Madras High Court imposes ₹1.5 lakh costs on TN Salt Corporation for non-cooperation in arbitration

The Madras High Court has imposed ₹1,50,000 costs on Tamil Nadu Salt Corporation, dismissing its challenge to an arbitral award passed under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). [Tamil Nadu Salt Corporation v. Aero Plast Limited]

The Court held that the Corporation had failed to appear before the Facilitation Council and the sole arbitrator, and could not later assail the award on procedural grounds.

Justice N Anand Venkatesh said that the original petition under Section 34 of the Arbitration and Conciliation Act, 1996 was devoid of merit. The Court noted that repeated opportunities were available to the petitioner at both conciliation and arbitral stages, but it chose not to participate, leading to an ex-parte award in favour of Aero Plast.

The Court said that the pleadings taken before it - including objections to the tribunal’s composition and alleged lack of conciliation - were “too late in the day”, given the petitioner’s non-appearance throughout the statutory process.

“Had the petitioner appeared before the Council, there would be justification to refer the parties for mediation. In the absence of the same, the Council was left with no other option except to refer the matter to the sole Arbitrator,” the Court noted.

Aero Plast was awarded a 2015 tender to supply laminated pouches for packing iodised salt. It claimed to have supplied goods worth ₹2.78 crore, against which only ₹2.39 crore was paid, leaving a balance of about ₹39.04 lakh. It invoked Section 18 of the MSMED Act. The Facilitation Council issued notice on August 9, 2018, but TN Salt did not appear.

The Council then referred the matter to a sole arbitrator. Even as TN Salt remained absent, the arbitrator directed payment of ₹39,90,222 with interest.

TN Salt contended that:

• The award was non-speaking and suffered from patent illegality;

• The contract required a three-member tribunal, not a sole arbitrator;

• Mandatory conciliation under Section 18(2) MSMED Act was not undertaken.

The Court rejected all grounds. It held that Section 18(3) MSMED Act overrides contractual arbitration clauses and that once a reference is made by the Council, it is deemed to be an arbitration under Section 7(1) of the Arbitration Act, irrespective of earlier agreements between the parties.

The Court relied on precedents to hold that the MSMED Act, being a special statute, prevails over the Arbitration Act.

"A careful reading of Sub-Section (3) of Section 18 of the MSMED Act makes it abundantly clear that if there is no settlement between the parties, the Council can itself either take up the dispute for arbitration or refer the matter to any institution or centre providing alternative dispute resolution services for such arbitration and that the provisions of the Act should then apply to the disputes as if the arbitration was in pursuance of an arbitration agreement referred to under Section 7(1) of the Act."

Regarding the award being non-speaking, the Court said that the arbitrator had taken into account correspondence and records, including the petitioner’s admission of liability. It held that the award contained “discernible/intelligible” reasons.

Holding that the award did not suffer from patent illegality or perversity, the Court dismissed the petition with ₹1.5 lakh costs, payable to Aero Plast.

TN Salt was represented by Senior Advocate SR Rajagopal with Advocate MA Abdul Wahab.

Aero Plast was represented by Advocate K Seetharam.

[Read Judgment]