MSMED Act | Is Writ Maintainable Against MSEFC Award? Can MSEFC Members Act As Arbitrators ? Supreme Court Refers To Larger Bench

Update: 2025-01-22 13:36 GMT
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The Supreme Court today (Jan. 22) opined that the party aggrieved by an order/award of the Micro and Small Enterprises Facilitation Council (MSEFC) passed under Section 18 of the Micro, Small, and Medium Enterprises Development Act, 2006 (“MSME Act”) can file a writ petition under Article 226 of the Constitution before the High Court. However, upon noting that a contrary view was...

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The Supreme Court today (Jan. 22) opined that the party aggrieved by an order/award of the Micro and Small Enterprises Facilitation Council (MSEFC) passed under Section 18 of the Micro, Small, and Medium Enterprises Development Act, 2006 (“MSME Act”) can file a writ petition under Article 226 of the Constitution before the High Court.

However, upon noting that a contrary view was expressed in the previous ruling delivered by a coordinate bench in M/s India Glycols Limited and Another v. Micro and Small Enterprises Facilitation Council, the bench comprising CJI Sanjiv Khanna, Justice Sanjay Kumar and Justice Manmohan referred the question of “Whether the ratio in M/s India Glycols Limited (supra) that a writ petition could never be entertained against any order/award of the MSEFC, completely bars or prohibits maintainability of the writ petition before the High Court?” to the larger bench for consideration.

The Court in M/s India Glycols Limited held that a writ petition is not maintainable against any order passed by the MSEFC and that the only recourse available is under Section 34 of the Arbitration and Conciliation Act (A&C Act), subject to the seventy-five percent deposit requirement under Section 19 of the MSME Act.

Also, the judgment authored by CJI Khanna also raised the question if the bar/prohibition to file a Writ Petition against Section 18 order/award passed by the MSEFC is not absolute, when and under what circumstances will the principal/restriction of adequate alternative remedy not apply?

The Court highlighted inconsistencies in its rulings on whether MSEFC conciliators can act as arbitrators under the Arbitration & Conciliation Act, 1996. In Jharkhand Urja Vikas Nigam Limited v. State of Rajasthan, it held that conciliators cannot serve as arbitrators, requiring disputes to be referred to arbitration upon failed conciliation. Conversely, in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods, it ruled there is no bar on conciliators acting as arbitrators, despite Section 80 of the Act prohibiting this unless agreed otherwise by the parties.

Noting that there's also a confrontation between the judgment of the two Judges Bench of the Court in Jharkhand Urja Vikas Nigam Limited and Gujarat State Civil Supplies Corporation Limited, the bench was inclined to refer another question to the larger bench for its consideration:

“Whether the members of MSEFC who undertake conciliation proceedings, upon failure, can themselves act as arbitrators of the arbitral tribunal in terms of Section 18 of the MSMED Act read with Section 80 of the A&C Act?”

In essence, the Court referred the following questions raised in the present appeal to a larger Bench of five Judges, namely:

“(i) Whether the ratio in M/s India Glycols Limited (supra) that a writ petition could never be entertained against any order/award of the MSEFC, completely bars or prohibits maintainability of the writ petition before the High Court?

(ii) If the bar/prohibition is not absolute, when and under what circumstances will the principle/restriction of adequate alternative remedy not apply?

(iii) Whether the members of MSEFC who undertake conciliation proceedings, upon failure, can themselves act as arbitrators of the arbitral tribunal in terms of Section 18 of the MSMED Act read with Section 80 of the A&C Act?”

Background

The aforementioned questions of law were framed by the Court while hearing the appeal filed by the M/s Tamil Nadu Cements Corporation Limited against the condition stipulated under proviso to Section 19 of the MSME Act to deposit seventy-five percent of the awarded amount before challenging the order/award passed by the MSEFC under Section 18 of the MSME Act.

The Madras High Court dismissed the Appellant's writ petition stating that the requirement to deposit seventy-five percent of the awarded amount before assailing the correctness of the award passed by the MSEFC is a statutory requirement, and no Writ Petition can lie against such a mandate.

Aggrieved by such a requirement of pre-deposit, the Appellant approached the Supreme Court contending that the High Court cannot be denuded of their jurisdiction under Article 226 of the Constitution in exceptional circumstances even though there existed other of the statutory remedy.

The exceptional circumstances that warrant the High Court's interference despite there exist other alternative remedies under the statute are:

i) where there is a violation of principles of natural justice or fundamental rights;

ii) where an order in a proceeding is wholly without jurisdiction; or

iii) where the vires of an Act is challenged

The Court found force in the Appellant's contention that the High Court cannot be denuded of their discretionary powers under Article 226 and can still provide relief notwithstanding other remedies available to the litigant under the statute.

The Court noted that the pre-condition to deposit seventy-five percent of the award amount to challenge the MSEFC's order/award makes the right to appeal illusory, thus the High Court's writ jurisdiction could be invoked as a power to access the court for justice and relief. However, upon finding that the judgment passed in M/s India Glycols Limited by the bench of three judges had held otherwise, it referred the question of law to be decided by the larger bench of five judges.

Case Title: M/s Tamil Nadu Cements Corporation Limited Versus Micro and Small Enterprises Facilitation Council and Another

Citation : 2025 LiveLaw (SC) 95

Click here to read/download the judgment

Appearance:

For Petitioner(s) Mr. K. Radhakrishnan, Sr. Adv. Mr. K.V. Jagdishvaran, Adv. Ms. G. Indira, AOR Mr. P. Gandepan, Adv. Mr. Ashwini Kumar, Adv.

For Respondent(s) Mr. Senthil Jagadeesan, Sr. Adv. Mr. E. Om Prakash, Sr. Adv. Mr. Kaushitaki Sharma, Adv. Ms. Hima Bhardwaj, Adv. Ms. Mrinal Kanwar, AOR Mr. Vaibhav, Adv. Mr. Puneet Agarwwal, Adv.

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