Challenging MSEFC Awards and jurisdictional questions: The Supreme Court’s decision in Tamil Nadu Cements Corporation Limited v. MSEFC

On 22 January 2025, a three Judge Bench of the Indian Supreme Court, on considering whether a writ petition under Article 226 of the Constitution would be maintainable against an order passed by the Micro and Small Enterprises Facilitation Council [MSEFC] under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act, 2006”), referred certain legal questions to a larger Bench of five Judges. [M/s Tamil Nadu Cements Corporation Limited v. Micro and Small Enterprises Facilitation Council, 2025 INSC 91] The questions framed by the Court were:

(i) Whether the ratio in M/s India Glycols Limited v. Micro and Small Enterprises Facilitation Council, Medchal-Malkajgiri [(2025) 5 SCC 780] 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?

Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 allows for a reference to be made to the Micro and Small Enterprises Facilitation Council in the event of disputes between Micro and Small Enterprises [Indian business entities classified as such by their scale of investment and turnover]. The Council itself must conduct conciliation or refer the dispute to an institution / centre to conduct conciliation between the parties. In the case of an unsuccessful conciliation, the Council itself shall take up the dispute for arbitration or refer it to any institution/ centre for such arbitration. Section 19 of the Act provides that no application for setting aside an award/ order made by the Council or an institute/ centre to which a reference was made by the council shall be entertained by any court unless the appellant (not being a supplier) has made a pre-deposit of seventy-five per cent. of the amount in terms of the award/ order.

The Supreme Court expressed reservations on the view expressed by another three Judge Bench of the Court in M/s India Glycols Limited, which had held that a writ petition was not maintainable against any order passed by the Facilitation Council and the only recourse available would be in terms of Section 34 of the Arbitration and Conciliation Act, 1996 (“ACA, 1996”) with the added requirement of a deposit of 75 percent of the decretal amount by the appellant (not being a supplier) in terms of Section 19 of the MSMED Act, 2006. The Court in M/s India Glycols Ltd. was of the view that entertaining a petition under Article 226 in order to avoid compliance with the requirement of pre-deposit under Section 19 would defeat the object and purpose of the MSMED, 2006, therefore would be impermissible.

The Supreme Court noted that in M/s India Glycols Limited, the judgment of a two judge Bench in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited [(2023) 6 SCC 401] had been relied on, to hold that as proceedings under Section 18 of the MSMED Act, 2006 were governed by the ACA, 1996, the appellant would be required to avail of the statutory remedy under Section 34 of the ACA. The judgment in M/s India Glycols Limited did not notice the earlier judgment of a two Judge Bench in Jharkhand Urja Vikas Nigam Limited v. State of Rajasthan [(2021) 19 SCC 206] where it was held that the writ petition was maintainable as the order under challenge was not an award in the eyes of the law, having been passed in utter disregard of the provisions of the ACA 1996, and therefore Section 34 would not be applicable. The Court opined that there were contradictory views expressed in the judgments of the two Judge Benches in Jharkhand Urja Vikas Nigam Limited and Gujarat State Civil Supplies Corporation Limited.

The Supreme Court held that access to High Courts through a writ petition under Article 226 is part of the basic structure of the Constitution, available to every citizen where there has been a violation of their statutory or constitutional rights. The availability of an alternative remedy is not a complete ouster of writ jurisdiction, rather the refusal to entertain a writ petition where there is an efficacious alternative remedy is a form of judicial restraint exercised by High Courts. The Court referred to three contingencies as per settled judicial pronouncements where writ jurisdiction may be exercised despite the existence of an alternative statutory remedy: (i) violation of principles of natural justice or fundamental rights (ii) order passed wholly without jurisdiction, or (iii) vires of an Act has been challenged. In doing so, the Court referred to its decision in Himmatlal Harilal Mehta v. State of Madhya Pradesh and Others [AIR 1954 SC 403] which held that the principle that ‘writ jurisdiction ought not to be exercised when an alternative remedy is available’ may not apply where the remedy under the statute is onerous and burdensome, and its decision in Shyam Kishore and Others v. Municipal Corporation of Delhi and Another[AIR 1992 SC 2279], which held that rigid conditions of pre-deposit of tax could be relaxed before an appeal is heard on merits.

The issues framed by the Supreme Court in the order dated 22 January 2025 are still pending consideration, and a five Judge Bench is yet to be constituted to hear the matter, resulting in continued ambiguity over appellate remedies available to an unsuccessful party in arbitration before the Facilitation Council.

For the present, the door to challenge MSEFC awards for violations of natural justice or jurisdictional errors before the High Court as a writ petition, still seems open. This offers some respite to the aggrieved party in such situations from having to pay the mandatory deposit of 75 percent of the decretal amount as an Arbitration Appeal.