Proper Recourse Against Arbitral Proceeding Under MSMED Act Is Application u/s 18(3) Of MSMED Act Or u/s 16 Of Arbitration Act: Delhi High Court

Section 18(3) of MSMED Act:

“(3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section(1) of section 7 of that Act.”

Brief Facts:

The Appellant appealed a decision single bench of the Delhi High Court (“High Court”) dismissing the writ petition against the arbitration proceedings initiated by the Respondent under the Micro, Small and Medium Enterprise Development Act, 2006 ("MSMED Act").

The Appellant argued that under Articles 226 & 227 of the Constitution, the High Court possesses the authority to rectify jurisdictional errors and annul the arbitral award. Referring to the decisions such as Whirlpool Corporation v. Registrar of Trade Marks, (1998) 8 SCC 1, and JSW Steel Ltd. v. Kamlakar V. Salvi and Others 2021 SCC OnLine Bom 3113, it contended that a writ petition remedy remains viable when an order is issued by a court inherently lacking jurisdiction. It emphasized that an alternative remedy should not preclude recourse in instances of proceedings conducted without jurisdiction.

Additionally, it argued that the Single Judge overlooked the fact that the Respondent could not have availed benefits under the MSMED Act for contracts executed prior to registration as per Section 8(1) of the Act. Notably, the contract in question was executed on 27th August 2005, while Respondent was registered as an MSME on 20th May, 2017.

Observations by the High Court:

The High Court observed that the arbitral award was issued ex-parte, as the Appellant opted not to participate in the proceedings before the tribunal nor did it submit any application under Section 16 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). Additionally, the Appellant did not contest the award under Section 34 of the Arbitration Act. Therefore, the High Court held that the appropriate course of action against proceedings conducted under the MSMED Act is to file an application under Section 18(3) of the MSMED Act or Section 16 of the Arbitration Act. Moreover, if an award has already been rendered, the proper course of action is to file objections under Section 34 of the Arbitration Act.

The High Court referred to the decision of the Supreme Court in M/s India Glycols Limited and Anr. v. Micro and Small Enterprises Facilitation Council, Medchal Malkajgiri and Ors 2023 LiveLaw (SC) 992 and emphasized that petitions filed under Article 226/227 of the Constitution of India should not be entertained in light of Section 18 of the MSMED Act, which stipulates recourse to statutory remedy for challenging the Award under Section 34 of the Arbitration Act.

Therefore, the appeal was dismissed by the High Court.

Case Title: The Executive Engineer & Ors. Vs M/S Bholasingh Jaiprakash Construction Ltd. & Anr.

Citation: 2024 LiveLaw (Del) 560

Case Number: LPA 318/2024, CM APPL. 23375/2024, CM APPL. 23376/2024, CM APPL. 23377/2024 & CM APPL. 23378/2024

Advocate for the Petitioner: Mr. Atul Nigam and Ms. Tanvi Nigam, Advocates

Advocate for the Respondent: Mr. Sudhir Nandrajog Senior Advocate with Mr. Sujit Kumar Singh, Advocate for R-1 Mr. Avishkar Singhvi ASC, Mr Naved Ahmed, Mr. Vivek Kumar Singh and Mr. Shubham Kumar, Advocates for R-2.

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