Writ Petition Against An Award Passed By A Facilitation Council Under MSMED Act Not Maintainable: Supreme Court

The Supreme Court recently held that a writ petition against an award passed by a Facilitation Council under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 would not be maintainable. The bench comprising CJI DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra held that the correct remedy against an award under the Act was provided under Section 34 of the Arbitration and Conciliation Act 1996 and approaching a High Court instead of pursuing the said remedy would be impermissible.

The present case pertained to the challenge of an award of a Micro and Small Enterprises Facilitation Council, involving a company governed by the provisions of MSMED Act. The award passed by the Facilitation Council was set aside by a single judge of the High Court of Telangana on the ground that the claim was barred by limitation. However, this order was reversed by a Division Bench of the High Court. The Division Bench held that the petition challenging the award was not maintainable as the appellant should have pursued remedies under Section 34 of the Arbitration and Conciliation Act 1996 (Act of 1996) instead of filing a writ petition under Article 226 of the Indian Constitution. 

Against this order of the High Court, the Supreme Court was approached. The Supreme Court found that as per Section 19 of the MSMED Act, an application for setting aside an award of the Facilitation Council could not be entertained by any court unless the appellant has deposited seventy-five per cent of the amount in terms of the award. Further, as per Section 18(4) of the MSMED Act, where a Facilitation Council proceeds to arbitrate upon a dispute, the provisions of the Act of 1996 were to apply to the dispute. Thus, the remedy which is provided under Section 34 of the Act of 1996 would govern an award of the Facilitation Council in the present case.

Explaining the rationale of the imposition of the condition to deposit 75% of the amount in terms of the award under Section 19, the Court stated that the same had been introduced as a measure of security for enterprises for whom a special provision was made in the MSMED Act by Parliament. Since the appellant failed to pursue its remedy under Section 34 of the Act of 1996 by not depositing 75% of the decretal amount, the court stated that the petition could not be maintained. The court added that the obligation under the statute of depositing the 75% was sought to be obviated by taking recourse to the jurisdiction under Articles 226/227 of the Constitution and the same was impermissible. The Apex Court said–

"The entertaining of a petition under Articles 226/227 of the Constitution, in order to obviate compliance with the requirement of pre-deposit under Section 19, would defeat the object and purpose of the special enactment which has been legislated upon by Parliament. For the above reasons, we affirm the decision of the Division Bench by holding that it was justified in coming to the conclusion that the petition under Articles 226/227 of the Constitution instituted by the appellant was not maintainable."

Case Title: M/s India Glycols Limited and Another v. Micro and Small Enterprises Facilitation Council, Medchal - Malkajgiri and Others

Citation : 2023 LiveLaw (SC) 992

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