Writ Not Maintainable Against Admission Of Petition Under Section 34 Of A&C Act Without Pre-Deposit : Orissa High Court

The Single Bench of Justice Arindam Sinha held that rejection of the demurrer application, filed by the petitioner for violation of the provisions of Section 19 of the MSMED Act, can be taken as a ground of appeal under Section 37 of the A&C Act against the order passed in a Section 34 application. Hence, the Court ruled that it cannot be considered by the Court as a rarest of the rare case so as to exercise judicial review.

The petitioner- M/s. Chemflo Industries Pvt. Ltd., supplied certain goods to the respondent- M/s. KMC Construction Ltd. After certain disputes arose between the parties, the petitioner made a reference to the Micro and Small Enterprises Facilitation Council under the MSMED Act.

The Council referred the dispute for arbitration under Section 18 of the MSMED Act, and an award was passed in favour of the petitioner. The respondent/ award debtor filed an application under Section 34 of the A&C Act before the District Court to set aside the arbitral award. The petitioner filed a demurrer application, challenging the maintainability of the application filed under Section 34, on the ground that the respondent had failed to deposit 75% of the awarded amount, as mandated by Section 19 of the MSMED Act. The District Court, while observing that certain amount had already been realized by the petitioner/ award holder in the execution proceedings initiated by it, rejected the demurrer application.

Against this, the petitioner filed a writ petition before the Orissa High Court.

Section 19 of the MSMED Act provides that where a reference for arbitration has been made by the Facilitation Council under Section 18 of the MSMED Act, no application for setting aside such arbitral award shall be entertained by any court unless the appellant, not being a supplier, has deposited 75% of the amount in terms of the award.

Section 16 of the MSMED Act provides that where any buyer fails to make payment to the supplier, the buyer shall be liable to pay compound interest on the said amount along with monthly rests to the supplier, which shall be at three times the bank rate notified by the Reserve Bank.

The petitioner- M/s. Chemflo Industries, relying upon the provisions of Section 16 of the MSMED Act, submitted before the High Court that 75% of the awarded amount required to be deposited under Section 19 of the MSMED Act is an aggregate of the principal and interest amount. Hence, it averred that though certain amount was realized by the petitioner in the execution proceedings, however, a further deposit was required to be made by the respondent in order to entertain the application against the arbitral award.

The respondent- M/s. KMC Construction, argued before the Court that it had rejected the goods supplied by the petitioner and that in the execution proceedings, the petitioner had obtained more than the value of the goods supplied by it. The respondent added that judicial interference is limited by Section 5 of the A&C Act and hence, the writ petition was not maintainable. Further, it contended that there was a long delay by the Facilitation Council under the MSMED Act in dealing with the reference made by the petitioner and thus, the delay made by the Council cannot be the basis of benefit to the petitioner in calculating the interest amount to be deposited by the respondent.

Noting that the petitioner had already obtained more than the value of the goods rejected by the respondent in the execution proceedings, the Court observed that the order passed in an application under Section 34 of the A&C Act is also appealable under Section 37 of the A&C Act.

The Court added that the order passed by the lower court admitting the application against the arbitral award under Section 34, despite non-compliance with the mandatory provisions contained in Section 19 of the MSMED Act, can be taken as a ground of appeal under Section 37 of the A&C Act.

Hence, the Court ruled that it cannot treat the challenge made against the rejection of the demurrer application, filed by the petitioner alleging violation of the provisions of Section 19 of the MSMED Act, as a rarest of the rare case so as to exercise judicial review by entertaining the writ petition.

"Question raised in this writ petition is regarding compliance with mandatory provision in section 19 of the 2006 Act, by the Court in admitting, for adjudication, the challenge under section 34 of the 1996 Act. The result of the adjudication is also appealable to Court as provided in section 37 of the 1996 Act. There has been an adjudication on the question of admissibility of the challenge with regard to provision in section 19 of the 2006 Act. That can be taken as a ground in appeal, in event petitioner is aggrieved by the adjudication to follow. In the circumstances Court, in exercise of writ jurisdiction, is not inclined to term this as rarest of rare case for intervention by judicial review where the matter relates to arbitration."

The Bench added that it cannot make a pronouncement with respect to the calculation of interest, as per the provisions contained in Section 16 of the MSMED Act, on the time taken by the Facilitation Council under the MSMED Act to adjudicate the claims raised by the petitioner.

Hence, the Court dismissed the writ petition.

Case Title: M/s. Chemflo Industries Pvt. Ltd. versus M/s. KMC Construction Ltd. and Anr.

Citation: 2023 LiveLaw (Ori) 143

Dated: 23.08.2022 (Orissa High Court)

Counsel for the Petitioner: Mr. Jaydeep Pal, Advocate; Mr. S.S. Mohanty, Advocate

Counsel for the Respondent: Mr. U.C. Behura, Advocate

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