Arbitral Award Under MSMED Act Must Be Challenged Under S 19 Of MSME Act Read With S 34 Of Arbitration Act: Allahabad High Court

Section 19 of the MSMED Act provides that any application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council under the MSED Act shall not be entertained by any court unless the appellant (not the supplier) deposits 75% of the decretal amount.

Petitioner entered into a contract with respondent-company, M/s. Hightech Concrete Ltd.. Both companies are said to be registered under the Micro, Small and Medium Enterprises Development Act, 2006. When disputes arose between the parties, they were referred to conciliation. However, due to failure of conciliation proceedings, the parties were referred for arbitration as per Section 18 of MSMED Act.

Petitioner stated that it had appeared in the arbitration proceedings and also filed objections to the claim preferred by respondent No. 2. However, due to COVID-19, petitioner could not appear thereafter and award was passed on 23.03.2021. the petitioner came to know of the award only when recovery proceedings were initiated against it in November 2022. Subsequently, petitioner filed a writ petition challenging the arbitral award.

Counsel for respondents raised an objection regarding maintainability of the writ petition in view of the alternate remedy provided under Section 19 of the MSMED Act for challenging the award. It was submitted that the arbitral award must be challenged under Section 34 of the Arbitration and Conciliation Act, 1996. Further, it was argued that the dispute between the parties was private in nature and thus not amenable to writ jurisdiction of the High Court.

Reference was made to the decision of the Supreme Court in Bhaven Construction Vs. Sardar Sarovar Narmada Nigam Ltd, where an award passed under Section 16 of the Act of 1996 was challenged in the writ jurisdiction of the High Court under Article 226/227 of the Constitution of India. The Supreme Court had held that

“It is therefore, prudent for a Judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment. This power needs to be exercised in exceptional rarity, wherein one party is left remediless under the statute or a clear 'bad faith' shown by one of the parties. This high standard set by this Court is in terms of the legislative intention to make the arbitration fair and efficient.”

The Court observed that under Section 34 of the Arbitration and Conciliation Act, 1996 read with Section 19 of the MSMED Act, petitioner has a remedy to raise all grievances raised in the writ petition.

The Court observed that

“It is noticed that even as per Section 36, it is provided that where time for making an application to set aside the award under Section 34 of Arbitration and Conciliation Act, 1996has expired, then, subject to provisions of Sub-section 2 such award shall be enforced in accordance with the provision of the CPC in the same manner as if it were a decree of the Court.”

The Court held that the award must be challenged within the time specified in Section 36 of the Act of 1996. The Court held that the mandatory time period within which the award is to be challenged had expired.

While dismissing the petition, the Court further held that no writ petition is maintainable against an arbitral award and dispute between private parties.

Case Title: M/S Sahbhav Engineering Ltd. Ahmadabad Thru. Authorised Representative Mr. Pramod Dave vs. U.P. State Micro Small And Medium Enterprises Facilitation Council Kanpur Thru. Chairman And Others 2024 LiveLaw (AB) 67 [WRIT - C No. - 3774 of 2023]

Case citation: 2024 LiveLaw (AB) 67

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