The Supreme Court recently held that the appropriate recourse for challenging an award under the Micro, Small and Medium Enterprises Development Act, 2006 (hereafter referred to as “MSMED Act”) is outlined in Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “Act of 1996”). The court noted that filing a writ petition challenging an award issued by a Facilitation Council under the act is not permissible.
Brief Facts of the Case:
In this case, the dispute arose when S R Technologies, governed by the MSMED Act, filed a claim before the Micro and Small Enterprises Facilitation Council. The Facilitation Council awarded the claim in the principal sum of Rs 40,29,862, with interest, under Section 16 of the MSMED Act to the appellant.
Subsequently, the award of the Facilitation Council was challenged through a petition under Articles 226/227 of the Constitution by the respondent. A Single Judge of the High Court of Telangana (thereafter “High Court”) allowed the writ petition, setting aside the award, asserting that the claim was time-barred. However, the Division Bench reversed this decision, contending that the writ petition was not maintainable as the appellant should have pursued remedies under Section 34 of the Arbitration and Conciliation Act, 1996.
Contentions of the Parties:
The primary contention on behalf of the appellant was that the High Court erred in holding that the writ petition was not maintainable. It was argued that the provisions of the Limitation Act, 1963, should apply, challenging the Facilitation Council's decision on limitation.
On the other hand, the second respondent, M/s S R Technologies supported the Division Bench's view that the appellant failed to avail the appropriate remedy under Section 34 of the Act of 1996. They emphasized that the writ petition was impermissible, given the specific remedies provided under the MSMED Act.
The key legal contention revolved around the interpretation of Sections 18 and 19 of the MSMED Act. The appellant sought relief under Articles 226/227 of the Constitution, while the respondent argued for adherence to the statutory remedies and procedures specified in the MSMED Act and the Act of 1996.
Observations by the Court:
The Supreme Court, comprising Chief Justice DY Chandrachud, Justice JB Pardiwala, and Justice Manoj Misra, unequivocally held that the writ petition was not maintainable in this context. The Supreme Court emphasized that the correct remedy against an award under the MSMED Act lies under Section 34 of the Act of 1996, and deviating from this path to approach a High Court through writ jurisdiction would be impermissible.
The court underscored the provisions of Section 19 of the MSMED Act, which mandates that an application for setting aside an award cannot be entertained by any court unless the appellant has deposited seventy-five per cent of the amount in terms of the award. Additionally, the court referred to Section 18(4) of the MSMED Act, stating that when a Facilitation Council proceeds to arbitrate a dispute, the provisions of the Act of 1996 are to apply to the dispute.
The court expounded on the rationale behind the imposition of the condition to deposit 75% of the amount, highlighting it as a security measure for enterprises protected by the special provisions of the MSMED Act. It reiterated that failing to pursue the remedy under Section 34 of the Act of 1996, including the mandated deposit, rendered the writ petition impermissible.
The decision of the Court:
Consequently, the Supreme Court emphasized that entertaining a petition under Articles 226/227 of the Constitution to avoid complying with the pre-deposit requirement under Section 19 would defeat the legislative intent behind the MSMED Act. Therefore, the court affirmed the Division Bench's decision, holding the writ petition to be not maintainable.
Case Name: M/s India Glycols Limited and Another v. Micro and Small Enterprises Facilitation Council
Coram: CJI DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra
Case No.: Civil Appeal No 7491 of 2023
Advocates of the Appellant: Mr. Parag Tripathi, Sr. Adv. Mr. Atul Shankar Mathur, Adv. Mrs. Priya Singh, Adv. Mr. Shubhankar, Adv. Mr. Sarvapriya Makkar, Adv. M/s. Khaitan & Co.
Advocates of the Respondent: Mr. K.M. Natraj, ASG Mr. Kanu Agarwal, Adv. Mr. Sharath Nambair, Adv. Mr. Yashraj Singh Bundela, Adv. Mr. Annirudh Sharma (II), Adv. Mr. Chitransh Sharma, Adv. Mr. Amrish Kumar, AOR Mr. S. Muralidhar, Sr. Adv. Mr. Suresh Dhole, Adv. Ms. Pushpa Shinde, Adv. Dr. Sushil Balwada, AOR Mr. Kaushal Yadav, Adv. Mr. Nandlal Kumar Mishra, Adv. Mr. Abhishek Yadav, Adv. Dr. Ajay Kumar, Adv.
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