Can't Invoke Writ Jurisdiction To Challenge Award Under MSME Act, Without Availing Remedy U/S 34 Of A&C Act; Delhi High Court

Brief Facts:

The State Trading Corporation of India Ltd. (“Appellant”) filed a Letters Patent Appeal in the Delhi High Court (“High Court) to contest the dismissal of writ petition by Single Bench of the High Court against an award rendered by Delhi Arbitration Center. The Single Bench held that under Articles 226/227 of the Indian Constitution, courts should refrain from entertaining petitions solely due to pre-deposit conditions when a dispute resolution mechanism is available under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).

The writ petition was initiated by the Appellant to challenge the Award, which granted ₹ 7,21,10,729/- to Respondent No. 2 along with pendente lite and future interest as per the Micro, Small, and Medium Enterprises Development Act, 2006 ('MSMED Act') and litigation costs of ₹ 50,000/-. The Appellant argued that the award lacked legal standing and should be annulled due to inherent jurisdictional deficiencies. The Appellant argued that since Respondent No. 2 was not registered under the MSMED Act at the time of contract execution or supply conclusion in 1991, the MSMED Act, enacted in 2006, did not apply to transactions/contracts pre-dating its enactment. The Appellant contended that although it could file a petition under Section 34 of the Arbitration Act to challenge the award, it is not a practical remedy in the case.

Observations by the High Court:

In the context of challenges to awards resulting from arbitral proceedings under the MSMED Act, the High Court referred to the decision of the Supreme Court, in M/s India Glycols limited and Anr. v. Micro and Small Enterprises Facilitation Council, Medchal – Malkajgiri and Ors. [2023 LiveLaw (SC) 992], and held that petitions filed under Article 226/227 should not be entertained. The High Court held that Section 18 of the MSMED Act provides for a statutory remedy under Section 34 of the Arbitration Act. It noted that entertaining such petitions to bypass the pre-deposit requirement under Section 19 of the MSMED Act would defeat the legislative intent behind the special enactment.

The High Court disapproved of the stand taken by some High Courts that any order passed by the arbitral tribunal can be corrected by the High Court under Article 226 or 227. It advocated for minimizing judicial intervention during the arbitration process, stating that parties should generally wait until the award is pronounced, except in cases where a right of appeal is available under Section 37 under Arbitration Act. Consequently, it dismissed the appeal.

Case Title: State Trading Corporation Of India Ltd vs Micro And Small Enterprises Facilitation Council Delhi And Anr.

Citation: 2024 LiveLaw (Del) 169

Case Number: LPA 91/2024 and CM APPL. 6199/2024, CM APPL. 6200/2024 & CM APPL. 6201/2024

Advocate for the Complainant: Mr. Sanjeev Puri, Sr. Advocate with Ms. Pragya Puri

Advocate for the Respondent: N.A.

Click Here to Read/Download Order