In its recent judgment, a 3 Judge Bench of the Hon’ble Supreme Court rendered an important finding w.r.t., challenge to an award passed by the Micro, Small and Medium Enterprises Facilitation Council (‘MSMEFC’) under the MSMED Act, 2006. What is this all about?

The Hon’ble Supreme Court was adjudicating a civil appeal filed by the Appellant challenging a decision rendered by the division bench of Telangana High Court held that the decision of the single bench in setting aside the award passed by the MEMEFC was wrong in light of the availability of specific remedies under the special statute i.e., MSMED Act, 2006.

The legal question before apex court was – Whether a Writ Petition is maintainable before the court to challenge an award passed by the MSMEFC?

Factually speaking, the second respondent filed a claim against the Appellant and its claim was successful before the MSMEFC resulting in an award of Rs. 40,29,862/- along with interest. This decision was assailed by the Appellant before a single bench of the Telangana High Court by filing a writ petition under Article 226/227 of the Indian Constitution. The single judge bench allowed the Appellant’s writ petition and the award of the MSMEFC was set aside on the ground of the claim being time barred.

The second respondent filed an appeal before the Division Bench and the Division Bench set aside the single judge bench decision citing the reason that writ petition instituted by the appellant was not maintainable in view of the specific remedies which are provided under the special statute. Furthermore, the High Court held that the Appellant ought to have taken recourse under Section 34 of the Arbitration and Conciliation Act, 1996 and a failure to invoke this relief, barred the Appellant from filing a writ petition. Thus, the Appellant approached the Apex Court.

The Hon’ble Supreme Court before arriving at its decision perused a couple of key provisions under MSMED Act i.e., Section 18 and Section 19. Section 18 empowers the MSMEFC to conduct conciliation proceedings and further empowers it to refer anyh dispute to an institution or centre providing ADR services and further directs MSMEFC to apply the principles of Arbitration Act to a dispute. As for Section 19, it states that, any application for setting aside an award passed by the MSMEFC cannot be entertained by any court unless the Appellant deposits 75% of the award.

Hence, filing a Section 34 Application under Arbitration Act is the appropriate remedy insofar as setting aside any award is concerned.

The Appellant was required by Section 19 of the MSMED Act to deposit 75% of the awarded money before a case could be challenged, according to the Apex Court. Instead of approaching the High Court in this case in accordance with Section 34 of the Arbitration and Conciliation Act, the Appellant filed a writ petition before the Telangana High Court in an attempt to evade this procedure.

Accordingly, the Apex Court affirmed the decision of the division bench of the Telangana High Court by holding that a writ petition under Article 226/227 is not maintainable for challenging the award passed by the MSMEFC.