Writ Jurisdiction Cannot Be Invoked To Challenge Arbitral Award, Only To Circumvent Statutory Requirement Of S.19 Of MSMED Act: Delhi High Court
The Delhi High Court bench of Justice Sanjeev Narula, while hearing a writ petition challenging an arbitral award passed by the Micro and Small Enterprises Facilitation Council (MSFEC), has held that invoking the writ jurisdiction to challenge an arbitral award would circumvent the statutory requirement of pre-deposit u/s 19 of the MSMED Act, and would amount to defeating the legislative intent.
Submissions:
The senior counsel for the Petitioner made the following submissions:
- A non-obstante clause in Section 5 of the A&C Act does not restrict the Court's supervisory power conferred by Article 227. To buttress the submission, reliance was placed on DD Auto Private Limited v. Pivotal Infrastructure Private Limited (2024);
- The statutory requirement of a pre-deposit of 75% of the awarded amount as u/s 19 of the MSMED Act is a significant hurdle, depriving the Petitioner from seeking recourse under the A&C Act.
Analysis of the Court:
The bench observed A&C Act is a self-contained statute which provides a comprehensive framework for arbitration proceedings, which includes the mechanism to challenge an arbitral award. The legislative intent with respect to the A&C Act is to minimize judicial interference, which is evident from Section 5 of the Act, which states that no judicial authority shall intervene except where provided in the Act. In Deep Industries Limited v. ONGC, the Supreme Court held that the jurisdiction of the High Court under Articles 226 and 227 can be invoked in rare and exceptional circumstances. In India Glycols Limited and Another v. Micro and Small Enterprises Facilitation Council, Medchal - Malkajgri and Others (2023), the Supreme Court held that a writ petition challenging an award passed in arbitral proceedings initiated under the MSMED Act is not maintainable. The Supreme Court has emphasized that allowing such petitions solely to bypass the statutory pre-deposit requirement u/s 19 of the MSMED Act would undermine the legislative intent. The Petitioner's concern about the mandatory pre-deposit of 75% of the awarded amount u/s 19 does not render the remedy under Section 34 of the Arbitration Act illusory. This pre-deposit requirement is a legislative mandate intended to discourage frivolous challenges and ensure timely payments to micro, small, and medium enterprises. Claims of financial inconvenience or hardship cannot justify circumventing the statutory process.
The bench further observed that the scope of interference under Article 226 differs from that provided u/s 34 of the A&C Act. The grounds in the writ petition can be raised in Section 34, provided they fall under the permissible scope. Invoking the writ jurisdiction to challenge an arbitral award would circumvent the specific statutory mechanism provided to challenge the award. The Court, therefore, dismissed the petition.
Case Title: Omaxe Ltd v. Micro and Small Enterprises Facilitation Council
Case Number: W.P.(C) 16112/2024, CM APPL. 67705-67706/2024
Counsel for the appellant: Mr. Ramesh Singh, Senior. Advocate. with briefing counsel.