technical formality. By distinguishing between procedural errors and jurisdictional defects, the High Court reaffirmed that an order passed without lawful arbitral jurisdiction is a nullity and cannot be enforced as a valid arbitral award.