Allahabad High Court Dismisses Writ Petition Against Facilitation Council Award For Lack Of Mandatory Pre-Deposit U/S 19 MSME Act

The Allahabad High Court has dismissed a writ petition challenging the award passed by the Zonal Micro and Small Enterprises, Facilitation Council (MSEFC), Meerut Zone, Meerut under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 as the petitioners, Tamil Nadu Generation And Distribution Corporation Limited and others, had refused to make the mandatory pre-deposit under Section 19 of the MSME Act.

The Court held that even though principles of natural justice have been violated, it does not bar the Court from relegating the parties to alternate remedy available under Section 34 of the Arbitration and Conciliation Act, 1996.

Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 provides that where there is any dispute regarding amount between the parties, the aggrieved may approach the Facilitation Council.

Sub-section (3) of Section 18 provides that if conciliation between the parties under Sub-section (2) fails, the Council may either itself take up the dispute for arbitration or refer it to institutions adjudicating arbitrations. It further provides that such arbitration shall be governed by the provisions of the Arbitration and Conciliation Act, 1996 if the arbitration agreement is as per Section 7(1) of the Act of 1996.

Section 19 of the MSME Act mandates deposit of 75% of the decretal amount if an application for setting aside the decree/award is to be made.

Factual Background

As per petitioners, Tamil Nadu Generation And Distribution Corporation Limited and others, Respondent no.3 which is a registered Firm approached them for execution of a tender. After the issuance of purchase order, the Firm failed to supply goods. When the Corporation wrote to the Firm regarding its default, the Firm approached the Zonal Micro and Small Enterprises, Facilitation Council (MSEFC), Meerut Zone, Meerut under Section 18 of MSME Act.

Facilitation Council award a total sum of Rs.1,49,48,762/- in favour of the Firm. Against the award, the Petitioner-Corporation approached the High Court under Article 226 of the Constitution of India.

The Firm objected to the maintainability of a writ petition against the award passed by the Facilitation Council under Section 18 of the MSME Act in view of the remedy of appeal under Section 34 of the Arbitration and Conciliation Act, 1996, read with Section 18(3) of the MSME Act, 2006.

Counsel for Petitioner-Corporation argued that since the award was passed ex-parte in violation of principles of natural justice, writ petition was maintainable. It was submitted that the video link for the last hearing day was sent to the head office of the Corporation, despite requests by the counsel to send it to him as he had argued the case.

Further, counsel for petitioner submitted that since Petitioner-Corporation was a government entity, the requirement of 75% pre-deposit could be waived. The Court observed that even though the Court had suggested that 75% pre-deposit be made before arguing on merits, however, the same was refused by the counsel for the Corporation.

High Court Verdict

The Court held that by virtue of Section 18(3) of the MSME Act, provisions of the Arbitration Act have been made applicable if the dispute between parties under the MSME Act have been referred to arbitration and the arbitration agreement is in pursuance of an arbitration agreement referred to in Section 7(1) of that 1996 Act. Accordingly, the Court held that petitioner has the remedy of filing objections under Section 34 of the Arbitration Act.

The Court further held that the provision for challenge to the award made by the Council provided for 75% pre-deposit in unequivocal terms. Thus, the Court held that for availing remedy under Section 34 of the Act of 1996, petitioner ought to make the mandatory pre-deposit of 75% of the decretal amount.

In M/s India Clycols Limited and another Vs. Micro and Small Enterprises Facilitation Council, Medchal - Malkajgiri and others, the Supreme Court had held that the jurisdiction of the High Courts cannot be invoked under Article 226/227 of the Constitution of India for bypassing the mandatory statutory requirement of 75% pre-deposit.

The Court held that even though principles of natural justice had been violated, the Court would have entertained the petition provided the petitioner-corporation had agreed to deposit 75% of the amount awarded by the Facilitation Council.

The bench comprising of Justice Manoj Kumar Gupta and Justice Kshitij Shailendra held

“We hold so being fully aware of the legal position that in case of breach of principles of natural justice, alternative remedy is not an absolute bar. We would have entertained the writ petition without relegating the petitioners to the alternative remedy under Section 34 of the Act of 1996, had the petitioners agreed to deposit 75% of the amount in terms of impugned award in this Court.”

Accordingly, the writ petition challenging the Facilitation Council award was dismissed.

Case Title: Tamilnadu Generation And Distribution Corporation Limited And 2 Others v. State Of U.P. And 2 Others 2024 LiveLaw (AB) 376[WRIT - C No. - 10525 of 2024]

Citation: 2024 LiveLaw (AB) 376

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